emma-10q_20220930.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, 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 November 10, 2022.

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended September 30, 2022

INDEX

		Page


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	1

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

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

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

	(d)Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	5

	(e)Notes to Condensed Consolidated Financial Statements	6

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	28

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
	September 30, 2022			December 31, 2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,179		$	2,279
Accounts receivable, net		1,491			1,040
Inventories, net		2,739			4,392
Prepaid expenses and other current assets		973			1,380
Total current assets		6,382			9,091
Property and equipment, net		79			147
Equity method investment		16,594			17,616
Right of use assets		2,944			3,485
Investment in convertible bond		15,943			26,100
Other assets		259			295
Total assets	$	42,201		$	56,734
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	11,134		$	9,189
Operating lease liabilities, current portion		653			740
Conversion feature derivative, notes payable		4,272			7,507
Other current liabilities		2,270			4,404
Revolving line of credit from related party		400			400
Warrant derivative liabilities		33			1,503
Notes payable, current portion, net of discount		5,635			2,399
Notes payable to related parties		2,780			800
Convertible notes payable, net of discount		14,346			10,158
Total current liabilities		41,523			37,100
Operating lease liabilities, less current portion		2,764			3,261
Other long-term liabilities		32,122			33,173
Notes payable, less current portion		—			1,500
Notes payable to related parties, net		3,381			—
Convertible notes payable		—			3,150
Total liabilities		79,790			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 September 30, 2022 and December 31, 2021, respectively		50			49
Additional paid-in capital		220,803			220,022
Accumulated other comprehensive loss		(5,905	)		(255	)
Accumulated deficit		(252,537	)		(241,266	)
Total stockholders’ deficit		(37,589	)		(21,450	)
Total liabilities & stockholders’ deficit	$	42,201		$	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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
REVENUES, NET	$	4,939		$	5,766		$	12,460		$	17,590
COST OF GOODS SOLD		540			445			1,943			1,311
GROSS PROFIT		4,399			5,321			10,517			16,279
OPERATING EXPENSES
Research and development		432			470			1,196			3,032
Selling		1,664			1,518			5,076			4,254
General and administrative		2,963			3,364			9,413			10,156
Total operating expenses		5,059			5,352			15,685			17,442
LOSS FROM OPERATIONS		(660	)		(31	)		(5,168	)		(1,163	)
OTHER INCOME (EXPENSE)
Loss on debt extinguishment		(421	)		—			(421	)		(1,172	)
Change in fair value of warrant derivative liabilities		51			(131	)		1,341			(322	)
Change in fair value of conversion feature derivative, notes payable		3,850			(1,357	)		3,235			(1,132	)
Realized loss on investment in convertible bond		—			—			(133	)		—
Net loss on equity method investment		(431	)		(663	)		(1,490	)		(1,999	)
Foreign exchange loss		(1,470	)		(246	)		(5,131	)		(1,421	)
Interest and other income		175			192			530			573
Interest expense		(1,520	)		(683	)		(3,544	)		(2,390	)
Total other income (expense)		234			(2,888	)		(5,613	)		(7,863	)
LOSS BEFORE INCOME TAXES		(426	)		(2,919	)		(10,781	)		(9,026	)
Income tax provision (benefit)		(35	)		232			44			58
NET LOSS		(391	)		(3,151	)		(10,825	)		(9,084	)

COMPONENTS OF OTHER COMPREHENSIVE LOSS
Unrealized loss on debt securities available for sale (net of tax)		(3,047	)		(2,754	)		(7,112	)		(2,150	)
Reclassification adjustment for loss included in net income		—			—			7			—
Foreign currency translation adjustments		481			86			1,455			243
Other comprehensive loss		(2,566	)		(2,668	)		(5,650	)		(1,907	)
COMPREHENSIVE LOSS	$	(2,957	)	$	(5,819	)	$	(16,475	)	$	(10,991	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED	$	(0.01	)	$	(0.06	)	$	(0.22	)	$	(0.18	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		49,558,501			49,311,864			49,397,690			49,233,371

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 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 loss		—		—		—		—			(8,892	)		(8,892	)
Balance, June 30, 2022		49,558,501	$	50	$	220,800	$	(3,339	)	$	(252,146	)	$	(34,635	)
Share-based compensation		—		—		3		—			—			3
Unrealized loss on debt securities available for sale (net of tax)		—		—		—		(3,047	)		—			(3,047	)
Foreign currency translation effect		—		—		—		481			—			481
Net loss		—		—		—		—			(391	)		(391	)
Balance, September 30, 2022	$	49,558,501	$	50	$	220,803	$	(5,905	)	$	(252,537	)	$	(37,589	)

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 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