UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
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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.:
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
The registrant had
EMMAUS LIFE SCIENCES, INC.
For the Quarterly Period Ended March 31, 2020
INDEX
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Part I. Financial Information |
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Item 1. |
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(a)Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019 |
4 |
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(e)Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
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Item 3. |
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Item 4. |
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Part II Other Information |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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37 |
EXPLANATORY NOTE
As previously disclosed in the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on July 8, 2020, the board of directors of the Emmaus Life Sciences, Inc. (“we,” “us,” “our,” “Emmaus” or the “Company”), based on the recommendation of the audit committee, concluded that, because of errors identified in the previously issued annual financial statements of our EMI Holdings, Inc. subsidiary, or EMI, for the year ended December 31, 2018 as well as EMI’s unaudited consolidated financial statements for the three months ended March 31, 2019 and the three and six months ended June 30, 2019 included in our Current Report on Form 8-K/A filed with the SEC on August 8, 2019, and our previously filed unaudited consolidated financial statements for the three and nine months ended September 30, 2019, the Company would restate the previously issued financial statements. The previously issued financial statements of EMI preceded our merger with EMI in July 2019.
We determined that these errors were the result of material weaknesses in internal control over financial reporting as described in management’s report as of December 31, 2019 in Part II—Item 9A – Controls and Procedures of our Annual Report on Form 10-K filed with the SEC on January 25, 2021.
The restated quarterly financial statements corrected the following errors:
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1. |
The misclassification as equity of warrants issued by EMI in October of 2018, which warrants should have been accounted for as liabilities based upon fair value. |
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2. |
The erroneous consolidation as a variable interest entity, or VIE, of EMI’s interest in EJ Holdings, Inc., which should have been accounted for based upon the equity method. |
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3. |
The mistreatment of the fair value of cashless exercise warrants originally recorded in the Consolidated Statements of Operations and Comprehensive Loss, which fair value should have been recorded in additional paid-in capital in the Consolidated Balance Sheets. |
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4. |
In addition to the errors described above, the restated financial statements also include adjustments to correct certain immaterial errors identified during the audit of the Company’s financial statements for the year ended December 31, 2019. |
Please see Note 1 of Notes to Condensed Consolidated Financial Statements for the impact of the restatement on our financial statements as of and for the three months ended March 31, 2019.
3
Item 1. Financial Statements
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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As of |
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March 31, 2020 |
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December 31, 2019 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories, net |
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Investment in marketable securities |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Equity method investment |
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Right of use assets |
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Deposits and other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Operating lease liabilities, current portion |
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Other current liabilities |
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Revolving line of credit to related parties |
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Warrant derivative liabilities |
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Notes payable |
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Notes payable to related parties |
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Convertible debentures, net of discount, current portion |
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Convertible note payable, net of discount |
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Total current liabilities |
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Operating lease liabilities, less current portion |
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Other long-term liabilities |
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Convertible debentures, net of discount, less current portion |
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— |
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Total liabilities |
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STOCKHOLDERS’ DEFICIT |
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Preferred stock — par value $ |
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Common stock — par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ deficit |
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( |
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( |
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Total liabilities & stockholders’ deficit |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended March 31, |
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2020 |
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2019 Restated |
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REVENUES, NET |
$ |
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$ |
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COST OF GOODS SOLD |
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GROSS PROFIT |
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OPERATING EXPENSES |
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Research and development |
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Selling |
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General and administrative |
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Total operating expenses |
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INCOME (LOSS) FROM OPERATIONS |
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( |
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OTHER INCOME (EXPENSE) |
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Change in fair value of warrant derivative liabilities |
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( |
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Change in fair value of embedded conversion option |
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( |
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— |
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Net gains (losses) on investment in marketable securities |
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( |
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Gain (loss) on equity method investment |
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( |
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Interest and other income (loss) |
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( |
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Interest expense |
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( |
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( |
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Total other income (expense) |
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( |
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INCOME (LOSS) BEFORE INCOME TAXES |
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( |
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INCOME TAXES |
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NET INCOME (LOSS) |
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( |
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COMPONENTS OF OTHER COMPREHENSIVE INCOME |
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Foreign currency translation adjustments |
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Other comprehensive income |
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COMPREHENSIVE INCOME (LOSS) |
$ |
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$ |
( |
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EARNINGS (NET LOSS) PER COMMON SHARE - BASIC AND DILUTED |
$ |
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$ |
( |
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WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
EMMAUS LIFE SCIENCES, INC.
CONDESED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(In thousands, except share and per share amounts)
(Unaudited)
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Common Stock |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Stockholder's |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Deficit |
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Balance at January 1, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Common stock issued for cash (net of issuance cost) |
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— |
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— |
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Fair value of warrants including down-round protection adjustments |
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— |
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— |
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— |
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( |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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— |
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$ |
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Foreign currency translation effect |
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— |
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— |
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— |
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— |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Balance, March 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Common Stock |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Stockholder's |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Deficit |
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Balance at January 1, 2019, as restated |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Cumulative effect adjustment on adoption of ASC 842 |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Beneficial conversion feature relating to convertible notes |
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— |
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— |
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— |
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— |
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Exercise of warrants |
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— |
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— |
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— |
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Stock issued for cash (net of issuance cost) |
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— |
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— |
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Conversion of notes payable to common stock |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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Foreign currency translation effect |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance, March 31, 2019, as restated |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended March 31, |
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2019 |
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2020 |
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Restated |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net Income (loss) |
$ |
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$ |
( |
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Adjustments to reconcile net loss to net cash flows from operating activities |
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Depreciation and amortization |
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Amortization of discount of notes payable and convertible notes payable |
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Foreign exchange adjustments |
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( |
) |
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Net (gain) loss on investment in marketable securities |
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( |
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Loss (gain) on equity method investment |
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( |
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Share-based compensation |
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Change in fair value of warrant derivative liabilities |
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( |
) |
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Change in fair value of embedded conversion option |
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— |
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Net changes in operating assets and liabilities |
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Accounts receivable |
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( |
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Inventories |
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( |
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( |
) |
Prepaid expenses and other current assets |
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( |
) |
Other non-current assets |
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( |
) |
Income tax receivable and payable |
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Accounts payable and accrued expenses |
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Deferred revenue |
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— |
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Deferred rent |
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— |
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( |
) |
Other current liabilities |
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( |
) |
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Other long-term liabilities |
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Net cash flows provided by (used in) operating activities |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property and equipment |
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( |
) |
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( |
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Net cash flows used in investing activities |
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( |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Payments of convertible notes |
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( |
) |
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( |
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Proceeds from exercise of warrants |
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— |
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Proceeds from issuance of common stock |
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Proceeds from conversion of notes payable to common stock |
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— |
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Net cash flows used in financing activities |
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( |
) |
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( |
) |
Effect of exchange rate changes on cash |
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( |
) |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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( |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
$ |
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$ |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES |
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Interest paid |
$ |
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$ |
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NON-CASH INVESTING AND FINANCING ACTIVITIES |
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Warrants issued |
$ |
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$ |
— |
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Beneficial conversion feature relating to convertible notes |
$ |
— |
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$ |
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Initial recognition of right to use assets |
$ |
— |
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$ |
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Conversion of notes payable to common stock |
$ |
— |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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., (formerly, “MYnd Analytics, Inc.”) and its direct and indirect consolidated subsidiaries (collectively, “we,” “our,” “us,” the “Company” or “Emmaus”) 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/A for the year ended December 31, 2020 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on August 10, 2021. The accompanying condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated balance sheet at December 31, 2019 contained in the From 10-K/A. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results to be expected for the full year or any future interim period.
Organization and 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. On July 17, 2019, we completed a merger transaction with EMI Holding, Inc., formerly known as Emmaus Life Sciences, Inc. (“EMI”), into a subsidiary of the Company (the “Merger”), with EMI surviving the Merger as a wholly owned subsidiary. Immediately after completion of the Merger, we changed our name to “Emmaus Life Sciences, Inc.”
The Merger was treated as a reverse recapitalization under the acquisition method of accounting in accordance with accounting principles generally accepted in the U.S. For accounting purposed, EMI was considered to have acquired us. The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
In connection with and prior to the Merger, we contributed and transferred to Telemynd, Inc. (“Telemynd”), a newly formed, wholly owned subsidiary of the Company, all or substantially all our historical business, assets and liabilities and our board of directors declared a stock dividend of
As a result of the spin-off and the Merger, our ongoing business became EMI’s business, which is that of a commercial-stage biopharmaceutical company focused on the development, marketing and sale of innovative treatments and therapies, including those in the rare and orphan disease categories.
Principles of consolidation—The consolidated financial statements include the accounts of the Company, EMI and EMI’s wholly‑owned subsidiary, Emmaus Medical, Inc., and Emmaus Medical, Inc.’s wholly‑owned subsidiaries. All significant intercompany transactions have been eliminated.
The preparation of the consolidated financial statements requires the use of management estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reported period. Actual results could differ materially from those estimates.
Restatement of Prior Period Amounts — In connection with the preparation of our December 31, 2019 consolidated financial statements, we identified the following material errors in our condensed consolidated financial statements as of and for the three months ended March 31, 2019.
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The misclassification as equity of warrants issued by EMI in October of 2018, which warrants should have been accounted for as liabilities based upon fair value; and |
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The erroneous consolidation as a variable interest entity, or VIE, of EMI’s interest in EJ Holdings, Inc., which should have been accounted for based upon the equity method. |
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The mistreatment of the fair value of cashless exercise warrants originally recorded in the Consolidated Statements of Operations and Comprehensive Loss, which fair value should have been recorded in additional paid-in capital in the |
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Consolidated Balance Sheets. |
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In addition to the errors described above, the restated financial statements also include adjustments to correct certain immaterial errors identified during the audit of the Company’s financial statements for the year ended December 31, 2019. |
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
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As of March 31, 2019 |
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Previously Reported |
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Adjustment |
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Restated |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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(a) |
$ |
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Accounts receivable, net |
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(c) |
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Inventories, net |
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— |
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Investment in marketable securities |
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— |
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Marketable securities, pledged to creditor |
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— |
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Prepaid expenses and other current assets |
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(a), (c) |
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Total current assets |
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Property and equipment, net |
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