emma-10q_20220331.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 March 31, 2022


☐	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 May 10, 2022.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended March 31, 2022

INDEX

		Page


Part I. Financial Information

Item 1.	Financial Statements	1

	(a)Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021	1

	(b)Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021 (Unaudited)	2

	(c)Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2022 and 2021 (Unaudited)	3

	(d)Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (Unaudited)	4

	(e)Notes to Condensed Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

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	26

Item 4.	Mine Safety Disclosures	26

Item 5.	Other Information	26

Item 6.	Exhibits	28

Signatures		29

Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	As of
	March 31, 2022 (Unaudited)			December 31, 2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	813		$	2,279
Accounts receivable, net		938			1,040
Inventories, net		3,453			4,392
Prepaid expenses and other current assets		1,244			1,380
Total current assets		6,448			9,091
Property and equipment, net		138			147
Equity method investment		17,771			17,616
Right of use assets		3,318			3,485
Investment in convertible bond		23,521			26,100
Other assets		297			295
Total assets	$	51,493		$	56,734
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	9,718		$	9,189
Operating lease liabilities, current portion		738			740
Conversion feature derivative, notes payable		4,427			7,507
Other current liabilities		2,822			4,404
Revolving line of credit from related party		400			400
Warrant derivative liabilities		755			1,503
Notes payable, current portion		2,286			2,399
Notes payable to related parties		2,836			800
Convertible notes payable, net of discount		10,569			10,158
Total current liabilities		34,551			37,100
Operating lease liabilities, less current portion		3,084			3,261
Other long-term liabilities		31,507			33,173
Notes payable, less current portion		1,500			1,500
Convertible notes payable		3,150			3,150
Total liabilities		73,792			78,184
STOCKHOLDERS’ DEFICIT
Preferred stock — par value $0.001 per share, 15,000,000 shares authorized, none issued and outstanding		—			—
Common stock — par value $0.001 per share, 250,000,000 shares authorized, shares 49,311,864 shares issued and outstanding as of March 31, 2022 and December 31, 2021		49			49
Additional paid-in capital		220,027			220,022
Accumulated other comprehensive income (loss)		433			(255	)
Accumulated deficit		(242,808	)		(241,266	)
Total stockholders’ deficit		(22,299	)		(21,450	)
Total liabilities & stockholders’ deficit	$	51,493		$	56,734

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,
	2022			2021
REVENUES, NET	$	3,234		$	5,335
COST OF GOODS SOLD		1,007			436
GROSS PROFIT		2,227			4,899
OPERATING EXPENSES
Research and development		466			1,809
Selling		1,460			1,283
General and administrative		3,369			3,422
Total operating expenses		5,295			6,514
LOSS FROM OPERATIONS		(3,068	)		(1,615	)
OTHER INCOME (EXPENSE)
Loss on debt extinguishment, net		—			(1,172	)
Change in fair value of warrant derivative liabilities		748			(529	)
Change in fair value of conversion feature derivative, notes payable		3,080			(2,338	)
Realized loss on investment on convertible bond		(133	)		—
Net loss on equity method investment		(566	)		(754	)
Foreign exchange loss		(1,191	)		(1,132	)
Interest and other income		222			190
Interest expense		(737	)		(1,054	)
Total other income (expense)		1,423			(6,789	)
LOSS BEFORE INCOME TAXES		(1,645	)		(8,404	)
INCOME TAXES (BENEFIT)		(103	)		18
NET LOSS		(1,542	)		(8,422	)

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain on debt securities available for sale (net of tax)		350			58
Reclassification adjustment for loss included in net income		7			—
Foreign currency translation adjustments		331			165
Other comprehensive income		688			223
COMPREHENSIVE LOSS	$	(854	)	$	(8,199	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED	$	(0.03	)	$	(0.17	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		49,311,864			49,073,769

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			Deficit			Deficit
Balance January 1, 2022		49,311,864	$	49	$	220,022	$	(255	)	$	(241,266	)	$	(21,450	)
Share-based compensation		—		—		5		—			—			5
Unrealized loss on debt securities available for sale (net of tax)		—		—		—		350			—			350
Reclassification adjustment for loss 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	)

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive		Accumulated			Total Stockholders'
	Shares		Amount		Capital		Income		Deficit			Deficit
Balance January 1, 2021		48,987,189	$	49	$	218,728	$	1,144	$	(225,079	)	$	(5,158	)
Fair value of warrants including down-round protection adjustments		—		—		241		—		(241	)		—
Common stock issued for services		324,675		—		500		—		—			500
Share-based compensation		—		—		181		—		—			181
Unrealized loss on debt securities available for sale (net of tax)		—		—		—		58		—			58
Foreign currency translation effect		—		—		—		165		—			165
Net loss		—		—		—		—		(8,422	)		(8,422	)
Balance March 31, 2021		49,311,864	$	49	$	219,650	$	1,367	$	(233,742	)	$	(12,676	)

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,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,542	)	$	(8,422	)
Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization		15			15
Inventory reserve		794			162
Amortization of discount of notes payable and convertible notes payable		411			669
Foreign exchange adjustments		1,205			1,180
Tax benefit recognized on unrealized gain on debt securities		(117	)		(19	)
Realized loss on investment on convertible bond		133			—
Net loss on equity method investment		566			754
Net loss on debt extinguishment		—			1,172
Gain on disposal of property and equipment		—			(1	)
Share-based compensation		5			181
Shares issued for services		—			500
Change in fair value of warrant derivative liabilities		(748	)		529
Change in fair value of conversion feature derivative, note payable		(3,080	)		2,338
Net changes in operating assets and liabilities
Accounts receivable		102			(2,176	)
Inventories		143			180
Prepaid expenses and other current assets		103			158
Other non-current assets		160			122
Income tax receivable and payable		10			33
Accounts payable and accrued expenses		530			(1,295	)
Other current liabilities		(2,980	)		42
Other long-term liabilities		(443	)		(123	)
Net cash flows used in operating activities		(4,733	)		(4,001	)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of convertible bond		2,919			—
Purchases of property and equipment		(2	)		—
Loan to equity method investee		(1,690	)		(1,769	)
Net cash flows provided by (used in) investing activities		1,227			(1,769	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable issued		2,056			700
Proceeds from convertible notes payable issued		—			14,390
Payments of notes payable		—			(844	)
Payments of convertible notes		—			(7,200	)
Net cash flows provided by financing activities		2,056			7,046
Effect of exchange rate changes on cash		(16	)		(4	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(1,466	)		1,272
Cash, cash equivalents and restricted cash, beginning of period		2,279			2,487
Cash, cash equivalents and restricted cash, end of period	$	813		$	3,759
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Interest paid	$	212		$	319
Income taxes paid	$	4		$	5
NON-CASH INVESTMENT AND FINANCING ACTIVITIES
Debt discount due to conversion features derivative	$	—		$	5,555

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

EMMAUS LIFE SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements of Emmaus Life Sciences, Inc., (“Emmaus”) and its direct and indirect consolidated subsidiaries (collectively, “we,” “our,” “us” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) on the basis that the Company will continue as a going concern. All significant intercompany transactions have been eliminated. The Company’s unaudited condensed consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to fairly state the Company’s consolidated financial position, results of operations and cash flows. Due to the uncertainty of the Company’s ability to meet its current operating and capital expenses, there is substantial doubt about the Company’s ability to continue as a going concern, as the continuation and expansion of its business is dependent upon obtaining further financing, market acceptance of Endari®, and achieving a profitable level of revenues. The consolidated interim financial statements do not include any adjustments that might result from the outcome of these uncertainties. The condensed consolidated interim financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 31, 2022. The accompanying condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated balance sheet at December 31, 2021 contained in the Annual Report. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full year or any future interim period.

Nature of Operations

The Company is a commercial-stage biopharmaceutical company engaged in the discovery, development, marketing and sale of innovative treatments and therapies, primarily for rare and orphan diseases. The Company’s lead product, Endari® (prescription grade L-glutamine oral powder), is approved by the U.S. Food and Drug Administration, or FDA, to reduce the acute complications of sickle cell disease (“SCD”) in adult and pediatric patients five years of age and older.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10K for the year ended December 31, 2021. There have been no material changes in these policies or their application.

Going concern— The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. The Company incurred a net loss of $1.5 million for the three months ended March 31, 2022, and had a working capital deficit of $28.1 million. Management expects that the Company’s current liabilities, operating losses and expected capital needs, including the expected costs relating to the commercialization of Endari® in the Middle East North Africa region and elsewhere, will exceed its existing cash balances and cash expected to be generated from operations for the foreseeable future. In order to meet the Company’s current liabilities and future obligations, the Company will need to raise additional funds through related-party loans, equity and debt financings or licensing or other strategic agreements. The Company has no understanding or arrangement for any additional financing, and there can be no assurance that the Company will be able to complete any additional equity or debt financings on favorable terms, or at all, or enter into licensing or other strategic arrangements. Due to the uncertainty of the Company’s ability to meet its current operating and capital expenses, there is substantial doubt about the Company’s ability to continue as a going concern for 12 months from the date of this filing. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Management has considered all recent accounting pronouncements and has determined that there are no recent accounting pronouncements that are expected to have a material effect on the Company’s condensed consolidated financial statements.

Factoring accounts receivable — Emmaus Medical, Inc., or Emmaus Medical, an indirect wholly owned subsidiary of Emmaus, is party to a purchase and sales agreement with Prestige Capital Finance, LLC or Prestige Capital, pursuant to which Emmaus Medical may offer and sell to Prestige Capital from time to time eligible accounts receivable in exchange for Prestige Capital’s down payment, or advance, to Emmaus Medical of 75% of the face amount of the accounts receivable, subject to a $7.5 million cap on advances at any time. The balance of the face amount of the accounts receivable will be reserved by Prestige Capital and paid to Emmaus Medical, less fees of Prestige Capital ranging from 2.25% to 7.25% of the face amount, as and when Prestige Capital collects the entire face amount of the accounts receivable. Emmaus Medical’s obligations to Prestige Capital under the

purchase and sale agreement are secured by a security interest in the accounts receivable and all or substantially all other assets of Emmaus Medical. In connection with the purchase and sale agreement, Emmaus has guaranteed Emmaus Medical’s obligations under the purchase and sale agreement. At March 31, 2022, accounts receivable included no factoring accounts receivable and there were no liabilities related to factoring reflected in other current liabilities. For three months ended March 31, 2022 and March 31, 2021, the Company incurred approximately $53,000, and $31,000, respectively, of factoring fees.

Net loss per share — In accordance with Accounting Standard Codification (“ASC”) 260, “Earnings per Share,” the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted net loss per share is computed in a manner similar to basic net loss per common share except that the denominator is increased to include the number of additional common shares issuable under securities exercisable for or convertible into common shares had been issued if the additional common shares would be dilutive. As of March 31, 2022 and March 31, 2021, the Company had outstanding potentially dilutive securities exercisable for or convertible into 23,261,199 shares and 24,515,738 shares, respectively, of common stock. No potentially dilutive securities were included in the calculation of diluted net loss per share since the potential dilutive securities were anti-dilutive for each of the three months ended March 31, 2022 and 2021.

NOTE 3 — REVENUES, NET

Revenues, net disaggregated by category, were as follows (in thousands):

	Three Months Ended March 31,
	2022		2021
Endari®	$	3,048	$	5,176
Other		186	$	159
Revenues, net	$	3,234	$	5,335

The following table summarizes the revenue allowance and accrual activities for the three months ended March 31, 2022 and March 31, 2021 (in thousands):

	Trade Discounts, Allowances and Chargebacks			Government Rebates and Other Incentives			Returns			Total
Balance as of December 31, 2021	$	1,480		$	3,134		$	540		$	5,154
Provision related to sales in the current year		428			435			30			893
Adjustments related prior period sales		(10	)		13			(47	)		(44	)
Credit and payments made		(1,064	)		(453	)		(32	)		(1,549	)
Balance as of March 31, 2022	$	834		$	3,129		$	491		$	4,454

Balance as of December 31, 2020	$	134		$	2,119		$	473		$	2,726
Provision related to sales in the current year		575			864			57			1,496
Adjustments related prior period sales		14			2			(37	)		(21	)