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 June 30, 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 August 10, 2023.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended June 30, 2023

TABLE OF CONTENTS


		Page


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	1

	(a) Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	1

	(b) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022	2

	(c) Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the six months ended June 30, 2023 and 2022	3

	(d) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

Part II Other Information

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

Signatures		31

Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	As of
	June 30, 2023			December 31, 2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,361		$	2,021
Accounts receivable, net		5,573			375
Inventories, net		1,814			2,379
Prepaid expenses and other current assets		1,099			1,514
Total current assets		9,847			6,289
Property and equipment, net		68			75
Equity method investment		18,302			18,828
Right of use assets		2,585			2,799
Investment in convertible bond		19,210			19,971
Other assets		276			263
Total assets	$	50,288		$	48,225
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	15,200		$	13,549
Operating lease liabilities, current portion		775			703
Conversion feature derivative, notes payable		4,217			3,248
Other current liabilities		13,994			12,917
Warrant derivative liabilities		1,111			70
Notes payable, current portion, net of discount		8,462			6,814
Notes payable to related parties		2,482			2,367
Convertible notes payable, net of discount		14,306			14,655
Convertible notes payable to related parties, net of discount		1,000			—
Total current liabilities		61,547			54,323
Operating lease liabilities, less current portion		2,225			2,553
Other long-term liabilities		18,132			21,714
Notes payable, less current portion		—			380
Notes payable to related parties, net		3,416			3,346
Total liabilities		85,320			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, 53,637,554 and 49,583,501 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		54			50
Additional paid-in capital		222,415			220,815
Accumulated other comprehensive loss		(114	)		(2,619	)
Accumulated deficit		(257,387	)		(252,337	)
Total stockholders’ deficit		(35,032	)		(34,091	)
Total liabilities & stockholders’ deficit	$	50,288		$	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 INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
REVENUES, NET	$	10,759		$	4,287		$	17,512		$	7,521
COST OF GOODS SOLD		508			396			937			1,403
GROSS PROFIT		10,251			3,891			16,575			6,118
OPERATING EXPENSES
Research and development		320			298			609			764
Selling		2,531			1,952			4,848			3,412
General and administrative		4,074			3,081			8,957			6,450
Total operating expenses		6,925			5,331			14,414			10,626
INCOME (LOSS) FROM OPERATIONS		3,326			(1,440	)		2,161			(4,508	)
OTHER INCOME (EXPENSE)
Change in fair value of warrant derivative liabilities		459			542			445			1,290
Change in fair value of conversion feature derivative, notes payable		(1,058	)		(3,695	)		(969	)		(615	)
Realized loss on investment in convertible bond		(297	)		—			(297	)		(133	)
Net loss on equity method investment		(439	)		(493	)		(966	)		(1,059	)
Foreign exchange loss		(1,887	)		(2,470	)		(2,406	)		(3,661	)
Interest and other income		173			133			333			355
Interest expense		(1,793	)		(1,287	)		(3,295	)		(2,024	)
Total other expenses		(4,842	)		(7,270	)		(7,155	)		(5,847	)
LOSS BEFORE INCOME TAXES		(1,516	)		(8,710	)		(4,994	)		(10,355	)
Income tax provision (benefit)		(34	)		182			15			79
NET LOSS		(1,482	)		(8,892	)		(5,009	)		(10,434	)

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on debt securities available for sale (net of tax)		1,909			(4,415	)		1,365			(4,065	)
Reclassification adjustment for gain included in net income		403			—			403			7
Foreign currency translation adjustments		551			643			737			974
OTHER COMPREHENSIVE INCOME (LOSS)		2,863			(3,772	)		2,505			(3,084	)
COMPREHENSIVE INCOME (LOSS)	$	1,381		$	(12,664	)	$	(2,504	)	$	(13,518	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED	$	(0.03	)	$	(0.18	)	$	(0.10	)	$	(0.21	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		52,865,353			49,319,995			51,793,445			49,315,952

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
Share-based compensation		—		—		37		—			—			37
Unrealized loss 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		221,392		(2,977	)		(255,905	)		(37,439	)
Convertible notes converted to shares		2,702,702		3		997								1,000
Share-based compensation		—		—		26		—			—			26
Unrealized gain on debt securities available for sale (net of tax)		—		—		—		1,909			—			1,909
Reclassification adjustment for gain included in net income		—		—		—		403			—			403
Foreign currency translation effect		—		—		—		551			—			551
Net loss		—		—		—		—			(1,482	)		(1,482	)
Balance, June 30, 2023		53,637,554	$	54	$	222,415	$	(114	)	$	(257,387	)	$	(35,032	)


	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