Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had ~~49,558,501~~53,637,554 shares of common stock, par value $0.001 per share, outstanding as of ~~November~~August 10, ~~2022.~~2023.

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

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)~~

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

REVENUES, NET

$
4,939

$
5,766

$
12,460

$
17,590

COST OF GOODS SOLD

540

445

1,943

1,311

GROSS PROFIT

4,399

5,321

10,517

16,279

OPERATING EXPENSES

Research and development

432

470

1,196

3,032

Selling

1,664

1,518

5,076

4,254

General and administrative

2,963

3,364

9,413

10,156

Total operating expenses

5,059

5,352

15,685

17,442

LOSS FROM OPERATIONS

(660
)

(31
)

(5,168
)

(1,163
)
OTHER INCOME (EXPENSE)

Loss on debt extinguishment

(421
)

—

(421
)

(1,172
)
Change in fair value of warrant derivative liabilities

51

(131
)

1,341

(322
)
Change in fair value of conversion feature derivative, notes payable

3,850

(1,357
)

3,235

(1,132
)
Realized loss on investment in convertible bond

—

—

(133
)

—

Net loss on equity method investment

(431
)

(663
)

(1,490
)

(1,999
)
Foreign exchange loss

(1,470
)

(246
)

(5,131
)

(1,421
)
Interest and other income

175

192

530

573

Interest expense

(1,520
)

(683
)

(3,544
)

(2,390
)
Total other income (expense)

234

(2,888
)

(5,613
)

(7,863
)
LOSS BEFORE INCOME TAXES

(426
)

(2,919
)

(10,781
)

(9,026
)
Income tax provision (benefit)

(35
)

232

44

58

NET LOSS

(391
)

(3,151
)

(10,825
)

(9,084
)

COMPONENTS OF OTHER COMPREHENSIVE LOSS

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

(3,047
)

(2,754
)

(7,112
)

(2,150
)
Reclassification adjustment for loss included in net income

—

—

7

—

Foreign currency translation adjustments

481

86

1,455

243

Other comprehensive loss

(2,566
)

(2,668
)

(5,650
)

(1,907
)
COMPREHENSIVE LOSS

$
(2,957
)

$
(5,819
)

$
(16,475
)

$
(10,991
)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED

$
(0.01
)

$
(0.06
)

$
(0.22
)

$
(0.18
)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

49,558,501

49,311,864

49,397,690

49,233,371

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

Common stock

Additional paid-in

Accumulated other comprehensive

Accumulated

Total stockholders'

Shares

Amount

capital

income (loss)

deficit

deficit

Balance at January 1,2022

49,311,864

$
49

$
220,022

$
(255
)

$
(241,266
)

$
(21,450
)
Share-based compensation

—

—

5

—

—

5

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

—

—

—

350

—

350

Reclassification adjustment for loss included in net income

—

—

—

7

—

7

Foreign currency translation effect

—

—

—

331

—

331

Net loss

—

—

—

—

(1,542
)

(1,542
)
Balance, March 31, 2022

49,311,864

49

220,027

433

(242,808
)

(22,299
)
Reclassification of warrants from liability to equity

—

—

213
��

—

—

213

Fair value of warrants including down-round protection adjustments

—

—

446

—

(446
)

—

Common stock issued for services

246,637

1

109

110

Share-based compensation

—

—

5

—

—

5

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

—

—

—

(4,415
)

—

(4,415
)
Foreign currency translation effect

—

—

—

643

—

643

Net loss

—

—

—

—

(8,892
)

(8,892
)
Balance, June 30, 2022

49,558,501

$
50

$
220,800

$
(3,339
)

$
(252,146
)

$
(34,635
)
Share-based compensation

—

—

3

—

—

3

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

—

—

—

(3,047
)

—

(3,047
)
Foreign currency translation effect

—

—

—

481

—

481

Net loss

—

—

—

—

(391
)

(391
)
Balance, September 30, 2022
$
49,558,501

$
50

$
220,803

$
(5,905
)

$
(252,537
)

$
(37,589
)

Common stock

Additional paid-in

Accumulated other comprehensive

Accumulated

Total stockholders'

Shares

Amount

capital

income (loss)

deficit

deficit

Balance at January 1,2021

48,987,189

$
49

$
218,728

$
1,144

$
(225,079
)

$
(5,158
)
Fair value of warrants including down-round protection adjustments

—

—

241

—

(241
)

—

Common stock issued for services

324,675

—

500

—

—

500

Share-based compensation

—

—

181

—

—

181

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

—

—

—

58

—

58

Foreign currency translation effect

—

—

—

165

—

165

Net loss

—

—

—

—

(8,422
)

(8,422
)
Balance, March 31, 2021

49,311,864

49

219,650

1,367

(233,742
)

(12,676
)
Share-based compensation

—

—

274

—

—

274

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

—

—

—

546

—

546

Foreign currency translation effect

—

—

—

(8
)

—

(8
)
Net income

—

—

—

—

2,489

2,489

Balance, June 30, 2021

49,311,864

49

219,924

1,905

(231,253
)

(9,375
)
Share-based compensation

—

—

93

—

—

93

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

—

—

—

(2,754
)

—

(2,754
)
Foreign currency translation effect

—

—

—

86

—

86

Net loss

—

—

—

—

(3,151
)

(3,151
)
Balance at September 30, 2021

49,311,864

$
49

$
220,017

$
(763
)

$
(234,404
)

$
(15,101
)

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

Nine Months Ended September 30,

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$
(10,825
)

$
(9,084
)
Adjustments to reconcile net loss to net cash flows used in operating activities

Depreciation and amortization

40

44

Inventory reserve

1,240

423

Amortization of discount of notes payable and convertible notes payable

1,303

1,410

Foreign exchange adjustments

5,072

1,415

Net gain on investment in marketable securities

133

—

Loss on equity method investment

1,490

1,999

Loss on debt extinguishment

421

1,172

Gain on disposal of property and equipment

—

(1
)
Loss on leased assets

22

—

Share-based compensation

13

548

Shares issued for services

55

500

Change in fair value of warrant derivative liabilities

(1,341
)

322

Change in fair value of conversion feature derivative, notes payable

(3,235
)

1,132

Net changes in operating assets and liabilities

Accounts receivable

(485
)

(2,469
)
Inventories

390

404

Prepaid expenses and other current assets

148

202

Other non-current assets

446

417

Income tax receivable and payable

28

15

Accounts payable and accrued expenses

1,479

(173
)
Other current liabilities

(3,199
)

242

Other long-term liabilities

55

(637
)
Net cash flows used in operating activities

(6,750
)

(2,119
)
CASH FLOWS FROM INVESTING ACTIVITIES

Sale of convertible bond

2,919

—

Purchases of property and equipment

(18
)

(11
)
Loan to equity method investee

(4,226
)

(5,241
)
Net cash flows used in investing activities

(1,325
)

(5,252
)
CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from notes payable issued, net of issuance cost

4,283

—

Proceeds from notes payable issued, net of issuance cost, related party

5,469

1,000

Proceeds from convertible notes payable issued, net of issuance cost and discount

—

14,490

Payments of notes payable

(2,689
)

(1,079
)
Payments of convertible notes

—

(7,200
)
Net cash flows provided by financing activities

7,063

7,211

Effect of exchange rate changes on cash

(88
)

(6
)
Net decrease in cash, cash equivalents and restricted cash

(1,100
)

(166
)
Cash, cash equivalents and restricted cash, beginning of period

2,279

2,487

Cash, cash equivalents and restricted cash, end of period

$
1,179

$
2,321

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES

Interest paid

$
817

$
840

Income taxes paid

$
16

$
43

NON-CASH INVESING AND FINANCING ACTIVITIES

Debt discount due to embedded derivative

$
68

$
5,555

Debt discount due to deferred financing cost

$
213

$
—

Debt discount due to warrants

70

—

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

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements of Emmaus Life Sciences, Inc., (“Emmaus”) and its direct and indirect consolidated subsidiaries (collectively, “we,” “our,” “us” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) on the basis that the Company will continue as a going concern. All significant intercompany transactions have been eliminated. The Company’s unaudited condensed consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to fairly state the Company’s consolidated financial position, results of operations and cash flows. Due to the uncertainty of the Company’s ability to meet its current liabilities and operating expenses, there is substantial doubt about the Company’s ability to continue as a going concern, as the continuation and any expansion of its business is dependent upon obtaining financing, market acceptance of ~~Endari®, and achieving a profitable level of revenues. The consolidated interim financial statements do not include any adjustments that might result from the outcome of these uncertainties.~~The condensed consolidated interim financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 31, ~~2022 and Quarterly Reports on Form 10-Q filed with the SEC on May 13, 2022 and August 15, 2022.~~2023. The accompanying condensed consolidated balance sheet at December 31, ~~2021~~2022 has been derived from the audited consolidated balance sheet at December 31, ~~2021~~2022 contained in the Annual Report. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results to be expected for the full year or any future interim period.

Nature of Operations

The Company is a commercial-stage biopharmaceutical company engaged in the discovery, development, marketing and ~~sale~~sales of innovative treatments and therapies, primarily for rare and orphan diseases. The Company’s lead product, ~~Endari~~®Endari® (prescription grade L-glutamine oral powder), is approved by the U.S. Food and Drug Administration, or FDA, and in certain foreign markets to reduce the acute complications of sickle cell disease (“SCD”) in adult and pediatric patients five years of age and older.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Annual Report. There have been no material changes in these policies or their application.

Going concern— The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. The Company incurred a net loss of ~~$10.8~~$5.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and had a working capital deficit of ~~$35.1~~$51.7 million as of ~~September~~June 30, ~~2022.~~2023. Management expects that the Company’s current liabilities, operating losses and expected capital needs, including the expected costs relating to the commercialization of Endari® in the Middle East North Africa ("MENA") region and elsewhere and continued funding of EJ Holdings, Inc. will exceed its existing cash balances and cash expected to be generated from operations for the foreseeable future. ~~In order to~~To meet the Company’s current liabilities and future obligations, the Company will need to restructure or refinance its existing indebtedness and raise additional funds through related-party loans, third-party loans, equity or debt financings or licensing or other strategic agreements. The Company is in discussions with the holders of its outstanding convertible promissory notes and certain other creditors to restructure or refinance the convertible promissory notes and other current liabilities but has no understanding or agreement to do so and has no understanding or arrangement for any additional ~~financing. There~~financing, and there can be no assurance that the Company will be able to ~~restructure~~obtain additional related-party or ~~refinance its existing indebtedness or other current liabilities~~third-party loans or complete any additional equity or debt financings on favorable terms, or at all, or enter into licensing or other strategic arrangements. Due to the uncertainty of the Company’s ability to meet its current ~~liabilities~~liability and operating expenses, there is substantial doubt about the Company’s ability to continue as a going concern for 12 months from the date ofthat this ~~filing.~~condensed consolidated financial statements are issued. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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

Prior period misclassification - During the quarter ended June 30, 2023, the Company identified a misclassification related to common stock warrants that were issued in January 2023. The common stock warrants issued in January 2023 in the amount of $1.4 million, should have been recorded as warrant derivative liabilities, as opposed to recorded in additional paid-in capital at their estimated fair value as the warrants did not meet equity classification in accordance with ASC815-40-25-10. The Company corrected the misclassification in the condensed consolidated financial statements for the six months ended June 30, 2023. The Company believes the correction of the misclassification is quantitatively and qualitatively not material to the previously issued condensed consolidated financial statements for the prior period.

The condensed consolidated statements of stockholders’ deficit included in this Quarterly Report as of June 30, 2023 differ from the From 10-Q’s for period ended March 2023, reflecting the misclassification of $1.4 million from additional paid-in capital and warrant derivative liability for warrants issued in January 2023.

Factoring accounts ~~receivables~~receivable — Emmaus Medical, Inc., or Emmaus Medical, anthe Company's indirect wholly owned subsidiary, ~~of Emmaus, is party to~~has entered into a purchase and sales agreement with Prestige Capital Finance, LLC or Prestige Capital, pursuant to which Emmaus Medical may offer and sell to Prestige Capital from time to time eligible accounts receivable in exchange for Prestige Capital’s down payment, or advance, to Emmaus Medical of ~~75%~~70% to 75% of the face amount of the accounts receivable, subject to a ~~$7.5~~$

7.5million cap on advances at any time. The balance of the face amount of the accounts ~~receivable will be~~receivables is reserved by Prestige Capital and paid to Emmaus Medical, less discount fees of Prestige Capital ranging from ~~2.25%~~2.25% to ~~7.25%~~7.25% of the face amount, as and when Prestige Capital collects the entire face amount of the accounts receivable. Emmaus Medical’s obligations to Prestige Capital under the purchase and sale agreement are secured by a security interest in the accounts receivable and all or substantially all other assets of Emmaus Medical. In connection with the purchase and sale agreement, Emmaus has guaranteed Emmaus Medical’s obligations under the purchase and sale agreement. Accounts receivable included approximately $~~86,000~~286,000 and $~~472,000~~730,000 of factoring accounts receivable and ~~there were $17,000~~ ~~and $9,000 liabilities related to factoring reflected in~~ other current liabilities included approximately $6,000 and $55,000 of liabilities from factoring at ~~September~~June 30, ~~2022~~2023 and ~~September 30, 2021,~~December 31, 2022, respectively. For the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, the Company incurred approximately $~~121,000~~,231,000 and $~~275,000~~101,000, respectively, of factoring fees. For ~~three and nine~~the six months ended ~~September~~June 30, ~~2021,~~2023 and 2022, the Company incurred approximately ~~$106,000~~$340,000 and ~~$181,000,~~$154,000, respectively of factoring fees.

Net loss per share — In accordance with Accounting Standard Codification (“ASC”) 260, “Earnings per Share,” the basic net loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted net loss per share is computed in a ~~manner~~ similar ~~to basic net loss per common share~~manner, except that the denominator is increased to include the number of additional shares of common ~~shares~~stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, the Company had outstanding potentially dilutive securities exercisable for or convertible into ~~52,635,590~~69,300,024 shares and ~~23,276,594~~52,523,286 shares, respectively, of ~~the Company’s~~ common stock. No potentially dilutive securities were included in the calculation of diluted net loss per share, since the ~~potential dilutive securities were~~effect would have been anti-dilutive for the periods ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021.~~2022.

Recent Accounting Pronouncement - Effective January 1, 2023, the Company adopted Accounting Standards Update 2016-13, Financial Instrument - Credit Losses (Topic 326), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. The new model, referred to as the current expected credit losses model, applies to financial assets subject to credit losses and measured at amortized costs, as well as certain off-balance sheet credit exposures. The adoption of this pronouncement did not have material impact on the Company's results of operations, financial condition or cash flow based on the current information.

NOTE 3 — REVENUES

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


	Three months ended September 30,				Nine months ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Endari®	$	4,763	$	5,590	$	12,072	$	17,186	$	10,477	$	4,261	$	16,992	$	7,309
Other		177		176	$	389		404		282		26	$	520		212
Revenues, net	$	4,939	$	5,766	$	12,460	$	17,590	$	10,759	$	4,287	$	17,512	$	7,521

The following table summarizes the revenue allowance and accrual activities for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022 ~~and September 30, 2021~~ (in thousands):


	Trade Discounts, Allowances and Chargebacks			Government Rebates and Other Incentives			Returns			Total
Balance as of December 31, 2022	$	1,358		$	3,718		$	415		$	5,491
Provision related to sales in the current year		1,213			2,095			262			3,570
Adjustments related to prior period sales		(213	)		136			—			(77	)
Credits and payments made		(1,463	)		(1,536	)		(360	)		(3,359	)
Balance as of June 30, 2023	$	895		$	4,413		$	317		$	5,625

Balance as of December 31, 2021	$	1,480		$	3,134		$	540		$	5,154
Provision related to sales in the current year		1,329			1,311			159		$	2,799
Adjustments related to prior period sales		(56	)		13			728		$	685
Credits and payments made		(1,288	)		(1,055	)		(854	)	$	(3,197	)
Balance as of June 30, 2022	$	1,465		$	3,403		$	573		$	5,441

Trade Discounts, Allowances and Chargebacks

Government Rebates and Other Incentives

Returns

Total

Balance as of December 31, 2021

$
1,481

$
3,133

$
539

$
5,153

Provision related to sales in the current year

1,859

1,828

210

3,897

Adjustments related to prior period sales

(56
)

18

569

531

Credits and payments made

(2,379
)

(1,656
)

(977
)

(5,012
)
Balance as of September 30, 2022

$
905

$
3,323

$
341

$
4,569

Balance as of December 31, 2020

$
134

$
2,119

$
473

$
2,726

Provision related to sales in the current year

2,374

2,627

188

5,189

Adjustments related to prior period sales

13

8

(111
)

(90
)
Credits and payments made

(1,217
)

(2,201
)

(20
)

(3,438
)
Balance as of September 30, 2021

$
1,304

$
2,553

$
530

$
4,387

The following table summarizes revenues attributable to each of our customers that accounted for 10% or more of our net revenues in ~~any of~~ the periods shown:

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Customer A

9
%

31
%

23
%

47
%
Customer B

35
%

49
%

27
%

35
%
Customer C

13
%

12
%

12
%

10
%
Customer D

15
%

0
%

11
%

0
%
Customer E

14
%

0
%

7
%

0
%

~~The~~


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Customer A		15	%		50	%		17	%		31	%
Customer B		16	%		9	%		15	%		23	%
Customer C		9	%		10	%		8	%		12	%
Customer D		11	%		15	%		17	%		9	%
Customer E		21	%		0	%		16	%		7	%

On June 15, 2017, the Company ~~is party to~~entered into a distributor agreement with Telcon RF Pharmaceutical, ~~RF,~~ Inc., or Telcon, pursuant to which ~~the Company~~it granted Telcon exclusive rights to the Company’s prescription grade L-glutamine (“PGLG”) oral powder for the treatment of diverticulosis in South Korea, Japan and China in exchange for Telcon’s payment of a ~~$10~~$10 million upfront fee and agreement to purchase from the Company specified minimum quantities of the PGLG. ~~In a related license agreement with~~ Telcon the Company agreed to use commercially reasonable best efforts to obtain product registration in these territories within three years of obtaining FDA marketing authorization for PGLG in this indication. Telcon hashad the right to terminate the distributor agreement in certain circumstances ~~specified in the distributor agreement~~ for failure to obtain such product registrations, in which event the Company ~~would be~~is obliged to ~~return to~~repay Telcon the ~~$10~~$10 million upfront fee. ~~The~~In January 2023, Telcon terminated the distributor agreement, and the upfront fee of $10 million is included ~~in other long-term liabilities~~ as unearned revenue in other current liabilities as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021. Refer to Note~~2022, respectively. See Notes 6 and 11 and for additional ~~transaction details.~~details of the Company's agreement with Telcon.

NOTE 4 — SELECTED FINANCIAL STATEMENT — ASSETS

Inventories consisted of the following (in thousands):


	June 30, 2023			December 31, 2022
Raw materials and components	$	1,362		$	1,393
Work-in-process		224			513
Finished goods		5,198			5,428
Inventory reserve		(4,970	)		(4,955	)
Total inventories, net	$	1,814		$	2,379

September 30, 2022

December 31, 2021

Raw materials and components
$
1,493

$
1,439

Work-in-process

278

115

Finished goods

5,598

6,228

Inventory reserve

(4,630
)

(3,390
)
Total inventories, net
$
2,739

$
4,392

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


	June 30, 2023		December 31, 2022
Prepaid insurance	$	328	$	598
Prepaid expenses		337		467
Other current assets		434		449
Total prepaid expenses and other current assets	$	1,099	$	1,514

September 30, 2022

December 31, 2021

Prepaid insurance
$
134

$
660

Prepaid expenses

328

326

Other current assets

511

394

Total prepaid expenses and other current assets
$
973

$
1,380

During the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, depreciation expense was approximately ~~$9,000~~$9,000 and ~~$11,000,~~$10,000, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2022 and 2021,~~2023 and2022, depreciation expense was approximately ~~$30,000~~$18,000 and ~~$34,000,~~$21,000, respectively.

Investment in convertible bond - On September 28, 2020, the Company entered into a convertible bond purchase agreement pursuant to which it purchased at face value a convertible bond of Telcon in the principal amount of approximately ~~$26.1~~$26.1 million which matures on October 16, 2030 and bears interest at the rate of ~~2.1%~~2.1% per year, payable quarterly. Beginning October 16, 2021, the Company became entitled on a quarterly basis to call for early redemption of all or any portion of the principal amount of the convertible bond. The convertible bond is convertible at the holder’s option at any time and from time to time into common shares of Telcon at an initial conversion price of ~~KRW9,232,~~KRW9,232, or approximately ~~$8.00~~$8.00 per share. The initial conversion price is subject to downward adjustment monthly based on the volume-weighted average market price of Telcon shares as reported on Korean Securities Dealers Automated Quotations Market and in the event of the issuance of Telcon shares or share equivalents at a price below the market price of Telcon shares orand to customary antidilution adjustments upon a merger or similar reorganization of Telcon or a stock split, reverse stock split, stock dividend or similar event. The conversion price as of ~~September~~June 30, ~~2022~~2023 is set forth in the “Investment in convertible bond” table below. The convertible bond and any proceeds therefrom, including proceeds from any exercise of the early redemption right described above or the call option described below, are pledged as collateral to secure the Company’s obligations under the revised API Supply ~~Agreement and revised API~~ Agreement with Telcon described in ~~Note~~Notes 6 and ~~Note~~ 11.

Concurrent with the purchase of the convertible bond, the Company entered into an agreement dated September 28, 2020 with Telcon pursuant to which Telcon or its designee is entitled to repurchase, at par, up to ~~50%~~50% in principal amount of the convertible bond at any time and from time to time commencing October 16, 2021 and prior to maturity.

~~The Company has elected the fair value option method of accounting for the investment in convertible bond.~~ The investment in convertible bond is classified as an available for sale security and remeasured at fair value on a recurring basis using Level 3 inputs, with any changes in the fair value option recorded in other comprehensive income (loss). The fair value and any changes in fair value in the convertible bond is determined using a ~~binominal~~binomial lattice model. The model produces an estimated fair value based on changes in the price of the underlying common stock over successive periods of time.

The revised API agreement with Telcon provides for target annual revenue of more than $5 million and annual “profit” (i.e., sales margin) to Telcon of $2.5 million. To the extent these targets are not met, which management refers to as a “target shortfall,” Telcon may be entitled to payment of the target shortfall or to settle the target shortfall by exchange of principal and interest on the Telcon convertible bond and proceeds thereof that are pledged as a collateral to secure the Company’s obligations under the API Supply Agreement and the revised API Agreement. In February 2022, the Company ~~and Telcon~~ agreed to ~~settle a “target shortfall” under~~ the ~~revised API agreement with Telcon for the years ended 2020 and 2021 by exchanging KRW3.5~~exchange of KRW3.5 billion, or approximately ~~US$~~$2.9 million, principal amount of and accrued and unpaid interest ofon the Telcon convertible bond and ~~KRW400~~KRW400 million, or approximately ~~US$~~$310,000, in cash proceeds of the convertible ~~bond.~~bond to satisfy the target shortfall for the years ended 2021 and 2020. As a result, the Company realized a net loss on investment in convertible bond of ~~$126,000,~~$126,000, which previously was classified as unrealized loss on debt securities available-for-sale in the other comprehensive ~~income,~~loss, and other income of ~~$41,000. See Notes 6~~$41,000.

In April 2023, Telcon offset KRW2.9 billion, or approximately $2.2 million, against the principal amount of the Telcon convertible bond and 11release of KRW307 million, or approximately $236,000, in cash proceeds to Telcon in satisfaction the target shortfall for ~~additional information~~the year ended 2022. The offset is reflected as a sale of the convertible bond in the “Investment in convertible bond” table below. As a result, the Company realized a net loss on investment in convertible bond of $106,000, which previously was classified as unrealized loss on debt securities available-for-sale in the ~~“target shortfall.”~~other comprehensive loss.

Equity method investment – ~~During~~In 2018, the Company and Japan Industrial Partners, Inc., or JIP, formed EJ Holdings, Inc., or EJ Holdings, to acquire, own and operate a ~~shuttered~~former amino acids manufacturing facility in Ube, Japan. In connection with the formation, the Company invested approximately ~~$32,000~~$32,000 in exchange for ~~40%~~40% of EJ ~~Holdings~~Holdings’ voting shares. JIP owns ~~60%~~60% of EJ

Holdings voting shares. In October 2018, the Company entered into a loan agreement with EJ Holdings under which the Company made an unsecured loan to EJ Holdings in the amount of $~~13.2~~13.6 million. The loan proceeds were used by EJ Holdings to purchase the Ube facility in December 2019 and pay related taxes. The loan matures on September 30, 2028 and bears interest at the ~~annual~~ rate of 1%1%, payable annually. The parties also contemplated that thethe Ube facility ~~would~~will eventually supply the Company with the facility’s output of amino acids, ~~and~~ that the operation of the facility would be principally for the Company’s benefit and, as such, that major decisions affecting EJ Holdings and the Ube facility would be made by EJ Holdings’ board of directors, a majority of which are representatives of JIP, in consultation with the Company. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company made ~~an additional $4.2~~$2.2 million of loans to EJ Holdings. As of ~~September~~June 30, ~~2022,~~2023 and December 31, ~~2021,~~2022, the loans receivable from EJ Holdings with foreign currency revaluation were approximately ~~$21.7~~$24.7 million and $~~22.6~~25.0 million, respectively, as reflected in equity method investment on the condensed consolidated balance ~~sheets~~.sheets.

EJ Holdings is engaged in ~~retrofitting~~seeking to refurbish and phase in the Ube facility ~~in order~~ to ~~seek~~eventually obtain regulatory ~~approvals~~clearance for the manufacture of PGLG in accordance with cGMP. EJ Holdings has had no substantial revenues since its inception, has depended on loans from the Company to acquire the Ube facility and fund its operations and will continue to be dependent on loans from the Company or other financing unless and until ~~the Ube facility~~its plant is activated and ~~EJ Holdings~~it can secure customers, including the Company, for its products. There is no assurance the Company ~~will be able to~~can continue to provide ~~loan financing~~needed funding to ~~support~~ EJ ~~Holdings’~~Holdings, or that needed funding will be available from other sources. EJ Holdings has no commitments or understandings regarding any additional funding. If EJ Holdings fails to obtain needed funding, it may need to suspend activities at the Ube ~~facility or that~~plant. Under the asset purchase agreement by which EJ Holdings ~~will be able~~purchased the Ube plant, the seller has the right to ~~obtain other financing. If~~repurchase the plant at the purchase price, plus certain taxes, paid by EJ Holdings ~~is unable~~if the plant does not become operational within a reasonable period of time (not to ~~obtain financing, it may need to seek to sell all or part of the Ube facility.~~exceed five years, December 25, 2024). In such event, it is likely that the Company ~~could~~would lose ~~all~~some or ~~part~~all of its investment.

The Company has determined that EJ Holdings is a variable interest entity, or VIE, based upon its dependence ~~upon~~on loan financing provided by the Company to acquire the Ube facility and ~~fund~~to carry on EJ Holdings’ activities ~~which~~and that the EJ Holdings’ activities are principally for the Company’s benefit. JIP, however, owns ~~60%~~60% of EJ Holdings and is entitled to designate a majority of the directors of EJ Holdings ~~and~~as well as its Chief Executive Officer and outside auditors, and, as such, controls the management, business, and operations of EJ Holdings. Accordingly, the Company accounts for its variable interest in EJ Holdings under the equity method.

The Company’s share of the ~~loss~~losses reported by EJ Holdings are classified as net ~~loss~~losses on equity method investment. The investment is evaluated for impairment ~~and~~ if facts and circumstances indicate that the carrying value may not be recoverable, an impairment charge would be recorded.

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

REVENUES, NET
$
46

$
57

$
148

$
174

NET LOSS
$
(1,077
)

$
(1,657
)

$
(3,725
)

$
(4,998
)

Accounts payable and accrued expenses consisted of the following at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


	June 30, 2023		December 31, 2022
Accounts payable:
Clinical and regulatory expenses	$	499	$	361
Professional fees		618		626
Selling expenses		1,210		1,363
Manufacturing costs		364		650
Non-employee director compensation		620		484
Other vendors		130		301
Total accounts payable		3,441		3,785
Accrued interest payable, related parties		525		144
Accrued interest payable		2,278		2,381
Accrued expenses:
Payroll expenses		1,868		1,263
Government rebates and other rebates		5,341		5,536
Due to customers		844		—
Other accrued expenses		903		440
Total accrued expenses		8,956		7,239
Total accounts payable and accrued expenses	$	15,200		13,549

September 30, 2022

December 31, 2021

Accounts payable:

Clinical and regulatory expenses

$
444

$
534

Professional fees

579

477

Selling expenses

1,138

932

Manufacturing costs

532

378

Non-employee board member compensation

401

136

Other vendors

313

262

Total accounts payable

3,407

2,719

Accrued interest payable, related parties

325

91

Accrued interest payable

1,673

579

Accrued expenses:

Payroll expenses

1,196

1,097

Government rebates and other rebates

4,157

4,371

Other accrued expenses

376

332

Total accrued expenses

5,729

5,800

Total accounts payable and accrued expenses

$
11,134

9,189

Other current liabilities consisted of the following at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):

(a) Represents the fee payable to Telcon pursuant to the distributor agreement. See Note 3 for additional details.

September 30, 2022

December 31, 2021

Trade discount
$
1,200

$
3,000

Other current liabilities

1,070

1,404

Total other current liabilities
$
2,270

$
4,404

Other long-term liabilities consisted of the following at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):

On June 12, 2017, the Company entered into an API Supply Agreement with Telcon pursuant to which Telcon advanced to the Company approximately ~~$31.8~~$31.8 million as an advance trade discount in consideration of the Company’s agreement to purchase from Telcon the Company’s estimated annual target ~~requirements~~ for bulk containers of PGLG. On July 12, 2017, the Company entered into a raw material supply agreement with Telcon which revised certain items of the API Supply Agreement (the “revised API Agreement”). The Company purchased ~~$523,000~~$388,000 and $200,000 of PGLG from Telcon in ~~the nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022, ~~and purchased $250,000 of PGLG in the nine months ended September 30, 2021~~respectively, of which ~~$537,000~~$364,000 and ~~$382,000~~$644,000 were reflected in accounts payable as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The revised API Agreement provided for an annual API purchase target of $5$5 million and a target “profit” (i.e., gross margin) to Telcon of ~~$2.5~~$2.5 million. To the extent these targets are not met, which management refers to as a “target shortfall,” Telcon may be entitled to payment of the target shortfall or to settle the target shortfall by exchange of principal and interest on the Telcon convertible bond and proceeds thereof that are pledged as a collateral to secure the Company’s obligations under the API Supply Agreement and the revised API Agreement. See Note 5 for information regarding the settlement in the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 of the target ~~shortfall for 2021 and 2020~~shortfall..

Notes payable consisted of the following at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands except for number of underlying shares) ~~excluding~~:


Year Issued	Interest Rate Range	Term of Notes	Conversion Price			Principal Outstanding June 30, 2023		Unamortized Discount June 30, 2023		Carrying Amount June 30, 2023			Underlying Shares June 30, 2023
Notes payable
2013	10%	Due on demand		—		$	691	$	—	$	691			—
2022	10%-28%	Due on demand - 15 month		—			2,663		38		2,625			—
2023	11%-60%	Due on demand - 32 weeks					5,176		30		5,146			—
						$	8,530	$	68	$	8,462			—
		Current				$	8,530	$	68	$	8,462			—
Notes payable - related parties
2020	12%	Due on demand		—			100		—		100			—
2021	12%	Due on demand		—			700		—		700			—
2022	6%-12%	Due on demand - 5 years		—			4,976		159		4,871	(c)		—
2023	10%	Due on demand					227		—		227
						$	6,003	$	159	$	5,898			—
		Current				$	2,482	$	—	$	2,482			—
		Non-current				$	3,521	$	159	$	3,416			—
Convertible notes payable
2021	2%	3 years	$	0.29	(b)		12,640		1,484		11,156			48,981,102
2023	13%	6 month	$	10.00	(a)		3,150		—		3,150			316,682
						$	15,790	$	1,484	$	14,306			49,297,784
		Current				$	15,790	$	1,484	$	14,306			49,297,784
Convertible notes payable - related parties
2023	10%	1 - 2 years	$	0.50			1,000		—		1,000			2,089,863
						$	1,000	$	—	$	1,000			2,089,863
		Current				$	1,000	$	—	$	1,000			2,089,863
		Total				$	31,323	$	1,711	$	29,666			51,387,647


Year Issued	Interest Rate Range	Term of Notes	Conversion Price			Principal Outstanding December 31, 2022		Unamortized Discount December 31, 2022		Carrying Amount December 31, 2022			Underlying Shares December 31, 2022
Notes payable
2013	10%	Due on demand		—		$	763	$	—	$	763			—
2021	11%	Due on demand - 2 years		—			2,843		—		2,843			—
2022	10% - 28%	Due on demand - 15 months		—			3,696		108	$	3,588
						$	7,302	$	108	$	7,194			—
		Current				$	6,919	$	105	$	6,814			—
		Non-current				$	383	$	3	$	380			—
Notes payable - related parties
2020	12%	Due on demand		—			100		—		100			—
2021	12%	Due on demand		—			700		—		700			—
2022	6%-12%	Due on demand - 5 years		—			5,026		175		4,913	(c)		—
						$	5,826	$	175	$	5,713			—
		Current				$	2,305	$	—	$	2,367			—
		Non-current				$	3,521	$	175	$	3,346			—
Convertible notes payable
2020	12%	3 years	$	10.00	(a)		3,150		—		3,150			326,655
2021	2%	3 years	$	0.37	(b)		14,140		2,635		11,505			41,318,094
						$	17,290	$	2,635	$	14,655			41,644,749
		Current				$	17,290	$	2,635	$	14,655			41,644,749
		Grand Total				$	30,418	$	2,918	$	27,562			41,644,749

(a)

This note is convertible into shares of EMI Holding, Inc., a wholly owned subsidiary of Emmaus Life Sciences, Inc.

(b)

The notes are convertible into shares of common stock of Emmaus Life Sciences, Inc. The note holders are entitled to call for redemption of the ~~revolving line~~convertible notes payable at any time. Accordingly, the notes are classified as current liabilities.

(c)

Includes $55,000 and $63,000 of ~~credit agreement with related party discussed below:~~the fair value of embedded derivative as of June 30, 2023 and December 31, 2022, respectively.

Year
Issued

Interest Rate
Range

Term of Notes

Conversion
Price

Principal
Outstanding September 30, 2022

Unamortized Discount September 30, 2022

Carrying
Amount September 30, 2022

Underlying Shares September 30, 2022

Notes payable

2013

10%

Due on demand

—

$
692

$
—

$
692

—

2021

11%

Due on demand - 2 years

—

2,719

—

2,719

—

2022

11%-36%

Due on demand - 7 month

—

2,243

19

2,224

—

$
5,654

$
19

$
5,635

—

Current

$
5,654

$
19

$
5,635

—

Notes payable - related parties

2020

12%

Due on demand

—

100

—

100

—

2021

12%

Due on demand

—

700

—

700

—

2022

6%-12%

Due on demand - 5 years

—

5,501

135

5,361

(c)

—

$
6,301

$
135

$
6,161

—

Current

$
2,780

$
—

$
2,780

—

Non-current

$
3,521

$
135

$
3,381

—

Convertible notes payable

2020(a)

12%

3 years

$
10.00

3,150

—

3,150

320,067

2021(b)

2%
��

3 years

$
0.37

14,315

3,119

11,196

41,112,131

$
17,465

$
3,119

$
14,346

41,432,198

Current

$
17,465

$
3,119

$
14,346

41,432,198

Total

$
29,421

$
3,273

$
26,143

41,432,198

Year
Issued

Interest Rate
Range

Term of Notes

Conversion
Price

Principal
Outstanding
December 31,
2021

Unamortized
Discount
December 31,
2021

Carrying
Amount
December 31,
2021

Underlying Shares
December 31, 2021

Notes payable

2013

10%

Due on demand

—

$
869

$
—

$
869

—

2021

11%

Due on demand - 2 years

—

3,030

—

3,030

—

$
3,899

$
—

$
3,899

—

Current

$
2,399

$
—

$
2,399

—

Non-current

$
1,500

$
—

$
1,500

—

Notes payable - related parties

2020

12%

Due on demand

—

$
100

$
—

$
100

—

2021

12%

Due on demand

—

700

—

700

—

$
800

$
—

$
800

—

Current

$
800

$
—

$
800

—

Convertible notes payable

2020(a)

12%

3 years

$
10.00

3,150

—

3,150

316,756

2021(b)

2%

3 years

$
1.48

14,490

4,332

10,158

9,856,343

$
17,640

$
4,332

$
13,308

10,173,099

Current

$
14,490

$
4,332

$
10,158

9,856,343

Non-current

$
3,150

$
—

$
3,150

316,756

Total

$
22,339

$
4,332

$
18,007

$
10,173,099

The weighted-average stated annual interest rate of notes payable was 7%10% and 6%8% as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The weighted-average effective annual interest rate of notes payable as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~19%~~21% and ~~15%~~20%, respectively, after giving effect to discounts relating to conversion features, warrants and deferred financing costs relating to the notes.

As of ~~September~~June 30, ~~2022,~~2023, future contractual principal payments due on notes payable were as follows (in thousands):


Year Ending
2023 (six months)	$	25,499	(a)
2024		2,303
2025		1,200
2027		2,321
Total	$	31,323

Year Ending

2022 (three months)
$
25,900

(a)
2025

1,200

2027

2,321

Total
$
29,421

(a)

~~(a)~~

Includes 12.6~~Includes $14.3~~ million principal amount of convertible notes subject to redemption at any time ~~at the election of the holders.~~

~~The Company is party to a revolving line of credit agreement with Yutaka Niihara, M.D., M.P.H., the Company’s Chairman and Chief Executive Officer. Under the agreement,~~ at the ~~Company’s request from time to time Dr. Niihara may, but is not obligated to, loan or re-loan to~~election of the Company up to $1,000,000. Outstanding amounts under the agreement are due and payable upon demand and bear interest, payable monthly, at a variable annual rate equal to the Prime Rate in effect from time to time plus 3%. In addition to the payment of interest, the Company is obligated to pay Dr. Niihara a “tax gross-up” intended to make him whole for federal and state income and employment taxes payable by him with respect to interest and tax gross-up paid to him in the previous year. As of September 30, 2022 and December 31, 2021, the outstanding principal balance under the agreement of $400,000 was reflected in revolving line of credit from related party on the condensed consolidated balance sheets. With the tax-gross up, the effective interest rate on the outstanding balance as of September 30, 2022, was 10.4%. The revolving line of credit agreement will expire on November 22, 2022. Refer to Note 12 for more information on related party transactions.holders.

On February 9, 2021, the Company entered into a securities purchase agreement pursuant to which the Company agreed to sell and issue to the purchasers thereunder in a private placement pursuant to Rule 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D thereunder a total of up to ~~$17~~$17 million in principal amount of convertible promissory notes of the Company for a purchase price equal to the principal amount thereof. The Company sold and issued approximately ~~$14.5~~$14.5 million of the convertible promissory notes.

Commencing one year from the original issue date, the convertible promissory notes became convertible at the option of the holder into shares of the Company’s common stock at an initial conversion price of ~~$1.48~~$1.48 per share, which equaled the “Average VWAP” (as defined) of the Company’s common stock on the effective date. The initial conversion price is subject to adjustment as of the end of each three-month period following the original issue date, commencing May 31, 2021, to equal the Average VWAP as of the end of such three-month period if such Average VWAP is less than the then-conversion price. There is no floor on the conversion price. The conversion price will be subject to further adjustment in the event of a stock split, reverse stock split or certain other events specified in the convertible promissory notes. In January 2023, $500,000 principal amount of the convertible promissory notes was converted into 1,351,351 shares of the Company's common stock. In April 2023, $1 million principal amount of the convertible promissory note was converted into 2,702,702 shares of common stock. As of ~~September~~June 30, ~~2022,~~2023, the conversion price was ~~$0.37~~$0.29 per share.

The convertible promissory notes bear interest at the ~~stated~~ rate of 2%2% per year, ~~(10% in the event of a default),~~ payable semi-annually on the last business day of August and January of each year and ~~will~~ mature on the 3rd anniversary of the original issue date, unless earlier converted or prepaid. The convertible promissory notes are redeemable in whole or in part at the election of the holders. The Company is entitled to prepay up to 50% of the principal amount of the convertible promissory notes at any time on or before February 28, 2023 for a prepayment amount equal to the principal amount being prepaid, accrued and unpaid interest thereon and a prepayment premium equal to 50% of such principal amount. The convertible promissory notes are general, unsecured obligations of the Company.

The conversion feature of the convertible promissory notes is separately accounted for at fair value as a derivative liability under guidance in ASC 815 that is remeasured at fair value on a recurring basis using Level 3 inputs, with any changes in the fair value of the conversion feature liability recorded in the condensed consolidated statements of operations. The following table sets forth the fair value of the conversion feature liability as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):

Convertible promissory notes

September 30, 2022

December 31, 2021

Balance, beginning of period

$
7,507

$
—

Fair value at issuance date

—

5,594

Change in fair value included in the statement of operations

(3,235
)

1,913

Balance, end of period

$
4,272

$
7,507


Convertible promissory notes	June 30, 2023		December 31, 2022
Balance, beginning of period	$	3,248	$	7,507
Change in fair value included in the statement of operations		969		(4,259	)
Balance, end of period	$	4,217	$	3,248

The fair value and any change in fair value of conversion feature liability are determined using a ~~binominal~~binomial lattice model. The model produces an estimated fair value based on changes in the price of the underlying common stock.

The fair value as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021was~~2022 was based upon following assumptions:

Convertible promissory notes

September 30, 2022

December 31, 2021

Stock price

$
0.17

$
1.67

Conversion price

$
0.37

$
1.48

Selected yield

30.93
%

21.99
%
Expected volatility

50
%

50
%
Time until maturity (in years)

1.41

2.16

Dividend yield

—

—

Risk-free rate

4.12
%

0.77
%


Convertible promissory notes	June 30, 2023			December 31, 2022
Stock price	$	0.23		$	0.26
Conversion price	$	0.29		$	0.37
Selected yield		27.54	%		27.50	%
Expected volatility		50	%		50	%
Time until maturity (in years)		0.67			1.16
Dividend yield	—			—
Risk-free rate		5.45	%		4.68	%

In June 2022, the Company entered into a Business Loan and Security Agreement and Addenda with a third-party lender pursuant to which the lender loaned the Company ~~$1,800,000,~~$1.8 million, which we refer to as the “loan amount,” of which we received net proceeds of approximately ~~$1,666,000~~$1.7 million after deduction of the lender’s origination fee but without deduction for other transaction expenses. The loan amount, together with interest of $738,000, was payable over the 40-week loan term in weekly installments of $31,725 for the first eight weeks and $71,381 for the remaining 32 weeks. The loan amount and interest were prepayable by the Company at any time within 90 days from the disbursement date for a repayment amount of $2,250,000, less all prior payments on the loan, unless an event of default has occurred under the Business Loan and Security Agreement. Repayment of the loan was secured by a security interest in all or substantially all our assets and all assets of our U.S. subsidiaries and was personally guaranteed by Yutaka Niihara, M.D., M.P.H., our Chairman and Chief Executive Officer and principal stockholder, and his wife and Hope Hospice International, Inc., which is wholly owned by Dr. Niihara and his wife. The personal guarantee was secured by a deed of trust on certain real property of Dr. Niihara and his wife. In August 2022, the Company repaid in full ~~$1.6 million principal of~~ the outstanding balance of the loan and recognized debt extinguishment loss of ~~$421,000.~~$421,000.

In July 2022, Dr. Niihara, a Director and the Chairman, and Chief Executive Officer of the Company, and his wife loaned the Company ~~$370,000,~~$370,000, representing the net proceeds of personal loans to them from unaffiliated parties in the principal amount of ~~$402,000.~~$402,000. The loan is due and payable in a lump sum on maturity on July 31, 2027 and bears interest at the rate of ~~12%~~12% per annum, payable monthly in arrears. In connection with the loan, the Company granted Dr. Niihara a warrant as described in Note 8. The issuance cost of ~~$32,000~~$32,000 and the fair value of warrant of ~~$84,000~~$84,000 were treated as debt discount and ~~will be~~are amortized over the five-year term of the warrant using effective interest method. .

In August 2022, Dr. Niihara and his wife loaned the Company ~~$1,576,574,~~$1,576,574, representing the net proceeds of personal loans to them from unaffiliated third parties in the principal amount of ~~$1,668,751,~~$1,668,751, as well as ~~$250,000~~$250,000 from personal funds. The loans are evidenced by promissory notes, which are due and payable in a lump sum on maturity on August 16, 2027 and bear interest at the rate of ~~10%~~10% per annum, payable monthly in arrears. The foregoing loans were in addition to a ~~$50,000~~$50,000 loan to usthe Company from Hope International Hospice, Inc., an affiliate of Dr. and Mrs. Niihara, on August 15, 2022, which is evidenced by a demand promissory note of the Company bearing interest at the rate of ~~10%~~10% per annum. The proceeds of the loans were used to prepay ~~$1,924,819~~$1,924,819 indebtedness of the Company under the Business Loan and Security Agreement referred to above.

In September 2022, Seah Lim, M.D., Ph.D., a Director of the Company, loaned the Company ~~$1.2~~$1.2 million, the proceeds of which were used to augment the Company’s working capital. The principal amount of the loan and interest thereon at the rate of 6%6% per annum, together with 240,000 shares of the Company’s common stock, is due and payable in lump sum on maturity in September 2025. In October 2022, Dr. Lim was appointed as a director of the Company. In accordance with ACS 835, the Company accounted the right to receive shares as the bifurcated embedded derivative and the embedded derivative is measured at fair value at the inception and subsequently measured at fair value with changes in fair value recognized in ~~income statements.~~the condensed consolidated statements of operations. The fair ~~values~~value of the embedded derivatives ~~at the inception were $68,000 at inception~~was approximately $55,000 and ~~$41,000~~$63,000 as of ~~September~~June 30, ~~2022.~~2023 and December 31, 2022, respectively.

In July 2022, the Company's Emmaus Medical ~~Inc., or Emmaus Medical, an indirect wholly owned~~ subsidiary, ~~of the Company,~~ entered into a Standard Merchant Cash Advance Agreement with a third party pursuant to which it sold ~~$816,000~~$816,000 of accounts receivable (the “Receivables Purchased Amount”) in exchange for net proceeds of $516,000. Under the agreement, the third party is entitled to collect a specified percentage of all accounts receivable of Emmaus Medical, not to exceed $34,000 weekly, until the third party receives total proceeds equal to the Receivables Purchased Amount.$516,000. In September 2022, Emmaus Medical and the third party entered into a similar agreement pursuant to which Emmaus Medical sold ~~$694,960~~$694,960 of accounts receivable (the “Receivables Purchased Amount”) for net proceeds of ~~$500,000.~~$500,000. In December 2022, both loans were repaid in full and recognized debt extinguishment loss of $79,000 as the Company entered into another agreement discussed below.

In December 2022, the Company entered into an Agreement for the Purchase and Sales of Future Receipts with a third party pursuant to which it sells $3,105,000 of future receipt (the "Purchased Amount") in exchange for net proceeds of $2.3 million. Under the agreement, the Company agrees to pay $103,500 semi-monthly until the Purchased Amount is delivered. The portion of proceeds were used to prepay indebtedness of the company under the Standard Merchant Cash Advance Agreements referred to above.

In January 2023, Wei Pei Zen, a Director of the Company, loaned the Company the principal amount of $1 million in exchange for a convertible promissory note of the Company. The convertible promissory note is due on demand after one year from the date of issuance until two years from such date, bears interest at the annual rate of 10%, payable quarterly, and is convertible at the option of the holder into shares of the Company's common stock at a conversion rate of $0.50 a share, or 2,000,000 shares, subject to adjustment in the event of a stock split, reverse stock split and similar event.

In February 2023, the Company entered into a promissory note agreement with a third party pursuant to which the lender loaned the Company $500,000. The loan is ~~entitled to collect a specified percentage~~due on demand after two months and on maturity on August 15, 2023. It bears interest at the rate of ~~all accounts receivable~~5% per month.

In March 2023, Dr. Niihara and his wife and Hope International Hospice, Inc. loaned the Company $127,000 and $100,000, respectively. Both loans are due on demand and bear interest at the rate of10% per annum.

In March 2023, Emmaus Medical ~~not~~entered into Revenue Purchase Agreement with a third party pursuant to ~~exceed $25,969~~which it sold and assigned $700,212 of future receipts (the "Future Receipts") in exchange for net cash proceeds of $491,933. Under the agreement, the Company agreed to pay the third party 4% of weekly sales receipts until the Future Receipts have been collected. In March 2023, Emmaus Medical entered into Revenue Based Financing Agreement with a third party pursuant to which it sold and assigned $700,212 of future receipt in exchange for net proceeds of $492,132. Under the agreement that the Company agrees to pay the third party approximately $22,000 weekly until the Future Receipts have been collected.

In May 2023, Emmaus Medical entered into Sale of Future Receipts Agreement with third party ~~receives total~~pursuant to which it sold and assigned $528,200 of future receipts (the "Purchased Amount") in exchange for net cash proceeds ~~equal~~of $368,600. Under the agreement, the Company agreed to pay the ~~Receivables~~third party approximately $19,000 weekly until the Purchased ~~Amount. Emmaus Medical’s obligations under the two agreements are guaranteed by the Emmaus Life Sciences, Inc. Company and its U.S. subsidiaries, and the obligations of~~Amount has been collected.

In June 2023, Emmaus Medical entered into Standard Merchant Cash Advance Agreement with a third party pursuant to which it sold and assigned $877,560 of future receipts (the "Purchased Amount") in exchange for net cash proceeds of $600,000. Under the ~~guarantors are secured by a security interest in all or substantially all~~agreement, the ~~assets~~Company agreed to pay the third party approximately $34,000 weekly until the Purchased Amount has been collected.

Except as otherwise indicated above, the proceeds of ~~Emmaus Life Sciences~~the foregoing loans and ~~its U.S. subsidiaries.~~other arrangements were used to augment the Company's working capital.

~~Extension of Convertible Promissory Note~~ ~~- On June 15,~~ 2020, the holder of a convertible promissory note in the principal amount of $3,150,000 agreed to an extension of the maturity date of the convertible promissory note to June 15, 2023 in exchange for an increase in the interest rate on the note from 11% to 12%. In conjunction with the extension, the Company issued to the note holder a ~~five-year~~ warrant to purchase up to 1,250,000 shares (500,000 shares if the related convertible promissory note was repaid by June 15, 2022) of the Company common stock at an exercise price of $2.05 a share. Under ASC 815-40, the warrant is recognized at fair value as a liability. The warrant liability is remeasured at fair value on a recurring basis using Level 3 input and any change in the fair value of liability is recorded in earnings. Since the loan was not repaid before June 15, 2022, the number of warrant shares became fixed per the warrant terms and the warrant was reclassified as equity.

~~The following table presents the fair value and the change in fair value of the warrants as of June 15, 2022 and December 31, 2020 (in thousands):~~

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

~~A summary of outstanding warrants as of September 30, 2022 and December 31, 2021 is presented below:~~

Warrants —In September 2022, in connection with the loans from Dr. Niihara and Mrs. Niihara, the Company granted Dr. Niihara a five-year warrant to purchase up to 500,000 shares of common stock of the Company at an exercise price of ~~$2.50~~$2.50 per share. Under ASC 480-10 and ASC 815, the warrant is classified as a liability. The fair value of the warrant liability was determined using Black-Scholes Merton model and the fair value of the warrant was ~~$33,000~~$67,000 and $70,000 as of ~~September~~June 30, ~~2022. The~~2023 and December 31, 2022, respectively. For three and six months ended June 30, 2023, the change in fair value of approximately $18,000 and $4,000 was recorded in the condensed consolidated statements of operations.

Warrant issued for services - On January 12, 2023, the Company granted Dr. Niihara a five-year warrant to purchase up to 7,500,000 shares of common stock of the Company at an exercise price of $4.50 in lieu of cash bonuses or salary increases. The fair value of the warrant was determined using the Black-Scholes Merton option pricing model. The fair value of the underlying shares was determined based on the market value of the Company's common stock. The expected volatility was adjusted using the historical volatility of the Company's common stock and comparable publicly traded securities. The Company also granted each of two consultants to the Company five-year warrants to purchase up to 250,000 shares of common stock at an exercise price of $0.50 a share.

On January 27, 2023, the Company granted to a consulting company a five-year warrant to purchase up to 500,000 shares of common stock at an exercise price of $0.47 a share. The warrants are subject to adjustment in the event of a stock split, reverse stock split and similar events. The fair value of the warrants was determined using the Black-Scholes Merton option pricing model. The fair value of the underlying shares was determined based upon the market value of the common stock. The expected volatility was adjusted using the historical volatility of the common stock and the market price of comparable public traded securities.

The estimated fair value of $334,000 was recorded as professional services in general and administrative expenses and the estimated fair value of $1.2 million of shared-based compensation was recognized in the condensed consolidated statement of operations for the six months ended June 30, 2023. Under ASC 480-10 and ASC 815, the warrants are classified as a liability. For ~~three~~the six month ended ~~September~~June 30, ~~2022,~~2023, the change in fair value of ~~warrant liability~~approximately $441,000 was ~~$51,000.~~recorded in the condensed consolidated statements of operations.

The following table presents the assumptions used to value the warrants:


	June 30, 2023		March 31, 2023		January 2023
Stock price	$	0.23	$	0.30	$0.31 - $0.49
Exercise price	$0.47 - $4.50		$0.47 - $4.50		$0.47 - $4.50
Expected term	4.11-4.58 years		4.36 - 4.83 years		5 years
Risk-free rate	4.21%-4.58%		3.62%-3.67%		3.53%-3.66%
Dividend yield	—		—		—
Volatility	128.78%-134.9%		122.09% - 126.95%		116.40% - 119.14%

A summary of outstanding warrants as of June 30, 2023 and December 31, 2022 is presented below:


	June 30, 2023					December 31, 2022
	Number of Warrants			Weighted‑ Average Exercise Price		Number of Warrants			Weighted‑ Average Exercise Price
Warrants outstanding, beginning of period		6,610,520		$	2.22		8,236,017		$	5.78
Granted		8,500,000			4.03		500,000			2.50
Exercised		—			—		—			—
Cancelled, forfeited or expired		(427,801	)		11.82		(2,125,497	)		14.38
Warrants outstanding, end of period		14,682,719		$	2.96		6,610,520		$	2.22
Warrants exercisable end of period		14,682,719		$	2.96		6,610,520		$	2.22

As of ~~September~~June 30, ~~2022,~~2023, the weighted-average remaining contractual life of outstanding warrants was ~~2.3~~3.3 years.

Stock options—The ~~Company’s~~Company's former ~~Amended~~2011 Stock Incentive Plan permitted grants of incentive stock options to employees, including executive officers, and ~~Restated~~other share-based awards such as stock appreciation rights, restricted stock, stock units, stock bonus and unrestricted stock awards to employees, directors, and consultants for up to 9,000,000 shares of common stock. Options granted under the 2011 Stock Incentive Plan generally expire ten years after grant. Options granted to directors vest in quarterly installments and all other option grants vest over a minimum period of three years, in each case, subject to continuous service with the Company. The 2011 Stock Incentive Plan expired on in May 3, 2021 and no further awards may be made under the ~~2011~~ Plan. ~~The expiration~~As of June 30, 2023 and December 31, 2022, stock options to purchase up to 2,050,116 shares and 4,412,940 shares, respectively, were outstanding under the 2011 ~~Plan did not affect outstanding stock awards thereunder.~~Stock Incentive Plan.

The Company also ~~previously maintained~~formerly had an Amended and Restated 2012 Omnibus Incentive Compensation Plan under which the Company could grant incentive stock options and non-qualified stock option to selected employees including officers, non-employee consultants and non-employee directors. The Plan was terminated in September ~~2021 in connection with~~2021. As of June 30, 2023 and December 31, 2022, stock options to purchase up to 246,224 shares and 247,847 shares, respectively, were outstanding under the ~~adoption of the 2021 Stock~~Amended and Restated 2012 Omnibus Incentive ~~Plan described below.~~Plan.

On September 29, 2021, the Board of Directors of the Company adopted the Emmaus Life Sciences, Inc. 2021 Stock Incentive Plan upon the recommendation of the Compensation Committee of the ~~Board.~~Board of Directors. The 2021 Stock Incentive Plan was approved by stockholders on November 23, 2021. No more than 4,000,000 shares of common stock may be issued pursuant to awards under the 2021 Stock Incentive Plan. The number of shares available for ~~Awards and~~awards, as well as the terms of outstanding awards, ~~are~~is subject to adjustment as provided in the 2021 Stock Incentive Plan for stock splits, stock dividends, reverse stock splits, recapitalizations and other similar events. During the six months ended June 30, 2023, the Company granted options to purchase 850,000 shares, 300,000 shares and 100,000 shares of common stock to employees, non-employee directors and a consultant, respectively. All options are exercisable for ten years from the date of grant and will vest and become exercisable with respect to the underlying shares over three years for employees, one year for non-employee directors and immediately for the consultant. As of ~~September~~June 30, ~~2022 and December 31, 2021, no awards~~2023, stock options to purchase up to 1,250,000 shares were outstanding under the 2021 Stock Incentive ~~Plan.~~Plan, while there were no awards outstanding as of December 31, 2022.

Management has valued stock options at their date of grant utilizing the Black-Scholes-Merton Option pricing model. The fair value of the underlying shares was determined by the market value of the Company's common stock. The expected volatility was adjusted using the historical volatility of the common stock and a comparable public traded securities. The following table presents the assumptions used on the recent dates on which options were granted by the Company. The risk‑free interest rate is based on the implied yield available on U.S. Treasury issues with a term approximating the expected life of the options depending on the date of the grant and expected life of the respective options.


	January 12, 2023
Stock price	$	0.31
Exercise price	$	4.50
Expected term	5-6 years
Risk-free rate	3.51-3.53%
Dividend yield	—
Volatility	108.16-116.40%

A summary of outstanding stock options as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 is presented below.


	September 30, 2022					December 31, 2021					June 30, 2023					December 31, 2022
	Number of Options			Weighted‑ Average Exercise Price		Number of Options			Weighted‑ Average Exercise Price		Number of Options			Weighted‑ Average Exercise Price		Number of Options			Weighted‑ Average Exercise Price
Options outstanding, beginning of period		5,968,338		$	4.78		7,110,025		$	4.63		4,660,787		$	5.08		5,968,338		$	4.78
Granted or deemed granted		—		$	—		—		$	—
Granted												1,250,000		$	4.50		—		$	—
Exercised		—		$	—		—		$	—		—		$	—		—		$	—
Cancelled, forfeited and expired		(1,055,399	)	$	3.45		(1,141,687	)	$	3.82		(2,364,447	)	$	3.46		(1,307,551	)	$	3.73
Options outstanding, end of period		4,912,939		$	5.07		5,968,338		$	4.78		3,546,340		$	5.95		4,660,787		$	5.08
Options exercisable, end of period		4,894,938		$	5.09		5,937,837		$	4.80		2,596,340		$	6.48		4,645,286		$	5.10
Options available for future grant		4,000,000					4,000,000					2,750,000					4,000,000

During the three months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, the Company recognized ~~$3,000~~approximately $26,000 and ~~$93,000,~~$5,000, respectively of share-based compensation expense. During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022, the Company recognized ~~$13,000~~approximately $63,000 and ~~$548,000,~~$10,000, respectively, of share-based compensation expense. As of ~~September~~June 30, ~~2022,~~2023, there was approximately ~~$8,000~~$141,000 of unrecognized share-based compensation expense related to unvested stock options which is expected to be recognized over the weighted-average remaining vesting period of ~~0.7 year.~~2.2 years.

~~Collaborative Research and Development Agreement with Kainos Medicine, Inc~~—On February 26, 2021, the Company entered into a collaborative research and development agreement with Kainos Medicine, Inc. (“Kainos”) to lead the preclinical development of Kainos’ patented IRAK4 inhibitor (“KM10544”) as an anti-cancer drug and further advance Kainos’s research and development activities. The ~~companies also entered into a letter of intent regarding possible future joint development of small molecule therapeutics and other pharmaceutical assets.~~

~~Pursuant to the~~ ~~collaborative research and development~~ agreement, the Company paid and issued to Kainos $500,000 in cash and 324,675 shares of common stock of the Company equivalent to $500,000 in additional consideration, which amounts were recorded as research and development expenses in the statement of operations and comprehensive income (loss) for each of the periods ended September 30, 2021. The Company, in turn, was granted rights of first negotiation and first refusal for an exclusive license regarding the development and commercialization of products based on the intellectual property resulting from the agreement.

On October 7, 2021, the Company entered into a license agreement with Kainos under which Kainos granted the Company an exclusive license in the territory encompassing the U.S., the U.K. and the EU to patent rights, know-how and other intellectual property relating to Kainos’s novel IRAK4 inhibitor, referred to as KM10544, for the treatment of cancers, including leukemia, lymphoma and solid tumor cancers. In consideration of the license, the Company paid Kainos a six-figure upfront fee in cash and agreed to make additional cash payments upon the achievement of specified milestones totaling in the mid-eight figures and pay a single-digit percentage royalty based on net sales of the licensed products and a similar percentage of any sublicensing consideration.

During the nine months ended September 30, 2021, the Company incurred $1.0 million of research and development expenses related to the Kainos collaboration and license agreement. The Company incurred no such expenses in the nine months ended September 30, 2022.

Amended and ~~Restated Warrants~~restated warrants – The Company evaluated its outstanding amended and restated warrants to purchase up to 4,038,200 shares of common stock under ASC 815-40 and concluded that the warrants should be accounted for as equity.

In ~~June 2022,~~January 2023, the exercise price of outstanding amended and restated warrants was reduced to ~~$0.446~~$0.37 per share pursuant to the anti-dilution adjustment provisions of the warrants triggered by the ~~Company’s issuance~~conversion of ~~restricted~~an outstanding convertible promissory note into shares of common stock ~~for professional relations and consulting services discussed below.~~of the Company at a conversion price $0.37 per share. The warrants were valued using the Black-Scholes Merton option pricing model and ~~the $446,000~~approximately $41,000 in change in fair value was recorded as additional paid-in capital and reflected in accumulated ~~deficit.~~

~~Stock issued for services~~ – In June 2022, the Company issued 246,637 shares of restricted share of common stock, with an estimated fair value of $110,000 for professional relations and consulting services to be rendered over the six-month period beginning July 1, 2022. The value of the shares issued in connection with this agreement was recorded in prepaid expenses and other current assets in the condensed consolidated balance sheetdeficit as of ~~September~~June 30, ~~2022 and is being amortized over the six-month period beginning July 1, 2022.~~2023.

NOTE 9 — INCOME TAX

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

For the three and ~~nine~~six months ended ~~September~~June 30, 2023, the Company recorded a benefit for state income tax of $34,000 and an income tax provision of $15,000, respectively. For the three and six months ended June 30, 2022, the Company recorded ~~an income tax benefit of $35,000 and~~a provision of ~~$44,000, respectively. For three~~$182,000 and ~~nine month ended September 30, 2021, the Company recorded an income tax provision of $232,000 and $58,000,~~$79,000, respectively. The Company did ~~not~~not record a provision for federal income tax due to its net operating loss carryforwards. The Company established a full valuation allowance against its federal and state deferred tax ~~asset~~assets and there was no unrecognized tax benefit as of ~~September~~June 30, ~~2022~~2023 or ~~September~~June 30, ~~2021.~~ 2022.

API ~~Supply Agreement~~supply agreement — On June 12, 2017, the Company entered into an API Supply Agreement (the “API ~~Supply~~ Agreement”) with Telcon pursuant to which Telcon paid the Company approximately ~~$31.8~~$31.8 million in consideration of the right to supply ~~25%~~25% of the Company’s requirements for bulk containers of PGLG for a fifteen-year term. The amount was recorded as a deferred trade discount. On July 12, 2017, the Company entered into a raw material supply agreement with Telcon which revised certain terms of the API ~~Supply~~supply Agreement ~~(the~~(the “revised API ~~Agreement”~~agreement”). The revised API ~~Agreement~~agreement is effective for a term of five years and will renew automatically for ~~ten~~10 successive one-year renewal periods, except as either party may determine. In the revised API agreement, the Company has agreed to purchase a cumulative total of ~~$47.0~~$47.0 million, over the term of the agreement. The revised API ~~Agreement~~agreement provided for an annual API purchase target of $5$5 million and a target “profit” (i.e., gross margin) to Telcon of ~~$2.5~~$2.5 million. To the extent these targets are not met, ~~which management refers to as a “target shortfall,”~~ Telcon may be entitled to payment of the ~~target~~ shortfall or to ~~settle~~offset the ~~target~~ shortfall ~~by exchange of principal and interest on~~against the Telcon convertible bond and proceeds ~~thereof~~there of that are pledged as a collateral to secure ~~the Company’s obligations under the API Supply Agreement and the revised API Agreement.~~our obligations. In September 2018, the Company entered into an agreement with Ajinomoto Health and Nutrition North America, Inc. (“Ajinomoto”), the producer of the PGLG, and Telcon to facilitate Telcon’s purchase of PGLG from Ajinomoto for resale to the Company under the revised API ~~Agreement.~~agreement. The PGLG raw material purchased from Telcon is recorded in inventory at net ~~realized~~realizable value and the excess purchase price is recorded against deferred trade discount. Refer to Notes 5 and 6 for more information.

The following table sets forth information relating to loans from related parties outstanding at any time during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (in thousands):


Class	Lender	Interest Rate	Date of Loan	Term of Loan	Principal Amount Outstanding at September 30, 2022		Highest Principal Outstanding		Amount of Principal Repaid		Amount of Interest Paid		Lender	Interest Rate	Date of Loan	Term of Loan	Principal Amount Outstanding at June 30, 2023		Highest Principal Outstanding		Amount of Principal Repaid		Amount of Interest Paid
Promissory note payable to related parties:	Promissory note payable to related parties:												Promissory note payable to related parties:
	Willis Lee(2)	12%	10/29/2020	Due on Demand		100		100		—		—	Willis Lee(2)	12%	10/29/2020	Due on Demand		100		100		—		—
	Soomi Niihara(1)	12%	12/7/2021	Due on Demand		700		700		—		—	Soomi Niihara(1)	12%	12/7/2021	Due on Demand		700		700		—		—
	Soomi Niihara(1)	12%	1/18/2022	Due on Demand		300		300		—		—	Hope International Hospice, Inc.(1)	10%	2/9/2022	Due on Demand		350		350		—		—
	Yasushi Nagasaki(2)	10%	2/9/2022	Due on Demand		50		50		—		—	Hope International Hospice, Inc.(1)	10%	2/15/2022	Due on Demand		210		210		—		—
	Hope International Hospice, Inc.(1)	10%	2/9/2022	Due on Demand		350		350		—		—	Soomi Niihara(1)	10%	2/15/2022	Due on Demand		100		100		—		—
	Hope International Hospice, Inc.(1)	10%	2/15/2022	Due on Demand		210		210		—		—	Hope International Hospice, Inc.(1)	12%	3/15/2022	Due on Demand		150		150		—		—
	Soomi Niihara(1)	10%	2/15/2022	Due on Demand		100		100		—		—	Hope International Hospice, Inc.(1)	12%	3/30/2022	Due on Demand		150		150		—		—
	George Sekulich(2)	10%	2/16/2022	Due on Demand		26		26		—		—	Wei Peu Derek Zen(2)	10%	3/31/2022	Due on Demand		200		200		—		—
	Soomi Niihara(1)	10%	3/7/2022	Due on Demand		200		200		—		—	Willis Lee(2)	10%	4/14/2022	Due on Demand		45		45		—		—
	Hope International Hospice, Inc.(1)	12%	3/15/2022	Due on Demand		150		150		—		—	Hope International Hospice, Inc.(1)	10%	5/25/2022	Due on Demand		40		40		—		—
	Hope International Hospice, Inc.(1)	12%	3/30/2022	Due on Demand		150		150		—		—	Yutaka and Soomi Niihara(1)	12%	7/27/2022	5 years		402		402		—		12
	Wei Pei Derek Zen(2)	10%	3/31/2022	Due on Demand		200		200		—		—	Hope International Hospice, Inc.(1)	10%	8/15/2022	Due on Demand		—		50		50		2
	Willis Lee(2)	10%	4/14/2022	Due on Demand		45		45		—		—	Yutaka and Soomi Niihara(1)	10%	8/16/2022	5 years		250		250		—		6
	Hope International Hospice, Inc.(1)	10%	5/25/2022	Due on Demand		40		40		—		—	Yutaka and Soomi Niihara(1)	10%	8/16/2022	5 years		1,669		1,669		—		42
	Yutaka and Soomi Niihara(1)	12%	7/27/2022	5 years		402		402		—		8	Hope International Hospice, Inc.(1)	10%	8/17/2022	Due on Demand		50		50		—		—
	Hope International Hospice, Inc.(1)	10%	8/15/2022	Due on Demand		50		50		—		—	Yutaka and Soomi Niihara(1)	10%	8/17/2022	Due on Demand		60		60		—		—
	Yutaka and Soomi Niihara(1)	10%	8/16/2022	5 years		250		250		—		2	Seah Lim(2)	6%	9/16/2022	3 years		1,200		1,200		—		—
	Yutaka and Soomi Niihara(1)	10%	8/16/2022	5 years		1,669		1,669		—		14	Hope International Hospice, Inc.(1)	10%	10/20/2022	Due on Demand		100		100		—		—
	Hope International Hospice, Inc.(1)	10%	8/17/2022	Due on Demand		50		50		—		—	Hope International Hospice, Inc.(1)	10%	3/17/2023	Due on Demand		100		100		—		—
	Yutaka and Soomi Niihara(1)	10%	8/17/2022	Due on Demand		60		60		—		—	Yutaka and Soomi Niihara(1)	10%	3/21/2023	Due on Demand		127		127		—		—
	Seah Lim(2)	6%	9/16/2022	3 years		1,200		1,200		—		—				Subtotal	$	6,003	$	6,053	$	50	$	62
				Subtotal	$	6,302	$	6,302	$	—	$	24
Revolving line of credit agreement
Convertible notes payable - related parties													Convertible notes payable - related parties
	Yutaka Niihara(2)	5.25% (3)	12/27/2019	Due on Demand		400		400		—		16	Wei Peu Derek Zen(2)	10%	1/18/2023	1 - 2 years		1,000		1,000		—		—
				Subtotal		400		400		—		16				Subtotal		1,000		1,000		—		—
				Total	$	6,702	$	6,702	$	—	$	40				Total	$	7,003	$	7,053	$	50	$	62

The following table sets forth information relating to loans from related parties outstanding at any time during the year ended December 31, ~~2021:~~2022:


Class	Lender	Interest Rate	Date of Loan	Term of Loan	Principal Amount Outstanding at December 31, 2022		Highest Principal Outstanding		Amount of Principal Repaid		Amount of Interest Paid
Current, Promissory note payable to related parties:
	Willis Lee(2)	12%	10/29/2020	Due on Demand		100		100		—		—
	Soomi Niihara(1)	12%	12/7/2021	Due on Demand		700		700		—		—
	Soomi Niihara(1)	12%	1/18/2022	Due on Demand		—		300		300		32
	Yasushi Nagasaki(2)	10%	2/9/2022	Due on Demand		—		50		50		4
	Hope International Hospice, Inc.(1)	10%	2/9/2022	Due on Demand		350		350		—		—
	Hope International Hospice, Inc.(1)	10%	2/15/2022	Due on Demand		210		210		—		—
	Soomi Niihara(1)	10%	2/15/2022	Due on Demand		100		100		—		—
	George Sekulich(2)	10%	2/16/2022	Due on Demand		—		26		26		2
	Soomi Niihara(1)	10%	3/7/2022	Due on Demand		—		200		200		15
	Hope International Hospice, Inc.(1)	12%	3/15/2022	Due on Demand		150		150		—		—
	Hope International Hospice, Inc.(1)	12%	3/30/2022	Due on Demand		150		150		—		—
	Wei Peu Derek Zen(2)	10%	3/31/2022	Due on Demand		200		200		—		—
	Willis Lee(2)	10%	4/14/2022	Due on Demand		45		45		—		—
	Hope International Hospice, Inc.(1)	10%	5/25/2022	Due on Demand		40		40		—		—
	Yutaka and Soomi Niihara(1)	12%	7/27/2022	5 years		402		402		—		20
	Hope International Hospice, Inc.(1)	10%	8/15/2022	Due on Demand		50		50		—		—
	Yutaka and Soomi Niihara(1)	10%	8/16/2022	5 years		250		250		—		8
	Yutaka and Soomi Niihara(1)	10%	8/16/2022	5 years		1,669		1,669		—		56
	Hope International Hospice, Inc.(1)	10%	8/17/2022	Due on Demand		50		50		—		—
	Yutaka and Soomi Niihara(1)	10%	8/17/2022	Due on Demand		60		60		—		—
	Seah Lim(2)	6%	9/16/2022	3 years		1,200		1,200		—		—
	Hope International Hospice, Inc.	10%	10/20/2022	Due on Demand		100		100		—		—
				Subtotal	$	5,826	$	6,402	$	576	$	137
Revolving line of credit agreement
	Yutaka Niihara(2)	5.25%	12/27/2019	Due on Demand		—		400		400		110
				Subtotal	$	—	$	400	$	400	$	110
				Total	$	5,826	$	6,802	$	976	$	247

Class
Lender

Interest
Rate

Date of
Loan

Term of Loan

Principal Amount Outstanding at December 31, 2021

Highest
Principal
Outstanding

Amount of
Principal
Repaid

Amount of
Interest
Paid

Promissory note payable to related parties:

Willis Lee(2)

12%

10/29/2020

Due on Demand

$
100

$
100

$
—

$
—

Soomi Niihara(1)

12%

1/20/2021

Due on Demand

—

700

700

13

Soomi Niihara(1)

12%

9/15/2021

Due on Demand

—

300

300

3

Soomi Niihara(1)

12%

12/7/2021

Due on Demand

700

700

—

—

Subtotal

$
800

$
1,800

$
1,000

$
16

Revolving line of credit

Yutaka Niihara(1)

5.25%(3)

12/27/2019

Due on Demand

400

800

400

35

Subtotal

400

800

400

35

Total

$
1,200

$
2,600

$
1,400

$
51

(a)

~~(1)~~

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

~~(2)~~

~~Officer or director.~~

~~(3)The rate varies with changes in the prime rate and does not give effect to the “tax gross-up” described in Note 7.~~

S~~ee Note 7 for a discussion~~ of the ~~Company’s revolving line~~Company, is also a director and the Chief Executive Officer of ~~credit agreement with Dr. Niihara and Note 13 for information regarding recent related party loans.~~Hope International Hospice, Inc

See Notes 3, 5, 6 and 11 for a discussion of the Company’s agreements with Telcon, which holds 4,147,491 shares of ~~the Emmaus~~ common stock of the Company, or approximately ~~8.4%~~7.7% of the common stock outstanding as of ~~September~~June 30, ~~2022.~~2023. As of ~~September~~June 30, ~~2022,~~2023, the Company held a Telcon convertible bond in the principal amount of approximately ~~$18.4~~$17.9 million as discussed in Note 5.

NOTE 13 — SUBSEQUENT EVENTS

~~Subsequent~~

The Company evaluated events subsequent to ~~September 30, 2022,~~ the ~~Company redeemed $175,000 principal amount of its outstanding convertible promissory notes.~~balance sheet date through the date the financial statements were issued and determined that there were no such events requiring recognition or disclosure in the financial statement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In the following discussion, the terms, “we,” “us,” “our,” “Emmaus” or the “Company” refer to Emmaus Life Sciences, Inc. and its direct and indirect ~~subsidiaries~~.subsidiaries.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission (“SEC”) on March 31, ~~2022~~2023 (the “Annual Report”).

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than historical facts contained in this report, including statements regarding our future financial position, capital expenditures, cash flows, business strategy and plans and objectives of management for future operations are forward-looking statements. The words “anticipate,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including those set forth in the “Risk Factors” section of the Annual Report, many of which are beyond our control.

Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all forward-looking statements made in this Form 10-Q are qualified by these cautionary statements. We undertake no duty to amend or update these statements beyond what is required by SEC reporting requirements.

We are a commercial-stage biopharmaceutical company engaged in the discovery, development, marketing and sale of innovative treatments and therapies, primarily for rare and orphan diseases. Our lead product, ~~Endari~~®Endari® (prescription-grade L-glutamine oral powder), is approved by the U.S. Food and Drug Administration, or FDA,, to reduce the acute complications of sickle cell disease (“SCD”), in adult and pediatric patients five years of age and older. In April 2022, ~~Endari~~® Endari® was approved by the Ministry of Health and Prevention in the United Arab Emirates, or U.A.E, in adults and pediatric patients five years of age and older. ~~The approval~~In November and December of 2022, we received marketing authorizations for Endari® in ~~the U.A.E. was the first granted outside the U.S.~~ Qatar and Kuwait, respectively.In July 2023, we received marketing approval for Endari® in Oman.Applications for marketing authorization ~~are pending~~ in ~~the Kingdom of Saudi Arabia, Bahrain, and~~ other Gulf Cooperation Council, or GCC, countries ~~as well.~~are pending. While the applications are pending, the FDA approval of Endari® can be referenced to allow access to Endari® on a named-patient basis.

Endari® is marketed and sold in the U.S. by our internal commercial sales team. Endari® is reimbursable by the Centers for Medicare and Medicaid Services, and every state provides coverage for Endari® for outpatient prescriptions to all eligible Medicaid enrollees within their state Medicaid programs. Endari® is also reimbursable by many commercial payors. We have agreements in place with the nation’s leading distributors as well as physician group purchasing organizations and pharmacy benefits managers, making Endari® available at selected retail and specialty pharmacies nationwide. In April 2022, we launched a telehealth solution to afford SCD patients’ direct access to Endari® remotely through a web portal managed by our strategic partners, including Asembia LLC ~~US Bioservices Corporation~~ and UpScript IP Holdings, LLC.

As of ~~September~~June 30, ~~2022,~~2023, our accumulated deficit was ~~$252.6~~$257.4 million and we had cash and cash equivalents of ~~$1.2~~$1.4 million. We expect net revenues to continue to increase as we expand our commercialization of Endari® in the U.S. and ~~begin to realize revenues in~~ the ~~U.A.E. and perhaps other GCC countries.~~Middle East North Africa, or MENA, region. Until we can generate sufficient net revenues from Endari® sales, our future cash requirements are expected to be financed through ~~public or private sales of equity or debt securities and loans, including~~ loans from related parties, third-party loans, public or private equity or debt financings or possible corporate collaboration and licensing arrangements. We are unable to predict if or when we will become profitable.

We realize net revenues primarily from sales of Endari® to our distributors and specialty pharmacy providers. Distributors resell our products to other pharmacy and specialty pharmacy providers, health care providers, hospitals, and clinics. In addition to agreements with these distributors, we have contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that provide for government-mandated or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products. These

various discounts, rebates, and chargebacks are referred to as “variable consideration.” Revenue from product sales is recorded net of variable consideration.

Management estimates variable consideration using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible transaction prices. Actual variable consideration may differ from our estimates. If actual results vary from the estimates, we adjust the variable consideration in the period such variances become known, which adjustments are reflected in net revenues in that period. The following are our significant categories of variable consideration:

Under the Accounting Standards Codification (“ASC”) 606, we recognize revenue when our customers obtain control of our product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for the product, or transaction price. To determine revenue recognition for contracts with customers within the scope of ASC 606, we perform the following: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligations.

Sales Discounts: We ~~provide~~afford our customers prompt payment discounts and ~~from time to time offer~~ additional discounts to encourage bulk orders to generate needed working ~~capital~~. capital. Sales ~~attributable to~~at bulk discounts offered by us increased in late 2021 and adversely affected sales in the ~~first quarter of~~six months ended June 30, 2022.

Product Returns: We offer our distributors a right to return product principally based upon (i) overstocks, (ii) inactive product or non-moving product due to market conditions, and (iii) expired product. Product return allowances are estimated and recorded at the time of sale.

Government Rebates: We are subject to discount obligations under state Medicaid programs and the Medicare Part D prescription drug coverage gap program. We estimate Medicaid and Medicare Part D prescription drug coverage gap rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenues are recognized, resulting in a reduction of product revenues and the establishment of a current liability that is included as accounts payable and accrued expenses on our balance sheet. Our liability for these rebates consists primarily of estimates of claims expected to be received in future periods related to recognized revenues.

Chargebacks and Discounts: Chargebacks for fees and discounts represent the estimated obligations resulting from contractual commitments to sell products to certain specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities at prices lower than the list prices charged to distributors. The distributors charge us for the difference between what they pay for the products and our contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities. In addition, we have contractual agreements with pharmacy benefit managers who charge us for rebates and administrative ~~fee~~fees in connection with the utilization of product. These reserves are established in the same period that the related revenues are recognized, resulting in a reduction of revenues. Chargeback amounts are generally determined at the time of resale of product by our distributors.

Cost of goods sold consists primarily of expenses for raw materials, packaging, shipping, and distribution of Endari®.

Research and development expenses consist of expenditures for new products and technologies consisting primarily of fees paid to contract research organizations (“CRO”) that conduct clinical trials of Endari® or our product candidates, payroll-related expenses, study site payments, consultant fees ~~and activities related to regulatory filings, manufacturing development costs~~ and other related costs. The costs of later-stage clinical studies such as Phase 2 and 3 trials are generally higher than those of earlier studies. This is primarily due to the larger size, expanded scope, patient related healthcare and regulatory compliance costs, and generally longer duration of later-stage clinical studies.

Our contracts with CROs are generally based on time and materials expended, whereas study site agreements are generally based on costs per patient as well as other pass-through costs, including start-up costs and institutional review board fees. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.

Future research and development expenses will depend on any new product candidates or technologies that we may introduce into our research and development pipeline. In addition, we cannot predict which product candidates may be subject to future

collaborations, when such arrangements will be secured, if at all, and to what degree, if any, such arrangements would affect our development plans and capital requirements.

Due to the inherently unpredictable nature of the drug approval process and ~~the interpretation of the~~applicable regulatory requirements, we are unable to estimate the amount of costs of obtaining regulatory approvals of Endari® outside of the U.S. or the development of our other preclinical and clinical programs. Clinical development timelines, the probability of success and development costs can differ materially from expectations and can vary widely. These and other risks and uncertainties relating to product development are described in the Annual Report under the headings “Risk Factors—Risks Related to Our Business” and “Risk Factors—Risks Related to Regulatory Oversight of our Business and Compliance with Law.”

General and administrative expense consists principally of salaries and related employee costs, including share-based compensation for our directors, executive officers, and employees. Other general and administrative expense includes facility costs, and professional fees and expenses for audit, legal, consulting, and tax services.

Selling expenses consist principally of salaries and related costs for personnel involved in the promotion, ~~sale,~~sales, and marketing of Endari®. Other selling ~~cost~~expenses include advertising, third party consulting costs, the cost of in-house sales personnel and travel-related costs. We expect selling expenses to increase as we acquire additional sales personnel to support the commercialization of Endari® in the U.S. and abroad.

In retrospect, we believe our business and net revenues were adversely affected in 2020 and 2021 by lockdowns, travel-related restrictions and other governmental responses to the pandemic related to the COVID 19 pandemic which inhibited the ability of our sales force to visit doctors’ offices and clinics and may have adversely affected the willingness of SCD patients to seek the care of a physician or to comply with physician-prescribed care. ~~We do not expect the ongoing epidemic to~~Ongoing COVID-19 infections or future official responses could cause a temporary or prolonged decline in our revenues and have a material adverse effect on our ~~business or~~ results of ~~operation but intend~~operations and financial condition. COVID-19 or governmental responses also may adversely affect the timing and conduct of clinical studies or the ability of regulatory bodies to consider ~~future changes~~or grant approvals with respect to Endari® or our prescription grade L-glutamine, or PGLG, drug candidates or oversee the development of our drug candidates, may further divert the attention and efforts of the medical community to coping with COVID-19 or variants and disrupt the marketplace in which we operate. Any outbreak of COVID-19 among our executives or key employees or their families and loved ones could disrupt our management and operations and adversely affect the effectiveness of our management, Endari® sales, and results of operations and financial condition. The foregoing factors could also have an adverse effect on economic and business ~~to adapt to~~conditions and the ~~new post-pandemic environment, including an increased focus on~~broad stock market, in general, or the market price of our ~~telehealth solution.~~common stock, in particular.

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

The cost of compliance with environmental laws has not been material over the past two years and ~~is not expected to have a material effect for the foreseeable future. Any~~any such costs are included in general and administrative costs.

Inventories consist of raw materials, finished goods and work-in-process and are valued on a first-in, first-out basis and at the lower of cost or net realizable value. Substantially all raw materials purchased during each of the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were supplied by one ~~vendor.~~supplier.

Net Revenues. Net revenues ~~decreased~~increased by ~~$0.8~~$6.5 million, or ~~14%~~151%, to ~~$4.9~~$10.8 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$5.8~~$4.3 million for the three months ended ~~September~~June 30, ~~2021.~~2022. The ~~decrease~~increase was primarily attributable to ~~lower bulk order purchases~~a $4.1 million increase in ~~2022~~net revenue in the MENA region in 2023 and a recovery in U.S. sales compared to the same period in ~~2021.~~2022.

Cost of Goods Sold. Cost of goods sold increased by $0.1 million, or ~~21%~~28%, to $0.5 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to $0.4 million for the three months ended ~~September~~June 30, ~~2021.~~2022. This increase was primarily due to ~~the establishment~~an increase of ~~an additional~~sales and to reduction in the reserve relating to Endari® inventory with a shelf-life of less than two ~~years.~~years for the three months ended June 30, 2023 compared to the same period in 2022.

Research and Development Expenses. Research and development expenses remained consistent at ~~$0.4~~$0.3 million for the three months ended ~~September~~June 30, ~~2022, compared~~2023, and for the three months ended June 30, 2022.

Selling Expenses. Selling expenses increased by $0.6 million, or 30%, to ~~$0.5~~$2.5 million for the three months ended ~~September~~June 30, ~~2021.~~

~~Selling Expenses. Selling expenses increased by $0.1 million, or 10%,~~2023, compared to ~~$1.7~~$2.0 million for the three months ended ~~September~~June 30, ~~2022, compared~~2022. The increase was primarily due to ~~$1.5~~an increase in payroll expenses related to sales personnel.

General and Administrative Expenses. General and administrative expenses increased by $1.0 million, or 32%, to $4.1 million for the three months ended ~~September~~June 30, ~~2021.~~2023, compared to $3.1 million for the three months ended June 30, 2022. The increase was primarily due to increases of $0.4 million in ~~consulting fees.~~transaction costs, $0.4 million in professional fees and $0.2 million in legal settlement.

~~General and Administrative Expenses.~~ ~~General and administrative expenses~~Other Income (Expense). Other expense decreased by ~~$0.4~~$2.4 million, or ~~12%~~33%, to ~~$3.0~~$4.8 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$3.4 million for the three months ended September 30, 2021. The decrease was primarily due to a decrease in professional fees~~

~~Other Income (Expense). Total other income increased by $3.1 million, or 106%, to $0.2 million for the three months ended September 30, 2022, compared to $2.9~~$7.3 million of other expense for the three months ended ~~September~~June 30, ~~2021.~~2022. The decrease was primarily due to a decrease of $2.6 million in change in fair value of conversion feature derivative, partially offset by an increase of $0.5 million in interest expense.

Net Loss. Net loss decreased by $7.4 million, or 83%, to $1.5 million for the three months ended June 30, 2023, compared to $8.9 million for the three months ended June 30, 2022. The decrease was primarily a result of an increase of $6.5 million in net revenues and a decrease of $2.4 in other expense.

Net Revenues. Net revenues increased by $10.0 million, or 133%, to $17.5 million for the six months ended June 30, 2023, compared to $7.5 million for the six months ended June 30, 2022. The increase was primarily attributable to a $5.6 million increase in net revenues in the MENA region and a recovery in U.S. sales in 2023 compared to the same period in 2022.

Cost of Goods Sold. Cost of goods sold decreased by $0.5 million, or 33%, to $0.9 million for the six months ended June 30, 2023, compared to $1.4 million for the six months ended June 30, 2022. This decrease was primarily due to a reduction of the reserve relating to Endari® inventory with a shelf-life of less than two years for the six months ended June 30, 2023 compared to the same period in 2022.

Research and Development Expenses. Research and development expenses decreased by 0.2 million, or 20%, to $0.6 million for the six months ended June 30, 2023, compared to $0.8 million for the six months ended June 30, 2022. The decrease was primarily due to completion of the sub-study under our Pilot/Phase 1 study of PGLG in diverticulosis in 2022.

Selling Expenses. Selling expenses increased by $1.4 million, or 42%, to $4.8 million for the six months ended June 30, 2023, compared to $3.4 million for the six months ended June 30, 2022. The increase was primarily due to increases in payroll expenses and consulting fees.

General and Administrative Expenses. General and administrative expenses increased by $2.5 million, or 39%, to $9.0 million for the six months ended June 30, 2023, compared to $6.5 million for the six months ended June 30, 2022. The increase was primarily due to increases of $1.2 million in share-based compensation, $0.7 million in transaction costs, $0.4 million in professional fees and $0.2 million in legal settlement.

Other Income (Expense). Other expense increased by $1.3 million, or 22%, to $7.2 million for the six months ended June 30, 2023, compared to $5.8 million of other income for the six months ended June 30, 2022. The increase was primarily due to an increase of ~~$5.2~~$1.3 million in ~~change in fair value of embedded conversion option of convertible promissory notes, partially offset by an increase of $1.2 million in foreign exchange loss.~~interest expenses.

Net Loss. Net loss ~~for the three months ended September 30, 2022,~~ decreased by ~~$2.8~~$5.4 million, or ~~88%~~52%, to ~~a net loss of $0.4~~$5.0 million for the ~~three~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~net loss of $3.2~~$10.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2021.~~2022. The decrease ~~of net loss~~ was primarily a result of an increase of ~~$3.1~~$10.0 million in ~~other income,~~net revenues, partially offset by ~~a decrease~~an increase of ~~$0.6~~$3.8 million in ~~income from operations as discussed above.~~

~~Net Revenues~~. Net revenues decreased by $5.1 million, or 29%, to $12.5 million for the nine months ended September 30, 2022 compared to $17.6 million for the nine months ended September 30, 2021. The decrease was primarily attributable to lower bulk orders in 2022 compared to the same period in ~~2021.~~

~~Cost of Goods Sold~~. Cost of goods sold increased by $0.6 million, or 48% to $1.9 million for nine months ended September 30, 2022 compared to $1.3 million for the nine months ended September 30, 2021. The increase was primarily due to $1.2 million of additional reserves relating to ~~Endari® inventory with a shelf-life of less than two years.~~

~~Research and Development Expenses~~. Research and development expenses decreased by $1.8 million, or 61%, to $1.2 million for the nine months ended September 30, 2022, compared to $3.0 million for the nine months ended September 30, 2021. The decrease was primarily due to $0.5 million in cash and $0.5 million in shares of the common stock issued in the nine months ended September 30, 2021 under the agreement with Kainos Medicine, Inc. (“Kainos”) to lead the clinical development of Kainos’ patented IRAK4 inhibitor and a decrease of $0.5 million in expenses relating to a pharmacokinetic characteristic and safety study for Endari® in the U.S. and a clinical study in Europe. We expect our research and development costs to decrease in the remainder of 2022 as we have halted the sub-study under our Pilot/Phase 1 study of L-glutamine in diverticulosis and no new studies are currently planned for the year.

~~Selling Expenses~~. Selling expenses increased by $0.8 million, or 19%, to $5.1 million for the nine months ended September 30, 2022, compared to $4.3 million for the nine months ended September 30, 2021. The increase was primarily due to increases in the consulting fees and in travel expenses of in-house sales team.

~~General and Administrative Expenses.~~ General and administrative expenses decreased by $0.7 million, or 7%, to $9.4 million for the nine months ended September 30, 2022 compared to $10.2 million for the nine months ended September 30, 2021. The decrease was primarily due to decreases of $1.0 million in professional fees and $0.2 million in travel expenses, partially offset by $0.5 million in increased payrolloperating expenses.

~~Other Income (Expense)~~. Total other expense decreased by $2.2 million, or 29%, to $5.6 million for the nine months ended September 30, 2022, compared to $7.9 million for the nine months ended September 30, 2021. The decrease was primarily due to increases of $4.4 million in change in fair value conversion feature derivatives and $1.7 million in change in fair value of warrant derivative liabilities partially offset by $3.7 million in loss in foreign exchange.

~~Net Income (Loss)~~. Net loss for the nine months ended September 30, 2022 increased by $1.7 million, or 19%, to $10.8 million for the nine months ended September 30, 2022, compared to $9.1 million for the nine months ended September 30, 2021. The increase was primarily a result of a $4.0 million increase in loss from operations, partially offset by a decrease of $2.2 million in other expense as discussed above.

Based on our losses to date, ~~current liabilities,~~working capital deficit, anticipated future net revenues and operating expenses, debt repayment obligations, ~~planned~~anticipated continued funding toof EJ Holdings and cash and cash equivalents balance of ~~$1.2~~$1.4 million as of ~~September~~June 30, ~~2022,~~2023, we do not have sufficient ~~capital for~~funds to satisfy our liabilities and obligations and operate our business without raising additional capital. We realized a net loss of ~~$10.9~~$5.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and anticipate that we will continue to incur net losses for the foreseeable future and until we can generate increased net revenues from Endari® ~~sales.~~ sales or discontinue funding EJ Holdings or cease other activities. While we anticipate increased net revenues as we continue to expand our commercialization of Endari® in the U.S. ~~through telehealth~~ and ~~other initiatives, as well as~~ in the ~~U.A.E. and perhaps other GCC countries,~~ MENA region, there is no assurance that we will be able to ~~significantly~~ increase our Endari® sales or attain sustainable profitability or that we will have sufficient capital resources to fund our operations until we are able to generate sufficient cash flow from ~~operations~~. If we are unable to raise needed capital, we may need to suspend all or substantially all business activities except those essential to support our Endari sales while we seek to restructure or refinance our existing indebtedness and other current liabilities and obtain needed financing.operations.

Our subsidiary, Emmaus Medical, Inc., or Emmaus Medical, is party a purchase and sale agreement with Prestige Capital Finance, LLC, or Prestige Capital, pursuant to which Emmaus Medical may offer and sell to Prestige Capital from time to time eligible accounts receivable in exchange for Prestige Capital’s down payment, or advance, to Emmaus Medical of 70% to 75% of the face amount of the accounts receivable, subject to a $7,500,000 cap on advances at any time. The balance of the face amount of the accounts receivable will be reserved by Prestige Capital and paid to Emmaus Medical, less discount fees of Prestige Capital ranging from 2.25% to 7.25% of the face amount, as and when Prestige Capital collects the entire face amount of the accounts receivable.

Liquidity represents our ability to pay our liabilities when they become due, fund our business operations, fund the operations and retrofitting of EJ Holdings’ amino acid production plant in Ube, Japan, and meet our contractual obligations, including our obligations to purchase API under our supply arrangements with Telcon, and execute our business plan. Our primary sources of liquidity are our cash balances at the beginning of each period, net revenues, proceeds from our accounts receivable factoring arrangement with Prestige Capital and similar sales of future receipts to other parties, proceeds from related-party loans and other financing activities. Our short-term and long-term cash requirements consist primarily of working capital requirements, general corporate needs, our contractual obligations to purchase API from Telcon, debt service under our convertible notes payable and notes payable and planned ongoing loan funding to sustain EJ Holdings’ operations. We have no contractual commitment to provide funding to EJ Holdings, but plan to continue to do so infor the foreseeable future to the extent we have cash available for this purpose.

As of ~~September~~June 30, ~~2022,~~2023, we had outstanding ~~$17.5~~$16.8 million principal amount of convertible promissory notes and ~~$12.0~~$14.5 million principal amount of other notes payable. Our minimum lease payment obligations were ~~$3.6~~$3.0 million as of June 30, 2023, of which ~~$0.6~~$1.0 million was payable within 12 months.

Of our outstanding convertible promissory notes, $14.3 million principal amount of the notes bear interest at the rate of 2% per year (10% in the event of a default), payable semi-annually on the last business day of August and January of each year and will mature on the 3rd anniversary of the original issue date, unless earlier converted or prepaid. We are in discussions with the holders of these convertible promissory notes to possibly restructure our obligations under the notes, but there can be no assurance whether, to what extent, or on what terms our obligations under the notes may be restructured.

Our API ~~Supply Agreement and revised API Agreement~~supply agreement with Telcon ~~provide~~provides for an annual API purchase target of $5 million and a target “profit” (i.e., gross margin) to Telcon of $2.5 million. To the extent these targets are not met, ~~which management refers to as a “target shortfall,”~~ Telcon may be entitled to payment of the ~~target~~ shortfall ~~in cash~~ or to ~~settle~~offset the ~~target~~ shortfall ~~in exchange for principal and interest on~~against the Telcon convertible bond and proceeds thereof that are pledged as collateral to secure our obligations. In April 2023 and February 2022, ~~we agreed with~~ Telcon ~~to settle~~retained cash collateral and made offsets against the ~~target shortfall for 2020 and 2021 in exchange for a reduction in principal and accrued interest on~~outstanding balance of our Telcon convertible bond ~~and cash proceeds thereof as described in Note 5 of~~to compensate for target shortfalls under the ~~Notes to condensed consolidated financial statements.~~API supply agreement.

Due to uncertainties regarding our ability to meet our current ~~liabilities~~ and future operating and capital expenses, there is substantial doubt about our ability to continue as a going concern for 12 months from the date ofthat this ~~filing~~condensed consolidated financial statements are issued, as referred to in the “Risk Factors” section of this Quarterly Report and Note 2 of the Notes to ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements included herein.

Cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022

Net cash used in operating activities ~~increased~~decreased by ~~$4.6~~$3.2 million, or ~~219%~~55%, to ~~$6.8~~$2.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~$2.1~~$5.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. This ~~increase~~decrease was primarily due to ~~an increase~~a decrease of ~~$4.0~~$6.7 million in loss from ~~operations.~~operations resulting from a $10.0 million increase in net revenues partially offset by a $3.8 million increase in operating expenses.

Net cash used in investing activities decreased by ~~$3.9~~$0.4 million, or ~~75%~~94%, to ~~$1.3~~$27,000 for the six months ended June 30, 2023 from $0.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022 from $5.3 million for the nine months ended September 30, 2021. This~~2022. The decrease was primarily due to ~~proceeds~~a decrease of ~~$2.9~~$1 million ~~from the deemed~~in loans to equity method investee, partially offset by a decrease of $0.6 million in sale of ~~a portion of the~~ Telcon convertible ~~bond resulting from the offset of target shortfalls under our revised API Agreement with Telcon against principal and interest of our Telcon convertible bond against our trade discount.~~note.

Net cash from financing activities ~~decreased~~decrease by ~~$0.1~~$3.0 million, or 2%60%, to ~~$7.1~~$2.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~$7.2~~$4.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. This decrease was ~~the result~~due to a decrease of ~~$14.5~~$1.4 million in proceeds received from ~~the convertible~~issuance of promissory notes ~~payable issued~~and convertible notes in ~~2021, partially offset by a $5.9~~addition to an increase of $1.6 million ~~used to prepay our outstanding Amended and Restated10% Senior Secured Convertible Debenture~~ in ~~the same period and $8.8 million~~repayment of ~~proceeds from~~promissory notes ~~payable issued~~ in ~~2022.~~2023.

Management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of certain assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the present circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report for our critical accounting policies. There ~~have been~~were no material changes in ~~any of~~ our critical accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

Disclosure controls and procedures (“DCP”) are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. DCP include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our DCP. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s DCP were not effective.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended ~~September~~June 30, ~~2022~~2023 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that pose a reasonable possibility that a material misstatement of the Company’s annual or interimour consolidated financial statements will not be prevented or detected on a timely basis. Material weaknesses might cause information required to be disclosed by the Company in the reports that it files or submits to not be recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

~~We conducted an evaluation pursuant to Rule 13a‑15 of the Exchange Act of the effectiveness of the design and operation of our DCP~~ as of ~~June 30, 2022. This evaluation was conducted under the supervision (and with the participation) of~~December 31, 2021, our management including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our DCP were not effective as of September 30, 2022, because of the continuation of aidentified ongoing material ~~weakness~~weaknesses (the “Material ~~Weakness”~~Weaknesses”) in our internal control over financial ~~reporting due~~reporting. The Material Weaknesses related to inadequate financial closing process, segregation of duties, including access control ofover information technology, especially financial information, inadequate documentation of policies and procedures over risk assessments, internal control and significant account ~~process~~processes, and insufficient entity risk assessment ~~process.~~processes.

~~We engaged in ongoing efforts~~Since identifying the Material Weaknesses, we took several steps to remediate the ~~control deficiencies that~~ Material Weaknesses, including:

WeManagement does not believe ~~these measures will remediate the control deficiencies that gave rise to~~ the Material ~~Weakness. As we continue to evaluate and work to remediate these control deficiencies, we may determine that additional remediation measures may be required.~~Weakness materially affect the accuracy of our financial statements.

We are committed to maintaining a strong internal control environment and believe that these remediation actions will represent improvements in our internal control over financial reporting when they are fully implemented. The Material Weakness will not be considered fully remediated until controls have been designed and implemented for a sufficient period of time for our management to conclude that the control environment is operating effectively.

~~that our remediation efforts will be successful or that our internal control over financial reporting or DCP will be effective.~~

The following should be read in conjunction with the “Risk Factors” section of the Annual ~~Report.~~Report and our Quarterly Report on Form 10-Q for the three months ended March 31, 2023 filed with the SEC on May 15, 2023.

The Company’s consolidated financial statements included in this Quarterly Report have been prepared on the basis that the Company will continue as a going concern. The Company incurred a net loss of ~~$10.8~~$5.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and had a working capital deficit of ~~$35.1~~$51.7 million at ~~September~~June 30, ~~2022.~~2023. Management expects that the Company’s current liabilities and operating expenses, including the expected costs relating to the commercialization of Endari® in the ~~Middle East North Africa~~MENA region and elsewhere, will exceed our existing cash balances and cash expected to be generated from operations for the foreseeable future. To meet the Company’s current liabilities and operating expenses, the Company will need to restructure or refinance its existing indebtedness and raise additional funds through related-party loans, third-party loans, equity and debt financings or licensing or other strategic agreements. The Company has no understanding or arrangement to restructure or refinance its indebtedness or for any additional financing, and there can be no assurance that the Company will be able to restructure or refinance its existing indebtedness or complete any additional equity or debt financings on favorable terms, or at all, or enter into licensing or other strategic arrangements. If the Company is unable to do so, it may need to curtail business activities unrelated to the marketing and sale of Endari® or seek to restructure the Company in bankruptcy. Due to the uncertainty of the Company’s ability to meet its current liabilities and operating expenses, there is substantial doubt about the Company’s ability to continue as a going concern for 12 months from the date ofthat this ~~filing.~~condensed consolidated financial statements are issued. The consolidated financial statements ~~included in this Quarterly Report~~ do not include any adjustments that might result from the outcome of these uncertainties.

Sales of Endari® depend on the availability of adequate coverage and reimbursement from third-party payors and governmental healthcare programs, such as Medicare and Medicaid in the U.S. and government payors in the MENA region. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or a significant part of the costs associated with their prescription drugs. Coverage determination depends on financial, clinical and economic outcomes that often disfavors new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Although Endari® currently is reimbursable by the Centers for Medicare and Medicaid Services, and every state provides coverage for Endari® for outpatient prescriptions to all eligible Medicaid enrollees within their state Medicaid programs, the reimbursement amounts are subject to change and may not be adequate and may require higher co-payments that patients find unacceptable. The Company also has negotiated reimbursement rates for Endari® in the MENA region which are comparable to Medicare and Medicaid reimbursement rates. Patients are unlikely to use Endari® unless reimbursement is adequate to cover a significant portion of the cost of Endari®. Future coverage and reimbursement rates will likely be subject to increased scrutiny from payors in the U.S. and perhaps government payors in the MENA region. Third-party coverage and reimbursement for Endari® may cease to be available or adequate, which could have a material adverse effect on our business, results of operations, financial condition, and prospects.

The market for Endari® also depends on access to third-party payors’ drug formularies, which are lists of medications for which third-party payors provide coverage and reimbursement. The competition in the industry to be included in such formularies may lead to downward pricing pressures on us. Also, third-party payors may refuse to include Endari® in their formularies or otherwise restrict patient access to Endari® if a less costly generic equivalent or other alternative treatment is available.

Sales of Endari® in the MENA region are subject to lengthy reimbursement terms compared to U.S. sales, and management expects that our accounts receivable aging will be adversely affected by such terms as sales in the MENA region increase compared to our U.S. sales.

In August 2022, in consideration of financial accommodations by Dr. and Mrs. Niihara and their affiliated company, Hope International Hospice, Inc., the Company granted to Dr. Niihara a five-year warrant to purchase up to 500,000 shares of our common stock at an exercise price of $2.50 a share. If Dr. Niihara’s service to the Company terminates for any reason other than a termination for “cause” (as defined) or by reason of his death or disability, the warrant will expire to the extent it is not exercised within 90 days following his termination. In the event of his termination as a director for “cause,” the warrant will immediately terminate. The warrant will remain exercisable for its full term in the event of termination of Dr. Niihara’s service by reason of his death or disability.None.

The warrant was granted without registration under the Securities Act of 1933, as amended, pursuant to the exemptions from registration under Section 4(a)(2) of such Act and Regulation D for transactions not involving a public offering based upon the facts that it was granted to the Chairman and Chief Executive Officer of the Company in a private transaction.

Over the period January 1, 2022 through September 30, 2022, certain of the Company’s directors and executive officers loaned the Company an aggregate of $5.8 million to augment the Company’s working capital as reflected in the following table (in thousands):29

As reported in the Annual Report, based upon data from the initial Pilot/Phase 1 study of the safety and efficacy of prescription grade L-glutamine oral powder (“PGLG”) in diverticulosis, in July 2021 we initiated a sub-study under an amendment to the original IND protocol. The purpose of the sub-study was to standardize data collection and recording using video capture to support the accurate assessment of any changes in the sigmoid colon, the most frequent site for diverticulosis, as well as diverticulitis, a more severe manifestation of diverticulosis. The sub-study objective was to provide additional safety and efficacy data to support further clinical development. For the sub-study, five patients were administered oral L-glutamine 15g BID over six months beginning early this year. Unfortunately, as the study was ending a patient in the sub-study experienced serious health complications unrelated to the sub-study which necessitated his withdrawal from the study before treatment could be completed, while other patients showed marginal improvement. As a result, we do not have definitive data to conclude the study.

At present, we have plan for further study of PGLG in diverticulosis but are considering a future study in diverticulitis patients in order to possibly increase measurable clinical endpoints from the treatment with PGLG.

** This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

Pursuant to the requirements 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.

~~Delaware~~		~~87-0419387~~
Delaware		87-0419387
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


21250 Hawthorne Boulevard, Suite 800, Torrance, California		90503
(Address of principal executive offices)		(Zip code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None


		Page


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	1

	(a)Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022	1

	(b)Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~ 2022	2

	(c)Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	3

	(d)Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~ 2022	54

	(e)Notes to Condensed Consolidated Financial Statements	65

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

Part II Other Information

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	2829

Item 5.	Other Information	29

Item 6.	Exhibits	30

Signatures		31

	As of
	September 30, 2022			December 31, 2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,179		$	2,279
Accounts receivable, net		1,491			1,040
Inventories, net		2,739			4,392
Prepaid expenses and other current assets		973			1,380
Total current assets		6,382			9,091
Property and equipment, net		79			147
Equity method investment		16,594			17,616
Right of use assets		2,944			3,485
Investment in convertible bond		15,943			26,100
Other assets		259			295
Total assets	$	42,201		$	56,734
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	11,134		$	9,189
Operating lease liabilities, current portion		653			740
Conversion feature derivative, notes payable		4,272			7,507
Other current liabilities		2,270			4,404
Revolving line of credit from related party		400			400
Warrant derivative liabilities		33			1,503
Notes payable, current portion, net of discount		5,635			2,399
Notes payable to related parties		2,780			800
Convertible notes payable, net of discount		14,346			10,158
Total current liabilities		41,523			37,100
Operating lease liabilities, less current portion		2,764			3,261
Other long-term liabilities		32,122			33,173
Notes payable, less current portion		—			1,500
Notes payable to related parties, net		3,381			—
Convertible notes payable		—			3,150
Total liabilities		79,790			78,184
STOCKHOLDERS’ DEFICIT
Preferred stock, par value $0.001 per share, 15,000,000 shares authorized, none issued or outstanding		—			—
Common stock, par value $0.001 per share, 250,000,000 shares authorized, 49,558,501 and 49,311,864 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		50			49
Additional paid-in capital		220,803			220,022
Accumulated other comprehensive loss		(5,905	)		(255	)
Accumulated deficit		(252,537	)		(241,266	)
Total stockholders’ deficit		(37,589	)		(21,450	)
Total liabilities & stockholders’ deficit	$	42,201		$	56,734


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

	Common stock				Additional paid-in			Accumulated other comprehensive			Accumulated			Total stockholders'
	Shares		Amount		capital			income (loss)			deficit			deficit
Balance at January 1,2022		49,311,864	$	49	$	220,022		$	(255	)	$	(241,266	)	$	(21,450	)
Share-based compensation		—		—		5			—			—			5
Unrealized gain on debt securities available for sale (net of tax)		—		—		—			350			—			350
Reclassification adjustment for loss included in net income		—		—		—			7			—			7
Foreign currency translation effect		—		—		—			331			—			331
Net loss		—		—		—			—			(1,542	)		(1,542	)
Balance, March 31, 2022		49,311,864		49		220,027			433			(242,808	)		(22,299	)
Reclassification of warrants from liability to equity		—		—		213	��		—			—			213
Fair value of warrants including down-round protection adjustments		—		—		446			—			(446	)		—
Common stock issued for services		246,637		1		109									110
Share-based compensation		—		—		5			—			—			5
Unrealized loss on debt securities available for sale (net of tax)		—		—		—			(4,415	)		—			(4,415	)
Foreign currency translation effect		—		—		—			643			—			643
Net loss		—		—		—			—			(8,892	)		(8,892	)
Balance, June 30, 2022		49,558,501	$	50	$	220,800		$	(3,339	)	$	(252,146	)	$	(34,635	)
Share-based compensation		—		—		3			—			—			3
Unrealized loss on debt securities available for sale (net of tax)		—		—		—			(3,047	)		—			(3,047	)
Foreign currency translation effect		—		—		—			481			—			481
Net loss		—		—		—			—			(391	)		(391	)
Balance, September 30, 2022	$	49,558,501	$	50	$	220,803		$	(5,905	)	$	(252,537	)	$	(37,589	)


	Three Month Ended June 30,						Six Month Ended June 30,
	2023 (Unaudited)			2022 (Unaudited)			2023 (Unaudited)			2022 (Unaudited)
Revenue, net	$	45		$	48		$	99		$	102
Net loss	$	(1,098	)	$	(1,234	)	$	(2,416	)	$	(2,648	)
Net loss attributable to the Company (40%)	$	(439	)	$	(493	)	$	(966	)	$	(1,059	)


	June 30, 2023		December 31, 2022
Trade discount	$	2,600	$	1,200
Unearned revenue (a)		10,000		10,000
Other current liabilities		1,394		1,717
Total other current liabilities	$	13,994	$	12,917

Year Ending
2022 (three months)	$	25,900	(a)
2025		1,200
2027		2,321
Total	$	29,421

Warrant liability—Convertible Promissory Note	June 15, 2022			December 31, 2021
Balance, beginning of period	$	1,463		$	988
Change in fair value included in the statement of operations		(1,250	)		475
Reclassification to equity		(213	)		—
Balance, end of period	$	—		$	1,463

	Principal Amounts		Annual Interest Rate	Term
Soomi Niihara(1)	$	300	12%	Due on Demand
Yasushi Nagasaki(2)	$	50	10%	Due on Demand
Hope International Hospice, Inc.(1)	$	350	10%	Due on Demand
Hope International Hospice, Inc.(1)	$	210	10%	Due on Demand
Soomi Niihara(1)	$	100	10%	Due on Demand
George Sekulich(2)	$	26	10%	Due on Demand
Soomi Niihara(1)	$	200	10%	Due on Demand
Osato Medical Clinic.(3)	$	250	12%	Due on Demand
Alfred Lui(2)	$	50	12%	Due on Demand
Hope International Hospice, Inc.(1)	$	150	12%	Due on Demand
Hope International Hospice, Inc.(1)	$	150	12%	Due on Demand
Wei Pei Derek Zen(2)	$	200	10%	Due on Demand
Willis Lee(2)	$	45	10%	Due on Demand
Hope International Hospice, Inc.(1)	$	40	10%	Due on Demand
Yutaka and Soomi Niihara(1)	$	402	12%	5 years
Hope International Hospice, Inc.(1)	$	50	10%	Due on Demand
Yutaka and Soomi Niihara(1)	$	250	10%	5 years
Yutaka and Soomi Niihara(1)	$	1,669	10%	5 years
Hope International Hospice, Inc.(1)	$	50	10%	Due on Demand
Yutaka and Soomi Niihara(1)	$	60	10%	Due on Demand
Seah Lim(2)	$	1,200	6%	3 years

					Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed/ Furnished
~~4.1~~	~~Warrant to Purchase Shares of Common Stock dated as of August 9, 2022~~10.1					*
~~10.1~~	Promissory Note dated ~~July 27, 2022~~April 24, 2023					*
10.2	Promissory Note dated ~~August 15, 2022~~May 3, 2023					*
10.3	Promissory Note dated ~~August 16, 2022~~May 26, 2023					*
10.4	Promissory Note dated ~~August 16, 2022~~June 14, 2023					*
~~10.5~~	~~Promissory Note dated August 17, 2022~~31.1					*
~~10.6~~	~~Promissory Note dated August 17, 2022~~					*
~~10.7~~	~~Promissory Note dated September 16, 2022~~					*
~~31.1~~	Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					*
31.2	Certification of Chief Financial Officer pursuant of Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					*
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					**
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL 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 Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)


	September 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
Principal outstanding (South Korean won)	KRW 26.5 billion			KRW 30 billion			KRW 23.6 billion			KRW 26.5 billion
Stock price	KRW1,075			KRW2,925			KRW1,158			KRW 1,015
Expected life (in years)		8.04			8.79			7.30			7.79
Selected yield		16.75	%		10.50	%		12.75	%		13.50	%
Expected volatility (Telcon common stock)		78.80	%		81.31	%		79.70	%		78.50	%
Risk-free interest rate (South Korea government bond)		4.14	%		2.19	%		3.69	%		3.74	%
Expected dividend yield		—			—			—			—
Conversion price	KRW1,150 (US$0.80)			KRW2,847 (US$2.39)			KRW1,068(US$0.81)			KRW1,068(US$0.85)


	Emmaus Life Sciences, Inc.

Dated: ~~November~~August 14, ~~2022~~2023	By:	/s/ Yutaka Niihara
	Name:	Yutaka Niihara, M.D., M.P.H.
	Its:	Chief Executive Officer


	By:	/s/ Yasushi Nagasaki
	Name:	Yasushi Nagasaki
	Its:	Chief Financial Officer