emma-10q_20210930.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 September 30, 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 November 10, 2021.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended September 30, 2021

INDEX

		Page


Part I. Financial Information

Item 1.	Financial Statements	1

	(a)Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020	1

	(b)Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	2

	(c)Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	3

	(d)Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited)	5

	(e)Notes to Condensed Consolidated Financial Statements (Unaudited)	6

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

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		31

Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	As of
	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	2,321		$	2,487
Accounts receivable, net		2,663			198
Inventories, net		6,252			7,087
Prepaid expenses and other current assets		1,238			1,485
Total current assets		12,474			11,257
Property and equipment, net		97			120
Equity method investment		17,835			15,925
Right of use assets		3,642			4,072
Investment in convertible bond		25,716			27,866
Other assets		293			296
Total assets	$	60,057		$	59,536
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	6,973		$	7,460
Operating lease liabilities, current portion		718			1,143
Conversion feature derivative, notes payable		6,733			—
Other current liabilities		4,940			2,706
Revolving line of credit from related party		600			800
Warrant derivative liabilities		1,393			1,071
Notes payable, current portion		3,269			4,588
Notes payable to related parties		400			134
Convertible debentures, net of discount		—			5,480
Total current liabilities		25,026			23,382
Operating lease liabilities, less current portion		3,449			3,470
Other long-term liabilities		32,275			34,470
Notes payable, less current portion		1,500			222
Convertible notes payable		12,908			3,150
Total liabilities		75,158			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 48,987,198 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		49			49
Additional paid-in capital		220,017			218,728
Accumulated other comprehensive income		(763	)		1,144
Accumulated deficit		(234,404	)		(225,079	)
Total stockholders’ deficit		(15,101	)		(5,158	)
Total liabilities and stockholders’ deficit	$	60,057		$	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 September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
REVENUES, NET	$	5,766		$	5,601		$	17,590		$	16,915
COST OF GOODS SOLD		445			484			1,311			1,408
GROSS PROFIT		5,321			5,117			16,279			15,507
OPERATING EXPENSES
Research and development		470			629			3,032			1,835
Selling		1,518			1,324			4,254			3,527
General and administrative		3,364			3,156			10,156			10,538
Total operating expenses		5,352			5,109			17,442			15,900
INCOME (LOSS) FROM OPERATIONS		(31	)		8			(1,163	)		(393	)
OTHER INCOME (EXPENSE)
Loss on debt extinguishment		—			—			(1,172	)		(1,425	)
Change in fair value of warrant derivative liabilities		(131	)		745			(322	)		669
Change in fair value of conversion feature derivative, notes payable		(1,357	)		45			(1,132	)		51
Net gain on investment in marketable securities		—			6,464			—			7,672
Net loss on equity method investment		(663	)		(494	)		(1,999	)		(1,474	)
Foreign exchange gain (loss)		(246	)		657			(1,421	)		685
Interest and other income		192			59			573			629
Interest expense		(683	)		(1,606	)		(2,390	)		(4,713	)
Total other income (expense)		(2,888	)		5,870			(7,863	)		2,094
INCOME (LOSS) BEFORE INCOME TAXES		(2,919	)		5,878			(9,026	)		1,701
INCOME TAXES PROVISION		232			293			58			80
NET INCOME (LOSS)		(3,151	)		5,585			(9,084	)		1,621

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized loss on debt securities available for sale (net of tax)		(2,754	)		—			(2,150	)		—
Foreign currency translation adjustments		86			(35	)		243			(7	)
Other comprehensive loss		(2,668	)		(35	)		(1,907	)		(7	)
COMPREHENSIVE INCOME (LOSS)	$	(5,819	)	$	5,550		$	(10,991	)	$	1,614
EARNINGS (NET LOSS) PER COMMON SHARE - BASIC AND DILUTED	$	(0.06	)	$	0.11		$	(0.18	)	$	0.03
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		49,311,864			48,987,189			49,233,371			48,866,724

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			Income			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 at March 31, 2021		49,311,864		49		219,650		1,367			(233,742	)		(12,676	)
Share-based compensation		—		—		274		—			—			274
Unrealized gain on debt securities available for sale (net of tax)		—		—		—		546			—			546
Foreign currency translation effect		—		—		—		(8	)		—			(8	)
Net income		—		—		—		—			2,489			2,489
Balance at June 30, 2021		49,311,864		49		219,924		1,905			(231,253	)		(9,375	)
Share-based compensation		—		—		93		—			—			93
Unrealized loss on debt securities available for sale (net of tax)		—		—		—		(2,754	)		—			(2,754	)
Foreign currency translation effect		—		—		—		86			—			86
Net loss		—		—		—		—			(3,151	)		(3,151	)
Balance at September 30, 2021		49,311,864	$	49	$	220,017	$	(763	)	$	(234,404	)	$	(15,101	)

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

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		Loss			Loss			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 at March 31, 2020		48,987,189		49		216,157		(18	)		(220,920	)		(4,732	)
Share-based compensation		—		—		219		—			—