Scilex Holding Co 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s regulations, rules and forms and that such information is accumulated and communicated to our management, including our principal officers, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) promulgated by the SEC under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on the foregoing, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. Remediation of Previously Reported Material Weaknesses A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting (“ICFR”), such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected 131 on a timely basis. As previously reported in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, management identified a material weakness in our ICFR. The material weakness related to a lack of sufficient accounting resources with appropriate experience and technical expertise to effectively execute controls over certain judgmental and technical accounting areas. As a result, we identified that certain of our control activities in the areas of revenues, debt, business combination and derivative liabilities did not operate effectively and therefore, were deficient and the combination of the aforementioned deficiencies were deemed to represent a material weakness in our ICFR as of December 31, 2022. In response to the material weaknesses, and as previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022, we implemented the following additional measures as part of the remediation process: (i) recruiting and employing personnel with appropriate experience and technical expertise to enhance management’s assessment of judgmental and technical accounting areas, (ii) conducting additional training for staff involved in judgmental and technical accounting areas, and (iii) engaging additional independent third-party technical consultants to assist in performing accounting analyses of complex transactions. The applicable measures have been implemented for a sufficient period of time and management has concluded, through testing, that the enhanced controls are operating effectively, and that the material weakness was remediated as of December 31, 2023. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate ICFR as defined in Rules 13a-15(f) under the Exchange Act. Our ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Under the supervision of and with the participation of our Principal Executive Officer and Principal Financial Officer, our management assessed the effectiveness of our ICFR as of December 31, 2023, based on the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that our ICFR was effective as of December 31, 2023. This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on our ICFR. Management’s report was not subject to attestation by the Company’s registered public accounting firm because the JOBS Act permits emerging growth companies such as our company to provide only management’s report in the Annual Report on Form 10-K. Inherent Limitations on Effectiveness of Controls Because of its inherent limitations, ICFR may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Changes in Internal Control over Financial Reporting As described above, we have taken steps to remediate the material weaknesses in our ICFR. Other than in connection with the remediation process described above, there were no changes in our ICFR (as defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our ICFR. 132 Item 9B. Other Information. During the fourth quarter ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 133 PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item is incorporated by reference from the information contained in the Company’s definitive proxy statement relating to the 2024 Annual Meeting of Stockholders (the “2024 Proxy Statement”), which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. To the extent that we do not file the 2024 Proxy Statement by such date, we will file an amendment to this Annual Report on Form 10-K that includes the information required by this Item 10. Item 11. Executive Compensation. The information required by this item is incorporated by reference from the information contained in the 2024 Proxy Statement, which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. To the extent that we do not file the 2024 Proxy Statement by such date, we will file an amendment to this Annual Report on Form 10-K that includes the information required by this Item 11. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference from the information contained in the 2024 Proxy Statement, which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. To the extent that we do not file the 2024 Proxy Statement by such date, we will file an amendment to this Annual Report on Form 10-K that includes the information required by this Item 12. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated by reference from the information contained in the 2024 Proxy Statement, which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. To the extent that we do not file the 2024 Proxy Statement by such date, we will file an amendment to this Annual Report on Form 10-K that includes the information required by this Item 13. Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated by reference from the information contained in the 2024 Proxy Statement, which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. To the extent that we do not file the 2024 Proxy Statement by such date, we will file an amendment to this Annual Report on Form 10-K that includes the information required by this Item 14. 134 PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) Financial Statements Reference is made to the Index to Consolidated Financial Statements of Scilex Holding Company appearing on page F-1 of this Annual Report on Form 10-K. (a)(2) All other schedules not listed above have been omitted because of the absence of conditions under which they are required, or because the required information is included in the consolidated financial statements or the notes thereto. (a)(3) Exhibits Exhibit Number Description 2.1# Agreement and Plan of Merger, dated as of March 18, 2019, by and among Scilex Holding Company, Sigma Merger Sub, Inc., Semnur Pharmaceuticals, Inc., Fortis Advisors LLC, solely as the representative of the Equityholders and, solely with respect to Section 1.8(a), Section 3.11 and Article X, Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 2.1 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of August 7, 2019, by and among Semnur Pharmaceuticals, Inc., Scilex Holding Company, Sigma Merger Sub, Inc., Fortis Advisors, LLC, solely as the representative of the Equityholders and, solely with respect to Section 1.8(a), 3.11 and Article X of the Agreement and Plan of Merger, Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 2.2 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on October June 27, 2022). 2.3# Bill of Sale and Assignment and Assumption Agreement, dated May 12, 2022, by and between Scilex Holding Company and Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 2.3 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 2.4^# Asset Purchase Agreement, dated April 23, 2021, between Sorrento Therapeutics, Inc. and Aardvark Therapeutics, Inc., as assumed by Scilex Holding Company on May 12, 2022, pursuant to the Bill of Sale and Assignment and Assumption Agreement, dated as of such date, by and between Scilex Holding Company and Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 2.4 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 2.5# Agreement and Plan of Merger, dated as of March 17, 2022, by and among Vickers Vantage Corp. I, Vickers Merger Sub, Inc. and Scilex Holding Company (incorporated by reference to Exhibit 2.1 of Vickers’s Current Report on Form 8-K (File No. 001-39852), filed with the SEC on March 21, 2022). 2.6# Amendment No. 1 to Agreement and Plan of Merger, dated as of September 12, 2022, by and among Vickers Vantage Corp. I, Vickers Merger Sub, Inc. and Scilex Holding Company (incorporated by reference to Exhibit 2.1 of Vickers’s Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 14, 2022). 3.1 Restated Certificate of Incorporation of Scilex Holding Company (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on November 17, 2022). 3.2 Certificate of Designations of Scilex Holding Company (incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on November 17, 2022). 3.3 Bylaws of Scilex Holding Company (incorporated by reference to Exhibit 3.3 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on November 17, 2022). 4.1 Warrant Agreement, dated as of January 6, 2021, by and between Vickers Vantage Corp. I and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 of Vickers’s Current Report on Form 8-K (File No. 001-39852), filed with the SEC on January 11, 2021). 4.2 Specimen Warrant Certificate of Scilex Holding Company (f/k/a Vickers Vantage Corp. I) (incorporated by reference to Exhibit 4.3 of Vickers’s Form S-1 (File No. 333-251352), filed with the SEC on December 15, 2020). 135 Exhibit Number Description 4.3 Senior Secured Promissory Note issued to Oramed Pharmaceuticals, Inc. on September 21, 2023 (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 4.4 Form of Scilex Holding Company Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 4.5 Form of Common Warrant (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on March 5, 2024). 4.6 Form of Representative Warrant (incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on March 5, 2024). 4.7+ Description of Securities of Scilex Holding Company. 10.1* Form of Indemnification Agreement of Scilex Holding Company (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on November 17, 2022). 10.2* Scilex Pharmaceuticals, Inc. Amended and Restated 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.3* Form of Option Agreement and Stock Option Grant Notice under the Scilex Pharmaceuticals Inc. 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.4* Scilex Holding Company 2019 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.9 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.5* Form of Option Agreement and Stock Option Grant Notice under the Scilex Holding Company 2019 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.10 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.6* Scilex Holding Company 2022 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on May 5, 2023). 10.7* Form of Stock Option Grant Notice and Stock Option Agreement under the Scilex Holding Company 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on November 17, 2022). 10.8* Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the Scilex Holding Company 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on November 17, 2022). 10.9* Scilex Holding Company 2022 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.8 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on November 17, 2022). 10.10* Scilex Holding Company 2023 Inducement Plan (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on January 17, 2023). 10.11* Form of Stock Option Grant Notice and Stock Option Agreement under the Scilex Holding Company 2023 Inducement Plan (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on January 17, 2023). 10.12* Form of Restricted Stock Unit Award Grant Notice and Award Agreement under the Scilex Holding Company 2023 Inducement Plan (incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on January 17, 2023). 10.13* Offer Letter, dated as of April 19, 2019, between Scilex Pharmaceuticals Inc. and Jaisim Shah (incorporated by reference to Exhibit 10.17 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.14* Consulting Agreement, dated as of September 20, 2023, by and between Scilex Holding Company and Elizabeth Czerepak (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 22, 2023). 136 Exhibit Number Description 10.15^ Office Lease, dated as of August 8, 2019, by and between Scilex Pharmaceuticals Inc. and 960 San Antonio LLC (incorporated by reference to Exhibit 10.59 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.16^ First Amendment to Office Lease, dated as of September 15, 2019, by and between Scilex Pharmaceuticals Inc. and 960 San Antonio LLC (incorporated by reference to Exhibit 10.60 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.17^ Amended and Restated Industrial Lease, dated as of April 12, 2023, by and between Scilex Pharmaceuticals, Inc. and 960 San Antonio LLC (incorporated by reference to Exhibit 10.39 of Amendment No. 4 of Scilex’s Form S-1 (File No. 333-271401), filed with the SEC on June 29, 2023). 10.18^ Sublease Agreement, dated as of May 18, 2022, by and between Scilex Holding Company and Live Action, Inc. (incorporated by reference to Exhibit 10.61 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.19^ Commercial Supply Agreement, dated as of February 16, 2017, by and among Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by reference to Exhibit 10.22 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.20^ First Addendum to Commercial Supply Agreement, dated as of August 31, 2017, by and among Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by reference to Exhibit 10.23 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.21^ Second Addendum to Commercial Supply Agreement, dated as of May 9, 2018, by and among Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by reference to Exhibit 10.24 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.22 Third Addendum to Commercial Supply Agreement, dated as of August 30, 2018, by and among Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by reference to Exhibit 10.25 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.23# Exclusive Distribution Agreement, dated as of August 6, 2015, by and among Scilex Pharmaceuticals Inc. and Cardinal Health 105, Inc. (incorporated by reference to Exhibit 10.26 of Amendment No. 4 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on September 13, 2022). 10.24 Amendment to Exclusive Distribution Agreement, dated as of May 24, 2018, by and among Scilex Pharmaceuticals Inc. and Cardinal Health 105, Inc. (incorporated by reference to Exhibit 10.27 of Amendment No. 4 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on September 13, 2022). 10.25# Second Amendment to Exclusive Distribution Agreement, dated as of September 19, 2018, by and among Scilex Pharmaceuticals Inc. and Cardinal Health 105, Inc. (incorporated by reference to Exhibit 10.28 of Amendment No. 4 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on September 13, 2022). 10.26 Third Amendment to Exclusive Distribution Agreement, dated as of October 1, 2021, by and among Scilex Pharmaceuticals Inc. and Cardinal Health 105, LLC (f/k/a Cardinal Health 105, Inc.). (incorporated by reference to Exhibit 10.29 of Amendment No. 4 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on September 13, 2022). 10.27#^ Supply Agreement, dated as of December 17, 2015, by and between Genzyme Corporation and Semnur Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.33 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.28^ Product Development Agreement, dated as of May 11, 2011, by and between Scilex Pharmaceuticals, Inc. (as successor to Stason Pharmaceuticals, Inc.), Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation. (incorporated by reference to Exhibit 10.34 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.29 First Amendment to Product Development Agreement, dated as of April 2, 2013, by and between Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by 137 Exhibit Number Description reference to Exhibit 10.35 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.30^ Second Amendment to Product Development Agreement, dated as of February 20, 2017, by and between Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by reference to Exhibit 10.36 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.31^ Third Amendment to Product Development Agreement, dated as of August 29, 2018, by and between Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by reference to Exhibit 10.37 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.32 Fourth Amendment to Product Development Agreement, dated as of December 13, 2019, by and between Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by reference to Exhibit 10.38 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.33 Fifth Amendment to Product Development Agreement, dated as of April 30, 2021, by and between Scilex Pharmaceuticals Inc., Oishi Koseido Co., Ltd. and Itochu Chemical Frontier Corporation (incorporated by reference to Exhibit 10.39 of Amendment No. 2 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on July 21, 2022). 10.34#^ Master Services Agreement - SP-102, dated as of January 27, 2017, by and between Semnur Pharmaceuticals, Inc. and Lifecore Biomedical, LLC (incorporated by reference to Exhibit 10.40 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.35 Amendment No. 1 to Master Services Agreement, dated as of April 26, 2018, by and between Semnur Pharmaceuticals, Inc. and Lifecore Biomedical, LLC (incorporated by reference to Exhibit 10.41 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.36 Novation Agreement re Master Services Agreement, dated as of June 15, 2022, by and among Scilex Holding Company, Tulex Pharmaceuticals Inc. and Aardvark Therapeutics Inc. (incorporated by reference to Exhibit 10.42 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.37# Master Services Agreement, dated as of November 23, 2020, by and between Aardvark Therapeutics Inc. and Tulex Pharmaceuticals Inc. as assumed by Scilex Holding Company on May 12, 2022, as novated to Scilex Holding Company, pursuant to the Novation Agreement re Master Services Agreement, dated as of June 15, 2022, by and among Scilex Holding Company, Tulex Pharmaceuticals Inc. and Aardvark Therapeutics Inc. (incorporated by reference to Exhibit 10.43 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.38#^ License and Commercialization Agreement, dated as of June 14, 2022, by and between Scilex Holding Company and RxOmeg Therapeutics LLC, a/k/a Romeg Therapeutics, LLC (incorporated by reference to Exhibit 10.44 of Amendment No. 1 of Vickers’s Form S-4 (File No. 333-264941), filed with the SEC on June 27, 2022). 10.39# Securities Purchase Agreement, dated September 21, 2023, by and between Scilex Holding Company, Oramed Pharmaceuticals Inc. and Acquiom Agency Services LLC (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.40 Convertible Debenture, dated as of March 21, 2023, executed by Scilex Holding Company (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on March 21, 2023). 10.41 Convertible Debenture, dated as of April 11, 2023, executed by Scilex Holding Company (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on April 11, 2023). 10.42 Convertible Debenture, dated as of April 20, 2023, executed by Scilex Holding Company (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on April 20, 2023). 138 Exhibit Number Description 10.43 Amendment to Convertible Debenture, dated as of October 11, 2023, by and between Scilex Holding Company and YA II PN, Ltd. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on October 11, 2023). 10.44^ Credit and Security Agreement, dated as of June 27, 2023, by and between Scilex Pharmaceuticals Inc. and eCapital Healthcare Corp. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on June 27, 2023). 10.45^ Guaranty Agreement, dated as of June 27, 2023, executed by Scilex Holding Company (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on June 27, 2023). 10.46 Amended and Restated Registration Rights Agreement, dated as of November 10, 2022, by and among Scilex Holding Company, Vickers Venture Fund VI Pte Ltd, Vickers Venture Fund VI (Plan) Pte Ltd, Sorrento Therapeutics, Inc. and certain security holders set forth on the signature pages thereto (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on November 17, 2022). 10.47 Amended and Restated Standby Equity Purchase Agreement, dated as of February 8, 2023, by and between Scilex Holding Company and YA II PN, LTD. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on February 9, 2023). 10.48 Registration Rights Agreement, dated as of March 21, 2023, by and between Scilex Holding Company and YA II PN, LTD. (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on March 21, 2023). 10.49 Settlement Agreement, dated September 15, 2023, by and among Scilex Holding Company, Cove Lane Onshore Fund, LLC, HBC Investments LLC and Hudson Bay Capital Management LP (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 21, 2023). 10.50 Registration Rights Agreement, dated September 21, 2023, by and between Scilex Holding Company and Oramed Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.51# Securities Purchase Agreement, dated September 21, 2023, by and between Scilex Holding Company, Oramed Pharmaceuticals Inc. and Acquiom Agency Services LLC (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.52# Subsidiary Guarantee, dated September 21, 2023, made by certain of the Company’s subsidiaries in favor of the holders of that certain Senior Secured Promissory Note dated as of the date thereof due March 21, 2025 in the original aggregate principal amount of $101,875,000 (incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.53 Security Agreement, dated September 21, 2023, by and among Scilex Holding Company, the Subsidiaries of the Company party thereto, Oramed Pharmaceuticals Inc. and Acquiom Agency Services LLC (incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.54 Subordination Agreement, dated September 21, 2023, by and among eCapital Health Corp., Scilex Pharmaceuticals Inc. and Acquiom Agency Services LLC (incorporated by reference to Exhibit 10.5 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.55# Stock Purchase Agreement, dated September 21, 2023, by and between Scilex Holding Company and Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 10.6 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.56 Assignment, Assumption and Release Agreement, dated September 21, 2023, by and among Scilex Holding Company, Oramed Pharmaceuticals Inc., Sorrento Therapeutics, Inc. and Scintilla Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.7 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.57# Letter Agreement, dated September 21, 2023, by and among Scilex Holding Company, Sorrento Therapeutics, Inc. and Scintilla Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.8 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 139 Exhibit Number Description 10.58# Letter Agreement, dated September 21, 2023, by and between Scilex Holding Company and Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 10.9 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on September 26, 2023). 10.59# Underwriting Agreement, dated February 29, 2024, among Scilex Holding Company, Rodman & Renshaw LLC and StockBlock Securities LLC. (incorporated by reference to Exhibit 1.1 of our Current Report on Form 8-K (File No. 001-39852), filed with the SEC on March 5, 2024). 10.60* Severance and Change of Control Agreement, dated as of November 8, 2023, by and between Jaisim Shah and Scilex Holding Company (incorporated by reference to Exhibit 10.12 of our Quarterly Report on Form 10-Q (File No. 001-39852), filed with the SEC on November 14, 2023). 10.61* Severance and Change of Control Agreement, dated as of November 9, 2023, by and between Henry Ji and Scilex Holding Company (incorporated by reference to Exhibit 10.13 of our Quarterly Report on Form 10-Q (File No. 001-39852), filed with the SEC on November 14, 2023). 10.62* Severance and Change of Control Agreement, dated as of November 8, 2023, by and between Stephen Ma and Scilex Holding Company (incorporated by reference to Exhibit 10.14 of our Quarterly Report on Form 10-Q (File No. 001-39852), filed with the SEC on November 14, 2023). 19.1+ Scilex Holding Company Insider Trading Policy. 21.1 List of Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of our Form S-1 (File No. 333-275117), filed with the SEC on October 20, 2023). 23.1+ Consent of Ernst & Young LLP, independent registered public accounting firm. 24.1 Power of Attorney (included on the signature page hereto). 31.1+ Certification of Jaisim Shah, Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2+ Certification of Stephen Ma, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1+ Certification of Jaisim Shah, Principal Executive Officer, and Stephen Ma, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1+ Scilex Holding Company Clawback Policy. 101.INS+ Inline XBRL Instance Document. 101.SCH+ Inline XBRL Taxonomy Extension Schema Document. 101.CAL+ Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF+ Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB+ Inline XBRL Taxonomy Extension Labels Linkbase Document. 101.PRE+ Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104+ Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Indicates management contract or compensatory plan or arrangement. + Filed herewith. ^ Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) information that the Registrant treats as private or confidential. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC. # Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. Item 16. Form 10-K Summary. 140 None. 141 SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. March 11, 2024 Scilex Holding Company By: /s/ Jaisim Shah Jaisim Shah Chief Executive Officer and President (Principal Executive Officer) March 11, 2024 By: /s/ Stephen Ma Stephen Ma Chief Financial Officer (Principal Financial Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, each of Jaisim Shah and Stephen Ma, acting alone or together with another attorney-in-fact, as his attorney-in-fact, with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Jaisim Shah Chief Executive Officer, President and Director March 11, 2024 Jaisim Shah (Principal Executive Officer) /s/ Stephen Ma Chief Financial Officer March 11, 2024 Stephen Ma (Principal Financial and Accounting Officer) /s/ Henry Ji, Ph.D. Executive Chairperson and Director March 11, 2024 Henry Ji, Ph.D. /s/ Dorman Followwill Director March 11, 2024 Dorman Followwill /s/ Jay Chun Director March 11, 2024 Jay Chun, M.D., Ph.D. /s/ David Lemus Director March 11, 2024 David Lemus /s/ Yue Alexander Wu Director March 11, 2024 Yue Alexander Wu, Ph.D. 142 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 2 Consolidated Balance Sheets as of December 31, 2023 and 2022 F- 3 Consolidated Statements of Operations for the Years ended December 31, 2023, 2022 and 2021 F- 4 Consolidated Statements of Stockholders’ (Deficit) / Equity for the Years ended December 31, 2023, 2022 and 2021 F- 5 Consolidated Statements of Cash Flows for the Years ended December 31, 2023, 2022 and 2021 F- 6 Notes to Consolidated Financial Statements F- 8 F- 1 Report of Independent Registered Public Accounting Firm To the stockholders and the Board of Directors of Scilex Holding Company Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Scilex Holding Company (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ (deficit)/equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. The Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has negative working capital, has suffered losses from operations, has recurring negative cash flows from operations, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2020. San Diego, California March 11, 2024 F- 2 PART I—FIN ANCIAL INFORMATION Item 1. Fin ancial Statements SCILEX HOLDING COMPANY CONSOLIDATED BALANCE SHEETS (In thousands, except for par value and share amounts) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 3,921 $ 2,184 Accounts receivable, net 34,597 21,236 Inventory 4,214 1,378 Prepaid expenses and other 4,049 4,810 Total current assets: 46,781 29,608 Property and equipment, net 722 772 Operating lease right-of-use asset 2,943 1,131 Intangibles, net 36,485 40,591 Goodwill 13,481 13,481 Other long-term assets 897 944 Total assets $ 101,309 $ 86,527 LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY Current liabilities: Accounts payable $ 40,954 $ 8,450 Accrued payroll 2,681 1,354 Accrued rebates and fees 89,658 30,893 Accrued expenses 7,408 3,136 Current portion of deferred consideration 491 264 Debt, current 108,429 — Current portion of operating lease liabilities 759 745 Total current liabilities: 250,380 44,842 Long-term portion of deferred consideration 2,895 3,387 Debt, net of issuance costs 17,038 — Derivative liabilities 1,518 1,231 Operating lease liabilities 2,237 665 Other long-term liabilities 179 163 Total liabilities $ 274,247 $ 50,288 Commitments and contingencies (See Note 11) Stockholders’ (deficit) equity: Preferred stock, $ 0.0001 par value, 45,000,000 shares authorized; 29,057,097 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively — 3 Common stock, $ 0.0001 par value, 740,000,000 shares authorized; 160,084,250 shares issued and 100,015,665 shares outstanding as of December 31, 2023; 141,348,856 shares issued and outstanding as of December 31, 2022 16 14 Additional paid-in capital 407,813 412,136 Accumulated deficit ( 490,245 ) ( 375,914 ) Treasury stock, at cost; 60,068,585 shares and nil shares as of December 31, 2023 and December 31, 2022, respectively ( 90,522 ) — Total stockholders’ (deficit) equity ( 172,938 ) 36,239 Total liabilities and stockholders’ (deficit) equity $ 101,309 $ 86,527 See accompanying notes to audited consolidated financial statements F- 3 SCILEX HOLDING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except for net loss per share amounts) Year Ended December 31, 2023 2022 2021 Net revenue $ 46,743 $ 38,034 $ 31,317 Operating costs and expenses: Cost of revenue 15,681 10,797 3,634 Research and development 12,746 9,054 9,201 Selling, general and administrative 119,641 64,895 50,582 Intangible amortization 4,106 3,922 3,738 Total operating costs and expenses 152,174 88,668 67,155 Loss from operations ( 105,431 ) ( 50,634 ) ( 35,838 ) Other (income) expense: Loss (gain) on derivative liability 512 ( 8,310 ) 300 Change in fair value of debt and liability instruments 7,189 — — (Gain) loss on debt extinguishment, net — ( 28,634 ) 12,463 Scilex Pharma Notes principal increase — — 28,000 Interest expense, net 1,068 9,604 11,764 Loss on foreign currency exchange 118 66 54 Total other (income) expense 8,887 ( 27,274 ) 52,581 Loss before income taxes ( 114,318 ) ( 23,360 ) ( 88,419 ) Income tax expense 13 4 5 Net loss $ ( 114,331 ) $ ( 23,364 ) $ ( 88,424 ) Net loss per share attributable to common stockholders — basic and diluted $ ( 1.28 ) $ ( 0.17 ) $ ( 0.67 ) Weighted average number of shares during the period — basic and diluted 130,298 134,226 132,858 See accompanying notes to audited consolidated financial statements F- 4 SCILEX HOLDING COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) / EQUITY (In thousands) Preferred Stock Common Stock Additional Accumulated Treasury Stock Stockholders’ Shares Amount Shares Amount Paid-in Capital Deficit Shares Amount (Deficit) Equity Balance, December 31, 2020 — $ — 132,858 $ 13 $ 122,430 $ ( 264,126 ) — $ — $ ( 141,683 ) Stock-based compensation — — — — 5,822 — — — 5,822 Adjustment to shares issued in Semnur Acquisition — — — — 409 — — — 409 Net loss — — — — — ( 88,424 ) — — ( 88,424 ) Balance, December 31, 2021 — — 132,858 13 128,661 ( 352,550 ) — — ( 223,876 ) Stock options exercised — — 202 — 96 — — — 96 Aardvark SP-104 license transfer from Sorrento, net of discount — — — — ( 4,127 ) — — — ( 4,127 ) Aardvark SP-104 discount amortization — — — — ( 35 ) — — — ( 35 ) Shares issued pursuant to the terms of the Debt Exchange Agreement 29,057 3 2,906 — 289,730 — — — 289,733 Shares issued as a result of the Business Combination, net of transaction activities — — 5,133 1 ( 8,707 ) — — — ( 8,706 ) Shares issued to Yorkville pursuant to Yorkville Purchase Agreement — — 250 — 1,238 — — — 1,238 Stock-based compensation — — — — 5,280 — — — 5,280 Net loss — — — — — ( 23,364 ) — — ( 23,364 ) Balance, December 31, 2022 29,057 3 141,349 14 412,136 ( 375,914 ) — — 36,239 Shares issued under Standby Equity Purchase Agreements — — 13,218 1 34,256 — — — 34,257 Disbursement of funds to Sorrento — — — — ( 20,000 ) — — — ( 20,000 ) Repurchase of Treasury Stock, Preferred Stock, and warrants — ( 3 ) — — ( 53,196 ) — ( 60,069 ) ( 90,522 ) ( 143,721 ) Issuance of Penny Warrants — — — — 10,401 — — — 10,401 Issuance of common stock in connection with Settlement Agreement — — 475 — 750 — — — 750 Conversion of Convertible Debentures into common stock — — 632 — 7,735 — — — 7,735 Retainer shares issued — — 4,000 1 — — — — 1 Issuance of common stock upon warrants exercise — — 45 — 521 — — — 521 Stock options exercised — — 365 — 614 — — — 614 Stock-based compensation — — — — 14,596 — — — 14,596 Net loss — — — — — ( 114,331 ) — — ( 114,331 ) Balance, December 31, 2023 29,057 $ — 160,084 $ 16 407,813 $ ( 490,245 ) ( 60,069 ) $ ( 90,522 ) $ ( 172,938 ) See accompanying notes to audited consolidated financial statements F- 5 SCILEX HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 2021 Operating activities Net loss $ ( 114,331 ) $ ( 23,364 ) $ ( 88,424 ) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 4,146 3,961 3,779 Amortization of debt issuance costs and debt discount 65 3,142 7,909 Scilex Pharma Notes principal increase — — 28,000 Payment on the Scilex Pharma Notes attributed to accreted interest related to the debt discount — ( 21,190 ) ( 12,487 ) (Gain) loss on debt extinguishment, net — ( 28,634 ) 12,463 Non-cash operating lease cost 507 492 372 Stock-based compensation 14,596 5,280 5,822 Issuance of shares under Settlement Agreement 750 — — Loss (gain) on derivative liability 512 ( 8,310 ) 300 Forfeitures of private warrants — 1,697 — Change in fair value of debt and liability instruments 7,189 — — Other 57 — — Changes in operating assets and liabilities: Accounts receivables, net ( 13,361 ) ( 6,968 ) ( 1,142 ) Inventory ( 2,838 ) 1,184 ( 1,417 ) Prepaid expenses and other ( 441 ) ( 2,629 ) 1,479 Other long-term assets 855 350 — Accounts payable 19,880 2,806 ( 3,836 ) Accrued payroll 1,327 ( 2,379 ) ( 21 ) Accrued expenses 2,310 ( 123 ) 664 Accrued rebates and fees 58,765 23,531 ( 255 ) Other liabilities ( 711 ) ( 392 ) ( 80 ) Related party payable — 30,125 18,210 Other long-term liabilities 16 163 — Net cash used for operating activities ( 20,707 ) ( 21,258 ) ( 28,664 ) Investing activities Acquisition consideration paid in cash for Romeg intangible asset acquisition ( 300 ) ( 2,060 ) — Purchase of property and equipment ( 30 ) ( 7 ) — Net cash used for investing activities ( 330 ) ( 2,067 ) — Financing activities Proceeds from issuance of shares under Standby Equity Purchase Agreements 35,458 — — Proceeds from issuance of Convertible Debentures 24,000 — — Repayment of Convertible Debentures ( 15,625 ) — — Proceeds from issuance of Revolving Facility 86,354 — — Repayment of Revolving Facility ( 69,001 ) — — Repayment of Oramed Note ( 5,000 ) — — Transaction costs paid related to the Business Combination ( 1,372 ) ( 2,949 ) — Payments of debt issuance costs ( 380 ) — — Disbursement of funds to Sorrento ( 20,000 ) — — Cash consideration paid in connection with share repurchase ( 10,000 ) — — Transaction costs paid in connection with share repurchase ( 1,987 ) — — Proceeds from the Business Combination — 3,375 — Proceeds from stock options and warrants exercised 1,135 96 — Proceeds from related party payable — 51,900 47,850 Proceeds from related party note payable — 62,500 14,700 Proceeds from other loans — 9,857 47,832 Repayment of principal on the Scilex Pharma Notes — ( 84,808 ) ( 33,387 ) Repayment on other loans — ( 18,800 ) ( 48,832 ) Net cash proceeds from financing activities 23,582 21,171 28,163 Net change in cash, cash equivalents and restricted cash 2,545 ( 2,154 ) ( 501 ) Cash, cash equivalents and restricted cash at beginning of period 2,184 4,338 4,839 Cash, cash equivalents and restricted cash at end of period $ 4,729 $ 2,184 $ 4,338 Supplemental disclosure: Cash paid for interest $ 1,426 $ — $ — Non-cash investing and financing activities Issuance of shares to B. Riley pursuant to B. Riley Purchase Agreement $ 1,869 $ — $ — Conversion of Convertible Debentures into common stock $ 7,735 $ — $ — Right-of-use assets obtained in exchange for operating lease liabilities with lease modification $ 2,523 $ — $ — Oramed Note issuance at fair value $ 106,252 $ — $ — F- 6 Year Ended December 31, 2023 2022 2021 Other non-cash consideration in connection with share repurchase $ 26,154 $ — $ — Excise tax in connection with share repurchase included in accrued expenses $ 1,310 $ — $ — Related party debt converted to equity pursuant to Debt Exchange Agreement $ — $ 289,733 $ — Deferred consideration for Romeg intangible asset acquisition $ — $ 3,650 $ — Promissory Note issued to Sorrento in exchange for the SP-104 license $ — $ 4,162 $ — Fair value adjustment to derivative liability in troubled debt restructuring $ — $ 30,400 $ — Scilex Pharma Notes principal increase $ — $ — $ 28,000 Transaction costs obligation assumed by Sorrento $ — $ 5,148 $ — See accompanying notes to audited consolidated financial statements F- 7 SCILEX HOLDING COMPANY NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS 1. Nature of Operations and Basis of Presentation Organization and Principal Activities Scilex Holding Company (“Scilex” and together with its wholly owned subsidiaries, the “Company”) is the successor entity to Vickers Vantage Corp. I (“Vickers”), a special purpose acquisition company. The Company is an innovative revenue-generating company focused on acquiring, developing and commercializing non-opioid pain management products for the treatment of acute and chronic pain. The Company was originally formed in 2019 and currently has five wholly owned subsidiaries, Scilex Inc. (“Legacy Scilex”), Scilex Pharmaceuticals Inc. (“Scilex Pharma”), Semnur Pharmaceuticals, Inc. (“Semnur”), SCLX DRE Holdings LLC and SCLX Stock Acquisition JV LLC. The business combination with Vickers (the “Business Combination”) was closed in November 2022. The Company launched its first commercial product in October 2018, ZTlido (lidocaine topical system) 1.8% (“ZTlido”), a prescription lidocaine topical system that is designed with novel technology to address the limitations of current prescription lidocaine therapies by providing significantly improved adhesion and continuous pain relief throughout the 12-hour administration period. The Company in-licensed the exclusive right to commercialize GLOPERBA (colchicine USP) oral solution (“GLOPERBA”), a U.S. Food and Drug Administration (“FDA”)-approved prophylactic treatment for painful gout flares in adults, in the United States (“U.S.”). In February 2023, the Company acquired the rights related to ELYXYB (celecoxib oral solution) (“ELYXYB”) and the commercialization thereof in the U.S. and Canada. ELYXYB is a first-line treatment and the only FDA-approved, ready-to-use oral solution for the acute treatment of migraine, with or without aura, in adults. In April 2023, the Company launched ELYXYB in the U.S. The Company expects to commercialize GLOPERBA in the U.S. in the first half of 2024. The Company is currently developing three product candidates, SP-102 (10 mg, dexamethasone sodium phosphate viscous gel), a novel, viscous gel formulation of a widely used corticosteroid for epidural injections to treat lumbosacral radicular pain, or sciatica for which the Company has completed a Phase 3 study (“SP-102” or “SEMDEXA”), SP-103 (lidocaine topical system) 5.4% (“SP-103”), a next-generation, triple-strength formulation of ZTlido, for the treatment of chronic neck pain and for which the Company has recently completed a Phase 2 trial in low back pain, and SP-104 (4.5 mg, low-dose naltrexone hydrochloride delayed-burst release low dose naltrexone hydrochloride capsules) (“SP-104”), a novel low-dose delayed-release naltrexone hydrochloride being developed for the treatment of fibromyalgia, for which Phase 1 trials were completed in the second quarter of 2022 and a Phase 2 clinical trial is expected to commence in 2024. Since inception, the Company has devoted substantially all of its efforts to the development of SP-102, SP-103 and SP-104, and the commercialization of ZTlido. In 2024, the Company will also devote efforts on the commercialization of GLOPERBA and ELYXYB. Sorrento Chapter 11 Filing On February 13, 2023, Sorrento Therapeutics, Inc. (“Sorrento”), the Company’s then-controlling stockholder, and Sorrento’s wholly owned direct subsidiary, Scintilla Pharmaceuticals, Inc. (“Scintilla” and together with Sorrento, the “Debtors”), commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Debtors’ Chapter 11 proceedings are jointly administered under the caption In re Sorrento Therapeutics, Inc., et al., Case Number 23-90085 (DRJ) (the “Chapter 11 Cases”). While the Company was majority-owned by Sorrento, the Company was not a debtor in the Chapter 11 Cases. As of December 31, 2023, Sorrento no longer holds a majority of the voting power of the Company’s outstanding capital stock entitled to vote. As of December 31, 2023, the Company had a $ 3.2 million receivable from Sorrento, which was fully reserved. The Company evaluates the collectability of this receivable on a quarterly basis. Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. F- 8 The accompanying consolidated financial statements include the accounts of the Company as well as its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Segments Operating segments are identified as components of an entity where separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assessing performance. The Company has determined that its chief operating decision maker is its Chief Executive Officer, as he is responsible for making decisions regarding the allocation of resources and assessing performance as well as for strategic operational decisions. The Company is engaged primarily in the development of non-opioid products focused on pain management based on its platform technologies and all sales are based in the United States. Accordingly, the Company has determined that it operates its business as a single reportable segment. Use of Estimates The preparation of these consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of expenses during the reporting period. Management believes that these estimates are reasonable; however, actual results may differ from these estimates. Customer Concentration Risk Prior to April 2022, sales to the Company’s sole distributor represented 100 % of net revenue. In April 2022, the Company announced the expansion of its direct distribution network to national and regional wholesalers and pharmacies. The Company had three and four customers during the years ended December 31, 2023 and 2022 , respectively, each of which individually generated 10 % or more of the Company’s total revenue. These customers accounted for 85 % and 83 % of the Company’s revenue for the years ended December 31, 2023 and 2022, respectively, individually ranging from 22 % to 32 % and 19 % to 24 %, respectively. As of December 31, 2023 and 2022, these customers represented 91 % and 90 % of the Company’s outstanding accounts receivable, respectively, individually ranging between 24 % and 36 % for both periods. Additionally, during the years ended December 31, 2023 and 2022, the Company purchased ZTlido inventory from its sole supplier, Itochu Chemical Frontier Corporation (“Itochu”). This exposes the Company to concentration of customer and supplier risk. The Company monitors the financial condition of its customers, limits its credit exposure by setting credit limits, and has not experienced any credit losses during the years ended December 31, 2023 and 2022 . Fair Value Measurements Financial assets and liabilities are recorded at fair value on a recurring basis in the consolidated balance sheets. The carrying values of the Company’s financial assets and liabilities, including cash and cash equivalents, restricted cash, prepaid and other current assets, accounts payable and accrued expenses approximate to their fair value due to the short-term nature of these instruments. The derivative warrant liability associated with the Private Warrants (as defined below) is valued using the Black-Scholes option pricing model, which is further discussed in Note 4. The Company elected the fair value option to account for the Convertible Debentures (as defined below) in an aggregate principal amount of up to $ 25.0 million that were issued in March and April 2023 and for the Oramed Note (as defined below) in the principal amount of $ 101.9 million that was issued in September 2023 (see Note 7 titled “ Debt” below). These instruments are measured at fair value on a recurring basis using Level 3 inputs. The Binomial Lattice Model valuation technique and a discounted cash flow model were employed to measure the fair value of the Convertible Debentures and the Oramed Note, respectively. The Revolving Facility (as defined below) in an aggregate principal amount of up to $ 30.0 million was issued in June 2023 (see Note 7 titled “ Debt” below). The Company accounts for the Revolving Facility using the amortized cost basis and recognizes interest expense over the expected term using the effective interest rate method. The carrying value of the Revolving Facility approximates its fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value are categorized based F- 9 upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows: Level 1 - Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 - Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments that are readily convertible into cash without penalty and with original maturities of three months or less at the date of purchase to be cash equivalents. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents are valued at cost, which approximate their fair value. Restricted cash as of December 31, 2023 consist of deposits placed in a segregated bank account as required under the terms of the Credit and Security Agreement, dated as of June 27, 2023, between Scilex Pharma and eCapital Healthcare Corp., which is discussed further in Note 7. Restricted cash is recorded as other long-term assets within the Company’s consolidated balance sheet. T he following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that together reflect the same amounts shown in the consolidated statements of cash flows (in thousands): December 31, 2023 December 31, 2022 Cash and cash equivalents $ 3,921 $ 2,184 Restricted cash 808 — Total cash, cash equivalents, and restricted cash $ 4,729 $ 2,184 Accounts Receivable, Net Accounts receivable are presented net of allowances for expected credit losses and prompt payment discounts. Accounts receivable consists of trade receivables from product sales to customers, which are generally unsecured. Estimated credit losses related to trade accounts receivable are recorded as general and administrative expenses and as an allowance for expected credit losses within accounts receivable, net. The Company reviews reserves and makes adjustments based on historical experience and known collectability issues and disputes. When internal collection efforts on accounts have been exhausted, the accounts are written off by reducing the allowance for expected credit losses. Inventory The Company determines inventory cost on a first-in, first-out basis. The Company reduces the carrying value of inventories to a lower of cost or net realizable value for those items that are potentially excess, obsolete or slow- moving. The Company reserves for excess and obsolete inventory based upon historical experience, sales trends, and specific categories of inventory and expiration dates for on-hand inventory. Inventory costs resulting from these adjustments are recognized as cost of sales in the period in which they are incurred. When future commercialization is considered probable and the future economic benefit is expected to be realized, based on management’s judgment, the Company capitalizes pre-launch inventory costs prior to regulatory approval. As of December 31, 2023 and 2022 , the Company’s inventory was primarily comprised of finished goods. F- 10 Property and Equipment, Net Property and equipment are carried at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which are generally five to seven years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the term of the respective lease on a straight-line basis. The cost of repairs and maintenance is expensed as incurred. Acquisitions The Company accounts for business combinations using the acquisition method of accounting, which requires that assets acquired, including in-process research and development (“IPR&D”) projects and liabilities assumed be recorded at their fair values as of the acquisition date on the Company`s consolidated balance sheets. Any excess of purchase price over the fair value of net assets acquired is recorded as goodwill. The determination of estimated fair value requires the Company to make significant estimates and assumptions. As a result, the Company may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period (up to one year from the acquisition date) with the corresponding offset to goodwill. Transaction costs associated with business combinations are expensed as they are incurred. When the Company determines net assets acquired do not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an acquisition of assets and, therefore, no goodwill is recorded and contingent consideration such as payments upon achievement of various developmental, regulatory and commercial milestones generally is not recognized at the acquisition date. In an asset acquisition, up-front payments allocated to IPR&D projects at the acquisition date and subsequent milestone payments are charged to expense in the Company`s consolidated statements of operations unless there is an alternative future use. The Company has acquired and may continue to acquire the rights to develop and commercialize new product candidates. Intangible assets acquired in a business combination that are used for IPR&D activities are considered indefinite-lived until the completion or abandonment of the associated research and development efforts. Upon commercialization of the relevant research and development project, the Company amortizes the acquired IPR&D over its estimated useful life. Capitalized IPR&D is reviewed annually for impairment or more frequently as changes in circumstance or the occurrence of events suggest that the remaining value may not be recoverable. Goodwill and Other Long-Lived Assets Goodwill, which has an indefinite life, represents the excess cost over fair value of net assets acquired. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if events occur indicating the potential for impairment. The Company has one reporting unit. During its goodwill impairment review, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company performs a quantitative goodwill impairment test. The Company may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the quantitative goodwill impairment test. The Company evaluates its long-lived and intangible assets with definite lives, such as property and equipment, patent rights, and acquired technology, for impairment by considering competition by products prescribed for the same indication, the likelihood and estimated future entry of non-generic and generic competition with the same or similar indication and other related factors. The factors that drive the estimate of useful life are often uncertain and are reviewed on a periodic basis or when events occur that warrant review. Recoverability is measured by comparison of the assets’ book value to future net undiscounted cash flows that the assets are expected to generate to determine if a write-down to the recoverable amount is appropriate. If such assets are written down, an impairment will be recognized as the amount by which the book value of the asset group exceeds the recoverable amount. F- 11 Contingent Consideration The fair value of contingent consideration liabilities assumed in business combinations is recorded as part of the purchase price consideration of the acquisition, and is determined using a discounted cash flow model or Monte Carlo simulation model. The significant inputs of such models are not observable in the market, such as certain financial metric growth rates, volatility rates, projections associated with applicable milestones, discount rates and the related probabilities and payment structure in the contingent consideration arrangement. Fair value adjustments to contingent consideration liabilities are recorded through operating expenses in the consolidated statement of operations. Other than contingent consideration that is accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity, and Topic 815, Derivatives and Hedging, contingent consideration arrangements assumed in an asset acquisition will be measured and accrued when such contingency is resolved. Public Warrants and Private Warrants Upon completion of the Business Combination, the Company assumed public and private placement warrants to purchase Common Stock, each with an exercise price of $ 11.50 per share (“Public Warrants” and “Private Warrants”, respectively, and collectively, the “SPAC Warrants”) that were issued by Vickers in connection with its initial public offering (declared effective by the Securities and Exchange Commission (“SEC”) on January 11, 2021) whereby holders of the public and private placement warrants are entitled to acquire ordinary shares of Vickers. Subsequent to the Business Combination, the Public Warrants were accounted for as equity per FASB ASC Subtopic No. 815-40, Contracts on an Entity’s Own Equity. Warrants classified as equity are recorded at their issuance cost and are not subject to remeasurement at each subsequent balance sheet date. Subsequent to the Business Combination, the Private Warrants were accounted for as liabilities per ASC Subtopic 815-40. The Private Warrants are not considered indexed to the Company’s stock per ASC Subtopic 815-40 as the fair value calculation applicable upon a cashless exercise of a Private Warrant changes based upon the holder of the instrument, which is not an input to a valuation model for a fixed-for-fixed option contract. Therefore, Private Warrants are recognized as derivative liabilities at their estimated fair value on November 10, 2022, the date of the closing of the Business Combination, and are revalued at each subsequent balance sheet date, with fair value changes recognized in the statement of operations. The Company estimates the value of these warrants using a Black-Scholes option pricing formula. Debt The Company may enter into financing arrangements, the terms of which involve significant assumptions and estimates. This involves estimating future net product sales, determining interest expense, determining the amortization period of the debt discount, as well as determining the classification between current and long-term portions. Convertible Debentures and the Oramed Note The Company has elected the fair value option to account for the Convertible Debentures (as defined in Note 2 “ Liquidity and Going Concern ” below) that were issued in March and April 2023, as discussed further in Note 7. The Company has also elected the fair value option to account for the Oramed Note (as defined in Note 4 “ Fair Value Measurements ” below). The Company recorded the Convertible Debentures and the Oramed Note at fair value upon issuance with changes in fair value recorded as change in fair value of debt and liability instruments in the consolidated statements of operations, with the exception of changes in fair value due to instrument-specific credit risk, if any, which are recorded as a component of other comprehensive income. Interest expense related to these financial instruments is included in the changes in fair value. As a result of applying the fair value option, direct costs and fees related to the Convertible Debentures and the Oramed Note were expensed as incurred. The weighted-average interest rates for the short-term loans, including the Convertible Debentures and the Oramed Note, were 13.55 % and nil for the years ended December 31, 2023 and 2022, respectively. F- 12 Derivative Liabilities Derivative liabilities are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and are revalued on each balance sheet date until such instruments are exercised or expire, with changes in the fair value between reporting periods recorded as other income or expense. Research and Development Costs The Company expenses the cost of research and development as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and preclinical materials as well as other contracted services, license fees and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with FASB ASC Topic 730, Research and Development. In come Taxes The provisions of the FASB ASC Topic 740, Income Taxes, address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC Subtopic 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company has determined that it has uncertain tax positions. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. The Company has deferred tax assets, which are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. As of December 31, 2023 and 2022 , the Company maintained a full valuation allowance against its deferred tax assets. Leases The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and is reduced by lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term in selling, general and administrative expenses. Revenue Recognition The Company’s revenue is generated from product sales within the United States. The Company does not incur significant direct costs to obtain contracts with its customers. Revenue from product sales is comprised of sales of ZTlido and ELYXYB. The Company’s performance obligation with respect to sales of ZTlido and ELYXYB is satisfied at a point in time, when control is transferred upon delivery of product to the customer. The Company considers control to have transferred upon delivery because the customer has legal title to the product, physical possession of the product has been transferred to the customer, the customer has significant risks and rewards of ownership of the product, and the Company has a present right to payment at that time. Invoicing typically occurs upon shipment and the length of time between invoicing and when payment is due is not significant. The aggregate dollar value of unfulfilled orders as of December 31, 2023 and 2022 were not material. Revenues from product sales are recorded net of reserves established for commercial and government rebates, fees and chargebacks, wholesaler and distributor fees, sales returns and prompt payment discounts. Such variable F- 13 consideration is estimated in the period of the sale and is estimated using a most likely amount approach based primarily upon provisions included in the Company’s customer contract, customary industry practices and current government regulations. Rebates and Chargebacks Rebates are discounts which the Company pays under either government or private health care programs. Government rebate programs include state Medicaid drug rebate programs, the Medicare coverage gap discount programs and the Tricare programs. Commercial rebate and fee programs relate to contractual agreements with commercial healthcare providers, under which the Company pays rebates and fees for access to and position on that provider’s patient drug formulary. Rebates and chargebacks paid under government programs are generally mandated under law, whereas private rebates and fees are generally contractually negotiated by the Company with commercial healthcare providers. Both types of rebates vary over time. The Company records a reduction to gross product sales at the time the customer takes title to the product based on estimates of expected rebate claims. The Company monitors the sales trends and adjusts for these rebates on a regular basis to reflect the most recent rebate experience and contractual obligations. Reserves for rebates and chargebacks are now separately presented as accrued rebates and fees under current liabilities within the Company’s consolidated balance sheet. Prompt Payment Discounts The Company provides its customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. The prompt payment discount reserve is based on actual gross sales and contractual discount rates. Reserves for prompt payment discounts are included in accounts receivable, net on the consolidated balance sheets. Service Fees The Company compensates its customer and others in the distribution chain for wholesaler and distribution services. The Company has determined such services received to date are not distinct from the Company’s sale of products to the customer and, therefore, these payments have been recorded as a reduction of revenue. Product Returns The Company is obligated to accept the return of products sold that are expiring within six months, damaged or do not meet certain specifications. The Company may authorize the return of products sold in accordance with the term of its sales contracts, and estimates allowances for such amounts at the time of sale. The Company estimates the amount of its product sales that may be returned by its customer and records this estimate as a reduction of revenue in the period the related product revenue is recognized. Co-Payment Assistance Patients who have commercial insurance or pay cash and meet certain eligibility requirements may receive co- payment assistance. The Company accrues for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation which establishes accounting for equity instruments exchanged for employee and consulting services. Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the employee’s requisite service period (generally the vesting period of the equity grant) or non-employee’s vesting period. The Company accounts for forfeitures as incurred. For purposes of determining the inputs used in the calculation of stock-based compensation, the Company determines the expected life assumption for options issued using the simplified method, which is an average of the contractual F- 14 term of the option and its ordinary vesting period since the Company does not have historic exercise behavior. Then the Company determines an estimate of option volatility based on an assessment of historical volatilities of comparable companies whose share prices are publicly available. The Company uses these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our consolidated statement of operations. Treasury Stock The Company uses the cost method to account for repurchases of its stock. In the computation of net (loss) income per share, treasury shares are not included as part of the outstanding shares. Net Loss per Share Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Net loss per share has been retrospectively adjusted for all periods presented prior to the Business Combination. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options and warrants. As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share. Recently Adopted Accounting Pronouncements In October 2021, FASB issued Accounting Standards Updates (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”) , which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with ASC Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022. ASU 2021-08 should be applied prospectively to business combinations occurring on or after the adoption date. The Company adopted this guidance as of January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing such a restriction as a separate unit of account is also not permitted. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company elected to early adopt this guidance as of January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements. 2. Liquidity and Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Management has assessed the Company’s ability to continue as a going concern for at least one year after the issuance date of the accompanying consolidated financial statements. On November 17, 2022, the Company entered into a standby equity purchase agreement (the “Original Purchase Agreement”) with YA II PN, Ltd., a Cayman Islands exempt limited partnership (“Yorkville”). On February 8, 2023, the Company entered into an amended and restated standby equity purchase agreement with Yorkville (the “A&R Yorkville Purchase Agreement”), amending, restating and superseding the Original Purchase Agreement. On January 8, 2023, the Company entered into a standby equity purchase agreement (the “B. Riley Purchase Agreement” and together with A&R Yorkville Purchase Agreement, the “Standby Equity Purchase Agreements”) with B. Riley F- 15 Principal Capital II, LLC (“B. Riley”). Pursuant to each of the Standby Equity Purchase Agreements, the Company has the right, but not the obligation, to sell to each of Yorkville and B. Riley up to $ 500.0 million of shares of the Company’s common stock, par value $ 0.0001 per share (the “Common Stock”) at its request any time during the 36 months following the date on which the registration statement related to each such purchase agreement was initially declared effective by the SEC, subject to certain conditions, which are discussed further in Note 9. On, and effective as of, February 16, 2024, the Company and B. Riley mutually agreed to terminate the B. Riley Purchase Agreement. As consideration for Yorkville’s and B. Riley’s respective commitment to purchase shares of Common Stock at the Company’s direction, the Company issued 250,000 commitment shares to each of Yorkville (the “Yorkville Commitment Shares”) and B. Riley (the “B. Riley Commitment Shares”). On March 21, 2023, the Company entered into a securities purchase agreement with Yorkville (the “Yorkville SPA”), pursuant to which the Company would issue and sell to Yorkville convertible debentures in an aggregate principal amount of up to $ 25.0 million (the “Convertible Debentures”). As of December 31, 2023, Convertible Debentures in the principal amount of $ 25.0 million (for net cash proceeds of $ 24.0 million ) were issued and sold pursuant to the Yorkville SPA, which is discussed further in Note 7. On June 27, 2023, Scilex Pharma entered into a Credit and Security Agreement (the “eCapital Credit Agreement”) with eCapital Healthcare Corp. (the “Lender”), pursuant to which the Lender shall make available loans (the “Revolving Facility”) in an aggregate principal amount of up to $ 30.0 million (the “Facility Cap”). The proceeds of the Revolving Facility will be used for (i) transaction fees incurred in connection with the eCapital Credit Agreement, (ii) working capital needs of Scilex Pharma and (iii) other uses not prohibited under the eCapital Credit Agreement. As of December 31, 2023, the Company has an outstanding balance of $ 17.0 million under the Revolving Facility. See Note 7 for additional discussion of the terms of the eCapital Credit Agreement. On December 22, 2023, the Company entered into a Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc., Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC (the “Sales Agents”). Pursuant to the ATM Sales Agreement, the Company may offer and sell (the “Offering”) shares of Common Stock up to $ 170,000,000 (the "ATM Shares"), through or to the Sales Agents as part of the Offering. The Company has no obligation to sell any shares of Common Stock under the ATM Sales Agreement and may suspend offers thereunder at any time. The Offering will terminate upon (i) the election of the Sales Agents upon the occurrence of certain adverse events, (ii) three business days’ advance notice from the Company to the Sales Agents or a Sales Agent to the Company, or (iii) the sale of all $ 170,000,000 of shares of Common Stock thereunder. As of December 31, 2023, no sales of Common Stock had been made under the ATM Sales Agreement. As of December 31, 2023, the Company’s negative working capital was $ 203.6 million , including cash and cash equivalents of approximately $ 3.9 million . During the year ended December 31, 2023, the Company had operating losses of $ 105.4 million and cash flows used for operations of $ 20.7 million . The Company had an accumulated deficit of $ 490.2 million as of December 31, 2023. The Company has plans to obtain additional resources to fund its currently planned operations and expenditures for at least twelve months from the issuance of these consolidated financial statements through a combination of equity offerings, debt financings, collaborations, government contracts or other strategic transactions. The Company’s plans are also dependent upon the success of future sales of ZTlido and ELYXYB, among which ELYXYB is still in the early stages of commercialization, and the future commercialization of GLOPERBA. Although the Company believes such plans, if executed, should provide the Company with financing to meet its needs, successful completion of such plans is dependent on factors outside the Company’s control. As a result, management has concluded that the aforementioned conditions, among other things, raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the consolidated financial statements are issued. F- 16 3. Acquisitions SP-104 Acquisition In May 2022, the Company acquired the Delayed Burst Release Low Dose Naltrexone asset and intellectual property rights for the treatment of chronic pain, fibromyalgia and chronic post-COVID syndrome (collectively, the “SP-104 Assets”). Pursuant to the acquisition provisions, the Company is obligated to pay Aardvark Therapeutics, Inc. (“Aardvark”) (i) $ 3.0 million upon initial approval by the FDA of a new drug application for the SP-104 Assets (which amount may be paid in shares of Common Stock or cash, in the Company’s sole discretion) (the “Development Milestone Payment”) and (ii) $ 20.0 million in cash, upon achievement of certain net sales by the Company of a commercial product that uses the SP-104 Assets (the “Sales Milestone Payment”). The Company will also pay Aardvark certain royalties in the single digits based on percentages of annual net sales by the Company of a commercial product that uses the SP-104 Assets. The Sales Milestone Payment and sale volume-based future royalties were determined to meet a scope exception for derivative accounting and will not be recognized until the contingencies are realized. The Development Milestone Payment represents a liability, which will be measured at fair value for each reporting period. As of December 31, 2023 and December 31, 2022, the contingent consideration associated with the Development Milestone Payment was $ 0.2 million , recorded in the other long-term liabilities. GLOPERBA License Agreement In June 2022, the Company entered into a license agreement (the “Romeg License Agreement”) with RxOmeg Therapeutics, LLC (a/k/a Romeg Therapeutics, Inc.) (“Romeg”). Pursuant to the Romeg License Agreement, among other things, Romeg granted the Company (a) a transferable license, with a right to sublicense, to (i) commercialize the pharmaceutical product comprising liquid formulations of colchicine for the prophylactic treatment of gout in adult humans (the “Initial Licensed Product” or “GLOPERBA”) in the United States (including its territories) (the “GLOPERBA Territory”), (ii) develop other products comprising the Initial Licensed Product as an active pharmaceutical ingredient (the “Licensed Products”) and commercialize any such products and (iii) manufacture Licensed Products anywhere in the world, solely for commercialization in the GLOPERBA Territory; and (b) an exclusive, transferable license, with a right to sublicense, to use the trademark GLOPERBA and logos, designs, translations, and modifications thereof in connection with the commercialization of the Initial Licensed Product solely in the GLOPERBA Territory. The Initial Licensed Product, GLOPERBA, was approved and made available in the United States in 2020. As consideration for the license under the Romeg License Agreement, the Company paid Romeg an up-front license fee of $ 2.0 million , and has agreed to pay Romeg (a) upon the Company’s achievement of certain net sales milestones, certain milestone payments in the aggregate amount of up to $ 13.0 million , (b) certain royalties, at rates that do not exceed ten percent, based on annual net sales of the Licensed Products by the Company during the applicable royalty term under the Romeg License Agreement, and (c) minimum quarterly royalty payments totaling $ 7.1 million commencing on the first year anniversary of the effective date of the Romeg License Agreement and ending on the later of (i) expiration of the last-to-expire of the licensed patents covering the Licensed Products in the GLOPERBA Territory or (ii) the tenth anniversary of the effective date of the Romeg License Agreement. In connection with the Romeg License Agreement, the Company recorded an intangible asset for acquired licenses of $ 5.7 million , which is comprised of the upfront license fee of $ 2.0 million and deferred consideration of $ 3.7 million that is the present value of the future minimum royalty payments and immaterial transaction costs. No contingent consideration was recognized as a liability or included in the fair value of the assets as of December 31, 2023 or December 31, 2022. F- 17 ELYXYB Acquisition On February 12, 2023, the Company entered into an asset purchase agreement (the “ELYXYB APA”) with BioDelivery Sciences International, Inc. (“BDSI”) and Collegium Pharmaceutical, Inc. (“Collegium”, and together with BDSI, the “Sellers”) to acquire the rights to certain patents, trademarks, regulatory approvals, data, contracts, and other rights related to ELYXYB and its commercialization in the United States and Canada (the “ELYXYB Territory”). As consideration for the acquisition, the Company assumed various rights and obligations under the asset purchase agreement between BDSI and Dr. Reddy’s Laboratories Limited, a company incorporated under the laws of India (“DRL”), dated August 3, 2021 (the “DRL APA”), including an irrevocable, royalty-free, exclusive license to know-how and patents of DRL related to ELYXYB and necessary or used to exploit ELYXYB in the ELYXYB Territory. No cash consideration was or will be payable to the Sellers for such acquisition; however, the obligations under the DRL APA that were assumed by the Company include contingent sales and regulatory milestone payments and sales royalties. The Company is also obligated to make quarterly royalty payments to DRL on net sales of ELYXYB in the ELYXYB Territory. In April 2023, the Company launched ELYXYB in the U.S. As of December 31, 2023, the Company had ending balances of accrued royalty payables of $ 5.0 thousand . As of December 31, 2023 , no sales or regulatory milestone payments had been accrued as there were no potential milestones yet considered probable of achievement. 4. Fair Value Measurements The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and the level of inputs used in such measurements (in thousands): December 31, 2023 Balance Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Liabilities Oramed Note $ 104,089 $ — $ — $ 104,089 Convertible Debentures 4,340 — — 4,340 Derivative liabilities 1,518 — — 1,518 Other long-term liabilities 179 — — 179 Total liabilities measured at fair value $ 110,126 $ — $ — $ 110,126 December 31, 2022 Balance Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Liabilities Derivative liabilities $ 1,231 $ — $ — $ 1,231 Other long-term liabilities 163 — — 163 Total liabilities measured at fair value $ 1,394 $ — $ — $ 1,394 The Oramed Note In September 2023, the Company issued a senior secured promissory note to Oramed Pharmaceuticals Inc. (“Oramed”) in the principal amount of $ 101.9 million (the “Oramed Note”) (see Note 7). The Company elected the fair value option to account for the Oramed Note with any changes in the fair value of the note recorded in the consolidated statements of operations. The Company uses a discounted cash flow model to determine the fair value of the Oramed Note based on Level 3 inputs. This methodology discounts the interest and principal payments using a risk-adjusted discount rate. The fair value as of December 31, 2023 was determined to be $ 104.1 million by applying a discount F- 18 rate of 13.05 % . For the year ended December 31, 2023, the Company recorded $ 2.8 million in change in fair value of the Oramed Note. Convertible Debentures In March and April 2023, the Company issued the Convertible Debentures in the principal amount of $ 25.0 million (see Note 7). The Convertible Debentures are measured at fair value on a recurring basis using Level 3 inputs. The Company uses the Binomial Lattice Model valuation technique to measure the fair value of the Convertible Debentures with any changes in the fair value of the Convertible Debentures recorded in the consolidated statements of operations. Interest expense related to the Convertible Debentures is included in the changes in fair value. For the year ended December 31, 2023, the Company recorded $ 4.4 million in change in fair value of the Convertible Debentures. A summary of inputs used in valuing the Convertible Debentures is as follows: December 31, 2023 Risk -Free Rate 5.31 % Corporate Bond Yield 15.60 % Coupon Interest Rate 7.0 % Volatility 70.0 % Dividend Yield 0.0 % Conversion Price $ 8.00 Derivative Liabilities The Company recorded a gain of $ 0.5 million and $ 8.3 million and a loss of $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively, on derivative liabilities which was attributed to the Private Warrants that the Company assumed from Vickers in November 2022 in connection with the Business Combination and compound derivative liabilities associated with the senior secured notes issued by Scilex Pharma in September 2018 (the “Scilex Pharma Notes”), respectively. The fair value of the derivative liability associated with the Scilex Pharma Notes decreased by $ 30.4 million immediately after entry into Amendment No. 4 to the Scilex Pharma Notes on June 2, 2022 (“Amendment No. 4”). The fair value of the derivative liability associated with the Scilex Pharma Notes was estimated using the discounted cash flow method combined with a Monte Carlo simulation model including consideration of the terms of Amendment No. 4. Significant Level 3 assumptions used in the measurement included a 6.1 % risk adjusted net sales forecast and an effective debt yield of 21.5 %. The Scilex Pharma Notes were fully extinguished in September 2022 and, as such, there were no remaining loan derivative liabilities associated with the Scilex Pharma Notes as of December 31, 2022. At the closing of the Business Combination in November 2022, the Company assumed a derivative warrant liability of $ 2.5 million related to the Private Warrants. As of December 31, 2023, 3,613,383 Private Warrants were outstanding, and the fair value of derivative warrant liability related to the Private Warrants was $ 1.5 million . The following table includes a summary of the derivative liabilities measured at fair value during the three years ended December 31, 2023, 2022 and 2021 (in thousands): Fair Value Ending Balance as of December 31, 2020 $ 35,400 Re-measurement of fair value 300 Ending Balance as of December 31, 2021 35,700 Private warrant liability acquired as part of the Business Combination 2,545 Forfeiture of Private Warrants 1,696 Change in fair value measurement ( 38,710 ) Ending Balance as of December 31, 2022 1,231 Change in fair value measurement 512 Forfeiture of Private Warrants ( 225 ) Ending Balance as of December 31, 2023 $ 1,518 Warrant Liability Measurement F- 19 The derivative warrant liability was valued using the Black-Scholes option pricing model, which is considered to be Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the warrant is the expected volatility of the Common Stock. The expected volatility assumption is based on historical volatilities of comparable companies whose share prices are publicly available as well as the implied volatility of the Public Warrants (see Note 9 ). A summary of the inputs used in valuing the derivative warrant liabilities is as follows: December 31, December 31, 2023 2022 Equity value $ 2.04 $ 3.99 Exercise price $ 11.50 $ 11.50 Term, in years 3.86 4.86 Volatility 76.0 % 35.0 % Risk-free rate 3.90 % 3.94 % Dividend yield 0.0 % 0.0 % Call option value $ 0.42 $ 0.30 Contingent Consideration Related to SP-104 Acquisition The Development Milestone Payment related to the SP-104 Assets represents an obligation to potentially settle a fixed value in a variable number of shares of Common Stock and requires remeasurement at fair value through settlement. Upon the achievement of FDA approval for a new drug application for SP-104, the Company will transfer $ 3.0 million in cash or shares of Common Stock, at the discretion of the Company. The fair value of the contingent consideration liability associated with the Development Milestone Payment was estimated using a probability-weighted discounted cash flow method. Significant unobservable inputs assumptions included the likelihood of receiving FDA approval for SP-104, expected timing for receipt of FDA approval for SP-104, and a discount rate of 10.2 % . As of December 31, 2023 and December 31, 2022, the fair value of contingent consideration related to the Development Milestone Payment was $ 0.2 million . There were no transfers between fair value measurement levels during the years ended December 31, 2023, 2022 and 2021 . 5. Balance Sheet Components Property and Equipment, Net Property and equipment, net, consists of the following (in thousands): December 31, December 31, 2023 2022 Construction in progress $ 689 $ 689 Furniture 5 118 Computers and equipment 36 77 Leasehold improvements 50 55 Property and equipment, gross 780 939 Less: Accumulated depreciation ( 58 ) ( 167 ) Property and equipment, net $ 722 $ 772 The Company recognized depreciation expense of $ 40.0 thousand, $ 40.0 thousand and $ 39.0 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. Accrued Expenses Accrued expenses consists of the following (in thousands): F- 20 December 31, December 31, 2023 2022 Accrued professional service fees $ 2,029 $ 2,024 Accrued sales and marketing costs 1,601 574 Accrued research and development costs 1,546 459 Accrued tax payable 1,452 — Accrued others 780 79 Accrued expenses $ 7,408 $ 3,136 6. Goodwill and Intangible Assets As of December 31, 2023 and 2022, the Company had recorded goodwill of $ 13.5 million . No goodwill impairment was recognized for the years ended December 31, 2023, 2022 and 2021. Amortization of the intangible assets that have finite useful lives is generally recorded on a straight-line basis over their useful lives. A summary of the Company’s identifiable intangible assets as of December 31, 2023 and December 31, 2022 is as follows (in thousands): December 31, 2023 Gross Carrying Amount Accumulated Amortization Intangibles, net Patent rights $ 32,630 $ 15,591 $ 17,039 Acquired technology 21,940 7,679 14,261 Acquired licenses 5,711 551 5,160 Assembled workforce 500 475 25 Total intangible assets $ 60,781 $ 24,296 $ 36,485 December 31, 2022 Gross Carrying Amount Accumulated Amortization Intangibles, net Patent rights $ 32,630 $ 13,415 $ 19,215 Acquired technology 21,940 6,216 15,724 Acquired licenses 5,711 184 5,527 Assembled workforce 500 375 125 Total intangible assets $ 60,781 $ 20,190 $ 40,591 As of December 31, 2023, the weighted average remaining life for identifiable intangible assets was 9.4 years. Aggregate amortization expense was $ 4.1 million, $ 3.9 million and $ 3.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Patent rights and acquired technology are amortized over a 15-year period. Assembled workforce is amortized over a 5-year period. Estimated future amortization expense related to intangible assets as of December 31, 2023 is as follows (in thousands): Amount 2024 $ 4,031 2025 4,006 2026 4,006 2027 4,006 2028 4,006 Thereafter 16,430 Total $ 36,485 F- 21 7. Debt Convertible Debentures On March 21, 2023, the Company entered into the Yorkville SPA, pursuant to which the Company would issue and sell to Yorkville Convertible Debentures in an aggregate principal amount of up to $ 25.0 million. The Yorkville SPA provides that the Convertible Debentures would be issued and sold at a purchase price equal to 96 % of the applicable principal amount in three tranches as follows: (i) $ 10.0 million upon the signing of the Yorkville SPA, which was funded on March 21, 2023; (ii) $ 7.5 million upon the filing of a registration statement on Form S-1 with the SEC to register the resale by Yorkville of any shares of Common Stock issuable upon conversion of the Convertible Debentures under the Securities Act of 1933, as amended (the “Securities Act”), which was funded on April 11, 2023 ; and (iii) $ 7.5 million at the time such registration statement was declared effective by the SEC, which was funded on April 20, 2023 . The Convertible Debentures bear interest at an annual rate of 7.00 % and were initially set to mature on December 21, 2023 . On October 11, 2023, the Company and Yorkville amended the Convertible Debentures. The Default Conversion Price (as defined therein) was originally set not to fall below $ 2.00 per share and such floor price has been amended to mean a price per share of Common Stock equal to 95% of the lowest daily VWAP (as defined therein) during the five consecutive trading days immediately preceding the conversion date, but not lower than $ 0.50 per share. The maturity date of the Convertible Debentures was also extended from December 21, 2023 to March 15, 2024 . The outstanding principal amount is to be repaid in equal installments that are due every 30 days beginning on May 20, 2023, which is 60 days after the date on which the first Convertible Debenture was issued to Yorkville. The Convertible Debentures provide a conversion right, in which any portion of the outstanding and unpaid principal and any accrued but unpaid interest may be converted into shares of Common Stock, at a conversion price of $ 8.00 per share at the option of the holder of the Convertible Debentures. The Company has the option to repay either (i) in cash, with premium equal to 5 % in respect of the principal amount of such payment, or (ii) by submitting a notice for an advance under the A&R Yorkville Purchase Agreement , or a series of advances thereunder, or any combination of (i) or (ii) as determined by the Company. In the case of (ii), the proceeds from the shares sold to Yorkville are applied against the outstanding amounts. The Company has the right, but not the obligation, in its sole discretion, to redeem, upon five business days’ prior written notice to Yorkville (the “Redemption Notice”), all or any portion of the amounts outstanding under the Convertible Debentures; provided that the trading price of the Common Stock is less than the Conversion Price at the time of the Redemption Notice. The redemption amount shall be equal to the outstanding principal balance being redeemed by the Company, plus the redemption premium of 10 % of the principal amount being redeemed, plus all accrued and unpaid interest in respect of such redeemed principal amount. The Company has elected the fair value option for the Convertible Debentures and records the changes in the fair value within the consolidated statements of operations at the end of each reporting period. Pursuant to the Yorkville SPA, the Company issued additional Convertible Debentures in an aggregate principal amount of $ 15.0 million in April 2023 for $ 14.4 million in net cash proceeds. In April 2023, Yorkville elected to convert $ 5.0 million of the outstanding principal and accrued interest of the first Convertible Debentures issued to Yorkville, resulting in the issuance of 632,431 shares of Common Stock at a conversion price of $ 8.00 per share and reducing the outstanding Convertible Debentures fair value balance by $ 4.4 million . The Company repaid $ 15.6 million of the Convertible Debentures during the year ended December 31, 2023 . Interest expense related to the Convertible Debentures and included in the changes in fair value was $ 0.7 million for the year ended December 31, 2023. The following table provides a summary of the changes in the balance and the estimated fair value of the Convertible Debentures (in thousands): F- 22 December 31, 2023 Beginning Balance as of January 1, 2023 $ — Issuance of Convertible Debentures 24,000 Repayment of Convertible Debentures ( 15,625 ) Change in fair value of Convertible Debentures 3,700 Conversion of Convertible Debentures into Common Stock ( 7,735 ) Ending Balance as of December 31, 2023 $ 4,340 Revolving Facility On June 27, 2023, Scilex Pharma entered into the eCapital Credit Agreement, pursuant to which the Lender shall make available the Revolving Facility in an aggregate principal amount of up to $ 30.0 million . The Facility Cap may, at the request of Scilex Pharma and with the consent of the Lender, be increased in increments of $ 250,000 at such time as the outstanding principal balance under the eCapital Credit Agreement equals or exceeds 95 % of the then-existing Facility Cap. The amount available to Scilex Pharma under the Revolving Facility at any one time is the lesser of the Facility Cap and 85 % of the Net Collectible Value of Eligible Receivables (each as defined therein) minus the amount of any reserves or adjustments against receivables required by the Lender, in its discretion. Under the terms of the eCapital Credit Agreement, interest will accrue daily on the principal amount outstanding at a rate per annum equal to the Wall Street Journal Prime Rate plus 1.5 % , based on a year consisting of 360 days, and which shall be payable by Scilex Pharma monthly in arrears, commencing July 1, 2023. The eCapital Credit Agreement provides for an early termination fee of 0.5 % of the Facility Cap if Scilex Pharma voluntarily prepays and terminates in full the Revolving Facility prior to the first anniversary of the closing of the Revolving Facility. In connection with the eCapital Credit Agreement, Scilex Pharma and the Lender entered into blocked account control agreements with respect to Scilex Pharma’s collections and eCapital Credit Agreement funding accounts, which permit the Lender to sweep all funds in the collections account to an account of the Lender for application to the outstanding amounts under the Revolving Facility, and to exercise customary secured party remedies with respect to the eCapital Credit Agreement funding account. All indebtedness incurred and outstanding under the eCapital Credit Agreement will be due and payable in full on July 1, 2026, unless the eCapital Credit Agreement is earlier terminated. The eCapital Credit Agreement contains a financial covenant requiring Scilex Pharma to maintain cash on hand of at least $ 1.0 million at all times. Scilex Pharma’s obligations under the eCapital Credit Agreement are secured by a continuing security interest in Scilex Pharma’s accounts receivable, arising from customers in the ordinary course of business. The eCapital Credit Agreement contains customary events of default and also provides that an event of default includes a change of control of Scilex Pharma and the failure by the Company to issue at least $ 75.0 million of debt or equity by September 30, 2023, which condition was satisfied by the issuance of the Oramed Note. As of December 31, 2023, Scilex Pharma has an outstanding balance of $ 17.0 million under the Revolving Facility, which is classified as a long-term liability in the consolidated balance sheet. On September 21, 2023, Scilex Pharma signed a subordination agreement (the “Subordination Agreement”) with the Lender and Acquiom Agency Services LLC (the “Agent”). Pursuant to the Subordination Agreement, the rights and interests of the Lender under the eCapital Credit Agreement would be secured by first priority liens on the ABL Priority Collateral (as defined therein). The ABL Priority Collateral consists of all of the Company’s properties identified in the description of collateral in the UCC-1 Financing Statement filed with the Delaware Secretary of State on June 27, 2023. The Agent’s rights and interests under that certain Subsidiary Guarantee, dated as of September 21, 2023, entered into by us and each of our subsidiaries with Oramed and the Agent (the “Subsidiary Guarantee”), would be secured by first priority liens on certain other collateral and second priority liens on the ABL Priority Collateral. The Subordination Agreement also includes other standard interlender terms and requires that the Facility Cap (as defined therein) shall not exceed $ 30.0 million. F- 23 The Oramed Note On September 21, 2023, the Company entered into a securities purchase agreement with Oramed (the “Scilex-Oramed SPA”), pursuant to which the Company issued the Oramed Note. The Oramed Note, which has a principal amount of $ 101.9 million , matures on March 21, 2025 . It is payable in six principal installments, with the first installment of $ 5.0 million payable on December 21, 2023 , the second installment in the principal amount of $ 15.0 million payable on March 21, 2024 , the next three installments each in the principal amount of $ 20.0 million payable on each of June 21, 2024 , September 21, 2024 and December 21, 2024 and the last installment in the entire remaining principal balance of the Oramed Note payable on March 21, 2025 . Interest under the Oramed Note accrues at a fluctuating per annum interest rate equal to the sum of (1) greater of (x) 4 % and (y) Term SOFR (as defined in the Oramed Note) and (2) 8.5 %, payable in-kind on a monthly basis. If the outstanding principal has not been fully repaid by March 21, 2024, an exit fee of approximately $ 3.1 million becomes due upon repayment. Upon the occurrence and during the continuance of an event of default under the Oramed Note, holders of more than 50 % of the aggregate unpaid principal amount of the Oramed Notes may elect to accrue interest at a default rate equal to the lesser of (i) Term SOFR plus 15 % or (ii) the maximum rate permitted under applicable law. Voluntary prepayments made before the one-year anniversary of the closing date of the Scilex-Oramed SPA must include a make-whole amount equal to 50 % of the additional interest that would accrue on the principal amount so prepaid from the date of such prepayment through and including the maturity date. If the Oramed Note is accelerated upon an event of default, repayment is required at a mandatory default rate of 125 % of the principal amount (together with 100 % of accrued and unpaid interest thereon and all other amounts due in respect of the Oramed Note). The Oramed Note contains mandatory prepayment provisions requiring use of 70 % of net cash proceeds from any Cash Sweep Financing (as defined in the Oramed Note) or advances under the ELOCs (as defined in the Oramed Note) to prepay the outstanding principal after the earlier of April 1, 2024 or full repayment of Acceptable Indebtedness (as defined in the Oramed Note). The Oramed Note contains affirmative and negative covenants binding on the Company and its subsidiaries, which restrict, among other things, the Company and its subsidiaries from incurring indebtedness or liens, amending charter and organizational documents, repaying or repurchasing stock, repaying, repurchasing, or acquiring indebtedness, paying or declaring cash dividends, assigning, selling, transferring or otherwise disposing of assets, making or holding investments, entering into transactions with affiliates, and entering into settlement agreements, in each case as more fully set forth in, and subject to certain qualifications and exceptions set forth in, the Oramed Note. The Company was in compliance with all of the covenants as of December 31, 2023. In connection with the Oramed Note, the Company and each of its subsidiaries (collectively, the “Guarantors”) entered into a security agreement (the “Security Agreement”) with Oramed (together with its successors and permitted assigns, the “Holder”) and the Agent, which acts as the collateral agent for the holders of the Oramed Note. Under this agreement, the Company and the Guarantors granted to the Agent (on behalf of and for the benefit of the holders of the Oramed Note and any Additional Notes as defined thereunder) a security interest in all or substantially all of the properties of the Company and each of the Guarantors. This was done to ensure the timely payment, performance, and full discharge of all obligations under the Oramed Note. The Security Agreement contains certain customary representations, warranties and covenants regarding the collateral thereunder, all of which are detailed in the Security Agreement. At issuance, the Company concluded that certain features of the Oramed Note would be considered derivatives that would require bifurcation. In lieu of bifurcating such features, the Company has elected the fair value option for this financial instrument and records the changes in the fair value within the consolidated statements of operations at the end of each reporting period. As of December 31, 2023, the fair value of the Oramed Note was $ 104.1 million , which is classified as a current liability in the consolidated balance sheet. The following table provides a summary of the changes in the balance and the estimated fair value of the Oramed Note (in thousands): F- 24 December 31, 2023 Beginning Balance as of January 1, 2023 $ — Issuance of Oramed Note 106,252 Change in fair value of Oramed Note 2,837 Repayment of Oramed Note ( 5,000 ) Ending Balance as of December 31, 2023 $ 104,089 8. Junior DIP Facility and Sorrento Stock Purchase Agreement Junior DIP Facility In July 2023, the Company entered into an agreement to provide Sorrento with a non-amortizing super-priority junior secured term loan facility (“Junior DIP Facility”) in an aggregate principal amount of $ 20.0 million (the “Junior DIP Loan Agreement”), which was funded in the same month. The Junior DIP Facility bears interest at a per annum rate of 12.0 % payable in kind on the first day of each month in arrears and on the DIP Termination Date (as defined in the Junior DIP Loan Agreement). Upon repayment or satisfaction of the DIP Loans (as defined in the Junior DIP Loan Agreement) in whole or in part, Sorrento is required to pay to the Company in cash an exit fee equal to 2.00 % of the aggregate principal amount of the Junior DIP Facility. The Junior DIP Facility was to mature on the earliest of: (i) September 30, 2023; (ii) the effective date of any Chapter 11 plan of reorganization with respect to Sorrento; (iii) the consummation of any sale or other disposition of all or substantially all of the assets of Sorrento; (iv) the date of the acceleration of the DIP Loans and the termination of the DIP Commitments (as defined in the Junior DIP Loan Agreement) in accordance with the DIP Documents (as defined in the Junior DIP Loan Agreement) ; and (v) dismissal of the Chapter 11 Cases or conversion of the Chapter 11 Cases into cases under Chapter 7 of the Bankruptcy Code. On September 21, 2023, Sorrento’s obligations under the Junior DIP Facility were waived and deemed to be fully settled in conjunction with the Sorrento SPA as described below. Consequently, the transfer of funds associated with the Junior DIP Facility was deemed and accounted for as a capital distribution to Sorrento. Sorrento Stock Purchase Agreement On September 21, 2023, the Company entered into a Stock Purchase Agreement with Sorrento (“Sorrento SPA”), pursuant to which the Company purchased from Sorrento (i) 60,068,585 shares of Common Stock, (ii) 29,057,097 shares of Series A Preferred Stock, par value $ 0.0001 per share, of the Company (the “Preferred Stock”) and (iii) 1,386,617 Public Warrants and 3,104,000 Private Warrants (collectively, the “Purchased Securities”). On the same day, the Company and Oramed entered into the Scilex-Oramed SPA. The Company concluded that the Sorrento SPA and the Scilex-Oramed SPA were entered in contemplation of each other and the issuance of the Oramed Note was accounted as part of the consideration payable for the Purchased Securities acquired from Sorrento. Pursuant to the terms of the Scilex-Oramed SPA, the Company issued the Oramed Note (see Note 7 ), which replaced Sorrento’s outstanding obligations to Oramed, warrants to purchase up to an aggregate of 4,500,000 shares of Common Stock (the “Closing Penny Warrant”) with an exercise price of $ 0.01 per share and restrictions on exercisability, and warrants to purchase up to an aggregate of 8,500,000 shares of Common Stock (the “Subsequent Penny Warrants” and together with the Closing Penny Warrant, the “Penny Warrants”), each with an exercise price of $ 0.01 per share and each with restrictions on exercisability. Additionally, the Company agreed to transfer to Oramed 4,000,000 SPAC Warrants, which were acquired by the Company under the Sorrento SPA. There was no change in the terms for the warrants transferred to Oramed as a result of the transactions described above. The remaining consideration for the Purchased Securities was comprised of a credit bid for all amounts of principal and accrued but unpaid interest outstanding under the Junior DIP Facility, a $ 10.0 million cash payment, and the assumption and assignment of certain obligations of Sorrento for legal fees and expenses amounting to approximately $ 12.3 million . The Company allocated the total consideration between the repurchased instruments by allocating to the repurchased Private Warrants their full value, with the remaining consideration allocated to the Common Stock, Preferred Stock, and Public Warrants based on their relative fair values as of September 21, 2023. Before the closing of the Sorrento SPA transactions and in connection with the transactions contemplated by the Sorrento SPA, the Company formed two entities: (a) Scilex DRE Holdings LLC (“Holdco”), a single purpose entity F- 25 that is the Company’s direct wholly owned subsidiary and (b) Scilex Stock Acquisition Joint Venture LLC, a single purpose bankruptcy-remote entity that is the Company’s indirect wholly owned subsidiary (“SCLX JV”), which was formed to hold the Purchased Securities. Holdco was formed to hold all of the equity interests in SCLX JV. Holdco and SCLX JV are parties to the Security Agreement and Subsidiary Guarantee (see Note 7). Preferred Stock Pursuant to the terms of the Sorrento SPA, the Company repurchased all of the outstanding Preferred Stock . The Preferred Stock is classified in equity and does not have any bifurcated features. Therefore, the repurchase of the Preferred Stock by the Company is treated as a redemption of shares and viewed as a deemed dividend. The fair value of Preferred Stock as of the repurchase date of September 21, 2023 was $ 52.6 million . The Company derecognized the carrying value of the Preferred Stock, with any excess amount allocated as the reduction in additional paid-in capital. The Preferred Stock is currently held as collateral for the Oramed Note. Treasury Stock The Common Stock that has been repurchased by the Company under the Sorrento SPA is not intended for constructive retirement, and is being held as collateral for the Oramed Note. In accordance with treasury stock accounting guidance, the consideration allocated to Common Stock is presented under a separate caption of Treasury Stock as a reduction of equity. Penny Warrants The Closing Penny Warrant will be exercisable upon the earliest of (i) March 14, 2025 , (ii) the date on which the Oramed Note has been repaid in full and (iii) the Management Sale Trigger Date (as defined therein), if any, and will expire on the date that is the fifth anniversary of the issuance date. The Company issued four Subsequent Penny Warrants, each for 2,125,000 shares of Common Stock, one of which shall vest and become exercisable on the date that is the later of (i) each of March 19, 2024 , June 17, 2024 , September 15, 2024 or December 14, 2024 (the “Subsequent Penny Warrant Vesting Date”) and (ii) the earliest of (A) March 14, 2025 , (B) the date on which the Oramed Note has been repaid in full and (C) the Management Sale Trigger Date (as defined therein), if any. Each Subsequent Penny Warrant will expire on the date that is the fifth anniversary of the issuance date; provided that, if the Oramed Note is repaid in full prior to the Subsequent Penny Warrant Vesting Date applicable to such Subsequent Penny Warrant, such Subsequent Penny Warrant will expire on the date the Oramed Note is repaid in full. The exercise price of the Penny Warrants is $ 0.01 per share, subject to adjustments provided therein. The exercise price and number of shares of Common Stock issuable upon the exercise of the Penny Warrants will be subject to adjustment in the event of any stock dividend, stock split, recapitalization, reorganization or similar transaction, as described in the Penny Warrants; provided that there shall not be any adjustment to the exercise price of the Penny Warrants in the event the Company combines (by combination, reverse stock split or otherwise) its Common Stock into a smaller number of shares. Oramed may exercise the Penny Warrants by means of a “cashless exercise.” The Closing Penny Warrant and the Subsequent Penny Warrants utilize the same form of warrant. The Penny Warrants may not be exercised if Oramed, together with its affiliates, would beneficially own in excess of 9.9 % of the number of shares of Common Stock outstanding immediately after giving effect to such exercise (the “Oramed Beneficial Ownership Limitation”); provided, however, that upon 61 days’ prior notice to the Company, Oramed may increase or decrease the Oramed Beneficial Ownership Limitation. The Company accounted for the Penny Warrants as an equity classified instrument as they are indexed to the Company’s own stock and meet the conditions to be classified in equity under FASB ASC 815, Derivatives and Hedging, including sufficient available shares for the Company to settle the exercise of the warrants in shares. The Penny Warrants are recognized in additional paid-in capital in the Company’s consolidated balance sheets. The fair value of Penny Warrants as of September 21, 2023, the date of issuance, was $ 10.4 million . F- 26 Excise Tax In December 2022, the Department of the Treasury and the Internal Revenue Service (the “IRS”) issued guidelines on the implementation of the new code section added by the Inflation Reduction Act of 2022, which imposes a 1% excise tax on the total fair market value of stock repurchases during the tax year, subject to adjustments. Pursuant to the terms of the Sorrento SPA, the Company repurchased the Purchased Securities from Sorrento. The total fair market value of the Purchased Securities was offset by the fair market value of the shares issued during the year ended December 31, 2023. The Company has accrued $ 1.3 million of the excise tax liability, which is recorded as accrued expenses under current liabilities on the consolidated balance sheet. The excise tax will be adjusted based on any new guidance that the IRS may release. 9. Stockholders’ Equity SPAC Warrants Upon the completion of the Business Combination, the Company assumed the SPAC Warrants. Holders of the SPAC Warrants are entitled to acquire shares of Common Stock. The SPAC Warrants will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. If the reported last sale price of the Common Stock equals or exceeds $ 18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders, the Company may redeem all the Public Warrants at a price of $ 0.01 per warrant upon not less than 30 days’ prior written notice. If the Company calls the Public Warrants for redemption, the Company will have the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis. The Company will not be required to net cash settle the SPAC Warrants. The Public Warrants are equity-classified warrants and recognized in additional paid-in capital in the accompanying consolidated balance sheets. The Private Warrants are liability-classified warrants and are recognized as liabilities (refer to Notes 1 and 4). During the year ended December 31, 2023, the SPAC Warrants held by Sorrento were repurchased, and certain of such warrants transferred to Oramed, as a result of the Sorrento SPA (refer to Note 8). As of December 31, 2023 and 2022, there were 6,854,309 and 6,899,988 Public Warrants outstanding, respectively. As of December 31, 2023 and 2022, there were 3,613,383 and 4,104,000 Private Warrants outstanding, respectively. Preferred Stock As of December 31, 2023 and 2022, there were 29,057,097 shares of Preferred Stock outstanding. On September 21, 2023, the Preferred Stock was repurchased and derecognized for accounting purposes. The Preferred Stock is currently held as collateral for the Oramed Note. Treasury Stock As of December 31, 2023, there were 60,068,585 shares of Treasury Stock. F- 27 A&R Yorkville Purchase Agreement Pursuant to the A&R Yorkville Purchase Agreement, the Company has the right, but not the obligation, in its sole and absolute discretion, to sell to Yorkville up to $ 500.0 million of shares of Common Stock at its request and subject to certain conditions by delivering written notice to Yorkville at any time until the first day of the month following the 36-month anniversary of the date on which the Company’s registration statement on Form S-1 registering such shares has been declared effective by the SEC. Pursuant to the A&R Yorkville Purchase Agreement, the shares of Common Stock, if any, that the Company elects to sell to Yorkville pursuant to a sale of Common Stock will be purchased at a price equal to 98 % of the VWAP (as defined below) during the applicable pricing period for such advance, which shall be the period commencing upon receipt by Yorkville of an advance notice from the Company (or the open of regular trading hours, if later) and ending on 4:00 p.m. on the same day. For purposes of the A&R Yorkville Purchase Agreement, “VWAP” means, for a specified period, the volume weighted average price of the Common Stock on the Nasdaq Capital Market for such period as reported by Bloomberg L.P. through its “AQR” function. Pursuant to the terms of the Original Purchase Agreement, the Company filed a registration statement on Form S-1 (File No. 333-268607) (as it may be amended or supplemented from time to time, the “Yorkville Registration Statement”) related to the Original Purchase Agreement with the SEC on November 30, 2022 (following the execution of the Original Purchase Agreement). The Yorkville Registration Statement was initially declared effective by the SEC on December 9, 2022. In connection with the execution of the Original Purchase Agreement, the Company issued to Yorkville 250,000 shares of Common Stock. During the year ended December 31, 2023, the Company sold 11,552,074 shares of Common Stock pursuant to the A&R Yorkville Purchase Agreement for aggregate net proceeds of $ 32.3 million . B. Riley Purchase Agreement Pursuant to the B. Riley Purchase Agreement, the Company has the right, but not the obligation, to sell to B. Riley up to $ 500.0 million of shares of Common Stock, subject to certain limitations and conditions set forth therein, from time to time at the Company’s sole and absolute discretion, during the term of the B. Riley Purchase Agreement. The Company’s right to sell shares of Common Stock pursuant to the B. Riley Purchase Agreement shall end on the first day of the month following the 36-month anniversary of the date on which the B. Riley Registration Statement (as defined below) was initially declared effective by the SEC. Pursuant to the terms of the B. Riley Purchase Agreement, the Company filed a registration statement on Form S-1 (File No. 333-269205) (as it may be amended or supplemented from time to time, the “B. Riley Registration Statement”) related to the B. Riley Purchase Agreement with the SEC on January 12, 2023 (following the execution of the B. Riley Purchase Agreement). The B. Riley Registration Statement was initially declared effective by the SEC on January 20, 2023. The shares of Common Stock, if any, that the Company elects to sell to B. Riley pursuant to an advance under the B. Riley Purchase Agreement will be purchased at a price equal to 98 % of the VWAP (as defined in such agreement) during the pricing period prescribed therein. In connection with the execution of the B. Riley Purchase Agreement, the Company issued to B. Riley 250,000 shares of Common Stock. During the year ended December 31, 2023, the Company sold an aggregate of 1,414,554 shares of Common Stock for aggregate net proceeds of $ 3.2 million . On, and effective as of, February 16, 2024, the Company and B. Riley mutually agreed to terminate the B. Riley Purchase Agreement. F- 28 Stock Issued under Settlement Agreement with Hudson Bay Parties In August 2023, the Company, along with Hudson Bay Capital Management LP (“Hudson Bay”), Cove Lane Onshore Fund, LLC (“Cove Lane”), and HBC Investments LLC (“HBC” and collectively, the “Hudson Bay Parties”), entered into several agreements. Under these agreements, the Company agreed to issue and sell up to $ 118.6 million in securities and warrants to the Hudson Bay Parties. However, on September 15, 2023, a settlement agreement was reached and released all claims related to the previous agreements. The Company acknowledged payments of $ 8.65 million made to the Hudson Bay Parties as properly earned. To satisfy remaining obligations, the Company agreed to issue shares of Common Stock to Cove Lane and HBC worth $ 0.3 million and $ 0.5 million , respectively. This resulted in the issuance of an aggregate of 474,683 shares of Common Stock on September 25, 2023. At-the-Market Sales Agreement On December 22, 2023, the Company entered into a Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc., Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC (the “Sales Agents”). Pursuant to the ATM Sales Agreement, the Company may offer and sell (the “Offering”) shares of Common Stock up to $ 170,000,000 (the “ATM Shares”), through or to the Sales Agents. The Company has no obligation to sell any shares of Common Stock under the ATM Sales Agreement and may suspend offers at any time. The Offering will terminate upon (i) the election of the Sales Agents upon the occurrence of certain adverse events, (ii) three business days’ advance notice from the Company to the Sales Agents or a Sales Agent to the Company, or (iii) the sale of all $ 170,000,000 of shares of Common Stock thereunder. The ATM Shares offered and sold in the Offering will be issued pursuant to the Company’s shelf registration statement on Form S-3 (the “Shelf S-3 Registration Statement”), filed with the SEC on December 22, 2023, and declared effective by the SEC on January 11, 2024. The ATM Shares may be offered only by means of a prospectus forming a part of the Shelf S-3 Registration Statement. The Sales Agents are entitled to a commission equal to 3.0 % of the gross proceeds from each sale of shares of Common Stock. The Company will also reimburse the Sales Agents for certain expenses and has agreed to provide indemnification and contribution to the Sales Agents against certain civil liabilities, including liabilities under the Securities Act. As of December 31, 2023, no sales of Common Stock had been made under the ATM Sales Agreement. 10. Stock Incentive and Employee Benefit Plan 2017 Scilex Pharmaceuticals Inc. Equity Incentive Plan In June 2017, the Board of Directors of the Company adopted the Scilex Pharmaceuticals Inc. Equity Incentive Plan (the “Scilex Pharma 2017 Plan”). In connection with the corporate reorganization in March 2019, the Scilex Pharma 2017 Plan was terminated. Accordingly, after such time, no additional awards were granted under the Scilex Pharma 2017 Plan. Scilex Holding Company 2019 Stock Option Plan In May 2019, the Board of Directors of the Company adopted the Scilex Holding Company 2019 Stock Option Plan (the “2019 Stock Option Plan”), which subsequently was amended in December 2020. The 2019 Stock Option Plan was terminated at the closing of the Business Combination, and no further awards have been granted under the 2019 Stock Option Plan thereafter. However, the 2019 Stock Option Plan will continue to govern outstanding awards granted thereunder. F- 29 Scilex Holding Company 2022 Equity Incentive Plan In October 2022, the Board of Directors of the Company adopted the Scilex Holding Company 2022 Equity Incentive Plan (the “Equity Incentive Plan”). The total number of shares of Common Stock for which incentive stock options (“ISOs”) may be granted under the Equity Incentive Plan is not to exceed 20,276,666 shares, which was increased from 14,622,712 as a result of the automatic annual increase on January 1, 2023 pursuant to the Equity Incentive Plan provisions. On May 4, 2023, the Company’s stockholders approved the amendment to the Equity Incentive Plan to (i) increase the number of shares authorized for issuance thereunder by 10,000,000 shares from 20,276,666 shares to 30,276,666 shares, (ii) increase the number of shares authorized for issuance thereunder pursuant to the exercise of ISOs to 30,276,666 shares, and (iii) modify the commencement date of the automatic increase in the number of shares authorized for issuance thereunder pursuant to the exercise of ISOs to January 1, 2024. As of December 31, 2023 , options to purchase 33,123,798 shares of Common Stock were outstanding under all equity incentive plans. The Company recently determined that the aggregate value of all compensation granted or paid to each non-employee director for the fiscal year ending December 31, 2023 (when aggregated with any remaining compensation payable for the remainder of such fiscal year) would inadvertently exceed the $ 750,000 annual compensation limit for non-employee directors (the “Compensation Limit”) under the Equity Incentive Plan, as a result of the previously disclosed equity grants made thereunder to such non-employee directors in January 2023 (the “Awards”). As a result, the Company’s current non-employee directors, David Lemus and Dorman Followwill, and the Company’s former non-employee directors, Tien-Li Lee and Laura Hamill, each voluntarily agreed to forfeit (i) a number of shares of Common Stock subject to their Awards or (ii) a combination of shares of Common Stock subject to their Awards and cash compensation payable by the Company for such person’s service as a director for the remainder of 2023, in each case in an amount that would bring each such non-employee director’s aggregate compensation for the fiscal year ending December 31, 2023 below the Compensation Limit. The non-employee directors forfeited an aggregate of 311,735 shares of Common Stock and an aggregate of approximately $ 107,424 in cash compensation. Scilex Holding Company 2023 Inducement Plan On January 17, 2023, the compensation committee of the Board of Directors of the Company adopted the Scilex Holding Company 2023 Inducement Plan (the “Inducement Plan”). The Inducement Plan provides for the grant of equity-based awards in the form of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, and other awards solely to prospective employees of the Company or an affiliate of the Company, provided that certain criteria are met. The initial maximum number of shares available for grant under the Inducement Plan is 1,400,000 shares of Common Stock (subject to adjustment for recapitalizations, stock splits, reorganizations and similar transactions). No awards were granted under the Inducement Plan during the year ended December 31, 2023. The following table summarizes stock option activity during the year ended December 31, 2023 (shares in thousands): Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life, in years Aggregate Intrinsic Value Outstanding as of December 31, 2022 16,939 $ 1.68 7.0 $ 38,942 Granted 17,610 $ 7.02 Exercised ( 365 ) $ 1.68 Forfeited/Cancelled ( 1,060 ) $ 6.36 Outstanding as of December 31, 2023 33,124 $ 4.38 7.5 $ 7,459 Exercisable as of December 31, 2023 18,990 $ 2.78 6.3 $ 5,600 F- 30 Intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the Common Stock for the options that had exercise prices that were lower than the per share fair value of the Common Stock as of the measurement date of the intrinsic value. The weighted-average grant date fair value per share of stock options granted during the year ended December 31, 2023 was $ 3.24 per share. The total intrinsic values of options exercised during the years ended December 31, 2023, 2022, and 2021 were $ 1.1 million , $ 0.3 million , and nil, respectively. Total stock-based compensation recorded within operating expenses was $ 14.6 million , $ 5.3 million and $ 5.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. The total unrecognized compensation costs related to unvested employee and non-employee stock option grants as of December 31, 2023 were $ 42.4 million , which the Company expects to recognize over a weighted-average period of approximately 3.1 years. Scilex Holding Company 2022 Employee Stock Purchase Plan In October 2022, the Board of Directors of the Company adopted the Scilex Holding Company 2022 Employee Stock Purchase Plan (the “ESPP”). The purchase price of the Common Stock is equal to 85 % of the lesser of the market value of such shares at the beginning of an offering period or the date of purchase. As of December 31, 2023 , the total number of shares of Common Stock that may be issued under the ESPP shall not exceed 2,875,759 , which was increased from 1,462,271 shares as a result of automatic annual increase on January 1, 2023. Total stock-based compensation recorded as operating expense for the ESPP was $ 21.0 thousand and nil for the year ended December 31, 2023 and 2022, respectively. Valuation Assumptions The Company calculates the fair value of stock options and ESPP awards granted to employees and nonemployees using the Black-Scholes option-pricing method. The Black-Scholes option-pricing method requires the use of subjective assumptions. The following assumptions were used in the Black-Scholes options pricing model to estimate stock-based compensation on the date of grant for stock options and ESPP: Year Ended December 31, 2023 Stock options: Expected dividend yield 0.00 % Expected volatility 40.00 % - 77.00 % Risk-free interest rate 3.59 % - 4.74 % Term of options (in years) 6.25 Employee stock purchase plan: Expected dividend yield 0.00 % Expected volatility 117.57 % Risk-free interest rate 5.33 % Expected life (in years) 0.50 Employee Benefit Plan The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. The Company made matching contributions to the 401(k) plan totaling $ 0.5 million , $ 0.3 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. F- 31 Retainer Shares On February 13, 2023, the Company entered into a Stock Issuance Agreement (the “SIA”) with a law firm for the provision of legal services to the Company. Under the SIA, the Company issued 4,000,000 shares of Common Stock to the law firm (the “Retainer Shares”). The Retainer Shares are held by the law firm as collateral for the current and future outstanding legal fees due from the Company. At the option of the law firm, the Retainer Shares may be sold and the net proceeds may be applied against the outstanding legal fees. The Retainer Shares not applied against the outstanding legal fees due will be returned to the Company. As of December 31, 2023 , it was no t probable that any of the Retainer Shares would be applied against any outstanding legal fees. 11. Commitments and Contingencies Product Development Agreement In February 2013, Scilex Pharma became a party to a product development agreement (as amended, the “Product Development Agreement”) with Itochu and Oishi Koseido Co., Ltd. (“Oishi,” and together with Itochu, the “Developers”), pursuant to which the Developers will manufacture and supply lidocaine tape products, including ZTlido and SP-103 (the “Products”), for Scilex Pharma. The Developers initially developed and have intellectual property rights relating to the Products. Pursuant to the Product Development Agreement, Scilex Pharma acquired an exclusive right to develop and commercialize the Products worldwide except for Japan. The Developers are responsible for sourcing and supplying lidocaine for development and commercialization purposes. Pursuant to the Product Development Agreement, Scilex Pharma is required to make aggregate royalty payments between 25 % and 35 % to the Developers based on net profits . For the years ended December 31, 2023 and 2022, Scilex Pharma made royalty payments in the amount of $ 8.3 million and $ 2.3 million . As of December 31, 2023 and 2022, Scilex Pharma had ending balances of accrued royalty payables of $ 2.4 million and $ 2.2 million , respectively. Total royalty expense recorded within cost of revenue was $ 8.5 million and $ 4.5 million for the years ended December 31, 2023 and 2022, respectively. Net profits are defined as net sales, less cost of goods and marketing expenses. Net sales are defined as total gross sales of any Product, les s all applicable deductions, to the extent accrued, paid or allowed in the ordinary course of business with respect to the sale of such Product, and to the extent that they are in accordance with GAAP. If Scilex Pharma were to sublicense the licensed technologies, the Developers will receive the same proportion of any sublicensing fees received therefrom. The Product Development Agreement will continue in full force and effect until October 2, 2028 , the date that is ten years from the date of the first commercial sale of ZTlido. The Product Development Agreement will renew automatically for subsequent successive one-year renewal periods unless Scilex Pharma or the Developers terminate it upon 6-month written notice. On February 16, 2017, Scilex Pharma entered into a Commercial Supply Agreement (as amended, the “Supply Agreement”) with the two Developers to provide commercial supply of ZTlido and SP-103 to Scilex Pharma. The Supply Agreement contains standard terms regarding term, termination, payment, product quality and supply. In addition, the agreement provides additional terms regarding the calculation and amount of marketing expenses that may be deducted from net sales for purposes of determining the amount of net profit under the Product Development Agreement. Litigation In the normal course of business, the Company may be named as a defendant in one or more lawsuits. Other than the following four lawsuits, the Company is not a party to any outstanding material litigation and management is not aware of any legal proceedings that, individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations. From time to time the Company may become involved in various legal proceedings, including those that may arise in the ordinary course of business. F- 32 Sanofi-Aventis U.S. LLC and Hisamitsu America, Inc. Litigation On February 23, 2021, the Company filed an action (the “Action”) in the U.S. District Court for the Northern District of California against Sanofi-Aventis U.S. LLC and Hisamitsu America, Inc., two manufacturers of over-the-counter (“OTC”) lidocaine patch products, alleging, among other things, false and deceptive advertising and unfair competition under the Lanham Act and California state laws by those companies regarding their respective OTC patch products. This lawsuit sought, among other relief, damages and an injunction enjoining the defendants from continuing to make false or misleading statements of fact about their respective OTC lidocaine patch products. The defendants filed motions to dismiss, which narrowed slightly the Company’s claims, but which motions the court largely rejected. Discovery was proceeding. On January 26 and February 2, 2024, Scilex Pharma entered into two separate settlement agreements and mutual releases with the two manufacturers that resolve the Action. The terms of those agreements are confidential. Former Employee Action On March 12, 2021, Scilex Pharma and Sorrento (the “Plaintiffs”) filed an action (the “Former Employee Action”) in the Delaware Court of Chancery against the former President of Scilex Pharma, Anthony Mack, and Virpax Pharmaceuticals, Inc. (“Virpax”, together with Mr. Mack, the “Defendants”), a company founded and then headed by Mr. Mack, alleging, among other things, breach by Mr. Mack of a restrictive covenant agreement with Sorrento related to his sale of his Scilex Pharma stock to Sorrento, tortious interference with that agreement by Virpax, breach of Mr. Mack’s fiduciary duties to Scilex Pharma, aiding and abetting of that breach by Virpax, and misappropriation of Scilex Pharma’s trade secrets by Mr. Mack and Virpax. Such lawsuit sought, among other relief, damages and various forms of injunctive relief. The case was tried from September 12, 2022 to September 14, 2022. On September 1, 2023, the court found in favor of the Plaintiffs on all but three counts deemed to have been waived. In its 95-page opinion, the court instructed the parties to submit supplemental briefing on the appropriate remedy to implement its rulings. On October 18, 2023, the Plaintiffs submitted a supplemental brief on remedies. On November 29, 2023, Defendants submitted a supplemental brief on remedies. On December 21, 2023, the Plaintiffs submitted a supplemental reply brief on remedies. On February 26, 2024, the Company and Virpax entered into a term sheet regarding a mutual release and settlement agreement, pursuant to which the parties have agreed to resolve the ongoing disputes. On February 29, 2024, the Company and Virpax entered into a definitive settlement agreement, which provides for, among other things, that Virpax will be obligated to make the following payments to the Company to settle the Former Employee Action: (i) $ 3.5 million (the “Initial Payment”) by two business days after the Effective Date (as defined therein); (ii) $ 2.5 million by July 1, 2024 and (iii) to the extent any of the following drug candidates are ever sold, royalty payments of (a) 6 % of annual Net Sales (as defined therein) of Epoladerm; (b) 6 % of annual Net Sales of Probudur and (c) 6 % of annual Net Sales of Envelta during the Royalty Term (as defined therein). The Company and Virpax provide mutual releases of all claims that exist as of the Effective Date, whether known or unknown, arising from any allegations set forth in the Former Employee Action. Plaintiffs’ release relates to claims against Virpax only, which does not affect its claims against Mr. Mack. Plaintiffs have not released Mr. Mack, and litigation against him remains ongoing. Plaintiffs’ release as to Virpax is conditioned upon Virpax’s Initial Payment. ZTlido Patent Litigation On June 22, 2022, the Company filed a complaint against Aveva Drug Delivery Systems, Inc. (“Aveva”), Apotex Corp., and Apotex, Inc. (together, “Apotex”) in the U.S. District Court for the Southern District of Florida (the “ZTlido Patent Litigation”) alleging infringement of certain Orange Book listed patents covering ZTlido (the “ZTlido Patents”). The ZTlido Patent Litigation was initiated following the submission by Apotex, in accordance with the procedures set out in the Hatch-Waxman Act, of an abbreviated new drug application (“ANDA”). Apotex’s ANDA seeks approval to market a generic version of ZTlido prior to the expiration of the ZTlido Patents and alleges that the ZTlido Patents are invalid, unenforceable, and/or not infringed. The Company is seeking, among other relief, an order that the effective date of any FDA approval of Apotex’s ANDA be no earlier than the expiration of the asserted patents listed in the Orange Book, the latest of which expires on May 10, 2031, and such further and other relief as the court may deem appropriate. Apotex is subject to a 30-month stay preventing it from selling a generic version of ZTlido during that time. The stay should expire no earlier than November 11, 2024. The two Apotex entities were recently dismissed from the litigation without prejudice, as they no longer have an interest in the generic product that Aveva F- 33 seeks to market. Trial in the ZTlido Patent Litigation has been scheduled for July 8, 2024. The Company cannot make any predictions about the final outcome of this matter or the timing thereof. GLOPERBA Patent Litigation On November 6, 2023, Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) filed a complaint against the Company in the U.S. District Court for the District of Delaware (the “GLOPERBA Patent Litigation”) alleging that the Company’s filing with the FDA of an application for approval of a proposed revision to the product label for its GLOPERBA product infringed certain Orange Book listed patents covering Takeda’s colchicine product, Colcrys ® (the “Colcrys Patents”). Takeda is seeking an order that the effective date of any FDA approval of the Company’s labeling revision be no earlier than the expiration date of the asserted patents listed in the Orange Book, and such further and other relief as the court may deem appropriate. The filing of the complaint subjects the Company to a 30-month stay, preventing it from selling GLOPERBA under a revised label (but not from selling GLOPERBA under its current label) during that time. The Company cannot make any predictions about the final outcome of this matter or the timing thereof. The stay could last as long as until May 6, 2026, unless the litigation is resolved before that time . As of December 31, 2023, the Company accrued $ 0.5 million with respect to the GLOPERBA Patent Litigation. Operating Leases The Company leases administrative and research and development facilities under various non-cancelable lease agreements. Facility leases generally provide for periodic rent increases and may include options to extend. As of December 31, 2023, the Company’s leases have remaining lease terms of approximately 0.7 to 3.8 years. Th e terms of the Company’s leases, ranging from 3 to 5 years, include extension options that were not reasonably certain to be exercised. Many of the Company’s leases are subject to variable lease payments. Variable lease payments are recognized in the period in which the obligations for those payments are incurred, are not included in the measurement of the ROU assets or lease liabilities, and are immaterial. Additionally, the Company subleases certain properties to third parties. Sublease income is recognized on a straight-line basis and is immaterial. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company calculates the associated lease liability and corresponding ROU asset upon lease commencement using a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. As of December 31, 2023 , the Company has no finance leases . In April 2023, the Company modified the lease term for its principal executive offices located in Palo Alto, California. The modification extended the lease term for an additional three years, with the lease term expiring in September 2027. As a result of the modification, the Company recognized additional ROU assets and corresponding lease liabilities of $ 2.5 million . Lease expense was $ 1.1 million , $ 0.5 million and $ 0.6 million for the years ended December 31, 2023, 2022 and 2021, respectively, and was primarily comprised of operating lease costs. The lease expense also included variable lease costs and sublease income, which were immaterial for the periods presented. F- 34 Supplemental quantitative information related to leases includes the following: Year Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases (in thousands) $ ( 1,021 ) $ ( 746 ) Weighted average remaining lease term in years — operating leases 3.6 1.8 Weighted average discount rate — operating leases 11.1 % 11.8 % Approximate future minimum lease payments under operating leases were as follows (in thousands): Year Ended December 31, Amount 2024 $ 1,042 2025 916 2026 944 2027 724 Total lease payments 3,626 Less imputed interest ( 630 ) Total lease liabilities 2,996 Less current portion of lease liability 759 Lease liability, net of current portion $ 2,237 12. Income Taxes Total loss before income taxes for the years ended December 31, 2023, 2022 and 2021 did not include a foreign component. The components of the provision expense (benefit) were as follows for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Current income tax expense (benefit): Federal $ — $ — $ — State 13 4 5 Total current 13 4 5 Deferred income tax expense (benefit): Federal ( 16,514 ) ( 10,396 ) ( 12,981 ) State ( 11,247 ) ( 1,851 ) ( 2,472 ) Total deferred ( 27,761 ) ( 12,247 ) ( 15,453 ) Changes in tax rate ( 1,471 ) 1,347 31 Changes in valuation allowance 29,232 10,900 15,422 Total income tax expense from continuing operations $ 13 $ 4 $ 5 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. F- 35 The components of the Company’s net deferred tax liabilities and related valuation allowance are as follows as of December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 71,434 $ 48,984 Debt related interest 16,898 15,272 Capitalized research and development 4,936 2,014 Tax credit carryforwards 3,960 1,630 Stock based compensation 525 1,602 Accrued expense and reserves 1,584 568 Operating lease liabilities 774 315 Other 159 77 Total deferred tax assets 100,270 70,462 Less valuation allowance ( 96,776 ) ( 67,543 ) Total deferred tax assets 3,494 2,919 Deferred tax liabilities: Intangible assets ( 2,734 ) ( 2,666 ) Operating lease right-of-use assets ( 760 ) ( 253 ) Total deferred tax liabilities ( 3,494 ) ( 2,919 ) Net deferred tax liabilities $ — $ — The reconciliation between U.S. federal income taxes at the statutory rate and the Company’s provision for income taxes are as follows for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Income tax benefit at federal statutory rate $ ( 24,007 ) $ ( 4,905 ) $ ( 19,150 ) Valuation allowance 29,232 10,900 15,422 Debt discount and interest limitation — ( 9,293 ) 8,954 Compensation expense 3,798 2,469 224 Acquisition related charges 260 992 75 Prior year true-up and carryback ( 5,079 ) ( 713 ) ( 3,968 ) State, net of federal tax benefit ( 5,127 ) ( 174 ) ( 2,545 ) Change in fair value of Convertible Debentures 1,752 — — Change in tax rates ( 1,471 ) — — Other 655 728 993 Income tax expense $ 13 $ 4 $ 5 The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that the deferred tax assets will not be realized. Due to such uncertainties surrounding the realization of the deferred tax assets, the Company maintains a valuation allowance of $ 96.8 million against its deferred tax assets as of December 31, 2023. Realization of the deferred tax assets will be primarily dependent upon the Company’s ability to generate sufficient taxable income prior to the expiration of its net operating losses. As of December 31, 2023, the Company had $ 278.7 million and $ 114.0 million of federal and state net operating loss carryforwards, respectively. The net operating loss carryforwards begin to expire in 2035 and 2034 for federal and state, respectively. As of December 31, 2023, the Company had a total of $ 265.9 million of federal net operating losses that have an indefinite life and will not expire, and had federal research and development income tax credits of $ 3.4 million which will begin to expire in 2035 . As of December 31, 2023, the Company had California research and development income tax credits of $ 1.9 million that have an indefinite life and will not expire. Internal Revenue Code Section 382 rules apply to limit a corporation’s ability to utilize existing net operating loss and tax credit carryforwards once the corporation experiences an ownership change as defined in Section 382. For the years ended December 31, 2023 and 2022, there was no impact of such limitations on the Company’s income tax provision. F- 36 The Company is subject to taxation in U.S. federal and state tax jurisdictions. All of the Company’s tax years will remain open for three years for examination by the federal and state tax authorities from the date of utilizations of net operating loss. There are no active tax compliance audits as of December 31, 2023. A reconciliation of the beginning and ending amount of unrecognized tax expense (benefits) is as follows for the years ended December 31, 2023, 2022 and 2021 (in thousands): 2023 2022 2021 Beginning balance $ 408 $ 408 $ 406 Increase related to prior year tax positions 536 — 2 Increases related to current year tax positions 127 — — Ending balance $ 1,071 $ 408 $ 408 As of December 31, 2023, 2022 and 2021, the Company had $ 1.1 million , $ 0.4 million and $ 0.4 million in total unrecognized tax benefits, respectively. If these were to be recognized, they would affect the effective tax rate, however given the full valuation allowance in the jurisdiction in which the unrecognized tax benefits relate to, the impact on the effective tax rate would be nil. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. No interest or penalties have been recognized as of and for the periods ended December 31, 2023, 2022 and 2021. The Company believes that no material amount of the liabilities for uncertain tax positions are expected to reverse within 12 months of December 31, 2023 . 13. Net Loss Per Share The following table sets forth the reconciliation of basic and diluted loss per share for the years ended December 31, 2023, 2022 and 2021 (in thousands except per share data): Year Ended December 31, 2023 2022 2021 Net loss $ ( 114,331 ) $ ( 23,364 ) $ ( 88,424 ) Premium on redemption of Preferred Stock ( 52,645 ) — — Net loss for basic and diluted loss per share available to common stockholders $ ( 166,976 ) $ ( 23,364 ) $ ( 88,424 ) Weighted average number of shares outstanding - basic 130,298 134,226 132,858 Effect of dilutive securities — — — Weighted average number of shares and assumed conversions - diluted 130,298 134,226 132,858 Loss per share Basic and diluted $ ( 1.28 ) $ ( 0.17 ) $ ( 0.67 ) Basic net loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. Premium paid on redemption of Preferred Stock was added to the net loss to arrive at loss available for common stockholders as it represents a dividend to the preferred stockholder. Diluted earnings per share is computed using the weighted average number of Common Stock and, if dilutive, potential Common Stock outstanding during the period. Potential Common Stock consists of the incremental Common Stock issuable upon the exercise of stock options and warrants (using the treasury stock method). In the computation of net loss per share, treasury shares are not included as part of the outstanding shares. In accordance with FASB ASC 260, Earnings Per Share, Penny Warrants are warrants that would be exercised for no or little consideration and therefore should be included in the calculation of weighted average shares outstanding for purposes of calculating basic and diluted net income (loss) per share. The Closing Penny Warrants become exercisable upon the passage of time and are included in basic and diluted net income (loss) per share from the closing date of September 21, 2023. The Subsequent Penny Warrants to purchase up to an aggregate of 8,500,000 shares of Common Stock are not vested as of the closing date of September 21, 2023 and the vesting is based on the passage of time, the Company’s repayment of the Oramed Note or the occurrence of the Management Sale Trigger Date (as defined F- 37 therein). Therefore, these Subsequent Penny Warrants are included in the computation for diluted net income per share once all other exercise contingencies are removed except for the passage of time. The following potentially dilutive outstanding securities were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented: December 31, December 31, December 31, 2023 2022 2021 Stock options 33,123,798 16,939,093 18,967,724 Public Warrants 6,854,309 6,899,988 — Private Warrants 3,613,383 4,104,000 — Retainer Shares 4,000,000 — — Shares Issuable pursuant to ESPP 29,806 — — Convertible Debentures 546,921 — — Total 48,168,217 27,943,081 18,967,724 14. Subsequent Events Termination of B. Riley Purchase Agreement On February 16, 2024, the Company and B. Riley mutually agreed to terminate the B. Riley Purchase Agreement. The termination is effective as of February 16, 2024. Underwritten Offering On February 29, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Rodman & Renshaw LLC and StockBlock Securities LLC, as the representatives (the “Representatives”) of the underwriters named in Schedule A (the “Underwriters”). Pursuant to the Underwriting Agreement, the Company agreed to sell, in an underwritten offering (the “Bought Deal Offering”), 5,882,353 shares (the “Firm Shares”) of the Common Stock, and accompanying common warrants to purchase up to an aggregate of 5,882,353 shares of Common Stock (the “Firm Warrants”). Pursuant to the Underwriting Agreement, the Company also granted the Underwriters an option for a period of 30 days from the date of the Underwriting Agreement to purchase up to 882,352 additional shares of Common Stock (the “Optional Shares”, and together with the Firm Shares, the “Shares”) and/or common warrants to purchase up to 882,352 shares of Common Stock (the “Optional Warrants”, and together with the Firm Warrants, the “Common Warrants”) that may be purchased by the Underwriters, at a price per Optional Share of $ 1.5548 and a price per Optional Warrant of $ 0.0092 , which amounts reflect the public offering price of $ 1.69 per Optional Share and $ 0.01 per Optional Warrant, less underwriting discounts and commissions, as applicable (the “Underwriters’ Option”). Each Firm Share was sold together with a Firm Warrant at a combined public offering price of $ 1.70 . The combined price per Firm Share and accompanying Firm Warrant paid by the Underwriters was $ 1.564 , which amount reflects the combined public offering price of $ 1.70 , less underwriting discounts and commissions. Subject to certain ownership limitations, the Common Warrants are exercisable immediately from the date of issuance, will expire on the five-year anniversary of the date of issuance and have an exercise price of $ 1.70 per share. The exercise price of the Common Warrants is subject to certain adjustments, including (but not limited to) for stock dividends, stock splits, combinations and reclassifications of the Common Stock. In connection with the Bought Deal Offering, the Company agreed, pursuant to the Underwriting Agreement, to issue the Representatives warrants (the “Representative Warrants”, and together with the Common Warrants, the “Warrants”) to purchase up to an aggregate of 470,588 shares of Common Stock (which represents 8.0 % of the aggregate number of Firm Shares sold in the Bought Deal Offering), or up to an aggregate of 541,176 shares of Common Stock if the Underwriters exercise the Underwriters’ Option in full. The Representative Warrants are immediately exercisable and have the same terms as the Common Warrants described above, except that the exercise price of the Representative Warrants is $ 2.125 per share, which represents 125 % of the combined public offering price per Firm Share and accompanying Firm Warrant. The Company also agreed to pay certain expenses of the Representatives in connection with the Bought Deal Offering, including their legal fees and out-of-pocket expenses up to $ 200,000 and up to $ 15,950 for clearing expenses. F- 38 The Shares, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants were offered and sold by us pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission (the “SEC”) on December 22, 2023, as amended, and was declared effective on January 11, 2024 (File No. 333-276245), a base prospectus dated January 11, 2024, and a final prospectus supplement dated February 29, 2024. F- 39