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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended June 30, 2025


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

For the transition period from to

Commission File No.: 001-35527

EMMAUS LIFE SCIENCES, INC.

(Exact name of Registrant as specified in its charter)


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)

(310) 214-0065

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

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.


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

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 63,865,571 shares of common stock, par value $0.001 per share, outstanding as of August 11, 2025.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended June 30, 2025

TABLE OF CONTENTS


		Page


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	1

	(a) Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024	1

	(b) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2025 and 2024	2

	(c) Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and six months ended June 30, 2025 and 2024	3

	(d) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024	4

	(e) Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

Part II Other Information

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

Signatures		29

Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	As of
	June 30, 2025			December 31, 2024
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	886		$	1,389
Accounts receivable, net		2,071			2,623
Inventories, net		1,313			1,635
Prepaid expenses and other current assets		745			1,120
Total current assets		5,015			6,767
Property and equipment, net		143			46
Right of use assets		830			1,530
Investment in convertible bond		17,188			15,037
Other assets		168			222
Total assets	$	23,344		$	23,602
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	19,373		$	16,926
Operating lease liabilities, current portion		348			2,423
Conversion feature derivative, notes payable		—			162
Other current liabilities		14,139			16,557
Warrant derivative liabilities		13			8
Notes payable, current portion, net of discount		8,267			7,093
Notes payable to related parties		3,132			3,372
Convertible notes payable, net of discount		16,804			17,014
Total current liabilities		62,076			63,555
Operating lease liabilities, less current portion		1,584			815
Other long-term liabilities		13,128			13,465
Notes payable to related parties, net of discount		2,257			2,246
Total liabilities		79,045			80,081
Commitments and contingent liabilities (Note 11)
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, 63,865,571 shares issued and outstanding at June 30, 2025 and December 31, 2024		64			64
Additional paid-in capital		225,905			225,896
Net loan receivable from EJ Holdings		(16,869	)		(16,869	)
Accumulated other comprehensive loss		1,239			(2,995	)
Accumulated deficit		(266,040	)		(262,575	)
Total stockholders’ deficit		(55,701	)		(56,479	)
Total liabilities and stockholders’ deficit	$	23,344		$	23,602

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

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
REVENUES, NET	$	2,817		$	5,377		$	5,223		$	7,883
COST OF GOODS SOLD		150			241			375			498
GROSS PROFIT		2,667			5,136			4,848			7,385
OPERATING EXPENSES
Research and development		56			191			232			374
Selling		674			1,631			1,320			3,568
General and administrative		2,307			2,732			4,646			5,601
Total operating expenses		3,037			4,554			6,198			9,543
INCOME (LOSS) FROM OPERATIONS		(370	)		582			(1,350	)		(2,158	)
OTHER INCOME (EXPENSE)
Loss on debt extinguishment		(212	)		—			(376	)		—
Change in fair value of warrant derivative liabilities		4			5			(5	)		(3	)
Change in fair value of conversion feature derivative, notes payable		—			(1,440	)		162			(2,347	)
Realized loss on investment in convertible bond		(531	)		(544	)		(531	)		(544	)
Gain on restructured debt		—			—			—			1,032
Gain on lease modification		861			—			861			—
Foreign exchange gain (loss)		134			75			(18	)		106
Interest and other income (net)		67			135			140			282
Interest expense		(1,678	)		(966	)		(2,934	)		(2,876	)
Total other expense		(1,355	)		(2,735	)		(2,701	)		(4,350	)
LOSS BEFORE INCOME TAXES		(1,725	)		(2,153	)		(4,051	)		(6,508	)
Income tax provision (benefit)		(590	)		31			(586	)		24
NET LOSS		(1,135	)		(2,184	)		(3,465	)		(6,532	)

COMPONENTS OF OTHER COMPREHENSIVE LOSS
Unrealized gain (loss) on debt securities available for sale (net of tax)		3,715			(1,733	)		3,909			(3,461	)
Reclassification adjustment for loss included in net income (loss)		354			197			354			197
Foreign currency translation adjustments		(33	)		12			(29	)		30
Other comprehensive income (loss)		4,036			(1,524	)		4,234			(3,234	)
COMPREHENSIVE INCOME (LOSS)	$	2,901		$	(3,708	)	$	769		$	(9,766	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED	$	(0.02	)	$	(0.03	)	$	(0.05	)	$	(0.10	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED		63,865,571			63,355,121			63,865,571			62,600,542

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

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(In thousands, except share and per share amounts)

(Unaudited)


	Common stock		Additional paid-in	Loan receivable from	Accumulated other comprehensive	Accumulated	Total stockholders'
	Shares	Amount	capital	EJ Holdings	loss	deficit	deficit
Balance, January 1, 2025	63,865,571	$64	$225,896	$(16,869)	$(2,995)	$(262,575)	$(56,479)
Share-based compensation	—	—	10	—	—	—	10
Unrealized gain on debt securities available for sale (net of tax)	—	—	—	—	194	—	194
Foreign currency translation effect	—	—	—	—	4	—	4
Net loss	—	—	—	—	—	(2,330)	(2,330)
Balance, March 31, 2025	63,865,571	64	225,906	(16,869)	(2,797)	(264,905)	(58,601)
Share-based compensation	—	—	(1)	—	—	—	(1)
Unrealized gain on debt securities available for sale (net of tax)	—	—	—	—	3,715	—	3,715
Reclassification of realized loss on investment in convertible bond included in net loss	—	—	—	—	354	—	354
Foreign currency translation effect	—	—	—	—	(33)	—	(33)
Net loss	—	—	—	—	—	(1,135)	(1,135)
Balance, June 30, 2025	63,865,571	$64	$225,905	$(16,869)	$1,239	$(266,040)	$(55,701)


	Common stock		Additional paid-in	Loan receivable from	Accumulated other comprehensive	Accumulated	Total stockholders'
	Shares	Amount	capital	EJ Holdings	income (loss)	deficit	deficit
Balance, January 1, 2024	61,845,963	$62	$225,333	$(16,869)	$(160)	$(256,122)	$(47,756)
Share-based compensation	—	—	170	—	—	—	170
Unrealized loss on debt securities available for sale (net of tax)	—	—	—	—	(1,728)	—	(1,728)
Foreign currency translation effect	—	—	—	—	18	—	18
Net loss	—	—	—	—	—	(4,348)	(4,348)
Balance, March 31, 2024	61,845,963	62	225,503	(16,869)	(1,870)	(260,470)	(53,644)
Convertible notes converted to shares	2,019,608	2	307	—	—	—	309
Share-based compensation	—	—	29	—	—	—	29
Unrealized loss on debt securities available for sale (net of tax)	—	—	—	—	(1,733)	—	(1,733)
Reclassification of realized loss on investment in convertible bond included in net loss	—	—	—	—	197	—	197
Foreign currency translation effect	—	—	—	—	12	—	12
Net loss	—	—	—	—	—	(2,184)	(2,184)
Balance, June 30, 2024	63,865,571	$64	$225,839	$(16,869)	$(3,394)	$(262,654)	$(57,014)

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

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2025			2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,465	)	$	(6,532	)
Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization		9			12
Inventory reserve		4			15
Amortization of discount of notes payable and convertible notes payable		227			563
Foreign exchange adjustments		211			(194	)
Tax benefit recognized on unrealized gain on debt securities		(591	)		—
Realized loss on investment in convertible bond		531			544
Loss on debt extinguishment		376			—
Gain on restructured debt		—			(1,032	)
Gain on lease modification		(861	)		—
Share-based compensation		9			199
Change in fair value of warrant derivative liabilities		5			3
Change in fair value of conversion feature derivative, notes payable		(162	)		2,347
Net changes in operating assets and liabilities
Accounts receivable		552			921
Inventories		319			47
Prepaid expenses and other current assets		376			471
Other non-current assets		302			412
Accounts payable and accrued expenses		2,464			2,229
Other current liabilities		(2,516	)		(2,681	)
Other long-term liabilities		(419	)		(101	)
Net cash flows used in operating activities		(2,629	)		(2,777	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of convertible bond		2,172			2,508
Purchases of property and equipment		(1	)		(7	)
Net cash flows provided by investing activities		2,171			2,501
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable issued		3,238			2,401
Payments of notes payable		(2,849	)		(2,571	)
Payments of notes payable, related party		(240	)		(350	)
Payments of convertible notes		(210	)		(200	)
Net cash flows used in financing activities		(61	)		(720	)
Effect of exchange rate changes on cash		15			(26	)
Net decrease in cash and cash equivalents		(504	)		(1,022	)
Cash and cash equivalents, beginning of year		1,389			2,547
Cash and cash equivalents, end of year	$	885		$	1,525

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Interest paid	$	916		$	1,234
Income taxes paid	$	14		$	29
NON-CASH INVESING AND FINANCING ACTIVITIES
Conversion of convertible note payable and accrued interest to common stock	$	—		$	309
Equipment purchased but included in accounts payable	$	105		$	—

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

EMMAUS LIFE SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. 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, 2024 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on April 14, 2025. The accompanying condensed consolidated balance sheet at December 31, 2024 has been derived from the audited consolidated balance sheet at December 31, 2024 contained in the Annual Report. The results of operations for the three and six months ended June 30, 2025 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 sales of innovative treatments and therapies, primarily for rare and orphan diseases. The Company’s only product, Endari® (prescription grade L-glutamine oral powder), is approved by the U.S. Food and Drug Administration, or FDA, and in certain jurisdictions in the Middle East North Africa, or MENA, region 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 unaudited condensed 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 $3.5 million for the six months ended June 30, 2025 and had a working capital deficit of $57.1 million as of June 30, 2025. The Company’s indebtedness included in its current liabilities and its expected working capital needs, including debt service on its existing indebtedness and the expected costs relating to the commercialization of Endari® in the MENA region and elsewhere, exceed its existing cash balances and cash expected to be generated from operations for the foreseeable future. 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 has no understanding or arrangement for any restructuring, refinancing, or financing, and there can be no assurance that the Company will be able to restructure or refinance its existing indebtedness or obtain additional related-party or 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 and operating expenses, there is substantial doubt about the Company’s ability to continue as a going concern for 12 months from the date that these 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.

Principles of consolidation—The consolidated financial statements include the accounts of the Company and EMI Holding, Inc. subsidiary and EMI Holding’s wholly‑owned subsidiary, Emmaus Medical Inc., and Emmaus Medical, Inc’s wholly‑owned subsidiaries. All significant intercompany transactions have been eliminated.

Estimates—Financial statements prepared in accordance with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include those relating to revenue recognition on product sales, the variables used to calculate the valuation of investment in convertible bond, conversion features, stock options and warrants, and estimated accruals on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. To the extent there are material differences between these estimates and actual results, the Company’s financial statements will be affected.

Revenue recognition— The Company realizes net revenues primarily from sales of Endari® to distributors and specialty pharmacy providers. Distributors resell Endari® to other pharmacy and specialty pharmacy providers, health care providers, hospitals, and clinics. In addition to agreements with these distributors, the Company has 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 Endari®. These various discounts, rebates, and chargebacks are referred to as “variable consideration.” Revenue from product sales is recorded net of variable consideration.

Under ASC 606 Revenue from Contracts with Customers, the Company recognizes revenue when its customers obtain control of the Company's product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for the product, or transaction price. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 steps: (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 the Company’s performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the relevant performance obligations.

Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of sales discounts, returns, government rebates, chargebacks and commercial discounts. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible transaction prices. Actual variable consideration may differ from the Company's estimates. If actual results vary from the Company's estimates, the Company adjusts the variable consideration in the period such variances become known, which would affect net revenues in that period. The following are our significant categories of variable consideration:

Sales Discounts: The Company provides its customers prompt payment discounts and from time to time offers additional discounts for bulk orders that are recorded as a reduction of revenues in the period the revenues are recognized.

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

Government Rebates: The Company is subject to discount obligations under state Medicaid programs and the Medicare Part D prescription drug coverage gap program. Management estimates 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 period in which the related revenues are recognized, resulting in a reduction of product revenues and the establishment of a current liability that is included as an accounts payable and accrued expenses in the consolidated balance sheets. The 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 the Company for the difference between what they pay for the products and the Company’s contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities. In addition, the Company has contractual agreements with pharmacy benefit managers who charge us for rebates and administrative fee 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 products by the distributors.

Accounts receivable— Accounts receivables are primarily attributable to product sales to distributors and other customers. Each reporting period, the Company evaluates the collectability of outstanding receivable balances and records an allowance for credit loss based on an estimate of current expected credit loss. The estimate is based on historical experience, customer creditworthiness, facts and circumstance specific to outstanding balances and payment terms. Provisions are made based upon a specific review of all significant outstanding invoices and the quality and age of those invoices. As of June 30, 2025 and December 31, 2024, the Company recorded no valuation allowances. The Company believes the credit risks associated with its customers are not significant.

Inventories—Inventories consist of raw materials, finished goods and work-in-process and are valued on a first‑in, first‑out basis at the lesser of cost or net realizable value. Work‑in‑process inventories consist of L‑glutamine for the Company’s products that has not yet been packaged and labeled for sale. Inventories are stated at the lower of cost or net realizable value. The Company periodically reviews its inventory and provides for potential obsolescence based on its assessment of market conditions and anticipated demand. Substantially all raw materials purchase during the six months ended June 30, 2025 and the year ended

December 31, 2024 were supplied, directly or indirectly by one supplier. Inventories are presented net of reserves totaling $5.0 million as of June 30, 2025 and December 31, 2024.

Share‑based compensation—The Company recognizes compensation cost for share‑based compensation awards during the service term of the recipients of the share‑based awards. The fair value of share‑based compensation is calculated using the Black‑Scholes‑Merton pricing model. The Black‑Scholes‑Merton model requires subjective assumptions regarding future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of awards granted is calculated using the simplified method. The risk‑free rate selected to value any grant is based on the U.S. Treasury rate on the grant date that corresponds to the expected term of the award.

Investment in convertible bond – The Company has measured its investment in convertible bond at fair value. The convertible bond is classified as available for sale and the changes in fair value are reported in other comprehensive loss for each reporting period.

Financial instruments—Financial instruments included in the financial statements are comprised of cash and cash equivalents, investment in convertible bond, accounts receivable, warrant derivative liabilities, accounts payable, certain accrued liabilities, convertible notes payable, notes payable, conversion feature liabilities and other contingent liabilities.

Fair value measurements—The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in accordance with ASC 820. The Company measures fair value under a framework that provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2: Inputs to the valuation methodology include:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities in inactive markets;

Inputs other than quoted prices that are observable for the asset or liability; and

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 inputs must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The carrying values of cash and cash equivalents, accounts receivables, other current assets, account payable and accrued expenses, and other current liabilities approximate fair value due to the short-term maturity of those instruments.

The investment in convertible bond, the convertible features on convertible debt instruments and certain outstanding warrants that contain price adjustment provision are remeasured at fair value on a recurring basis using Level 3 inputs. The level 3 inputs in the valuation and valuation methods used are discussed in Note 5, 7 and 8. There are no other assets or liabilities measured at fair value on a recurring basis.

Derivative liability—The Company evaluates its financial instruments including convertible notes to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. The Company applies significant judgment to identify and evaluate terms and conditions in these contracts and agreements to determine whether embedded derivative exists. If all the requirements for bifurcation are met, embedded derivatives are separately measured from the host contract. Bifurcated embedded derivatives are initially recorded at fair value and then remeasure at each reporting period, with change in fair value recognized in the consolidated statements of operations. Bifurcated embedded derivative are classified as separate liability in the condensed consolidated balance sheets.

The Company's derivative liability related to the conversion feature embedded in the convertible promissory notes. See note 7 for further details.

Net loss 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. Dilutive net loss per share is computed in a similar manner, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The following securities were not included diluted shares outstanding because the effect would be anti-dilutive (in shares).


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Warrants		4,405,220		4,720,645		4,514,503		4,726,518
Stock options		4,640,812		5,331,581		4,687,246		5,032,825
Convertible notes		238,601,424		102,954,830		243,360,690		102,954,830
Total anti-dilutive instrument		247,647,456		113,007,056		252,562,439		112,714,173

Segment reporting—The Company operates and manages its business as a single reportable segment primarily for the marketing and sales of Endari®. In accordance with ASC 280, "Segment Reporting," the determination of a single business segment is consistent with the consolidated financial information regularly provided to the Company's chief operating decision maker ("CODM").

The Company's CODM is its Chief Executive Officer, who reviews and evaluates consolidated income or loss from operations for purposes of evaluating performance, making operating decisions, allocating resources, and planning and forecasting for future periods. The significant components of consolidated income or loss from operations regularly provided to the CODM include revenues, net and the significant expense categories presented in the accompanying consolidated statements of operations and comprehensive loss (i.e., cost of goods sold, research and development, selling, and general and administrative expenses). These are presented at the consolidated level and used by the CODM to monitor budgeted versus actual results to make key operating decisions. The information and operating expense categories presented in the accompanying consolidated statements of operations and comprehensive loss are fully reflective of the significant expense categories and amounts that are regularly provided to the CODM.

The measure of segment assets that is regularly reported to the CODM includes cash and cash equivalent and accounts receivable, net, each as reported on the consolidated balance sheets.

Recent Accounting Pronouncement —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 except for the following:

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their effective tax rate reconciliation and income taxes paid. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact adopting the guidance.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disaggregated disclosures in the notes of the financial statements of certain categories of expenses that are included in expense line items on the face of the income statement. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company will evaluate the impact adopting the guidance will have on the Company's consolidated financial statements and disclosures.

NOTE 3 — REVENUES

Revenues, net by category were as follows (in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
	2025				2024				2025				2024
Endari®	$	2,797	99	%	$	5,351	100	%	$	5,050	97	%	$	7,695	98	%
Other		20	1	%		26	0	%		173	3	%		188	2	%
Revenues, net		2,817	100	%		5,377	100	%		5,223	100	%		7,883	100	%

The following table summarizes the revenue allowance and accrual activities for the six months ended June 30, 2025 and June 30, 2024 (in thousands):


	Trade Discounts, Allowances and Chargebacks			Government Rebates and Other Incentives			Returns			Total
Balance as of January 1, 2025	$	1,135		$	6,812		$	138		$	8,085
Provision related to sales in the current year		390			1,595			55			2,040
Adjustments related to prior period sales		(2	)		27			—			25
Credits and payments made		(566	)		(980	)		(93	)		(1,639	)
Balance as of June 30, 2025	$	957		$	7,454		$	100		$	8,511

Balance as of January 1, 2024	$	1,212		$	5,658		$	863		$	7,733
Provision related to sales in the current year		730			1,759			82			2,571
Adjustments related to prior period sales		(79	)		34			—			(45	)
Credits and payments made		(746	)		(765	)		(884	)		(2,395	)
Balance as of June 30, 2024	$	1,117		$	6,686		$	61		$	7,864

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


	Three months ended June 30,			Six months ended June 30,
	2025	2024		2025		2024
Customer A	12%	38%		16%		40%
Customer B	15%	26%		28%		30%
Customer C	27%	21%		13%		15%
Customer D	17%	4%		16%		3%
Customer E	14%	— %	(a)	8%	(a)	— %	(a)

(a) Customer E is included in the table above for comparison to show customer has met or exceeded the 10% threshold for the three months period ended June 30, 2025.

On June 15, 2017, the Company entered into a distributor agreement with Telcon RF Pharmaceutical, Inc., or Telcon, pursuant to which it granted Telcon exclusive rights to the Company’s prescription grade L-glutamine (“PGLG”) oral powder for the treatment of diverticulosis in South Korea, Japan and China in exchange for Telcon’s payment of a $10 million upfront fee and agreement to purchase from the Company specified minimum quantities of the PGLG. Telcon had the right to terminate the distributor agreement in certain circumstances for failure to obtain such product registrations, in which event the $10 million upfront fee would become repayable to Telcon. In January 2023, Telcon terminated the distributor agreement, and the upfront fee of $10 million is included in other current liabilities as of June 30, 2025 and December 31, 2024. See Notes 5, 6 and 11 and for additional details of the Company's agreements with Telcon.

NOTE 4 — SELECTED FINANCIAL STATEMENT — ASSETS

Inventories consisted of the following (in thousands):


	June 30, 2025			December 31, 2024
Raw materials and components	$	1,145		$	1,147
Work-in-process		186			184
Finished goods		5,010			5,328
Inventory reserve		(5,028	)		(5,024	)
Total inventories, net	$	1,313		$	1,635

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


	June 30, 2025		December 31, 2024
Prepaid insurance	$	389	$	622
Prepaid expenses		136		272
Other current assets		220		226
Total prepaid expenses and other current assets	$	745	$	1,120

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


	June 30, 2025			December 31, 2024
Equipment	$	463		$	357
Leasehold improvements		16			15
Furniture and fixtures		30			30
Total property and equipment		509			402
Less: accumulated depreciation		(366	)		(356	)
Total property and equipment, net	$	143		$	46

For the three months ended June 30, 2025 and June 30, 2024, depreciation expense was approximately $4,000 and $6,000, respectively. For six months ended June 30, 2025 and June 30, 2024, depreciation expenses was approximately $9,000 and $12,000, respectively.

NOTE 5 — INVESTMENTS

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 million which matures on October 16, 2030 and bears interest at the rate of 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, or approximately US$8.00 per share. The initial conversion price is subject to downward adjustment on a 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 and to customary antidilution adjustments upon a merger or similar reorganization of Telcon or a stock split, reverse stock split, stock dividend or similar event. On December 30, 2024, Telcon undertook a reverse stock split at a rate of 1-for-10. The conversion price as of June 30, 2025 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 with Telcon described in Notes 6 and 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% of the principal amount of the convertible bond at any time and from time to time commencing October 16, 2021 and prior to maturity.

The investment in convertible bond is classified as an available for sale security since management does not have intention to trade nor held until maturity, and measured at fair value on a recurring basis using Level 3 inputs, with any changes in the fair value recorded in other comprehensive loss. The fair value and any changes in fair value in the convertible bond is determined using a

binominal 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 described in Note 6 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 April 2024, Telcon offset KRW3.5 billion, or approximately $2.5 million, against the principal amount of the Telcon convertible bond and the Company released KRW893 million, or approximately $640,000, in cash proceeds to Telcon in satisfaction of the target shortfall for the year ended 2023. As a result, the Company realized a net loss on investment in convertible bond of $347,000, which previously was classified as unrealized gain on debt securities available-for-sale in the other comprehensive loss.

In April 2025, Telcon offset KRW3.1 billion, or approximately $2.1 million, against the principal amount of the Telcon convertible bond and the Company released KRW49 million, or approximately $34,000, in cash proceeds to Telcon in satisfaction of the target shortfall for the year ended 2024. As a result, the Company realized a net loss on investment in convertible bond of $531,000, which previously was classified as unrealized gain on debt securities available-for-sale in the other comprehensive loss.

The following table sets forth the fair value and changes in fair value of the investment in the Telcon convertible bond as of June 30, 2025 and December 31, 2024 (in thousands):


Investment in convertible bond	June 30, 2025			December 31, 2024
Balance, beginning of period	$	15,037		$	20,978
Sales of convertible bond		(2,172	)		(2,508	)
Net gain (loss) on investment on convertible bond		(177	)		(347	)
Change in fair value included in the statement of other comprehensive loss (net of tax)		4,500			(3,086	)
Balance, end of period	$	17,188		$	15,037

The fair value as of June 30, 2025 and December 31, 2024 was based upon following assumptions:


	June 30, 2025			December 31, 2024
Principal outstanding (South Korean won)	KRW 17.0 billion			KRW 20.1 billion
Stock price	KRW 5354			KRW 5870
Expected life (in years)		5.30			5.79
Selected yield		13.25	%		9.50	%
Expected volatility (Telcon common stock)		66.55	%		62.90	%
Risk-free interest rate (South Korea government bond)		2.58	%		2.78	%
Expected dividend yield		—			—
Conversion price	KRW3,312(US$2.43)			KRW5,850(US$3.96)

Equity method investment – During 2018, the Company and Japan Industrial Partners, Inc., or JIP, formed EJ Holdings, Inc., or EJ Holdings, to acquire, own and operate an amino acids manufacturing facility in Ube, Japan. In connection with the formation, the Company invested approximately $32,000 in exchange for 40% of EJ Holdings' capital shares. JIP owned 60% of EJ Holdings' capital 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 $13.6 million. The loan proceeds were used by EJ Holdings to purchase the Ube facility in December 2019 and pay related taxes. The principal (JPY 3,637,335,720) will become due and payable in two equal installments on December 28, 2027 and on September 30, 2028 and bears interest at the rate of 1% payable annually. The parties also contemplated that the Ube facility would eventually supply the Company with the facility’s output of amino acids, 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 were representatives of JIP, in consultation with the Company. The Company suspended further loans to EJ Holdings in September 2023.

EJ Holdings has had no substantial revenues since its inception, has dependent on loans from the Company to acquire the Ube facility and fund its operations and will be dependent on loans from other financing unless and until its plant is activated and it

can secure customers for its products. There is no assurance that needed funding will be available from other sources. If EJ Holdings fails to obtain needed funding, it may need to suspend activities at the Ube plant.

On December 28, 2023, the Company sold and assigned its EJ Holdings shares at its original cost of JPY3.6 million or US$25,304 to Niihara International, Inc., which was formed by Yutaka Niihara, M.D., Ph. D., former Chairman and Chief Executive Officer of the Company and a principal stockholder of the Company. In January 2024, JIP also sold their EJ Holdings' capital share to Niihara International, Inc. In connection with the sale and assignment, the Company derecognized its investment in EJ Holdings, including $1.5 million of currency translation adjustments recorded in other comprehensive loss. As of June 30, 2025 and December 31, 2024, the face amount of the loan receivable from EJ Holdings was $25.8 million, which was reflected in $16.9 million of net loan receivable from EJ Holdings as contra-equity on the condensed consolidated balance sheets.

NOTE 6 — SELECTED FINANCIAL STATEMENT - LIABILITIES

Accounts payable and accrued expenses consisted of the following at June 30, 2025 and December 31, 2024 (in thousands):


	June 30, 2025		December 31, 2024
Accounts payable:
Clinical and regulatory expenses	$	540	$	452
Professional fees		661		904
Selling expenses		1,420		1,553
Manufacturing costs		209		706
Non-employee director compensation		982		966
Other vendors		750		594
Total accounts payable		4,562		5,175
Accrued interest payable, related parties		1,372		1,145
Accrued interest payable		4,407		2,874
Accrued expenses:
Payroll expenses		545		323
Government rebates and other rebates		8,130		7,229
Other accrued expenses		357		180
Total accrued expenses		9,032		7,732
Total accounts payable and accrued expenses	$	19,373	$	16,926

Other current liabilities consisted of the following at June 30, 2025 and December 31, 2024 (in thousands):


	June 30, 2025		December 31, 2024
Trade discount	$	3,000	$	5,000
Unearned revenue (a)		10,000		10,000
Other current liabilities		1,139		1,557
Total other current liabilities	$	14,139	$	16,557

(a) Refer to Note 3 for information regarding to due to Telcon.

Other long-term liabilities consisted of the following at June 30, 2025 and December 31, 2024 (in thousands):


	June 30, 2025		December 31, 2024
Trade discount	$	13,075	$	13,421
Other long-term liabilities		53		44
Total other long-term liabilities	$	13,128	$	13,465

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 million as an advance trade discount in consideration of the Company’s agreement to purchase from Telcon the Company’s estimated annual target 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 none and $368,000 of PGLG from Telcon for six months ended June 30, 2025 and 2024, respectively, of which $51,000 and $588,000 were reflected in accounts payable as of June 30, 2025 and December 31, 2024, respectively. The revised API Agreement provided 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 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 of the target shortfall.

NOTE 7 — NOTES PAYABLE

Notes payable consisted of the following at June 30, 2025 and December 31, 2024 (in thousands except for number of underlying shares):


Year Issued	Interest Rate Range	Term of Notes	Conversion Price			Principal Outstanding June 30, 2025		Unamortized Discount June 30, 2025		Capitalized Accrued Interest June 30, 2025		Carrying Amount June 30, 2025		Underlying Shares June 30, 2025
Notes payable
2013	10%	Due on demand		—		$	693	$	—	$	—	$	693		—
2022	10%-12%	Due on demand		—			527		—		—		527		—
2023	11%	Due on demand		—			3,278		—		—		3,278		—
2024	30%	Due on demand		—			1,400		—		—		1,400		—
2025	49% - 56%	20-38 weeks		—			2,516		147		—		2,369		—
						$	8,414	$	147	$	—	$	8,267		—
		Current				$	8,414	$	147	$	—	$	8,267		—
Notes payable - related parties
2020	12%	Due on demand		—			100		—		—		100		—
2021	12%	Due on demand		—			700		—		—		700		—
2022	10%-12%	Due on demand - 5 years		—			4,076		64		—		4,012		—
2023	10%-60%	Due on demand		—			577		—		—		577		—
						$	5,453	$	64	$	—	$	5,389		—
		Current				$	3,132	$	—	$	—	$	3,132		—
		Non-current				$	2,321	$	64	$	—	$	2,257		—
Convertible notes payable
2021	10%	Due on demand	$	0.02			685		—		—		685		33,478,176
2023	13%	Due on demand	$	10.00	(a)		3,150		—		—		3,150		398,695
2023	10%	Due on demand	$	0.29			1,000		—		—		1,000		4,076,523
2024	10%	Due on demand	$	0.02			11,030		—		939		11,969		200,000,000
						$	15,865	$	—	$	939	$	16,804		237,953,394
		Current				$	15,865	$	—

Emmaus Life Sciences, Inc. 10-Q