10-Q

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 March 31, 2023


☐	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 53,637,554 shares of common stock, par value $0.001 per share, outstanding as of May 10, 2023.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended March 31, 2023

TABLE OF CONTENTS


		Page


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	1

	(a) Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1

	(b) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022	2

	(c) Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2023 and 2022	3

	(d) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	4

	(e) Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	25

Part II Other Information

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

Signatures		30

Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	As of
	March 31, 2023			December 31, 2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,774		$	2,021
Accounts receivable, net		2,204			375
Inventories, net		2,216			2,379
Prepaid expenses and other current assets		1,224			1,514
Total current assets		7,418			6,289
Property and equipment, net		72			75
Equity method investment		19,106			18,828
Right of use assets		2,646			2,799
Investment in convertible bond		19,427			19,971
Other assets		277			263
Total assets	$	48,946		$	48,225
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	14,423		$	13,549
Operating lease liabilities, current portion		722			703
Conversion feature derivative, notes payable		3,159			3,248
Other current liabilities		13,972			12,917
Warrant derivative liabilities		85			70
Notes payable, current portion, net of discount		8,325			6,814
Notes payable to related parties		2,482			2,367
Convertible notes payable, net of discount		14,687			14,655
Total current liabilities		57,855			54,323
Operating lease liabilities, less current portion		2,362			2,553
Other long-term liabilities		20,256			21,714
Notes payable, less current portion		—			380
Notes payable to related parties, net		3,426			3,346
Convertible notes payable to related parties		1,000			—
Total liabilities		84,899			82,316
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, 50,934,852 and 49,583,501 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		51			50
Additional paid-in capital		222,878			220,815
Accumulated other comprehensive loss		(2,977	)		(2,619	)
Accumulated deficit		(255,905	)		(252,337	)
Total stockholders’ deficit		(35,953	)		(34,091	)
Total liabilities & stockholders’ deficit	$	48,946		$	48,225

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

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)


	Three months Ended March 31,
	2023			2022
REVENUES, NET	$	6,753		$	3,234
COST OF GOODS SOLD		429			1,007
GROSS PROFIT		6,324			2,227
OPERATING EXPENSES
Research and development		289			466
Selling		2,317			1,460
General and administrative		4,883			3,369
Total operating expenses		7,489			5,295
LOSS FROM OPERATIONS		(1,165	)		(3,068	)
OTHER INCOME (EXPENSE)
Change in fair value of warrant derivative liabilities		(14	)		748
Change in fair value of conversion feature derivative, notes payable		89			3,080
Realized loss on investment in convertible bond		—			(133	)
Net loss on equity method investment		(527	)		(566	)
Foreign exchange loss		(519	)		(1,191	)
Interest and other income		160			222
Interest expense		(1,502	)		(737	)
Total other income (expense)		(2,313	)		1,423
LOSS BEFORE INCOME TAXES		(3,478	)		(1,645	)
Income tax provision (benefit)		49			(103	)
NET LOSS		(3,527	)		(1,542	)

COMPONENTS OF OTHER COMPREHENSIVE LOSS
Unrealized gain (loss) on debt securities available for sale (net of tax)		(544	)		350
Reclassification adjustment for gain included in net income		—			7
Foreign currency translation adjustments		186			331
Other comprehensive income (loss)		(358	)		688
COMPREHENSIVE LOSS	$	(3,885	)	$	(854	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED	$	(0.07	)	$	(0.03	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		50,709,627			49,311,864

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 (loss)			deficit			deficit
Balance, January 1, 2023		49,583,501	$	50	$	220,815	$	(2,619	)	$	(252,337	)	$	(34,091	)
Change in fair value of warrants including down-round protection adjustments		—		—		41		—			(41	)		—
Convertible notes converted to shares		1,351,351		1		499		—			—			500
Warrants issued for services		—		—		334		—			—			334
Share-based compensation		—		—		1,189		—			—			1,189
Unrealized gain on debt securities available for sale (net of tax)		—		—		—		(544	)		—			(544	)
Foreign currency translation effect		—		—		—		186			—			186
Net loss		—		—		—		—			(3,527	)		(3,527	)
Balance, March 31, 2023		50,934,852		51		222,878		(2,977	)		(255,905	)		(35,953	)


	Common stock				Additional paid-in		Accumulated other comprehensive			Accumulated			Total stockholders'
	Shares		Amount		capital		income (loss)			deficit			deficit
Balance January 1, 2022		49,311,864	$	49	$	220,022	$	(255	)	$	(241,266	)	$	(21,450	)
Share-based compensation		—		—		5		—			—			5
Unrealized gain on debt securities available for sale (net of tax)		—		—		—		350			—			350
Reclassification adjustment for gain included in net income		—		—		—		7			—			7
Foreign currency translation effect		—		—		—		331			—			331
Net loss		—		—		—		—			(1,542	)		(1,542	)
Balance, March 31, 2022		49,311,864		49		220,027		433			(242,808	)		(22,299	)

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

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three months Ended March 31,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,527	)	$	(1,542	)
Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization		9			15
Inventory reserve		—			794
Amortization of discount of notes payable and convertible notes payable		582			411
Foreign exchange adjustments		471			1,205
Tax benefit recognized on unrealized gain on debt securities		—			(117	)
Realized loss on investment on convertible bond		—			133
Loss on equity method investment		527			566
Share-based compensation		1,189			5
Fair value of warrants issued for services		334			—
Change in fair value of warrant derivative liabilities		14			(748	)
Change in fair value of conversion feature derivative, notes payable		(89	)		(3,080	)
Changes in fair value option instrument		10			—
Net changes in operating assets and liabilities
Accounts receivable		(1,828	)		102
Inventories		161			143
Prepaid expenses and other current assets		241			113
Other non-current assets		186			160
Accounts payable and accrued expenses		1,001			530
Other current liabilities		(545	)		(2,980	)
Other long-term liabilities		(28	)		(443	)
Net cash flows used in operating activities		(1,292	)		(4,733	)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of convertible bond		—			2,919
Purchase of property and equipment		(6	)		(2	)
Loan to equity method investee		(1,085	)		(1,690	)
Net cash flows provided by (used in) investing activities		(1,091	)		1,227
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable issued, net of issuance cost		1,484			20
Proceeds from notes payable issued, related parties		227			2,036
Proceeds from convertible notes payable issued, related party		1,000			—
Payments of notes payable		(520	)		—
Payments of notes payable, related party		(50	)		—
Net cash flows provided by financing activities		2,141			2,056
Effect of exchange rate changes on cash		(5	)		(16	)
Net decrease in cash and cash equivalents		(247	)		(1,466	)
Cash and cash equivalents, beginning of period		2,021			2,279
Cash and cash equivalents, end of period	$	1,774		$	813

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Interest paid