emma-10q_20200930.htm

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, 2020


☐	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 49,311,864 shares of common stock, par value $0.001 per share, outstanding as of July 31, 2021.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended September 30, 2020

INDEX

		Page

Part I. Financial Information

Item 1.	Financial Statements	3

	(a)Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019	3

	(b)Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019 (Unaudited)	4

	(c)Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the nine months ended September 30, 2020 and 2019 (Unaudited)	5

	(d)Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited)	7

	(e)Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

Part II Other Information

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	34

Signatures		35

Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	As of
	September 30, 2020
	(Unaudited)			December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	4,949		$	1,769
Restricted cash		25,680			—
Accounts receivable, net		1,726			2,150
Inventories, net		7,422			7,971
Investment in marketable securities		—			27,929
Prepaid expenses and other current assets		1,117			1,402
Total current assets		40,894			41,221
Property and equipment, net		130			151
Equity method investment		14,484			13,325
Right of use assets		4,145			4,474
Deposits and other assets		291			285
Total assets	$	59,944		$	59,456
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	7,675		$	11,498
Operating lease liabilities, current portion		1,100			991
Other current liabilities		1,934			5,748
Revolving line of credit to related parties, net		800			600
Warrant derivative liabilities		794			38
Notes payable, current portion		4,452			3,749
Notes payable to related parties		816			193
Convertible debentures, net of discount		6,209			7,015
Convertible note payable, net of discount		—			2,995
Total current liabilities		23,780			32,827
Operating lease liabilities, less current portion		3,588			3,932
Other long-term liabilities		35,436			33,750
Notes payable, less current portion		355			—
Convertible note payable		3,150			—
Total long-term liabilities		42,529			37,682
Total liabilities		66,309			70,509
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, 48,987,189 shares and 48,471,446 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		49			48
Additional paid-in capital		218,484			215,207
Accumulated other comprehensive loss		(86	)		(79	)
Accumulated deficit		(224,812	)		(226,229	)
Total stockholders’ deficit		(6,365	)		(11,053	)
Total liabilities & stockholders’ deficit	$	59,944		$	59,456

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,
	2020			2019			2020			2019
REVENUES, NET	$	5,601		$	5,760		$	16,915		$	15,960
COST OF GOODS SOLD		484			248			1,408			771
GROSS PROFIT		5,117			5,512			15,507			15,189
OPERATING EXPENSES
Research and development		629			725			1,835			1,778
Selling		1,324			1,778			3,527			5,148
General and administrative		3,156			7,056			10,538			13,475
Total operating expenses		5,109			9,559			15,900			20,401
INCOME (LOSS) FROM OPERATIONS		8			(4,047	)		(393	)		(5,212	)
OTHER INCOME (EXPENSE)
Loss on debt extinguishment		—			(438	)		(1,425	)		(438	)
Change in fair value of warrant derivative liabilities		745			3,576			669			3,492
Change in fair value of embedded conversion option		45			131			51			131
Net gain (loss) on investment in marketable securities		6,464			(5,248	)		7,672			(22,242	)
Gain (loss) on equity method investment		(494	)		36			(1,474	)		(413	)
Miscellaneous reverse merger costs		—			(309	)		—			(309	)
Notes conversion costs		—			(3,341	)		—			(3,341	)
Interest and other income		718			18			1,318			248
Interest expense		(1,608	)		(8,714	)		(4,717	)		(25,153	)
Total other income (expense)		5,870			(14,289	)		2,094			(48,025	)
INCOME (LOSS) BEFORE INCOME TAXES		5,878			(18,336	)		1,701			(53,237	)
INCOME TAXES		293			56			80			159
NET INCOME (LOSS)		5,585			(18,392	)		1,621			(53,396	)

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments		(35	)		5			(7	)		18
Other comprehensive income (loss)		(35	)		5			(7	)		18
COMPREHENSIVE INCOME (LOSS)	$	5,550		$	(18,387	)	$	1,614		$	(53,378	)
NET INCOME (LOSS) PER COMMON SHARE - BASIC and DILUTED	$	0.11		$	(0.40	)	$	0.03		$	(1.32	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		48,987,189			46,004,942			48,866,724			40,469,601

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

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share amounts)

(Unaudited)

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital		Loss			Deficit			Deficit
Balance, January 1, 2020		48,471,446	$	48	$	215,207	$	(79	)	$	(226,229	)	$	(11,053	)
Common stock issued for cash (net of issuance cost)		515,743		1		141		—			—			142
Fair value of warrants including down-round protection adjustments		—		—		600		—			(200	)		400
Share-based compensation		—		—		209		—			—			209
Foreign currency translation effect		—		—		—		61			—			61
Net income		—		—		—		—			5,509			5,509
Balance, March 31, 2020		48,987,189		49		216,157		(18	)		(220,920	)		(4,732	)
Share-based compensation		—		—		219		—			—			219
Foreign currency translation effect		—		—		—		(33	)		—			(33	)
Net loss		—		—		—		—			(9,473	)		(9,473	)
Balance, June 30, 2020		48,987,189		49		216,376		(51	)		(230,393	)		(14,019	)
Fair value of warrants including down-round protection adjustments		—		—		1,987		—			(4	)		1,983
Share-based compensation		—		—		121		—			—			121
Foreign currency translation effect		—		—		—		(35	)		—			(35	)
Net income		—		—		—		—			5,585			5,585
Balance, September 30, 2020		48,987,189	$	49	$	218,484	$	(86	)	$	(224,812	)	$	(6,365	)

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

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share amounts)

(Unaudited)

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital		Loss			Deficit			Deficit
Balance, January 1, 2019		37,341,393	$	37	$	149,682	$	(69	)	$	(171,358	)	$	(21,708	)
Cumulative effect adjustment on adoption of ASC 842		—		—		—		—			(29	)		(29	)
Beneficial conversion feature relating to convertible notes		—		—		3,374		—			—			3,374
Exercise of warrants		525		—		5		—			—			5
Stock issued for cash		322,920		1		2,529		—			—			2,530
Conversion of notes payable to common stock		85,411		—		329		—			—			329
Share-based compensation		—		—		588		—			—			588
Exercise of common stock options		175		—		1		—			—			1
Foreign currency translation effect		—		—		—		7			—			7
Net loss		—		—		—		—			(17,408	)		(17,408	)
Balance, March 31, 2019