emma-10q_20220630.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 June 30, 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 49,558,501 shares of common stock, par value $0.001 per share, outstanding as of August 10, 2022.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended June 30, 2022

INDEX

		Page


Part I. Financial Information

Item 1.	Financial Statements	1

	(a)Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	1

	(b)Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021 (Unaudited)	2

	(c)Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and six months ended June 30, 2022 and 2021 (Unaudited)	3

	(d)Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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	24

Item 4.	Controls and Procedures	24

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
	June 30, 2022			December 31, 2021
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	982		$	2,279
Accounts receivable, net		1,235			1,040
Inventories, net		3,134			4,392
Prepaid expenses and other current assets		1,235			1,380
Total current assets		6,586			9,091
Property and equipment, net		85			147
Equity method investment		16,982			17,616
Right of use assets		3,085			3,485
Investment in convertible bond		18,990			26,100
Other assets		261			295
Total assets	$	45,989		$	56,734
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	10,718		$	9,189
Operating lease liabilities, current portion		718			740
Conversion feature derivative, notes payable		8,122			7,507
Other current liabilities		2,791			4,404
Revolving line of credit from related party		400			400
Warrant derivative liabilities		—			1,503
Notes payable, current portion, net of discount		6,394			2,399
Notes payable to related parties		2,871			800
Convertible notes payable, net of discount		14,062			10,158
Total current liabilities		46,076			37,100
Operating lease liabilities, less current portion		2,854			3,261
Other long-term liabilities		31,694			33,173
Notes payable, less current portion		—			1,500
Convertible notes payable		—			3,150
Total liabilities		80,624			78,184
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, 49,558,501 and 49,311,864 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		50			49
Additional paid-in capital		220,800			220,022
Accumulated other comprehensive loss		(3,339	)		(255	)
Accumulated deficit		(252,146	)		(241,266	)
Total stockholders’ deficit		(34,635	)		(21,450	)
Total liabilities & stockholders’ deficit	$	45,989		$	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 INCOME (LOSS)

(In thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
REVENUES, NET	$	4,287		$	6,489		$	7,521		$	11,824
COST OF GOODS SOLD		396			430			1,403			866
GROSS PROFIT		3,891			6,059			6,118			10,958
OPERATING EXPENSES
Research and development		298			753			764			2,562
Selling		1,952			1,453			3,412			2,736
General and administrative		3,081			3,370			6,450			6,792
Total operating expenses		5,331			5,576			10,626			12,090
INCOME (LOSS) FROM OPERATIONS		(1,440	)		483			(4,508	)		(1,132	)
OTHER INCOME (EXPENSE)
Loss on debt extinguishment		—			—			—			(1,172	)
Change in fair value of warrant derivative liabilities		542			338			1,290			(191	)
Change in fair value of conversion feature derivative, notes payable		(3,695	)		2,563			(615	)		225
Realized loss on investment in convertible bond		—			—			(133	)		—
Net loss on equity method investment		(493	)		(582	)		(1,059	)		(1,336	)
Foreign exchange loss		(2,470	)		(43	)		(3,661	)		(1,175	)
Interest and other income		133			191			355			381
Interest expense		(1,287	)		(653	)		(2,024	)		(1,707	)
Total other income (expense)		(7,270	)		1,814			(5,847	)		(4,975	)
INCOME (LOSS) BEFORE INCOME TAXES		(8,710	)		2,297			(10,355	)		(6,107	)
INCOME TAXES (BENEFIT)		182			(192	)		79			(174	)
NET INCOME (LOSS)		(8,892	)		2,489			(10,434	)		(5,933	)

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain on debt securities available for sale (net of tax)		(4,415	)		546			(4,065	)		604
Reclassification adjustment for loss included in net income		—			—			7			—
Foreign currency translation adjustments		643			(8	)		974			157
Other comprehensive income (loss)		(3,772	)		538			(3,084	)		761
COMPREHENSIVE INCOME (LOSS)	$	(12,664	)	$	3,027		$	(13,518	)	$	(5,172	)
EARNINGS (NET LOSS) PER COMMON SHARE - BASIC AND DILUTED	$	(0.18	)	$	0.05		$	(0.21	)	$	(0.12	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		49,319,995			49,311,864			49,315,952			49,193,474

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)			loss			deficit
Balance at 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 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	)
Reclassification of warrants from liability to equity		—		—		213		—			—			213
Fair value of warrants including down-round protection adjustments		—		—		446		—			(446	)		—
Common stock issued for services		246,637		1		109								110
Share-based compensation		—		—		5		—			—			5
Unrealized loss on debt securities available for sale (net of tax)		—		—		—		(4,415	)		—			(4,415	)
Foreign currency translation effect		—		—		—		643			—			643
Net income		—		—		—		—			(8,892	)		(8,892	)
Balance, June 30, 2022		49,558,501	$	50	$	220,800	$	(3,339	)	$	(252,146	)	$	(34,635	)

	Common stock				Additional paid-in		Accumulated other comprehensive			Accumulated			Total stockholders'
	Shares		Amount		capital		income (loss)			loss			deficit
Balance at 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 gain 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	)
Share-based compensation		—		—		274		—			—			274
Unrealized gain on debt securities available for sale (net of tax)		—		—		—		546			—			546
Foreign currency translation effect		—		—		—		(8	)		—			(8	)
Net income		—		—		—		—			2,489			2,489
Balance, June 30, 2021		49,311,864	$	49	$	219,924	$	1,905		$	(231,253	)	$	(9,375	)

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)

	Six Months Ended June 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(10,434	)	$	(5,933	)
Adjustments to reconcile net loss to net cash flows used in operating activities