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i
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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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 June 30, 2020
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.: 001-35527
EMMAUS LIFE SCIENCES, INC.
(Exact name of Registrant as specified in its charter)
Delaware |
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87-0419387 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
21250 Hawthorne Boulevard, Suite 800, Torrance, California |
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90503 |
(Address of principal executive offices) |
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(Zip code) |
(310) 214-0065
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
None |
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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. 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 |
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Accelerated filer |
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Non-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 ☐ No ☒
The registrant had 49,311,864 shares of common stock, par value $0.001 per share, outstanding as of July 31, 2021.
EMMAUS LIFE SCIENCES, INC.
For the Quarterly Period Ended June 30, 2020
INDEX
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 Holding, 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 10K 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 and six months ended June 30, 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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June 30, 2020 |
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(Unaudited) |
|
|
December 31, 2019 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,032 |
|
|
$ |
1,769 |
|
Restricted cash |
|
|
7 |
|
|
|
— |
|
Accounts receivable, net |
|
|
1,457 |
|
|
|
2,150 |
|
Inventories, net |
|
|
7,863 |
|
|
|
7,971 |
|
Investment in marketable securities |
|
|
27,007 |
|
|
|
27,929 |
|
Prepaid expenses and other current assets |
|
|
1,170 |
|
|
|
1,402 |
|
Total current assets |
|
|
38,536 |
|
|
|
41,221 |
|
Property and equipment, net |
|
|
141 |
|
|
|
151 |
|
Equity method investment |
|
|
13,005 |
|
|
|
13,325 |
|
Right of use assets |
|
|
4,283 |
|
|
|
4,474 |
|
Deposits and other assets |
|
|
285 |
|
|
|
285 |
|
Total assets |
|
$ |
56,250 |
|
|
$ |
59,456 |
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
10,377 |
|
|
$ |
11,498 |
|
Operating lease liabilities |
|
|
1,103 |
|
|
|
991 |
|
Other current liabilities |
|
|
957 |
|
|
|
5,748 |
|
Revolving line of credit to related parties, net |
|
|
600 |
|
|
|
600 |
|
Warrant derivative liabilities |
|
|
1,539 |
|
|
|
38 |
|
Notes payable, current portion |
|
|
4,271 |
|
|
|
3,749 |
|
Notes payable to related parties |
|
|
34 |
|
|
|
193 |
|
Convertible debentures, net of discount |
|
|
7,594 |
|
|
|
7,015 |
|
Convertible note payable, net of discount |
|
|
— |
|
|
|
2,995 |
|
Total current liabilities |
|
|
26,475 |
|
|
|
32,827 |
|
Operating lease liabilities, less current portion |
|
|
3,722 |
|
|
|
3,932 |
|
Other long-term liabilities |
|
|
36,434 |
|
|
|
33,750 |
|
Notes payable, less current portion |
|
|
488 |
|
|
|
— |
|
Convertible note payable |
|
|
3,150 |
|
|
|
— |
|
Total liabilities |
|
|
70,269 |
|
|
|
70,509 |
|
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, 48,987,189 shares and 48,471,446 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively |
|
|
49 |
|
|
|
48 |
|
Additional paid-in capital |
|
|
216,376 |
|
|
|
215,207 |
|
Accumulated other comprehensive loss |
|
|
(51 |
) |
|
|
(79 |
) |
Accumulated deficit |
|
|
(230,393 |
) |
|
|
(226,229 |
) |
Total stockholders’ deficit |
|
|
(14,019 |
) |
|
|
(11,053 |
) |
Total liabilities & stockholders’ deficit |
|
$ |
56,250 |
|
|
$ |
59,456 |
|
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)
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
2019 |
|
|
|
2020 |
|
|
Restated |
|
|
2020 |
|
|
Restated |
|
REVENUES, NET |
|
$ |
4,360 |
|
|
$ |
5,493 |
|
|
$ |
11,314 |
|
|
$ |
10,200 |
|
COST OF GOODS SOLD |
|
|
446 |
|
|
|
264 |
|
|
|
924 |
|
|
|
523 |
|
GROSS PROFIT |
|
|
3,914 |
|
|
|
5,229 |
|
|
|
10,390 |
|
|
|
9,677 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
589 |
|
|
|
540 |
|
|
|
1,206 |
|
|
|
1,053 |
|
Selling |
|
|
1,135 |
|
|
|
1,891 |
|
|
|
2,203 |
|
|
|
3,370 |
|
General and administrative |
|
|
3,725 |
|
|
|
2,682 |
|
|
|
7,382 |
|
|
|
6,419 |
|
Total operating expenses |
|
|
5,449 |
|
|
|
5,113 |
|
|
|
10,791 |
|
|
|
10,842 |
|
INCOME (LOSS) FROM OPERATIONS |
|
|
(1,535 |
) |
|
|
116 |
|
|
|
(401 |
) |
|
|
(1,165 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
(1,425 |
) |
|
|
— |
|
|
|
(1,425 |
) |
|
|
— |
|
Change in fair value of warrant derivative liabilities |
|
|
(101 |
) |
|
|
854 |
|
|
|
(76 |
) |
|
|
(84 |
) |
Change in fair value of embedded conversion option |
|
|
35 |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
Net gains (losses) on investment in marketable securities and long-term investment |
|
|
(5,631 |
) |
|
|
(10,537 |
) |
|
|
1,208 |
|
|
|
(16,994 |
) |
Loss on equity method investment |
|
|
(573 |
) |
|
|
(458 |
) |
|
|
(980 |
) |
|
|
(449 |
) |
Interest and other income |
|
|
567 |
|
|
|
307 |
|
|
|
600 |
|
|
|
230 |
|
Interest expense |
|
|
(1,309 |
) |
|
|
(7,827 |
) |
|
|
(3,109 |
) |
|
|
(16,439 |
) |
Total other expenses |
|
|
(8,437 |
) |
|
|
(17,661 |
) |
|
|
(3,776 |
) |
|
|
(33,736 |
) |
LOSS BEFORE INCOME TAXES |
|
|
(9,972 |
) |
|
|
(17,545 |
) |
|
|
(4,177 |
) |
|
|
(34,901 |
) |
INCOME TAXES (BENEFIT) |
|
|
(499 |
) |
|
|
51 |
|
|
|
(213 |
) |
|
|
103 |
|
NET LOSS |
|
|
(9,473 |
) |
|
|
(17,596 |
) |
|
|
(3,964 |
) |
|
|
(35,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(33 |
) |
|
|
6 |
|
|
|
28 |
|
|
|
13 |
|
Other comprehensive income (loss) |
|
|
(33 |
) |
|
|
6 |
|
|
|
28 |
|
|
|
13 |
|
COMPREHENSIVE LOSS |
|
$ |
(9,506 |
) |
|
$ |
(17,590 |
) |
|
$ |
(3,936 |
) |
|
$ |
(34,991 |
) |
NET LOSS PER COMMON SHARE - BASIC AND DILUTED |
|
$ |
(0.19 |
) |
|
$ |
(0.47 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.93 |
) |
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING |
|
|
48,987,189 |
|
|
|
37,836,678 |
|
|
|
48,805,829 |
|
|
|
37,656,058 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
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 |
|
|
Accumulated Other Comprehensive |
|
|
Accumulated |
|
|
Total |
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
Deficit |
|
|
Deficit |
|
|
Balance, January 1, 2020 |
|
|
48,471,446 |
|
|
$ |
48 |
|
|
$ |
215,207 |
|
|
$ |
(79 |
) |
|
$ |
(226,229 |
) |
|
$ |
(11,053 |
) |
|
Common stock issued for cash (net of issuance cost) |
|
|
515,743 |
|
|
|
1 |
|
|
|
141 |
|
|
|
— |
|
|
|
— |
|
|
|
142 |
|
|
Fair value of warrants including down-round protection adjustments |
|
|
— |
|
|
|
— |
|
|
|
600 |
|
|
|
— |
|
|
|
(200 |
) |
|
|
400 |
|
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
Foreign currency translation effect |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
61 |
|
|
|
— |
|
|
|
61 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,509 |
|
|
|
5,509 |
|
|
Balance, March 31, 2020 |
|
|
48,987,189 |
|
|
$ |
49 |
|
|
$ |
216,157 |
|
|
$ |
(18 |
) |
|
$ |
(220,920 |
) |
|
$ |
(4,732 |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
219 |
|
|
|
— |
|
|
|
— |
|
|
|
219 |
|
|
Foreign currency translation effect |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(33 |
) |
|
|
— |
|
|
|
(33 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,473 |
) |
|
|
(9,473 |
) |
|
Balance, June 30, 2020 |
|
|
48,987,189 |
|
|
$ |
49 |
|
|
$ |
216,376 |
|
|
$ |
(51 |
) |
|
$ |
(230,393 |
) |
|
$ |
(14,019 |
) |
|
|
|
Common stock |
|
|
Additional Paid-In |
|
|
Accumulated Other Comprehensive |
|
|
Accumulated |
|
|
Total Stockholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Deficit |
|
Balance, January 1, 2019, as restated |
|
|
37,341,393 |
|
|
$ |
37 |
|
|
$ |
149,682 |
|
|
$ |
(69 |
) |
|
$ |
(171,358 |
) |
|
$ |
(21,708 |
) |
Cumulative effect adjustment on adoption of ASC 842 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(29 |
) |
|
|
(29 |
) |
Beneficial conversion feature relating to convertible notes |
|
|
— |
|
|
|
— |
|
|
|
3,374 |
|
|
|
— |
|
|
|
— |
|
|
|
3,374 |
|
Exercise of warrants |
|
|
525 |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
Stock issued for cash (net of issuance cost) |
|
|
322,920 |
|
|
|
1 |
|
|
|
2,529 |
|
|
|
— |
|
|
|
— |
|
|
|
2,530 |
|
Conversion of notes payable to common stock |
|
|
85,411 |
|
|
|
— |
|
|
|
329 |
|
|
|
— |
|
|
|
— |
|
|
|
329 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
588 |
|
|
|
— |
|
|
|
— |
|
|
|
588 |
|
Exercise of stock options |
|
|
175 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Foreign currency translation effect |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,408 |
) |
|
|
(17,408 |
) |
Balance, March 31, 2019 |
|
|
37,750,424 |
|
|
|
38 |
|
|
|
156,508 |
|
|
|
(62 |
) |
|
|
(188,795 |
) |
|
|
(32,311 |
) |
Beneficial conversion feature relating to convertible notes |
|
|
— |
|
|
|
— |
|
|
|
5,390 |
|
|
|
— |
|
|
|
— |
|
|
|
5,390 |
|
Exercise of warrants |
|
|
53,032 |
|
|
|
— |
|
|
|
181 |
|
|
|
— |
|
|
|
— |
|
|
|
181 |
|
Stock issued for cash (net of issuance cost) |
|
|
76,755 |
|
|
|
— |
|
|
|
|