Annual report pursuant to Section 13 and 15(d)

QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)

v3.20.4
QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)
12 Months Ended
Dec. 31, 2019
Quarterly Financial Data [Abstract]  
QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)

NOTE 15—QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)

Set forth below are the Consolidated Financial Statement of the Company as previously reported and as restated to reflect adjustments:

 

Emmaus Life Sciences, Inc.

Consolidated Balance Sheet

(In thousands, except share and per share amounts)

 

 

 

As of September 30, 2019

(Unaudited)

 

 

 

Previously Reported

 

 

Adjustments

 

 

As Restated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,546

 

 

 

(12,220

)

(b)

$

1,326

 

Accounts receivable, net

 

 

1,900

 

 

 

82

 

(c)

 

1,982

 

Inventories, net

 

 

7,491

 

 

 

 

 

 

7,491

 

Investment in marketable securities

 

 

27,643

 

 

 

 

 

 

27,643

 

Marketable securities, pledged to creditor

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,194

 

 

 

347

 

(b)(c)

 

1,541

 

Total current assets

 

 

51,774

 

 

 

(11,791

)

 

 

39,983

 

Property and equipment, net

 

 

163

 

 

 

 

 

 

163

 

Equity method investment

 

 

 

 

 

13,407

 

(b)

 

13,407

 

Right of use assets

 

 

4,118

 

 

 

 

 

 

4,118

 

Other assets

 

 

427

 

 

 

 

 

 

427

 

Total assets

 

$

56,482

 

 

$

1,616

 

 

$

58,098

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

10,706

 

 

 

220

 

(b)

$

10,926

 

Operating lease liabilities, current portion

 

 

844

 

 

 

 

 

 

844

 

Other current liabilities

 

 

5,676

 

 

 

357

 

(a)(c)

 

6,033

 

Warrant derivative liabilities

 

 

 

 

 

91

 

(a)

 

91

 

Notes payable, net of discount

 

 

3,886

 

 

 

 

 

 

3,886

 

Notes payable to related parties

 

 

193

 

 

 

 

 

 

193

 

Convertible debentures, net of discount

 

 

11,000

 

 

 

(4,530

)

(a)

 

6,470

 

Convertible notes payable, net of discount

 

 

2,928

 

 

 

 

 

 

2,928

 

Total current liabilities

 

 

35,233

 

 

 

(3,862

)

 

 

31,371

 

Operating lease liabilities, less current portion

 

 

3,714

 

 

 

 

 

 

3,714

 

Other long-term liabilities

 

 

34,585

 

 

 

(29

)

(a)

 

34,556

 

Convertible debentures, net of discount less current portion

 

 

1,200

 

 

 

(494

)

(a)

 

706

 

Total liabilities

 

 

74,732

 

 

 

(4,385

)

 

 

70,347

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock — par value $0.001 per share, 15,000,000 shares authorized, no shares issued or outstanding

 

 

 

 

 

 

 

 

 

Common stock — par value $0.001 per share, 250,000,000 shares authorized, 47,671,446 shares issued and outstanding at September 30, 2019

 

 

47

 

 

 

1

 

 

 

48

 

Additional paid-in capital

 

 

199,395

 

 

 

13,224

 

(a)(b)

 

212,619

 

Accumulated other comprehensive income (loss)

 

 

(51

)

 

 

 

 

 

(51

)

Accumulated deficit

 

 

(216,916

)

 

 

(7,949

)

 

 

(224,865

)

Stockholders’ deficit

 

 

(17,525

)

 

 

5,276

 

 

 

(12,249

)

Noncontrolling interests

 

 

(725

)

 

 

725

 

 

 

 

Total liabilities and stockholders’ deficit

 

$

56,482

 

 

$

1,616

 

 

$

58,098

 

 

 

(a) Senior secured debentures adjustments: The correction of this misstatement resulted in decreases of $4.5 million in short-term convertible notes payable and $0.5 million in long-term convertible notes payable. Also, it resulted in a decrease of $5.6 million in additional paid-in capital, $263,000 million in short-term conversion feature liabilities and $29,000 in long-term conversion feature liabilities.

 

(b) EJ Holdings adjustments: The correction of this misstatement resulted in increases of $13.4 million in equity method investment, $220,000 in accounts payable and accrued expenses, and $725,000 in non-controlling interest, as well as decreases of $12.2 million in cash and cash equivalents and $241,000 in prepaid expenses and other current assets.

 

(c) Corrections to other misstatements were as follows: (i) period adjustment and reclassification of variable consideration resulted in increases of $82,000 in accounts receivable and $22,000 in current liabilities; (ii) correction of financing of insurance premium resulting in an increase of $598,000 in prepaid expenses and other current liabilities; (iii) correction relating of debt modification resulting in an increase of $1.1 million in additional paid-in capital; (iv) correction relating to GPB warrant classification resulting in an increase of $91,000 in warrant derivative liabilities and a decrease of $776,000 in additional paid-in capital.

 

 

Emmaus Life Sciences, Inc.

Consolidated Statement of operations and Comprehensive Loss

(In thousands, except share and per share amounts)

 

 

Three months ended September 30, 2019

( Unaudited)

 

 

 

Previously Reported

 

 

Adjustments

 

 

As Restated

 

REVENUES, NET

 

$

6,084

 

 

$

(324

)

(c)

$

5,760

 

COST OF GOODS SOLD

 

178

 

 

 

70

 

(c)

 

248

 

GROSS PROFIT

 

 

5,906

 

 

 

(394

)

 

 

5,512

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

725

 

 

 

 

 

 

725

 

Selling

 

 

1,789

 

 

 

(11

)

 

 

1,778

 

General and administrative

 

 

6,991

 

 

 

65

 

(b)(c)

 

7,056

 

  Total operating expenses

 

 

9,505

 

 

 

54

 

 

 

9,559

 

LOSS FROM OPERATIONS

 

 

(3,599

)

 

 

(448

)

 

 

(4,047

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

 

(6,427

)

 

 

5,989

 

(a)(c)

 

(438

)

Change in fair value of warrant derivative liabilities

 

 

424

 

 

 

3,152

 

(a)(c)

 

3,576

 

Change in fair value of embedded conversion option

 

 

342

 

 

 

(211

)

(a)

 

131

 

Net losses on equity investment in marketable securities and long-term investment

 

 

(5,248

)

 

 

 

 

 

(5,248

)

Net loss on equity method investment

 

 

 

 

 

36

 

(b)

 

36

 

Miscellaneous reverse merger costs

 

 

(309

)

 

 

 

 

 

(309

)

Note conversion costs

 

 

(3,906

)

 

 

565

 

(c)

 

(3,341

)

Interest and other income (loss)

 

 

(17

)

 

 

35

 

(b)

 

18

 

Interest expense

 

 

(7,318

)

 

 

(1,396

)

(a)

 

(8,714

)

  Total other income (expenses)

 

 

(22,459

)

 

 

8,170

 

 

 

(14,289

)

LOSS BEFORE INCOME TAXES

 

 

(26,058

)

 

 

7,722

 

 

 

(18,336

)

INCOME TAXES

 

 

25

 

 

 

 

 

 

25

 

NET LOSS INCLUDING NONCONTROLLING INTEREST

 

 

(26,083

)

 

 

7,722

 

 

 

(18,361

)

     Net loss attributable to noncontrolling interest

 

 

(54

)

 

 

54

 

(b)

 

 

NET LOSS ATTRIBUTABLE TO THE COMPANY

 

 

(26,137

)

 

 

7,776

 

 

 

(18,361

)

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

11

 

 

 

(6

)

 

 

5

 

Other comprehensive loss

 

 

11

 

 

 

(6

)

 

 

5

 

COMPREHENSIVE LOSS

 

 

(26,072

)

 

 

7,716

 

 

 

(18,356

)

Amounts attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

 

(54

)

 

 

54

 

 

 

 

Foreign currency translation adjustments

 

 

(6

)

 

 

6

 

 

 

 

Comprehensive loss attributable to noncontrolling interest

 

 

(60

)

 

 

60

 

 

 

 

COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY

 

$

(26,132

)

 

$

7,776

 

 

$

(18,356

)

NET LOSS PER COMMON SHARE - BASIC and DILUTED

 

$

(0.57

)

 

$

0.17

 

 

$

(0.40

)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

 

 

46,020,507

 

 

 

45,986,629

 

 

 

45,986,629

 

 

(a) Senior secured debentures adjustments: The correction of this misstatement resulted in decreases of $6.3 million in loss on debt extinguishment and $211,000 in change in fair value of embedded conversion option and increases of $2.4 million in change in fair value of warrant derivative liabilities and $1.4 million in interest expenses.

 

(b) EJ Holdings adjustments: The correction of this misstatement resulted in increases of $125,000 in general and administrative expense, $36,000 in loss on equity method investment and an increase in $35,000 in interest and other income (loss).

 

(c) Corrections to other misstatement were as follows: (i) period adjustment of variable consideration resulted in a decrease of $324,000 in revenue, net; (ii) reclassification of shipping cost and royalty expense to cost of sales resulted in an increase of $71,000 in cost of sales and decreases of $11,000 and $60,000 in selling cost and general and administrative expense, respectively; (iii) correction relating to stock modification accounting resulted in an increase of $52,000 in general and administrative expense; (iv) correction relating to accounting for debt modification resulted in a decrease of $320,000 in loss on debt extinguishment; and (v) correction relating to the GPB warrant classification resulted in an increase of $685,000 in change in fair value of warrant derivative liabilities.

 

 

Nine months ended September 30, 2019

(Unaudited)

 

 

Previously Reported

 

 

Adjustments

 

 

As Restated

 

REVENUES, NET

$

17,260

 

 

$

(1,300

)

(c)

$

15,960

 

COST OF GOODS SOLD

 

573

 

 

 

198

 

(c)

 

771

 

GROSS PROFIT

 

16,687

 

 

 

(1,498

)

 

 

15,189

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,778

 

 

 

 

 

 

1,778

 

Selling

 

5,177

 

 

 

(29

)

 

 

5,148

 

General and administrative

 

14,523

 

 

 

(1,048

)

(b)(c)

 

13,475

 

  Total operating expenses

 

21,478

 

 

 

(1,077

)

 

 

20,401

 

LOSS FROM OPERATIONS

 

(4,791

)

 

 

(421

)

 

 

(5,212

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

(6,427

)

 

 

5,989

 

(a)(c)

 

(438

)

Change in fair value of warrant derivative liabilities

 

623

 

 

 

2,869

 

(a)(c)

 

3,492

 

Change in fair value of embedded conversion option

 

342

 

 

 

(211

)

(a)

 

131

 

Net losses on equity investment in marketable securities and long-term investment

 

(22,242

)

 

 

 

 

 

(22,242

)

Net loss on equity method investment

 

 

 

 

(413

)

(b)

 

(413

)

Miscellaneous reverse merger costs

 

(309

)

 

 

 

 

 

(309

)

Note conversion costs

 

(3,906

)

 

 

565

 

(c)

 

(3,341

)

Interest and other income (loss)

 

146

 

 

 

102

 

(b)

 

248

 

Interest expense

 

(22,757

)

 

 

(2,396

)

(a)(c)

 

(25,153

)

  Total other income (expenses)

 

(54,530

)

 

 

6,505

 

 

 

(48,025

)

LOSS BEFORE INCOME TAXES

 

(59,321

)

 

 

6,084

 

 

 

(53,237

)

INCOME TAXES

 

242

 

 

 

(1

)

(c)

 

241

 

NET LOSS INCLUDING NONCONTROLLING INTEREST

 

(59,563

)

 

 

6,085

 

 

 

(53,478

)

     Net loss attributable to noncontrolling interest

 

620

 

 

 

(620

)

 

 

 

NET LOSS ATTRIBUTABLE TO THE COMPANY

 

(58,943

)

 

 

5,465

 

 

 

(53,478

)

 

 

 

 

 

 

 

 

 

 

 

 

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

10

 

 

 

8

 

 

 

18

 

Other comprehensive loss

 

10

 

 

 

8

 

 

 

18

 

COMPREHENSIVE LOSS

 

(59,553

)

 

 

6,093

 

 

 

(53,460

)

Amounts attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

620

 

 

 

(620

)

 

 

 

Foreign currency translation adjustments

 

8

 

 

 

(8

)

 

 

 

Comprehensive loss attributable to noncontrolling interest

 

628

 

 

 

(628

)

 

 

 

COMPREHENSIVE LOSS ATTRIBUTABLE TO THE COMPANY

$

(58,925

)

 

$

5,465

 

 

$

(53,460

)

NET LOSS PER COMMON SHARE - BASIC and DILUTED

$

(1.46

)

 

$

0.14

 

 

$

(1.32

)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

 

40,474,847

 

 

 

40,443,124

 

 

 

40,443,124

 

 

(a) Senior secured debentures adjustments: The correction of this misstatement resulted in decreases of $6.3 million in loss on debt extinguishment and $211,000 in change in fair value of embedded conversion option as well as in increases of $2.1 million in change in fair value of warrant derivative liabilities and $1.0 million in interest expenses.

 

(b) EJ Holdings adjustments: The correction of this misstatement resulted in a decrease of $930,000 in general and administrative expense, and increases of $36,000 in loss on equity method investment and $102,000 in interest income.

 

(c) Corrections to other misstatement were as follows: (i) period adjustment of variable consideration resulted in decreases of $1.3 million in revenue, net and $1,000 income tax provision (ii) reclassification of shipping cost and royalty expense to cost of sales resulted in an increase of $199,000 in cost of sales and decreases of $29,000 and $170,000 in selling cost and general and administrative expense, respectively; (iii) correction relating to stock modification accounting resulted in an increase of $52,000 in general and administrative expense; (iv) correction relating to accounting for debt modification resulted in an increase of $1.3 million in interest expenses and a decrease of $320,000 in loss on debt extinguishment; and (v) correction relating to GPB warrant classification resulted in an increase of $685,000 in change in fair value of warrant derivative liabilities.

    

Emmaus Life Sciences, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 

 

Nine Months Ended September 30, 2019

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Previously Reported

 

 

Adjustments

 

 

As Restated

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(59,563

)

 

$

6,085

 

 

$

(53,478

)

Adjustments to reconcile net loss to net cash flows used in operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

54

 

 

 

 

 

 

54

 

Impairment loss on long-term investment

 

 

524

 

 

 

 

 

 

524

 

Amortization of discount of convertible notes and notes payable

 

 

19,479

 

 

 

2,396

 

 

 

21,875

 

Foreign exchange adjustments on convertible notes and notes payable

 

 

49

 

 

 

(256

)

 

 

(207

)

Net losses on equity investment in marketable securities

 

 

21,718

 

 

 

 

 

 

21,718

 

Loss on equity method investment

 

 

0

 

 

 

413

 

 

 

413

 

Loss on debt extinguishment

 

 

6,427

 

 

 

(5,989

)

 

 

438

 

Share-based compensation and fair value of replacement equity award

 

 

3,541

 

 

 

52

 

 

 

3,593

 

Note conversion costs

 

 

3,906

 

 

 

(565

)

 

 

3,341

 

Change in fair value of warrant derivative liabilities

 

 

(623

)

 

 

(2,869

)

 

 

(3,492

)

Change in fair value of embedded conversion option

 

 

(342

)

 

 

211

 

 

 

(131

)

Net changes in operating assets and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(548

)

 

 

355

 

 

 

(193

)

Inventories

 

 

(2,787

)

 

 

 

 

 

(2,787

)

Prepaid expenses and other current assets

 

 

(426

)

 

 

(599

)

 

 

(1,025

)

Other non-current assets

 

 

(4,150

)

 

 

 

 

 

(4,150

)

Accounts payable and accrued expenses

 

 

4,857

 

 

 

1,109

 

 

 

5,966

 

Deferred revenue

 

 

500

 

 

 

 

 

 

500

 

Deferred rent

 

 

(287

)

 

 

 

 

 

(287

)

Other current liabilities

 

 

230

 

 

 

598

 

 

 

828

 

Other long-term liabilities

 

 

2,363

 

 

 

 

 

 

2,363

 

Net cash flows used in operating activities

 

 

(5,078

)

 

 

941

 

 

 

(4,137

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid in connection with the Merger

 

 

(1,641

)

 

 

 

 

 

(1,641

)

Purchases of property and equipment

 

 

(55

)

 

 

 

 

 

(55

)

Sales of marketable securities

 

 

221

 

 

 

 

 

 

221

 

Net cash flows provided by (used in) investing activities

 

 

(1,475

)

 

 

 

 

 

(1,475

)

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

 

 

6,210

 

 

 

 

 

 

6,210

 

Net cash flows provided by (used in) financing activities

 

 

3,028

 

 

 

 

 

 

3,028

 

Effect of exchange rate changes on cash

 

 

(8

)

 

 

13

 

 

 

5

 

Net decrease in cash and cash equivalents

 

 

(3,533

)

 

 

954

 

 

 

(2,579

)

Cash and cash equivalents, beginning of period

 

 

17,079

 

 

 

(13,174

)

 

 

3,905

 

Cash and cash equivalents, end of period

 

$

13,546

 

 

 

(12,220

)

 

$

1,326

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

1,239

 

 

$

 

 

$

1,239

 

Income taxes paid

 

$

242

 

 

$

 

 

$

242

 

Warrant liabilities reclassified to equity

 

$

776

 

 

$

5,561

 

 

$

6,337

 

Conversion of convertible notes and notes payable to common stock

 

$

33,777

 

 

$

 

 

$

33,777

 

Conversion of accrued interest payable to common stock

 

$

2,381

 

 

$

 

 

$

2,381

 

Initial recognition of right-of-use lease asset

 

$

 

 

$

2,922

 

 

$

2,922

 

Refer to descriptions of the adjustments and their impact on net loss in the Consolidated Statement of Operation and Comprehensive Loss for the nine months ended September 30, 2018 above.

Cash flow classification adjustment related to EJ Holdings in 2019 resulted in a net increase to cash flows provided by operating activities of $940,000.

No other misstatements impacted the classifications between net operating, net investing or net financing cash flow activities for the nine months ended September 30, 2019.