Company Quick10K Filing
Emmaus Life Sciences
Price3.57 EPS-1
Shares36 P/E-3
MCap128 P/FCF-44
Net Debt37 EBIT-29
TEV165 TEV/EBIT-6
TTM 2019-03-31, in MM, except price, ratios
10-Q 2019-03-31 Filed 2019-05-14
10-K 2018-12-31 Filed 2019-03-21
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-04-16
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-21
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-03-31
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-19
10-Q 2016-03-31 Filed 2016-06-06
10-K 2015-12-31 Filed 2016-05-20
10-K 2015-09-30 Filed 2016-05-20
10-Q 2015-06-30 Filed 2016-05-20
10-Q 2015-03-31 Filed 2015-05-20
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-20
10-K 2013-12-31 Filed 2014-05-08
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-14
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-04-30 Filed 2011-05-13
10-Q 2011-01-31 Filed 2011-03-11
10-K 2010-10-31 Filed 2011-01-31
10-Q 2010-07-31 Filed 2010-09-14
10-Q 2010-04-30 Filed 2010-06-14
10-Q 2010-01-31 Filed 2010-03-17
10-K 2009-10-31 Filed 2010-01-29
8-K 2019-07-09
8-K 2019-07-08
8-K 2019-07-03
8-K 2019-06-12
8-K 2019-05-29
8-K 2019-03-05
8-K 2019-01-04
8-K 2018-12-19
8-K 2018-10-09
8-K 2018-09-27
8-K 2018-09-13
8-K 2018-07-16
8-K 2018-06-13
8-K 2018-03-29
8-K 2018-01-30
8-K 2017-12-29

EMMA 10Q Quarterly Report

Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Revenues
Note 4 - Property and Equipment
Note 5 - Investments
Note 6 - Accounts Payable and Accrued Expenses
Note 7 - Notes Payable
Note 8 - Stockholders' Deficit
Note 9 - Leases
Note 10 - Commitments and Contingencies
Note 11 - Related Party Transactions
Note 12 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-2.2 emma-ex22_340.htm
EX-4.3 emma-ex43_39.htm
EX-4.4 emma-ex44_38.htm
EX-4.5 emma-ex45_37.htm
EX-4.6 emma-ex46_36.htm
EX-10.6 emma-ex106_35.htm
EX-31.1 emma-ex311_8.htm
EX-31.2 emma-ex312_7.htm
EX-32.1 emma-ex321_10.htm

Emmaus Life Sciences Earnings 2019-03-31

Balance SheetIncome StatementCash Flow
125885114-23-602012201420172020
Assets, Equity
152-11-24-37-502012201420172020
Rev, G Profit, Net Income
30174-9-22-352012201420172020
Ops, Inv, Fin

10-Q 1 emma-10q_20190331.htm 10-Q emma-10q_20190331.htm

i

 

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, 2019

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.:  000-53072

 

EMMAUS LIFE SCIENCES, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

41-2254389

(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)

 

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 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Not applicable.

 

 

The registrant had 36,051,394 shares of common stock, par value $0.001 per share, outstanding as of May 10, 2019.

 

 

 


 

EMMAUS LIFE SCIENCES, INC.

FORM 10-Q

For the Quarterly Period Ended March 31, 2019

INDEX

 

 

 

Page

Part I Financial Information

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

(a)Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018

3

 

 

 

 

(b)Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2019 and 2018 (Unaudited)

4

 

 

 

 

(c)Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (Unaudited)

5

 

 

 

 

(d)Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (Unaudited)

6

 

 

 

 

(e)Notes to Consolidated Financial Statements as of and for the three months ended March 31, 2019 (Unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

 

 

 

Item 4.

Controls and Procedures

31

 

 

 

Part II Other Information

 

 

 

 

Item 1.

Legal Proceedings

34

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

35

 

 

 

Item 5.

Other Information

35

 

 

 

Item 6.

Exhibits

36

 

 

 

Signatures

38

 

 


 

Item 1. Financial Statements

 

EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED BALANCE SHEET

(In thousands, except share and per share amounts)

 

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents ($13,071 and $13,175 attributable to the VIE)

 

$

15,310

 

 

$

17,080

 

Accounts receivable, net

 

 

1,760

 

 

 

1,351

 

Inventories, net

 

 

5,795

 

 

 

4,705

 

Investment in marketable securities

 

 

42,873

 

 

 

49,343

 

Marketable securities, pledged to creditor

 

 

251

 

 

 

238

 

Prepaid expenses and other current assets ($271 and $273 attributable to the VIE)

 

 

818

 

 

 

743

 

Total current assets

 

 

66,807

 

 

 

73,460

 

PROPERTY AND EQUIPMENT, NET

 

 

153

 

 

 

152

 

OTHER ASSETS

 

 

 

 

 

 

 

 

Long-term investment at cost

 

 

527

 

 

 

538

 

Intangibles, net

 

 

50

 

 

 

54

 

Right of use assets

 

 

2,838

 

 

 

 

Deposits and other assets

 

 

360

 

 

 

352

 

Total other assets

 

 

3,775

 

 

 

944

 

Total assets

 

$

70,735

 

 

$

74,556

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

11,068

 

 

$

9,122

 

Deferred rent

 

 

 

 

 

19

 

Operating lease liabilities

 

 

682

 

 

 

 

Other current liabilities

 

 

5,217

 

 

 

5,181

 

Notes payable, net

 

 

7,000

 

 

 

6,394

 

Notes payable to related parties, net

 

 

470

 

 

 

468

 

Convertible notes payable, net

 

 

15,157

 

 

 

11,253

 

Convertible notes payable to related parties, net

 

 

13,896

 

 

 

5,089

 

Total current liabilities

 

 

53,490

 

 

 

37,526

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

Deferred rent

 

 

 

 

 

268

 

Operating lease liabilities

 

 

2,478

 

 

 

 

Other long-term liabilities

 

 

35,637

 

 

 

36,222

 

Warrant derivative liabilities

 

 

1,447

 

 

 

1,399

 

Notes payable, net

 

 

1,922

 

 

 

1,021

 

Convertible notes payable, net

 

 

389

 

 

 

5,485

 

Convertible notes payable to related parties, net

 

 

 

 

 

8,529

 

Total long-term liabilities

 

 

41,873

 

 

 

52,924

 

Total liabilities

 

 

95,363

 

 

 

90,450

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Preferred stock — par value $0.001 per share, 20,000,000 shares authorized, none issued and outstanding

 

 

 

 

 

 

Common stock — par value $0.001 per share, 100,000,000 shares authorized, 35,947,804 shares and 35,558,305 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

36

 

 

 

36

 

Additional paid-in capital

 

 

146,344

 

 

 

140,904

 

Accumulated other comprehensive income (loss)

 

 

(62

)

 

 

(69

)

Accumulated deficit

 

 

(170,864

)

 

 

(156,668

)

Total stockholders’ deficit

 

 

(24,546

)

 

 

(15,797

)

Noncontrolling interests

 

 

(82

)

 

 

(97

)

Total liabilities & stockholders’ deficit

 

$

70,735

 

 

$

74,556

 

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

3


 

EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except share and per share amounts) (Unaudited)

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

 

 

 

 

 

 

 

 

REVENUES, NET

 

$

5,307

 

 

$

781

 

COST OF GOODS SOLD

 

 

200

 

 

 

134

 

GROSS PROFIT

 

 

5,107

 

 

 

647

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Research and development

 

 

513

 

 

 

411

 

Selling

 

 

1,485

 

 

 

870

 

General and administrative

 

 

3,681

 

 

 

3,807

 

  Total operating expenses

 

 

5,679

 

 

 

5,088

 

LOSS FROM OPERATIONS

 

 

(572

)

 

 

(4,441

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

 

 

 

 

(3,245

)

Change in fair value of warrant derivative liabilities

 

 

(48

)

 

 

840

 

Change in fair value of embedded conversion option

 

 

 

 

 

466

 

Net gains (losses) on equity investment in marketable securities

 

 

(6,457

)

 

 

5,535

 

Interest and other income (loss)

 

 

(111

)

 

 

46

 

Interest expense

 

 

(6,965

)

 

 

(5,298

)

  Total other income (expenses)

 

 

(13,581

)

 

 

(1,656

)

LOSS BEFORE INCOME TAXES

 

 

(14,153

)

 

 

(6,097

)

INCOME TAXES

 

 

 

 

 

 

NET LOSS INCLUDING NONCONTROLLING INTERESTS

 

 

(14,153

)

 

 

(6,097

)

     Net (income) loss attributable to noncontrolling interests

 

 

(14

)

 

 

 

NET LOSS ATTRIBUTABLE TO THE COMPANY

 

 

(14,167

)

 

 

(6,097

)

 

 

 

 

 

 

 

 

 

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

8

 

 

 

14

 

Other comprehensive income (loss)

 

 

8

 

 

 

14

 

COMPREHENSIVE INCOME (LOSS)

 

 

(14,145

)

 

 

(6,083

)

Amounts attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

Net (income) loss attributable to noncontrolling interest

 

 

(14

)

 

 

 

Foreign currency translation adjustments

 

 

(1

)

 

 

 

Comprehensive (income) loss attributable to noncontrolling interest

 

 

(15

)

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY

 

$

(14,160

)

 

$

(6,083

)

NET LOSS PER COMMON SHARE

 

$

(0.40

)

 

$

(0.17

)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

 

 

35,684,038

 

 

 

34,891,450

 

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


 

4


 

EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2019 and 2018

(In thousands, except share and per share amounts) (Unaudited)

 

 

 

Common stock – par value $0.001 per share, 100,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares authorized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Treasury Stock, at cost

 

 

Accumulated Deficit

 

 

Total Emmaus Stockholders' Equity / (Deficit)

 

Non-controlling Interests

 

Total Equity / (Deficit)

 

Balance at January 1, 2018

 

 

34,885,506

 

 

$

35

 

 

$

113,112

 

 

$

41,276

 

 

$

 

 

$

(140,132

)

 

$

14,291

 

$

 

$

14,291

 

Cumulative effect adjustment on adoption of ASU 2016-01

 

 

 

 

 

 

 

 

 

 

 

(41,362

)

 

 

 

 

 

41,362

 

 

 

 

 

 

 

 

Beneficial conversion feature relating to convertible and promissory notes payable

 

 

 

 

 

 

 

 

3,638

 

 

 

 

 

 

 

 

 

 

 

 

3,638

 

 

 

 

3,638

 

Stock issued for cash

 

 

25,000

 

 

 

 

 

 

275

 

 

 

 

 

 

 

 

 

 

 

 

275

 

 

 

 

 

275

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,314

)

 

 

 

 

 

(1,314

)

 

 

 

 

(1,314

)

Share-based compensation

 

 

 

 

 

 

 

 

710

 

 

 

 

 

 

 

 

 

 

 

 

710

 

 

 

 

710

 

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

 

 

 

14

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,097

)

 

 

(6,097

)

 

 

 

(6,097

)

Balance at March 31, 2018

 

 

34,910,506

 

 

$

35

 

 

$

117,735

 

 

$

(72

)

 

$

(1,314

)

 

$

(104,867

)

 

$

11,517

 

$

 

$

11,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

 

35,558,305

 

 

$

36

 

 

$

140,904

 

 

$

(69

)

 

$

 

 

$

(156,668

)

 

$

(15,797

)

$

(97

)

$

(15,894

)

Cumulative effect adjustment on adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29

)

 

 

(29

)

 

 

 

(29

)

Beneficial conversion feature relating to convertible and promissory notes payable

 

 

 

 

 

 

 

 

2,039

 

 

 

 

 

 

 

 

 

 

 

 

2,039

 

 

 

 

2,039

 

Exercise of warrants

 

 

500

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

5

 

Stock issued for cash

 

 

307,500

 

 

 

 

 

 

2,530

 

 

 

 

 

 

 

 

 

 

 

 

2,530

 

 

 

 

 

2,530

 

Conversion of notes payable to common stock

 

 

81,332

 

 

 

 

 

 

329

 

 

 

 

 

 

 

 

 

 

 

 

329

 

 

 

 

329

 

Share-based compensation

 

 

 

 

 

 

 

 

536

 

 

 

 

 

 

 

 

 

 

 

 

536

 

 

 

 

536

 

Exercise of common stock options

 

 

167

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

1

 

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

 

1

 

 

8

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,167

)

 

 

(14,167

)

 

14

 

 

(14,153

)

Balance, March 31, 2019

 

 

35,947,804

 

 

$

36

 

 

$

146,344

 

 

$

(62

)

 

$

 

 

$

(170,864

)

 

$

(24,546

)

$

(82

)

$

(24,628

)

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

 

5


 

EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Three months ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net loss

 

$

(14,153

)

 

$

(6,097

)

Adjustments to reconcile net loss to net cash flows from operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17

 

 

 

13

 

Cost of scrapped inventory written off

 

 

 

 

 

8

 

Amortization of discount of convertible notes

 

 

5,641

 

 

 

4,192

 

Foreign exchange adjustments on convertible notes and notes payable

 

 

(19

)

 

 

135

 

Net losses (gains) on equity investment in marketable securities

 

 

6,457

 

 

 

(5,535

)

Loss on debt settlement

 

 

 

 

 

3,245

 

Share-based compensation

 

 

536

 

 

 

710

 

Change in fair value of warrant derivative liabilities

 

 

48

 

 

 

(840

)

Change in fair value of embedded conversion option

 

 

 

 

 

(466

)

Net changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(409

)

 

 

(658

)

Inventories

 

 

(1,091

)

 

 

(388

)

Prepaid expenses and other current assets

 

 

(83

)

 

 

94

 

Other non-current assets

 

 

(2,813

)

 

 

(84

)

Accounts payable and accrued expenses

 

 

2,339

 

 

 

(539

)

Deferred revenue

 

 

500

 

 

 

596

 

Deferred rent

 

 

(287

)

 

 

(41

)

Other current liabilities

 

 

36

 

 

 

40

 

Other long-term liabilities

 

 

1,997

 

 

 

5,000

 

Net cash flows used in operating activities

 

 

(1,284

)

 

 

(615

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(16

)

 

 

(15

)

Purchase of marketable securities and investment at cost

 

 

 

 

 

(469

)

Net cash flows used in investing activities

 

 

(16

)

 

 

(484

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repurchase of common stock and warrants

 

 

 

 

 

(7,500

)

Proceeds from convertible notes payable issued, net of issuance cost and discount

 

 

 

 

 

14,395

 

Payments of notes payable

 

 

 

 

 

(3,500

)

Payments of convertible notes

 

 

(3,048

)

 

 

(20,000

)

Proceeds from exercise of warrants

 

 

5

 

 

 

 

Proceeds from issuance of common stock

 

 

2,530

 

 

 

275

 

Proceeds from conversion of notes payable to common stock

 

 

21

 

 

 

 

Net cash flows used in financing activities

 

 

(492

)

 

 

(16,330

)

Effect of exchange rate changes on cash

 

 

22

 

 

 

(14

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(1,770

)

 

 

(17,443

)

Cash and cash equivalents, beginning of period

 

 

17,080

 

 

 

22,556

 

Cash and cash equivalents, end of period

 

$

15,310

 

 

$

5,113

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES

 

 

 

 

 

 

 

 

Interest paid

 

$

385

 

 

$

371

 

Conversion of notes payable to common stock

 

$

308

 

 

$

 

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

6


 

EMMAUS LIFE SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements of Emmaus Life Sciences, Inc. and subsidiaries (collectively, the “Company” or “Emmaus”) 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. The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All significant intercompany transactions have been eliminated. The Company’s unaudited consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to present fairly 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 consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on March 21, 2019 (the “Annual Report”). Interim results for the periods presented herein are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

The preparation of the consolidated financial statements requires the use of management estimates. Actual results could differ materially from those estimates.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Refer to the Annual Report for a summary of significant accounting policies. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2019 except for leases, which are discussed below. Below are disclosures of certain interim balances, transactions, and significant assumptions used in computing fair value as of and for the three months ended March 31, 2019 and comparative amounts from the prior fiscal periods:

Revenues – Effective January 1, 2018, the Company adopted Accounting Standard codification (“ASC”) Topic 606, Revenue from Contracts with Customers using the modified retrospective transition methods. The adoption of ASC 606 did not have a material impact on the measurement or on the recognition of revenue of contracts for which all revenue had not been recognized as of January 1, 2018, therefore no cumulative adjustment has been made to the opening balance of accumulated deficit at the beginning of 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the periods presented.

Since January 2018, the Company has generated revenues through the sale of Endari as a treatment for sickle cell disease (“SCD”). The Company also generates revenues to a much lesser extent from the sale of AminoPure®, a nutritional supplement.

 

Revenues from Endari product sales are recognized upon delivery and transfer of control of products to the Company’s distributors and specialty pharmacy customers. Distributors resell the products to other specialty pharmacy providers, health care providers, hospitals, patients and clinics. In addition to distribution agreements with distributors, the Company enters into contractual arrangements with specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities that provide for government-mandated or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of our products. These various discounts, rebates, and charge-backs are referred to as “variable consideration.” Revenues from product sales are recorded net of variable consideration.

 

Prior to recognizing revenues, the Company’s management forecasts and estimates variable consideration. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenues recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

 

Provisions for returns and other variable consideration adjustments are provided for in the period in which the related revenues are recorded. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.  The following are our significant categories of sales discounts and allowances:

 

7


 

Sales Discounts: The Company provides its customers contractual prompt payment discounts and from time to time offers additional one-time discounts that are recorded as a reduction of revenues in the period the revenues are recognized.

 

Product Returns: The Company offers its distributors a right to return product purchased directly from the Company based principally upon (i) overstocks, (ii) inactive product or non-moving product due to market conditions, and (iii) expired products. Product return allowances are estimated and recorded at the time of sale.

 

Government Rebates: The Company is subject to discount obligations under state Medicaid programs and the Medicare prescription drug coverage gap program.  The Company’s management estimates Medicaid and Medicare prescription drug coverage gap rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenues are recognized, resulting in a reduction of product revenues and the establishment of a current liability that is included as accounts payable and accrued expenses in our balance sheet. The liability for these rebates consists primarily of estimates of claims expected to be received in future periods related to the recognized revenues.

 

Chargebacks and Discounts: Chargebacks for fees and discounts represent the estimated obligations resulting from contractual commitments to sell products to certain specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities at prices lower than the list prices charged to distributors.  The distributors charge the Company for the difference between what they pay for the products and the Company’s contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities.  These reserves are established in the same period that the related revenues are recognized, resulting in a reduction of revenues. Chargeback amounts are generally determined at the time of resale of products by the distributors.

 

Leases As described below under "Recent accounting pronouncements,” we adopted ASU 2016-02 – Leases (Topic 842) (“ASU 2016-02”) as of January 1, 2019. Pursuant to ASU 2016-02, all of our leases outstanding on January 1, 2019 continued to be classified as operating leases. With the adoption of ASU 2016-02, we recorded an operating lease right-of-use asset and an operating lease liability on our balance sheet. Right-of-use lease assets represent our right to use the underlying asset during the lease term and the lease obligation represents our commitment to make lease payments arising from the lease. Right-of-use lease assets and obligations were recognized based on the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, we have used an estimated incremental borrowing rate based on the information available at our adoption date in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. Variable lease costs such as common area costs and other operating costs are expensed as incurred. For all lease agreements we combine lease and non-lease components. No right-of-use asset and related lease liability are recorded for leases with an initial term of 12 months or less.

Prior to our adoption of ASU 2016-02, when our lease agreements contained tenant improvement allowances and rent escalation clauses, we recorded a deferred rent asset or liability equal to the difference between the rent expense and the future minimum lease payments due. The lease expense related to operating leases was recognized on a straight-line basis in the statements of operations over the term of each lease. In cases where the lessor granted us leasehold improvement allowances, we capitalized the improvements as incurred and recognized it over the shorter of the lease term or the expected useful life of the improvements.

 

Inventories — Substantially all of the raw material purchased during the three months ended March 31, 2019 and for the year ended December 31, 2018 were from one vendor. The below table presents inventory by category (in thousands):

 

 

 

 

 

Inventories by category

 

March 31, 2019

 

 

December 31,

2018

 

Raw materials and components

 

$

647

 

 

$

171

 

Work-in-process

 

 

1,584

 

 

 

2,471

 

Finished goods

 

 

3,564

 

 

 

2,063

 

Total

 

$

5,795

 

 

$

4,705

 

 

        

Marketable securities— The Company’s marketable securities consist of the following securities; (a) 39,250 shares of capital stock of CellSeed, Inc. (“CellSeed”) acquired in January 2009 at ¥680 JPY per share ($7.69 USD); (b) 6,643,559 shares of capital stock of Telcon, Inc. (“Telcon”) which were acquired in July 2017 for ₩36,001,446,221 KRW (equivalent to $31.8 million USD) at ₩5,419 KRW per share.

8


 

As of March 31, 2019 and December 31, 2018, the closing prices per CellSeed share on the Tokyo Stock Exchange were ¥710 ($6.40 USD) and ¥668 JPY ($6.07 USD), respectively, and the closing prices per Telcon share on the Korean Securities Dealers Automated Quotations (“KOSDAQ”) were 7,350 ($6.45 USD) and 8,280 KRW ($7.43 USD), respectively.   

As of March 31, 2019, and December 31, 2018, 39,250 shares of CellSeed common stock were pledged to secure a $300,000 convertible note of the Company issued to Mitsubishi UFJ Capital III Limited Partnership that is due on demand and were classified as marketable securities, pledged to creditor in our balance sheet.

Prepaid expenses and other current assets — Prepaid expenses and other current assets consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):