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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

OR

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.

1

 


 

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.


2

 


 

 

 

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.

 

 

 

 


3

 


 

 

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.

4

 


 

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

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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

 

$