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 September 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 November 10, 2023.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended September 30, 2023

TABLE OF CONTENTS


		Page


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	1

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

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

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

	(d) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	5

	(e) Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

Part II Other Information

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

Signatures		33

Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	As of
	September 30, 2023			December 31, 2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,505		$	2,021
Accounts receivable, net		4,587			375
Inventories, net		1,650			2,379
Prepaid expenses and other current assets		1,515			1,514
Total current assets		9,257			6,289
Property and equipment, net		60			75
Equity method investment		17,737			18,828
Right of use assets		2,510			2,799
Investment in convertible bond		17,596			19,971
Other assets		293			263
Total assets	$	47,453		$	48,225
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	16,285		$	13,549
Operating lease liabilities, current portion		831			703
Conversion feature derivative, notes payable		1,251			3,248
Other current liabilities		14,400			12,917
Warrant derivative liabilities		522			70
Notes payable, current portion, net of discount		8,488			6,814
Notes payable to related parties		2,422			2,367
Convertible notes payable, net of discount		15,819			14,655
Convertible notes payable to related parties, net of discount		899			—
Total current liabilities		60,917			54,323
Operating lease liabilities, less current portion		2,070			2,553
Other long-term liabilities		17,240			21,714
Notes payable, less current portion, net of discount		156			380
Notes payable to related parties, net of discount		3,400			3,346
Total liabilities		83,783			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 September 30, 2023 and December 31, 2022, respectively		54			50
Additional paid-in capital		222,439			220,815
Accumulated other comprehensive loss		(1,503	)		(2,619	)
Accumulated deficit		(257,320	)		(252,337	)
Total stockholders’ deficit		(36,330	)		(34,091	)
Total liabilities & stockholders’ deficit	$	47,453		$	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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
REVENUES, NET	$	5,018		$	4,939		$	22,530		$	12,460
COST OF GOODS SOLD		214			540			1,151			1,943
GROSS PROFIT		4,804			4,399			21,379			10,517
OPERATING EXPENSES
Research and development		414			432			1,023			1,196
Selling		1,497			1,664			6,345			5,076
General and administrative		2,869			2,963			11,826			9,413
Total operating expenses		4,780			5,059			19,194			15,685
INCOME (LOSS) FROM OPERATIONS		24			(660	)		2,185			(5,168	)
OTHER INCOME (EXPENSE)
Loss on debt extinguishment		(647	)		(421	)		(647	)		(421	)
Change in fair value of warrant derivative liabilities		589			51			1,034			1,341
Change in fair value of conversion feature derivative, notes payable		3,069			3,850			2,100			3,235
Realized loss on investment in convertible bond		—			—			(297	)		(133	)
Net loss on equity method investment		(381	)		(431	)		(1,347	)		(1,490	)
Foreign exchange loss		(821	)		(1,470	)		(3,227	)		(5,131	)
Interest and other income		181			175			514			530
Interest expense		(1,909	)		(1,520	)		(5,204	)		(3,544	)
Total other income (expenses)		81			234			(7,074	)		(5,613	)
INCOME (LOSS) BEFORE INCOME TAXES		105			(426	)		(4,889	)		(10,781	)
Income tax provision (benefit)		38			(35	)		53			44
NET INCOME (LOSS)		67			(391	)		(4,942	)		(10,825	)

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized loss on debt securities available for sale (net of tax)		(1,614	)		(3,047	)		(249	)		(7,112	)
Reclassification adjustment for gain included in net income		—			—			403			7
Foreign currency translation adjustments		225			481			962			1,455
OTHER COMPREHENSIVE INCOME (LOSS)		(1,389	)		(2,566	)		1,116			(5,650	)
COMPREHENSIVE LOSS	$	(1,322	)	$	(2,957	)	$	(3,826	)	$	(16,475	)
NET INCOME (LOSS) PER COMMON SHARE - BASIC	$	0.00		$	(0.01	)	$	(0.09	)	$	(0.22	)
NET LOSS PER COMMON SHARE - DILUTED	$	(0.01	)	$	(0.01	)	$	(0.09	)	$	(0.22	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING -BASIC		53,637,554			49,558,501			52,414,903			49,397,690
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED		138,375,065			49,558,501			52,414,903			49,397,690

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	)
Share-based compensation		—		—		24		—			—			24
Unrealized loss on debt securities available for sale (net of tax)		—		—		—		(1,614	)		—			(1,614	)
Foreign currency translation effect		—		—		—		225			—			225
Net income		—		—		—		—			67			67
Balance, September 30, 2023		53,637,554	$	54	$	222,439	$	(1,503	)	$	(257,320	)	$	(36,330	)

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, 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		—		—		—		—			(