| Schedule of Error Corrections and Prior Period Adjustments |
Emmaus Life Sciences, Inc.
Consolidated Balance Sheet
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
Previously Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,080
|
|
|
$
|
(13,175
|
)
|
(b)
|
$
|
3,905
|
|
|
Accounts receivable, net
|
|
|
1,351
|
|
|
|
437
|
|
(d)
|
|
1,788
|
|
|
Inventories, net
|
|
|
4,705
|
|
|
|
—
|
|
|
|
4,705
|
|
|
Investment in marketable securities
|
|
|
49,343
|
|
|
|
—
|
|
|
|
49,343
|
|
|
Marketable securities, pledged to creditor
|
|
|
238
|
|
|
|
—
|
|
|
|
238
|
|
|
Prepaid expenses and other current assets
|
|
|
743
|
|
|
|
(109
|
)
|
(b)(d)
|
|
634
|
|
|
Total current assets
|
|
|
73,460
|
|
|
|
(12,847
|
)
|
|
|
60,613
|
|
|
Property and equipment, net
|
|
|
152
|
|
|
|
—
|
|
|
|
152
|
|
|
Long-term investment
|
|
|
538
|
|
|
|
—
|
|
|
|
538
|
|
|
Equity method investment
|
|
|
—
|
|
|
|
13,569
|
|
(b)
|
|
13,569
|
|
|
Other assets
|
|
|
406
|
|
|
|
—
|
|
|
|
406
|
|
|
Total assets
|
|
$
|
74,556
|
|
|
$
|
722
|
|
|
$
|
75,278
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
9,122
|
|
|
|
(887
|
)
|
(b)
|
|
8,235
|
|
|
Deferred rent, current portion
|
|
|
19
|
|
|
|
—
|
|
|
|
19
|
|
|
Other current liabilities
|
|
|
5,181
|
|
|
|
161
|
|
(d)
|
|
5,342
|
|
|
Warrant derivative liabilities
|
|
|
—
|
|
|
|
8,939
|
|
(a)(d)
|
|
8,939
|
|
|
Notes payable, net of discount
|
|
|
6,394
|
|
|
|
(182
|
)
|
(a)
|
|
6,212
|
|
|
Notes payable to related parties
|
|
|
468
|
|
|
|
—
|
|
|
|
468
|
|
|
Convertible notes payable, net of discount
|
|
|
11,253
|
|
|
|
—
|
|
|
|
11,253
|
|
|
Convertible notes payable to related parties, net of discount
|
|
|
5,089
|
|
|
|
—
|
|
|
|
5,089
|
|
|
Total current liabilities
|
|
|
37,526
|
|
|
|
8,031
|
|
|
|
45,557
|
|
|
Deferred rent, less current portion
|
|
|
268
|
|
|
|
—
|
|
|
|
268
|
|
|
Other long-term liabilities
|
|
|
36,222
|
|
|
|
—
|
|
|
|
36,222
|
|
|
Warrant derivative liabilities
|
|
|
1,399
|
|
|
|
(1,399
|
)
|
(d)
|
|
—
|
|
|
Notes payable, net of discount, less current portion
|
|
|
1,021
|
|
|
|
(96
|
)
|
(a)
|
|
925
|
|
|
Convertible notes payable, net of discount, less current portion
|
|
|
5,485
|
|
|
|
—
|
|
|
|
5,485
|
|
|
Convertible notes payable to related parties, net of discount, less current portion
|
|
|
8,529
|
|
|
|
—
|
|
|
|
8,529
|
|
|
Total liabilities
|
|
|
90,450
|
|
|
|
6,536
|
|
|
|
96,986
|
|
|
STOCKHOLDERS’ EQUITY (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, 37,341,393 shares issued and outstanding at December 31, 2018
|
|
|
37
|
|
|
|
—
|
|
|
|
37
|
|
|
Additional paid-in capital
|
|
|
140,903
|
|
|
|
8,779
|
|
(a)(c)(d)
|
|
149,682
|
|
|
Accumulated other comprehensive loss
|
|
|
(69
|
)
|
|
|
—
|
|
|
|
(69
|
)
|
|
Accumulated deficit
|
|
|
(156,668
|
)
|
|
|
(14,690
|
)
|
|
|
(171,358
|
)
|
|
Stockholders’ deficit
|
|
|
(15,797
|
)
|
|
|
(5,911
|
)
|
|
|
(21,708
|
)
|
|
Noncontrolling interests
|
|
|
(97
|
)
|
|
|
97
|
|
(b)
|
|
—
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
74,556
|
|
|
$
|
722
|
|
|
$
|
75,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Warrant adjustments: The correction of this misstatement resulted in an increase of $7.5 million in warrant derivative liabilities and decreases of $182,000 in short-term notes payable, $96,000 in long-term notes payable and $9.7 million in additional paid-in capital.
(b) EJ Holdings adjustments: The correction of this misstatement resulted in increases of $13.6 million in equity method investment, $58,000 in accounts payable and accrued expenses, and $97,000 in non-controlling interest and decreases of $13.2 million in cash and cash equivalent and $240,000 in prepaid expenses and other current assets.
(c) Cashless warrants adjustments: The correction of this misstatement resulted in an increase of $18.3 million in additional paid-in capital.
(d) Corrections of other misstatement were as follows: (i) period adjustment and reclassification of variable consideration resulted in an increase of $436,000 in accounts receivable and a decrease of $946,000 in accounts payable and accrued expense. It also resulted a decrease of $10,000 in income tax receivable and an increase of $24,000 in income tax payable; (ii) correction of financing of insurance premium resulted in an increase of $141,000 in each of prepaid expenses and current liabilities; (iii) correction of stock modification accounting resulted in an increase of $52,000 in additional paid-in capital; and (iv) correction of accounting treatment for conversion feature of senior secured convertible promissory note resulted in an increase of $172,000 in additional paid-in capital.
Emmaus Life Sciences, Inc.
Consolidated Statement of operations and Comprehensive Loss
(In thousands, except share and per share amounts)
|
|
Years Ended December 31, 2018
|
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
CONSOLIDATED STATEMENTS OF LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES, NET
|
$
|
15,077
|
|
|
$
|
1,382
|
|
(d)
|
$
|
16,459
|
|
|
COST OF GOODS SOLD
|
|
764
|
|
|
|
229
|
|
(d)
|
|
993
|
|
|
GROSS PROFIT
|
|
14,313
|
|
|
|
1,153
|
|
|
|
15,466
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
1,723
|
|
|
|
—
|
|
|
|
1,723
|
|
|
Selling
|
|
4,813
|
|
|
|
(80
|
)
|
(d)
|
|
4,733
|
|
|
General and administrative
|
|
17,877
|
|
|
|
(413
|
)
|
(b)(d)
|
|
17,464
|
|
|
Total operating expenses
|
|
24,413
|
|
|
|
(493
|
)
|
|
|
23,920
|
|
|
LOSS FROM OPERATIONS
|
|
(10,100
|
)
|
|
|
1,646
|
|
|
|
(8,454
|
)
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment
|
|
(3,245
|
)
|
|
|
543
|
|
(d)
|
|
(2,702
|
)
|
|
Change in fair value of warrant derivative liabilities
|
|
20,674
|
|
|
|
(16,198
|
)
|
(a) (c)
|
|
4,476
|
|
|
Change in fair value of embedded conversion option
|
|
466
|
|
|
|
(466
|
)
|
(d)
|
|
—
|
|
|
Net losses on investment in marketable securities
|
|
(43,977
|
)
|
|
|
—
|
|
|
|
(43,977
|
)
|
|
Net losses on equity method investment
|
|
—
|
|
|
|
(97
|
)
|
(b)
|
|
(97
|
)
|
|
Interest and other income (loss)
|
|
969
|
|
|
|
33
|
|
(b)
|
|
1,002
|
|
|
Interest expense
|
|
(22,825
|
)
|
|
|
29
|
|
(a)(d)
|
|
(22,796
|
)
|
|
Total other income (expense)
|
|
(47,938
|
)
|
|
|
(16,156
|
)
|
|
|
(64,094
|
)
|
|
LOSS BEFORE INCOME TAXES
|
|
(58,038
|
)
|
|
|
(14,510
|
)
|
|
|
(72,548
|
)
|
|
INCOME TAXES
|
|
6
|
|
|
|
33
|
|
(d)
|
|
39
|
|
|
NET LOSS INCLUDING NONCONTROLLING INTEREST
|
|
(58,044
|
)
|
|
|
(14,543
|
)
|
|
|
(72,587
|
)
|
|
Net loss attributable to noncontrolling interest
|
|
146
|
|
|
|
(146
|
)
|
|
|
—
|
|
|
NET LOSS ATTRIBUTABLE TO THE COMPANY
|
|
(57,898
|
)
|
|
|
(14,689
|
)
|
|
|
(72,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
17
|
|
|
|
(1
|
)
|
(b)
|
|
16
|
|
|
Other comprehensive income (loss)
|
|
17
|
|
|
|
(1
|
)
|
|
|
16
|
|
|
COMPREHENSIVE LOSS
|
|
(58,027
|
)
|
|
|
(14,544
|
)
|
|
|
(72,571
|
)
|
|
Amounts attributable to noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
146
|
|
|
|
(146
|
)
|
(b)
|
|
—
|
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
$
|
(57,881
|
)
|
|
$
|
(14,690
|
)
|
|
$
|
(72,571
|
)
|
|
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
(1.57
|
)
|
|
|
(0.40
|
)
|
|
|
(1.97
|
)
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
|
36,857,995
|
|
|
|
36,857,995
|
|
|
|
36,857,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Warrant adjustments: The correction of this misstatement resulted in an increase of $2.1 million in change in fair value of warrant derivative liabilities and a decrease of $278,000 in interest expense.
(b) EJ Holdings adjustments: The correction of this misstatement resulted in a decrease of $211,000 in general and administrative expense, an increase of $97,000 in loss on equity method investment and an increase in $32,000 in interest income.
(c) Cashless warrant adjustments: The correction of this misstatement resulted in a decrease of $18.3 million in change in fair value of warrant derivative liabilities.
(d) Corrections of other misstatement were as follows: (i) period adjustment of variable consideration resulted in increases of $1.4 million in revenue, net and $33,000 in income tax provision; (ii) reclassification of shipping cost and royalty expense to cost of sales resulted in an increase of $229,000 in cost of sales and decreases of $80,000 and $141,000 in selling expense and general and administrative expense, respectively; (iii) correction of stock modification accounting resulted in a decrease of $52,000 in general and administrative expense; and (iv) correction of accounting treatment for conversion feature resulted in an increase of $249,000 in interest expense and decreases of $543,000 and $466,000 in loss on debt extinguishment and change in fair value of embedded conversion option, respectively.
Emmaus Life Sciences, Inc.
Consolidated Statement of Cash Flows
(In thousands)
|
|
Year ended December 31, 2018
|
|
|
|
Previously Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(58,044
|
)
|
|
$
|
(14,543
|
)
|
|
$
|
(72,587
|
)
|
|
Adjustments to reconcile net loss to net cash flows used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
61
|
|
|
|
—
|
|
|
|
61
|
|
|
Amortization of discount of notes payable and convertible notes payable
|
|
18,263
|
|
|
|
(29
|
)
|
(d)
|
|
18,234
|
|
|
Foreign exchange adjustments
|
|
53
|
|
|
|
(350
|
)
|
(b)
|
|
(297
|
)
|
|
Net losses on investment in marketable securities
|
|
43,977
|
|
|
|
—
|
|
|
|
43,977
|
|
|
Loss on equity method investment
|
|
—
|
|
|
|
97
|
|
(b)
|
|
97
|
|
|
Loss on debt extinguishment
|
|
3,245
|
|
|
|
(543
|
)
|
(d)
|
|
2,702
|
|
|
Share-based compensation and fair value of replacement equity award
|
|
4,597
|
|
|
|
(52
|
)
|
(d)
|
|
4,545
|
|
|
Change in fair value of warrant derivative liabilities
|
|
(20,674
|
)
|
|
|
16,198
|
|
(a)(c)
|
|
(4,476
|
)
|
|
Change in fair value of embedded conversion option
|
|
(466
|
)
|
|
|
466
|
|
(d)
|
|
—
|
|
|
Net changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(1,324
|
)
|
|
|
(437
|
)
|
(d)
|
|
(1,761
|
)
|
|
Inventories
|
|
(4,079
|
)
|
|
|
—
|
|
|
|
(4,079
|
)
|
|
Prepaid expenses and other current assets
|
|
(431
|
)
|
|
|
99
|
|
(b)(d)
|
|
(332
|
)
|
|
Other non-current assets
|
|
(241
|
)
|
|
|
—
|
|
|
|
(241
|
)
|
|
Income tax receivable and payable
|
|
(10
|
)
|
|
|
34
|
|
(d)
|
|
24
|
|
|
Accounts payable and accrued expenses
|
|
4,631
|
|
|
|
(1,059
|
)
|
(b)(d)
|
|
3,572
|
|
|
Deferred rent
|
|
245
|
|
|
|
—
|
|
|
|
245
|
|
|
Other current liabilities
|
|
5,174
|
|
|
|
138
|
|
(d)
|
|
5,312
|
|
|
Other long-term liabilities
|
|
(630
|
)
|
|
|
—
|
|
|
|
(630
|
)
|
|
Net cash flows used in operating activities
|
|
(5,653
|
)
|
|
|
19
|
|
|
|
(5,634
|
)
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of marketable securities
|
|
6,439
|
|
|
|
—
|
|
|
|
6,439
|
|
|
Purchases of property and equipment
|
|
(94
|
)
|
|
|
—
|
|
|
|
(94
|
)
|
|
Purchase of marketable securities and investment at cost
|
|
(469
|
)
|
|
|
—
|
|
|
|
(469
|
)
|
|
Capital contributions and loan to equity method investees
|
|
—
|
|
|
|
(13,316
|
)
|
(d)
|
|
(13,316
|
)
|
|
Net cash flows provided by (used in) investing activities
|
|
5,876
|
|
|
|
(13,316
|
)
|
|
|
(7,440
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock and warrants
|
|
(11,262
|
)
|
|
|
—
|
|
|
|
(11,262
|
)
|
|
Proceeds from notes payable issued, net of issuance cost and discount
|
|
11,560
|
|
|
|
—
|
|
|
|
11,560
|
|
|
Proceeds from convertible notes payable issued, net of issuance cost and discount
|
|
17,645
|
|
|
|
171
|
|
(d)
|
|
17,816
|
|
|
Payments of notes payable
|
|
(5,077
|
)
|
|
|
—
|
|
|
|
(5,077
|
)
|
|
Payments of convertible notes
|
|
(20,000
|
)
|
|
|
—
|
|
|
|
(20,000
|
)
|
|
Proceeds from exercise of warrants
|
|
111
|
|
|
|
—
|
|
|
|
111
|
|
|
Proceeds from issuance of common stock
|
|
1,275
|
|
|
|
—
|
|
|
|
1,275
|
|
|
Proceeds from noncontrolling interest
|
|
48
|
|
|
|
(48
|
)
|
(b)
|
|
—
|
|
|
Net cash flows provided by (used in) financing activities
|
|
(5,700
|
)
|
|
|
123
|
|
|
|
(5,577
|
)
|
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
(5,477
|
)
|
|
|
(13,174
|
)
|
|
|
(18,651
|
)
|
|
Cash, cash equivalents, beginning of period
|
|
22,556
|
|
|
|
—
|
|
|
|
22,556
|
|
|
Cash, cash equivalents, end of period
|
$
|
17,079
|
|
|
$
|
(13,174
|
)
|
|
$
|
3,905
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
$
|
2,178
|
|
|
$
|
—
|
|
|
$
|
2,178
|
|
|
Income taxes paid
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Exercised of warrants and options on cashless basis
|
$
|
1,712
|
|
|
$
|
16,633
|
|
(c)
|
$
|
18,345
|
|
(d) Correction of unpaid deferred financing cost included in proceeds from convertible notes payable issued, net of issuance cost and discount resulted in a net increase to cash flow from financing activities and a net decrease to cash flow provided by operating activities of $171,000.
|