| Schedule of Error Corrections and Prior Period Adjustments |
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
|
|
|
As of June 30, 2019
|
|
|
|
Previously Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,169
|
|
|
$
|
(12,222
|
)
|
(a)
|
$
|
2,947
|
|
|
|
Accounts receivable, net
|
|
|
1,981
|
|
|
|
301
|
|
(c)
|
|
2,282
|
|
|
|
Inventories, net
|
|
|
5,906
|
|
|
|
—
|
|
|
|
5,906
|
|
|
|
Investment in marketable securities
|
|
|
32,890
|
|
|
|
—
|
|
|
|
32,890
|
|
|
|
Prepaid expenses and other current assets
|
|
|
703
|
|
|
|
(107
|
)
|
(a), (c)
|
|
596
|
|
|
|
Total current assets
|
|
|
56,649
|
|
|
|
(12,028
|
)
|
|
|
44,621
|
|
|
|
Property and equipment, net
|
|
|
145
|
|
|
|
—
|
|
|
|
145
|
|
|
|
Equity method investment
|
|
|
—
|
|
|
|
13,366
|
|
(a)
|
|
13,366
|
|
|
|
Right of use assets
|
|
|
4,285
|
|
|
|
—
|
|
|
|
4,285
|
|
|
|
Deposits and other assets
|
|
|
412
|
|
|
|
—
|
|
|
|
412
|
|
|
|
Total other assets
|
|
|
4,697
|
|
|
|
13,366
|
|
|
|
18,063
|
|
|
|
Total assets
|
|
$
|
61,491
|
|
|
$
|
1,338
|
|
|
$
|
62,829
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
11,455
|
|
|
$
|
62
|
|
(a), (c)
|
$
|
11,517
|
|
|
|
Operating lease liabilities, current portion
|
|
|
857
|
|
|
|
—
|
|
|
|
857
|
|
|
|
Other current liabilities
|
|
|
5,259
|
|
|
|
2
|
|
(c)
|
|
5,261
|
|
|
|
Warrant derivative liabilities
|
|
|
—
|
|
|
|
9,023
|
|
(b), (c)
|
|
9,023
|
|
|
|
Notes payable, net of discount
|
|
|
11,163
|
|
|
|
91
|
|
(b)
|
|
11,254
|
|
|
|
Notes payable to related parties
|
|
|
470
|
|
|
|
—
|
|
|
|
470
|
|
|
|
Convertible notes payable, net of discount
|
|
|
13,867
|
|
|
|
—
|
|
|
|
13,867
|
|
|
|
Convertible notes payable to related parties, net of discount
|
|
|
14,180
|
|
|
|
—
|
|
|
|
14,180
|
|
|
|
Total current liabilities
|
|
|
57,251
|
|
|
|
9,178
|
|
|
|
66,429
|
|
|
|
Operating lease liabilities, less current portion
|
|
|
3,781
|
|
|
|
—
|
|
|
|
3,781
|
|
|
|
Other long-term liabilities
|
|
|
35,330
|
|
|
|
—
|
|
|
|
35,330
|
|
|
|
Warrant derivative liabilities
|
|
|
1,200
|
|
|
|
(1,200
|
)
|
(c)
|
|
—
|
|
|
|
Notes payable, net of discount, less current portion
|
|
|
703
|
|
|
|
(703
|
)
|
(b)
|
|
—
|
|
|
|
Convertible notes payable, net of discount, less current portion
|
|
|
450
|
|
|
|
—
|
|
|
|
450
|
|
|
|
Total liabilities
|
|
|
98,715
|
|
|
|
7,275
|
|
|
|
105,990
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock — par value $0.001 per share, 20,000,000 shares authorized, none issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Common stock — par value $0.001 per share, 250,000,000 shares authorized, 37,880,211 shares outstanding at June 30, 2019
|
|
|
36
|
|
|
|
2
|
|
(d)
|
|
38
|
|
|
|
Additional paid-in capital
|
|
|
153,084
|
|
|
|
10,164
|
|
(b), (e)
|
|
163,248
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(56
|
)
|
|
|
—
|
|
|
|
(56
|
)
|
|
|
Accumulated deficit
|
|
|
(189,503
|
)
|
|
|
(16,888
|
)
|
(e)
|
|
(206,391
|
)
|
|
|
Total stockholders’ deficit
|
|
|
(36,439
|
)
|
|
|
(6,722
|
)
|
|
|
(43,161
|
)
|
|
|
Noncontrolling interest
|
|
|
(785
|
)
|
|
|
785
|
|
(a)
|
|
—
|
|
|
|
Total liabilities & stockholders’ deficit
|
|
$
|
61,491
|
|
|
$
|
1,338
|
|
|
$
|
62,829
|
|
|
(a) EJ Holdings adjustments: the correction of this misstatement resulted in increases of $13.4 million in equity method investment, $172,000 in accounts payable and accrued expenses, and $785,000 in non-controlling interest and decreases of $12.2 million in cash and cash equivalent and $187,000 in prepaid expenses and other current assets.
(b) Warrant adjustments: the correction of this misstatement resulted in increases of $7.8 million in warrant derivative current liabilities, and $90,000 in short-term note payable and decreases of $703,000 in long-term notes payable and $9.7 million in additional paid-in capital.
(c) Corrections of other misstatement: period adjustment and reclassification of variable consideration resulted in an increase of $301,000 in accounts receivable and a decrease of $110,000 in accounts payable and accrued expenses, a decrease of $10,000 in income tax receivable and an increase of $24,000 in income tax payable; a reclassification of GPB warrants resulted an increase of short-term warrant liability and a decrease of long-term warrant liability of $1.2 million; and correction of tax provision resulted an increase of $90,000 in income tax receivable and a decrease of $24,000 in income tax payable.
(d) Retrospective adjustments made to common stock resulted from recapitalization transaction in July 2019.
(e) Carryforward impact on 2018 restatement adjustments, including cashless warrant adjustments which resulted in an increase in additional paid-in capital and a decrease in retained earnings of $18.3 million.
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amount)
(Unaudited)
|
|
|
Three months ended June 30, 2019
|
|
|
Six months ended June 30,2019
|
|
|
|
Previously Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Previously Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
|
REVENUES, NET
|
|
$
|
5,869
|
|
|
$
|
(376
|
)
|
(c)
|
$
|
5,493
|
|
|
$
|
11,176
|
|
|
$
|
(976
|
)
|
(c)
|
$
|
10,200
|
|
|
|
COST OF GOODS SOLD
|
|
|
195
|
|
|
|
69
|
|
(c)
|
|
264
|
|
|
|
395
|
|
|
|
128
|
|
(c)
|
|
523
|
|
|
|
GROSS PROFIT
|
|
|
5,674
|
|
|
|
(445
|
)
|
|
|
5,229
|
|
|
|
10,781
|
|
|
|
(1,104
|
)
|
|
|
9,677
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
540
|
|
|
|
—
|
|
|
|
540
|
|
|
|
1,053
|
|
|
|
—
|
|
|
|
1,053
|
|
|
|
Selling
|
|
|
1,903
|
|
|
|
(12
|
)
|
(c)
|
|
1,891
|
|
|
|
3,388
|
|
|
|
(18
|
)
|
(c)
|
|
3,370
|
|
|
|
General and administrative
|
|
|
3,851
|
|
|
|
(1,169
|
)
|
(a), (c)
|
|
2,682
|
|
|
|
7,532
|
|
|
|
(1,113
|
)
|
(a), (c)
|
|
6,419
|
|
|
|
Total operating expenses
|
|
|
6,294
|
|
|
|
(1,181
|
)
|
|
|
5,113
|
|
|
|
11,973
|
|
|
|
(1,131
|
)
|
|
|
10,842
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(620
|
)
|
|
|
736
|
|
|
|
116
|
|
|
|
(1,192
|
)
|
|
|
27
|
|
|
|
(1,165
|
)
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant derivative liabilities
|
|
|
247
|
|
|
|
607
|
|
(b)
|
|
854
|
|
|
|
199
|
|
|
|
(283
|
)
|
(b)
|
|
(84
|
)
|
|
|
Net losses on investment in marketable securities and long-term investment
|
|
|
(10,537
|
)
|
|
|
—
|
|
|
|
(10,537
|
)
|
|
|
(16,994
|
)
|
|
|
—
|
|
|
|
(16,994
|
)
|
|
|
Losses on equity method investment
|
|
|
—
|
|
|
|
(458
|
)
|
(a)
|
|
(458
|
)
|
|
|
—
|
|
|
|
(449
|
)
|
(a)
|
|
(449
|
)
|
|
|
Interest and other income (loss)
|
|
|
274
|
|
|
|
33
|
|
(a), (c)
|
|
307
|
|
|
|
163
|
|
|
|
67
|
|
(a), (c)
|
|
230
|
|
|
|
Interest expense
|
|
|
(8,474
|
)
|
|
|
647
|
|
(b), (c)
|
|
(7,827
|
)
|
|
|
(15,439
|
)
|
|
|
(1,000
|
)
|
(b), (c)
|
|
(16,439
|
)
|
|
|
Total other income (expenses)
|
|
|
(18,490
|
)
|
|
|
829
|
|
|
|
(17,661
|
)
|
|
|
(32,071
|
)
|
|
|
(1,665
|
)
|
|
|
(33,736
|
)
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(19,110
|
)
|
|
|
1,565
|
|
|
|
(17,545
|
)
|
|
|
(33,263
|
)
|
|
|
(1,638
|
)
|
|
|
(34,901
|
)
|
|
|
INCOME TAXES (BENEFIT)
|
|
|
217
|
|
|
|
(166
|
)
|
(c)
|
|
51
|
|
|
|
217
|
|
|
|
(114
|
)
|
(c)
|
|
103
|
|
|
|
NET LOSS INCLUDING NONCONTROLLING INTERESTS
|
|
|
(19,327
|
)
|
|
|
1,731
|
|
|
|
(17,596
|
)
|
|
|
(33,480
|
)
|
|
|
(1,524
|
)
|
|
|
(35,004
|
)
|
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
688
|
|
|
|
(688
|
)
|
(a)
|
|
—
|
|
|
|
674
|
|
|
|
(674
|
)
|
(a)
|
|
—
|
|
|
|
NET LOSS ATTRIBUTABLE TO THE COMPANY
|
|
|
(18,639
|
)
|
|
|
1,043
|
|
|
|
(17,596
|
)
|
|
|
(32,806
|
)
|
|
|
(2,198
|
)
|
|
|
(35,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(9
|
)
|
|
|
15
|
|
(a)
|
|
6
|
|
|
|
(2
|
)
|
|
|
15
|
|
(a)
|
|
13
|
|
|
|
Other comprehensive income (loss)
|
|
|
(9
|
)
|
|
|
15
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
15
|
|
|
|
13
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
|
(19,336
|
)
|
|
|
1,746
|
|
|
|
(17,590
|
)
|
|
|
(33,482
|
)
|
|
|
(1,509
|
)
|
|
|
(34,991
|
)
|
|
|
Amounts attributable to noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interest
|
|
|
688
|
|
|
|
(688
|
)
|
(a)
|
|
—
|
|
|
|
674
|
|
|
|
(674
|
)
|
(a)
|
|
—
|
|
|
|
Foreign currency translation adjustments
|
|
|
15
|
|
|
|
(15
|
)
|
(a)
|
|
—
|
|
|
|
14
|
|
|
|
(14
|
)
|
(a)
|
|
—
|
|
|
|
Comprehensive (income) loss attributable to noncontrolling interest
|
|
|
703
|
|
|
|
(703
|
)
|
|
|
—
|
|
|
|
688
|
|
|
|
(688
|
)
|
|
|
—
|
|
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
|
$
|
(18,633
|
)
|
|
$
|
1,043
|
|
|
$
|
(17,590
|
)
|
|
$
|
(32,794
|
)
|
|
$
|
(2,197
|
)
|
|
$
|
(34,991
|
)
|
|
|
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
$
|
(0.52
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.91
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.93
|
)
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
|
|
35,857,944
|
|
|
|
37,836,678
|
|
|
|
37,836,678
|
|
|
|
35,857,944
|
|
|
|
37,656,058
|
|
|
|
37,656,058
|
|
|
(a) EJ Holdings adjustments: the correction of this misstatement resulted in increases of $33,000 in interest income and $15,000 in foreign currency translation adjustments and decreases of $1.1million in general and administrative expenses, $458,000 in loss on equity method investment, and $688,000 in net loss attributable to noncontrolling interest for three months ended June 30, 2019. The correction of this misstatement resulted in increases of $67,000 in interest income and $14,000 in foreign currency translation adjustments and decreases of $1.1million in general and administrative expense, $449,000 in loss on equity method investment, and $674,000 in net loss attributable to noncontrolling interest for six months ended June 30, 2019.
(b) Warrant adjustments: the correction of this misstatement resulted in increases of $647,000 in interest expense and $607,000 in change in fair value of warrant derivative liabilities for the three months ended June 2019. The correction of this misstatement resulted in an increase of $335,000 in interest expense and a decrease of $283,000 in change in fair value of warrant derivative liabilities for six months ended June 30, 2019.
(c) Corrections of other misstatement: period adjustment of variable consideration resulted in a decrease of $376,000 in revenues, net; and reclassification of shipping cost and royalty expense to cost of sales resulted in an increase of $69,000 in cost of sales and decreases of $12,000 and $58,000 in selling expense and general and administrative expense, respectively. Corrections of other misstatement for the six months ended June 30, 2019: period adjustment of variable consideration resulted in a decrease of $976,000 in revenues, net; reclassification of shipping cost and royalty expense to cost of sales resulted in an increase of $128,000 in cost of sales and decreases of $18,000 and $110,000 in selling expense and general and administrative expense, respectively; correction of stock modification accounting resulted in a decrease of $52,000 in general and administrative expense; correction of accounting treatment for convertible notes resulted in an increase of $1.3 million in interest expense; and correction of income tax provision resulted in an decrease of $113,000 in income tax provision.
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
Previously Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(33,480
|
)
|
|
$
|
(1,524
|
)
|
|
$
|
(35,004
|
)
|
|
Adjustments to reconcile net loss to net cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
35
|
|
|
|
—
|
|
|
|
35
|
|
|
Impairment loss on long-term investment
|
|
|
524
|
|
|
|
—
|
|
|
|
524
|
|
|
Amortization of discount of convertible notes and notes payable
|
|
|
12,770
|
|
|
|
1,001
|
|
|
|
13,771
|
|
|
Foreign exchange adjustments on convertible notes and notes payable
|
|
|
49
|
|
|
|
(257
|
)
|
|
|
(208
|
)
|
|
Net losses (gains) on equity investment in marketable securities
|
|
|
16,470
|
|
|
|
—
|
|
|
|
16,470
|
|
|
Loss on equity method investments
|
|
|
|
|
|
|
449
|
|
|
|
449
|
|
|
Share-based compensation
|
|
|
974
|
|
|
|
52
|
|
|
|
1,026
|
|
|
Change in fair value of warrant derivative liabilities
|
|
|
(199
|
)
|
|
|
283
|
|
|
|
84
|
|
|
Net changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(630
|
)
|
|
|
266
|
|
|
|
(364
|
)
|
|
Inventories
|
|
|
(1,202
|
)
|
|
|
—
|
|
|
|
(1,202
|
)
|
|
Prepaid expenses and other current assets
|
|
|
69
|
|
|
|
80
|
|
|
|
149
|
|
|
Other non-current assets
|
|
|
(4,298
|
)
|
|
|
—
|
|
|
|
(4,298
|
)
|
|
Accounts payable and accrued expenses
|
|
|
3,226
|
|
|
|
828
|
|
|
|
4,054
|
|
|
Income tax receivable and payable
|
|
|
—
|
|
|
|
(113
|
)
|
|
|
(113
|
)
|
|
Deferred revenue
|
|
|
500
|
|
|
|
—
|
|
|
|
500
|
|
|
Deferred rent
|
|
|
(287
|
)
|
|
|
—
|
|
|
|
(287
|
)
|
|
Other current liabilities
|
|
|
79
|
|
|
|
(142
|
)
|
|
|
(63
|
)
|
|
Other long-term liabilities
|
|
|
3,217
|
|
|
|
—
|
|
|
|
3,217
|
|
|
Net cash flows provided by (used in) operating activities
|
|
|
(2,183
|
)
|
|
|
923
|
|
|
|
(1,260
|
)
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
(21
|
)
|
|
Sales of marketable securities
|
|
|
221
|
|
|
|
—
|
|
|
|
221
|
|
|
Purchase of marketable securities and investment at cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
200
|
|
|
|
—
|
|
|
|
200
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of convertible notes
|
|
|
(3,368
|
)
|
|
|
—
|
|
|
|
(3,368
|
)
|
|
Proceeds from exercise of warrants
|
|
|
186
|
|
|
|
—
|
|
|
|
186
|
|
|
Proceeds from issuance of common stock
|
|
|
3,261
|
|
|
|
—
|
|
|
|
3,261
|
|
|
Proceeds from conversion of notes payable to common stock
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
100
|
|
|
|
—
|
|
|
|
100
|
|
|
Effect of exchange rate changes on cash
|
|
|
(28
|
)
|
|
|
30
|
|
|
|
2
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
(1,911
|
)
|
|
|
953
|
|
|
|
(958
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
17,080
|
|
|
|
(13,175
|
)
|
|
|
3,905
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
15,169
|
|
|
$
|
(12,222
|
)
|
|
$
|
2,947
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
934
|
|
|
$
|
(385
|
)
|
|
$
|
549
|
|
|
Income taxes paid
|
|
$
|
217
|
|
|
$
|
(1
|
)
|
|
$
|
216
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature relating to convertible notes
|
|
$
|
8,764
|
|
|
$
|
—
|
|
|
$
|
8,764
|
|
|
Common stocks issued on exercise of warrants
|
|
$
|
186
|
|
|
$
|
—
|
|
|
$
|
186
|
|
|
Conversion of notes payable and acrued interest to common stock
|
|
$
|
308
|
|
|
$
|
—
|
|
|
$
|
329
|
|
|
Initial recognition of right-of-use lease asset
|
|
$
|
2,922
|
|
|
$
|
—
|
|
|
$
|
2,922
|
|
Refer to the descriptions of the adjustments in the Condensed Consolidated Balance Sheets and Statements of Comprehensive Loss as of and for the three months ended June 30, 2019 and their impact on net loss above. In addition, a cash flow classification adjustment related to EJ Holdings resulted in a net decrease to cash flows used by operating activities of $953,000 for the six months ended June 30, 2019.
|