emma-10q_20210331.htm

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 March 31, 2021


☐	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 49,311,864 shares of common stock, par value $0.001 per share, outstanding as of August 24, 2021.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended March 31, 2021

INDEX

		Page


Part I. Financial Information

Item 1.	Financial Statements	3

	(a)Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020	3

	(b)Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020 (Unaudited)	4

	(c)Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2021 and 2020 (Unaudited)	5

	(d)Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (Unaudited)	6

	(e)Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

Part II Other Information

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

Signatures		32

Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	As of
	March 31, 2021			December 31, 2020
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,759		$	2,487
Accounts receivable, net		2,372			198
Inventories, net		6,740			7,087
Prepaid expenses and other current assets		1,270			1,485
Total current assets		14,141			11,257
Property and equipment, net		109			120
Equity method investment		15,790			15,925
Right of use assets		3,947			4,072
Investment in convertible bond		27,943			27,866
Other assets		293			296
Total assets	$	62,223		$	59,536
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	5,991		$	7,460
Operating lease liabilities, current portion		661			1,143
Conversion feature derivative, notes payable		7,900			—
Other current liabilities		2,739			2,706
Revolving line of credit from related party		800			800
Warrant derivative liabilities		1,600			1,071
Notes payable, current portion		4,616			4,588
Notes payable to related parties		100			134
Convertible debentures, net of discount		—			5,480
Total current liabilities		24,407			23,382
Operating lease liabilities, less current portion		3,824			3,470
Other long-term liabilities		34,473			34,470
Notes payable, less current portion		89			222
Convertible notes payable		12,106			3,150
Total liabilities		74,899			64,694
STOCKHOLDERS’ DEFICIT
Preferred stock, par value $0.001 per share, 15,000,000 shares authorized, none issued or outstanding		—			—
Common stock, par value $0.001 per share, 250,000,000 shares authorized, 49,311,864 and 48,987,189 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		49			49
Additional paid-in capital		219,650			218,728
Accumulated other comprehensive income		1,367			1,144
Accumulated deficit		(233,742	)		(225,079	)
Total stockholders’ deficit		(12,676	)		(5,158	)
Total liabilities & stockholders’ deficit	$	62,223		$	59,536

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 March 31,
	2021			2020
REVENUES, NET	$	5,335		$	6,954
COST OF GOODS SOLD		436			478
GROSS PROFIT		4,899			6,476
OPERATING EXPENSES
Research and development		1,809			617
Selling		1,283			1,068
General and administrative		3,422			3,657
Total operating expenses		6,514			5,342
INCOME (LOSS) FROM OPERATIONS		(1,615	)		1,134
OTHER INCOME (EXPENSE)
Loss on debt extinguishment		(1,172	)		—
Change in fair value of warrant derivative liabilities		(529	)		25
Change in fair value of conversion feature derivative, notes payable		(2,338	)		(29	)
Net gain on investment in marketable securities		—			6,839
Net losses on equity method investment		(754	)		(407	)
Foreign exchange gain (loss)		(1,132	)		1
Interest and other income		190			32
Interest expense		(1,054	)		(1,800	)
Total other income (expense)		(6,789	)		4,661
INCOME (LOSS) BEFORE INCOME TAXES		(8,404	)		5,795
INCOME TAXES		18			286
NET INCOME (LOSS)		(8,422	)		5,509

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain on debt securities available for sale (net of tax)		58			—
Foreign currency translation adjustments		165			61
Other comprehensive income (loss)		223			61
COMPREHENSIVE INCOME (LOSS)	$	(8,199	)	$	5,570
EARNINGS (NET LOSS) PER COMMON SHARE - BASIC and DILUTED	$	(0.17	)	$	0.11
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		49,073,769			48,624,469

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		Accumulated Other Comprehensive		Accumulated			Total Stockholders'
	Shares		Amount		Capital		Income		Deficit			Deficit
Balance at January 1,2021		48,987,189	$	49	$	218,728	$	1,144	$	(225,079	)	$	(5,158	)
Fair value of warrants including down-round protection adjustments		—		—		241		—		(241	)		—
Common stock issued for services		324,675		—		500		—		—			500
Share-based compensation		—		—		181		—		—			181
Unrealized gain on debt securities available for sale (net of tax)		—		—		—		58		—			58
Foreign currency translation effect		—		—		—		165		—			165
Net loss		—		—		—		—		(8,422	)		(8,422	)
Balance, March 31, 2021		49,311,864	$	49	$	219,650	$	1,367	$	(233,742	)	$	(12,676	)

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital		Loss			Deficit			Deficit
Balance at January 1, 2020		48,471,446	$	48	$	215,207	$	(79	)	$	(226,229	)	$	(11,053	)
Fair value of warrants including down-round protection adjustments		—		—		600		—			(200	)		400
Common stock issued for cash (net of issuance cost)		515,743		1		141		—			—			142
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	)

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)

	Three Months Ended March 31,

	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(8,422	)	$	5,509
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities
Depreciation and amortization		15			15
Inventory reserve		162			—
Amortization of discount of notes payable and convertible notes payable		669			1,302
Foreign exchange adjustments		1,180			(50	)
Tax benefit recognized on unrealized gain on debt securities		(19	)		—
Net gain on investment in marketable securities		—			(6,839	)
Loss on equity method investment		754			407
Loss on debt extinguishment		1,172			—
Gain on disposal of property and equipment		(1	)		—
Share-based compensation		181			209
Shares issued for services		500			—
Change in fair value of warrant derivative liabilities		529			(25	)
Change in fair value of conversion feature derivative, notes payable		2,338			29
Net changes in operating assets and liabilities
Accounts receivable		(2,176	)		249
Inventories		180			(285	)
Prepaid expenses and other current assets		158			260
Other non-current assets		122			133
Income tax receivable and payable		33			286
Accounts payable and accrued expenses		(1,295	)		2,449
Other current liabilities		42			(5,025	)
Other long-term liabilities		(123	)		3,184
Net cash flows (used in) provided by operating activities		(4,001	)		1,808
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		—			(3	)
Loan to equity method investee		(1,769	)		—
Net cash flows used in investing activities		(1,769	)		(3	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable issued, net of issuance cost and discount		700			—
Proceeds from convertible notes payable issued, net of issuance cost and discount		14,390			—
Payments of notes payable		(844	)		—
Payments of convertible notes		(7,200	)		(1,500	)
Proceeds from issuance of common stock, net of issuance cost		—			142
Net cash flows provided by (used in) financing activities		7,046			(1,358	)
Effect of exchange rate changes on cash		(4	)		(3	)
Net increase (decrease) in cash and cash equivalents		1,272			444
Cash and cash equivalents, beginning of period		2,487			1,769
Cash and cash equivalents, end of period	$	3,759		$	2,213
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Interest paid	$	319		$	312
Income taxes paid	$	5		$	—
NON-CASH INVESTING AND FINANCING ACTIVITIES
Debt discount due to conversion features derivative	$	5,555		$	—
Debt discount due to warrant issued with debt	$	—		$	400

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 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”). 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 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, 2020 has been derived from the audited consolidated balance sheet at December 31, 2020 contained in the Form 10-K/A. The results of operations for the three months ended March 31, 2021, 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.”

Principles of consolidation—The consolidated financial statements include the accounts of Emmaus and its direct and indirect consolidated 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.

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 Company’s Annual Report on Form 10K/A for the year ended December 31, 2020. There have been no material changes in these policies or their application.

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

Factoring accounts receivables — The Company entered into a factoring agreement with Prestige Capital Finance, LLC on February 22, 2021. Under the agreement, the Company may factor its accounts receivables of up to 70% of the face value with maximum outstanding balance of $7.5 million and the fee ranges between 2.25% and 7.25% depending on the period when customers pay the outstanding accounts receivables. The Company had no factoring accounts receivables outstanding as of March 31, 2021. For three month ended March 31, 2021, the Company incurred approximately $31,000 of factoring fees.

Net loss per share — In accordance with ASC 260, “Earnings per Share,” the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding. Dilutive loss per share is computed in a manner similar to basic loss per common share 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. As of March 31, 2021 and March 31, 2020, the Company had outstanding potentially dilutive securities exercisable for or convertible into 24,515,738 shares and 16,698,829 shares, respectively, of the Company’s common stock. No potentially dilutive securities were included in the calculation of diluted net income per share since the potential dilutive securities were out of the money for the period ended March 31, 2020 and were anti-dilutive for period ended March 31, 2021.

NOTE 3 — REVENUES

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

	Three Months Ended March 31,
	2021		2020
Endari®	$	5,176	$	6,714
Other		159		240
Revenues, net	$	5,335	$	6,954

The following table summarizes the revenue allowance and accrual activities for the three months ended March 31, 2021 and March 31, 2020 (in thousands):

	Trade Discounts, Allowances and Chargebacks			Government Rebates and Other Incentives			Returns			Total
Balance as of December 31, 2020	$	134		$	2,119		$	473		$	2,726
Provision related to sales in the current year		575			864			57			1,496
Adjustments related prior period sales		14			2			(37	)		(21	)
Credit and payments made		(281	)		(792	)		—			(1,073	)
Balance as of March 31, 2021	$	442		$	2,193		$	493