| 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 March 31, 2019
|
|
|
|
|
Previously Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,310
|
|
|
$
|
(13,070
|
)
|
(a)
|
$
|
2,240
|
|
|
Accounts receivable, net
|
|
|
1,760
|
|
|
|
301
|
|
(c)
|
|
2,061
|
|
|
Inventories, net
|
|
|
5,795
|
|
|
|
—
|
|
|
|
5,795
|
|
|
Investment in marketable securities
|
|
|
42,873
|
|
|
|
—
|
|
|
|
42,873
|
|
|
Marketable securities, pledged to creditor
|
|
|
251
|
|
|
|
—
|
|
|
|
251
|
|
|
Prepaid expenses and other current assets
|
|
|
818
|
|
|
|
(215
|
)
|
(a), (c)
|
|
603
|
|
|
Total current assets
|
|
|
66,807
|
|
|
|
(12,984
|
)
|
|
|
53,823
|
|
|
Property and equipment, net
|
|
|
153
|
|
|
|
—
|
|
|
|
153
|
|
|
Long-term investment at cost
|
|
|
527
|
|
|
|
—
|
|
|
|
527
|
|
|
Equity method investment
|
|
|
—
|
|
|
|
13,470
|
|
(a)
|
|
13,470
|
|
|
Right of use assets
|
|
|
2,838
|
|
|
|
—
|
|
|
|
2,838
|
|
|
Deposits and other assets
|
|
|
410
|
|
|
|
—
|
|
|
|
410
|
|
|
Total assets
|
|
$
|
70,735
|
|
|
$
|
486
|
|
|
$
|
71,221
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
11,068
|
|
|
$
|
(371
|
)
|
(a), (c)
|
$
|
10,697
|
|
|
Operating lease liabilities, current portion
|
|
|
682
|
|
|
|
—
|
|
|
|
682
|
|
|
Other current liabilities
|
|
|
5,217
|
|
|
|
75
|
|
(c)
|
|
5,292
|
|
|
Warrant derivative liabilities
|
|
|
—
|
|
|
|
9,877
|
|
(b), (c)
|
|
9,877
|
|
|
Notes payable, net of discount
|
|
|
7,000
|
|
|
|
806
|
|
(b)
|
|
7,806
|
|
|
Notes payable to related parties
|
|
|
470
|
|
|
|
—
|
|
|
|
470
|
|
|
Convertible notes payable, net of discount
|
|
|
15,157
|
|
|
|
—
|
|
|
|
15,157
|
|
|
Convertible notes payable to related parties, net of discount
|
|
|
13,896
|
|
|
|
—
|
|
|
|
13,896
|
|
|
Total current liabilities
|
|
|
53,490
|
|
|
|
10,387
|
|
|
|
63,877
|
|
|
Operating lease liabilities, less current portion
|
|
|
2,478
|
|
|
|
—
|
|
|
|
2,478
|
|
|
Other long-term liabilities
|
|
|
35,637
|
|
|
|
—
|
|
|
|
35,637
|
|
|
Warrant derivative liabilities
|
|
|
1,447
|
|
|
|
(1,447
|
)
|
(c)
|
|
—
|
|
|
Notes payable, net of discount, less current portion
|
|
|
1,922
|
|
|
|
(771
|
)
|
(b)
|
|
1,151
|
|
|
Convertible debentures, net of discount, less current portion
|
|
|
389
|
|
|
|
—
|
|
|
|
389
|
|
|
Total liabilities
|
|
|
95,363
|
|
|
|
8,169
|
|
|
|
103,532
|
|
|
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, 37,750,424 shares were issued and outstanding at March 31, 2019
|
|
|
36
|
|
|
|
2
|
|
(d)
|
|
38
|
|
|
Additional paid-in capital
|
|
|
146,344
|
|
|
|
10,164
|
|
(b), (e)
|
|
156,508
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(62
|
)
|
|
|
—
|
|
|
|
(62
|
)
|
|
Accumulated deficit
|
|
|
(170,864
|
)
|
|
|
(17,931
|
)
|
(e)
|
|
(188,795
|
)
|
|
Total stockholders’ deficit
|
|
|
(24,546
|
)
|
|
|
(7,765
|
)
|
|
|
(32,311
|
)
|
|
Noncontrolling interest
|
|
|
(82
|
)
|
|
|
82
|
|
(a)
|
|
—
|
|
|
Total liabilities & stockholders’ deficit
|
|
$
|
70,735
|
|
|
$
|
486
|
|
|
$
|
71,221
|
|
(a) EJ Holdings adjustments: the correction of this misstatement resulted in increases of $13.5 million in equity method investment, $114,000 in accounts payable and accrued expenses, and $82,000 in non-controlling interest and decreases of $13.1 million in cash and cash equivalent and $205,000 in prepaid expenses and other current assets.
(b) Warrant adjustments: the correction of this misstatement resulted in increases of $8.5 million in warrant derivative current liabilities and $806,000 in short-term note payable and decreases of $771,000 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 $486,000 in accounts payable and accrued expenses, a decrease of $10,000 in income tax receivable and an increase of $23,000 in income tax payable; a correction of accounting treatment for convertible notes resulted in an increase of $1.3 million in additional paid-in capital; a reclassification of GPB warrants resulted an increase of short-term warrant liabilities and a decrease of long-term warrant liabilities of $1.4 million; and a correction of tax provision resulted in an increase of $52,000 in income tax payable.
(d) Retrospective adjustments made to common stock resulted from recapitalization transaction in July 2019.
(e) Balance includes 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 amounts)
(Unaudited)
|
|
|
Three months ended March 31, 2019
|
|
|
|
|
Previously Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
REVENUES, NET
|
|
$
|
5,307
|
|
|
$
|
(600
|
)
|
(c)
|
$
|
4,707
|
|
|
COST OF GOODS SOLD
|
|
|
200
|
|
|
|
59
|
|
(c)
|
|
259
|
|
|
GROSS PROFIT
|
|
$
|
5,107
|
|
|
$
|
(659
|
)
|
|
|
4,448
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
513
|
|
|
|
—
|
|
|
|
513
|
|
|
Selling
|
|
|
1,485
|
|
|
|
(6
|
)
|
(c)
|
|
1,479
|
|
|
General and administrative
|
|
|
3,681
|
|
|
|
56
|
|
(a), (c)
|
|
3,737
|
|
|
Total operating expenses
|
|
|
5,679
|
|
|
|
50
|
|
|
|
5,729
|
|
|
LOSS FROM OPERATIONS
|
|
|
(572
|
)
|
|
|
(709
|
)
|
|
|
(1,281
|
)
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant derivative liabilities
|
|
|
(48
|
)
|
|
|
(890
|
)
|
(b)
|
|
(938
|
)
|
|
Net gains (losses) on equity investment in marketable securities
|
|
|
(6,457
|
)
|
|
|
—
|
|
|
|
(6,457
|
)
|
|
Gain on equity method investment
|
|
|
—
|
|
|
|
9
|
|
(a)
|
|
9
|
|
|
Interest and other income (loss)
|
|
|
(111
|
)
|
|
|
34
|
|
(a)
|
|
(77
|
)
|
|
Interest expense
|
|
|
(6,965
|
)
|
|
|
(1,647
|
)
|
(b), (c)
|
|
(8,612
|
)
|
|
Total other income (expenses)
|
|
|
(13,581
|
)
|
|
|
(2,494
|
)
|
|
|
(16,075
|
)
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(14,153
|
)
|
|
|
(3,203
|
)
|
|
|
(17,356
|
)
|
|
INCOME TAXES
|
|
|
—
|
|
|
|
52
|
|
(c)
|
|
52
|
|
|
NET LOSS INCLUDING NONCONTROLLING INTERESTS
|
|
|
(14,153
|
)
|
|
|
(3,255
|
)
|
|
|
(17,408
|
)
|
|
Net (income) loss attributable to noncontrolling interest
|
|
|
(14
|
)
|
|
|
14
|
|
(a)
|
|
—
|
|
|
NET LOSS ATTRIBUTABLE TO THE COMPANY
|
|
|
(14,167
|
)
|
|
|
(3,241
|
)
|
|
|
(17,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
8
|
|
|
|
(1
|
)
|
(a)
|
|
7
|
|
|
Other comprehensive income (loss)
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
|
(14,145
|
)
|
|
|
(3,256
|
)
|
|
|
(17,401
|
)
|
|
Amounts attributable to noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interest
|
|
|
(14
|
)
|
|
|
14
|
|
(a)
|
|
—
|
|
|
Foreign currency translation adjustments
|
|
|
(1
|
)
|
|
|
1
|
|
(a)
|
|
—
|
|
|
Comprehensive (income) loss attributable to noncontrolling interest
|
|
|
(15
|
)
|
|
|
15
|
|
|
|
—
|
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
|
$
|
(14,160
|
)
|
|
$
|
(3,241
|
)
|
|
$
|
(17,401
|
)
|
|
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
$
|
(0.38
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.46
|
)
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
|
|
37,473,431
|
|
|
|
—
|
|
|
|
37,473,431
|
|
(a) EJ Holdings adjustments: the correction of this misstatement resulted in increases of $55,000 in general and administrative expenses, $9,000 in loss on equity method investment and $34,000 in interest income and decreases of $14,000 in net income attributable to noncontrolling interest and $1,000 in foreign currency translation adjustments.
(b) Warrant adjustments: the correction of this misstatement resulted in an increase of $312,000 in interest expense and a decrease of $890,000 in change in fair value of warrant derivative liabilities.
(c) Corrections of other misstatements: period adjustment of variable consideration resulted in a decrease of $600,000 in revenues, net; reclassification of shipping cost and royalty expense to cost of sales resulted in an increase of $59,000 in cost of sales and decreases of $6,000 and $53,000 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; a correction of tax provision resulted in an increase of $52,000 in tax provision
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
Three months ended March 31,2019
|
|
|
|
|
Previously Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,153
|
)
|
|
$
|
(3,255
|
)
|
|
$
|
(17,408
|
)
|
|
Adjustments to reconcile net loss to net cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
17
|
|
|
|
—
|
|
|
|
17
|
|
|
Amortization of discount of convertible notes
|
|
|
5,641
|
|
|
|
1,647
|
|
(b), (c)
|
|
7,288
|
|
|
Foreign exchange adjustments
|
|
|
(19
|
)
|
|
|
108
|
|
|
|
89
|
|
|
Net losses (gains) on equity investment in marketable securities
|
|
|
6,457
|
|
|
|
—
|
|
|
|
6,457
|
|
|
Gain on equity method investment
|
|
|
—
|
|
|
|
(9
|
)
|
(a)
|
|
(9
|
)
|
|
Share-based compensation
|
|
|
536
|
|
|
|
52
|
|
(c)
|
|
588
|
|
|
Change in fair value of warrant derivative liabilities
|
|
|
48
|
|
|
|
890
|
|
(a)
|
|
938
|
|
|
Net changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(409
|
)
|
|
|
266
|
|
|
|
(143
|
)
|
|
Inventories
|
|
|
(1,091
|
)
|
|
|
—
|
|
|
|
(1,091
|
)
|
|
Prepaid expenses and other current assets
|
|
|
(83
|
)
|
|
|
(32
|
)
|
|
|
(115
|
)
|
|
Other non-current assets
|
|
|
(2,813
|
)
|
|
|
—
|
|
|
|
(2,813
|
)
|
|
Income tax
|
|
|
—
|
|
|
|
52
|
|
|
|
52
|
|
|
Accounts payable and accrued expenses
|
|
|
2,339
|
|
|
|
386
|
|
|
|
2,725
|
|
|
Deferred revenue
|
|
|
500
|
|
|
|
—
|
|
|
|
500
|
|
|
Deferred rent
|
|
|
(287
|
)
|
|
|
—
|
|
|
|
(287
|
)
|
|
Other current liabilities
|
|
|
36
|
|
|
|
—
|
|
|
|
36
|
|
|
Other long-term liabilities
|
|
|
1,997
|
|
|
|
—
|
|
|
|
1,997
|
|
|
Net cash flows (used in) provided by operating activities
|
|
|
(1,284
|
)
|
|
|
105
|
|
|
|
(1,179
|
)
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
(16
|
)
|
|
Net cash flows used in investing activities
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
(16
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of convertible notes
|
|
|
(3,048
|
)
|
|
|
—
|
|
|
|
(3,048
|
)
|
|
Proceeds from exercise of warrants
|
|
|
5
|
|
|
|
—
|
|
|
|
5
|
|
|
Proceeds from issuance of common stock
|
|
|
2,530
|
|
|
|
—
|
|
|
|
2,530
|
|
|
Proceeds from conversion of notes payable to common stock
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
|
Net cash flows used in financing activities
|
|
|
(492
|
)
|
|
|
—
|
|
|
|
(492
|
)
|
|
Effect of exchange rate changes on cash
|
|
|
22
|
|
|
|
—
|
|
|
|
22
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
|
(1,770
|
)
|
|
|
105
|
|
|
|
(1,665
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
17,080
|
|
|
|
(13,175
|
)
|
|
|
3,905
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
15,310
|
|
|
$
|
(13,070
|
)
|
|
$
|
2,240
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
385
|
|
|
$
|
—
|
|
|
$
|
385
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised of warrants and options on cashless basis
|
|
$
|
3,374
|
|
|
$
|
—
|
|
|
$
|
3,374
|
|
|
Conversion of notes payable to common stock
|
|
$
|
329
|
|
|
$
|
—
|
|
|
$
|
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 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 $105,000.
|