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 September 30, 2019March 31, 2020
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 |
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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.
☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
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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 48,471,44649,311,864 shares of common stock, par value $0.001 per share, outstanding as of November 11, 2019.July 31, 2021.
EMMAUS LIFE SCIENCES, INC.
For the Quarterly Period Ended September 30, 2019March 31, 2020
INDEX
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Part I. Financial Information |
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Item 1. | 4 | ||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Part II Other Information |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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EXPLANATORY NOTE
This Quarterly Report is filed by Emmaus Life Sciences, Inc. (“Emmaus,” “we,” “us,” “our,” orAs previously disclosed in the “Company”), formerly known as MYnd Analytics, Inc. As of and for the period ending June 30, 2019, the Company was a predictive analytics company that had developed a decision support tool to help physicians reduce trial and error treatment in mental health and provide more personalized care to patients. As reported in its Current Report on Form 8-K filed with the SECU.S. Securities and Exchange Commission (“SEC”) on July 22, 2019 and as discussed in more detail in this Quarterly Report, on July 17, 2019, the Company completed its merger transaction with EMI Holding, Inc., formerly known as Emmaus Life Sciences, Inc. (“EMI”), pursuant to which EMI became a wholly-owned subsidiary of the Company (the “Merger”). On July 17, 2019, immediately after completion of the Merger, the Company changed its name to “Emmaus Life Sciences, Inc.”
The Merger was treated as a reverse recapitalization with EMI being deemed the acquiring company for accounting purposes under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States. The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
In connection with and prior to the Merger, the Company contributed and transferred to Telemynd, Inc. (“Telemynd”), a newly formed, wholly owned subsidiary of the Company, all or substantially all of the Company’s business, assets and liabilities. On July 15, 2019,8, 2020, the board of directors of the Company declared a dividend with respect toEmmaus Life Sciences, Inc. (“we,” “us,” “our,” “Emmaus” or the shares“Company”), based on the recommendation of the Company common stock outstanding ataudit committee, concluded that, because of errors identified in the closepreviously issued annual financial statements of business on that day of one share ofour EMI Holdings, Inc. subsidiary, or EMI, for the Telemynd common stock held byyear ended December 31, 2018 as well as EMI’s unaudited consolidated financial statements for the Company for each outstanding share of the Company common stock after giving effect to a 1-for-6 reverse stock split of the Company’s common stock effected by the Company on July 17, 2019. The dividend, which together with the contribution and transfer of the Company’s historical business, assets and liabilities described above, is referred to as the “Spin-Off.” Prior to the Spin-Off, Telemynd engaged in no business or operations.
As a result of the Spin-Offthree months ended March 31, 2019 and the Merger, since July 17,three and six months ended June 30, 2019 the Company has operated through EMI and its direct and indirect subsidiaries and the ongoing business of the Company is the EMI business. EMI is a commercial-stage biopharmaceutical company focused on the development, marketing and sale of innovative treatments and therapies, including thoseincluded in the rare and orphan disease categories. For more information, please visit www.emmausmedical.com. The information contained on, or accessible through, our website is not incorporated by reference into this Quarterly Report and should not be considered a part of this Quarterly Report.
On August 14, 2019, the Company filed an amendment on Form 8-K/A to its Current Report on Form 8-K relating to8-K/A filed with the completion ofSEC on August 8, 2019, and our previously filed unaudited consolidated financial statements for the Mergerthree and nine months ended September 30, 2019, the Spin-Off which includesCompany would restate the previously issued financial statements. The previously issued financial statements of EMI preceded our merger with EMI in July 2019.
We determined that these errors were the result of material weaknesses in internal control over financial reporting as described in management’s report as of December 31, 2019 in Part II—Item 9A – Controls and Procedures of our Annual Report on Form 10-K filed with the SEC on January 25, 2021.
The restated quarterly financial statements corrected the following errors:
1. | The misclassification as equity of warrants issued by EMI in October of 2018, which warrants should have been accounted for as liabilities based upon fair value. |
2. | The erroneous consolidation as a variable interest entity, or VIE, of EMI’s interest in EJ Holdings, Inc., which should have been accounted for based upon the equity method. |
3. | The mistreatment of the fair value of cashless exercise warrants originally recorded in the Consolidated Statements of Operations and Comprehensive Loss, which fair value should have been recorded in additional paid-in capital in the Consolidated Balance Sheets. |
4. | In addition to the errors described above, the restated financial statements also include adjustments to correct certain immaterial errors identified during the audit of the Company’s financial statements for the year ended December 31, 2019. |
Please see Note 1 of Notes to Condensed Consolidated Financial Statements for the impact of the restatement on our financial statements as of and for the three months and six months ended June 30, 2019 and certain pro forma financial information. This Quarterly Report should be read in conjunction with the information in the Form 8-K/A.March 31, 2019.
Item 1. Financial Statements
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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| As of |
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| March 31, 2020 |
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| December 31, 2019 |
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| (Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 2,213 |
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| $ | 1,769 |
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Accounts receivable, net |
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| 1,900 |
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| 2,150 |
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Inventories, net |
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| 8,255 |
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| 7,971 |
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Investment in marketable securities |
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| 34,768 |
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| 27,929 |
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Prepaid expenses and other current assets |
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| 1,102 |
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| 1,402 |
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Total current assets |
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| 48,238 |
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| 41,221 |
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Property and equipment, net |
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| 142 |
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| 151 |
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Equity method investment |
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| 12,980 |
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| 13,325 |
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Right of use assets |
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| 4,344 |
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| 4,474 |
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Deposits and other assets |
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| 288 |
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| 285 |
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Total assets |
| $ | 65,992 |
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| $ | 59,456 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
| $ | 13,209 |
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| $ | 11,498 |
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Operating lease liabilities, current portion |
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| 1,079 |
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| 991 |
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Other current liabilities |
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| 1,113 |
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| 5,748 |
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Revolving line of credit to related parties |
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| 600 |
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| 600 |
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Warrant derivative liabilities |
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| 13 |
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| 38 |
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Notes payable |
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| 3,954 |
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| 3,749 |
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Notes payable to related parties |
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| 34 |
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| 193 |
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Convertible debentures, net of discount, current portion |
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| 5,908 |
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| 7,015 |
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Convertible note payable, net of discount |
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| 3,150 |
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| 2,995 |
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Total current liabilities |
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| 29,060 |
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| 32,827 |
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Operating lease liabilities, less current portion |
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| 3,810 |
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| 3,932 |
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Other long-term liabilities |
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| 36,968 |
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| 33,750 |
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Convertible debentures, net of discount, less current portion |
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| 886 |
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| — |
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Total liabilities |
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| 70,724 |
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| 70,509 |
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STOCKHOLDERS’ DEFICIT |
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Preferred stock — par value $0.001 per share, 15,000,000 shares authorized, NaN issued or outstanding |
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| — |
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| — |
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Common stock — par value $0.001 per share, 250,000,000 shares authorized, 48,987,189 shares and 48,471,446 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively |
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| 49 |
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| 48 |
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Additional paid-in capital |
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| 216,157 |
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| 215,207 |
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Accumulated other comprehensive loss |
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| (18 | ) |
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| (79 | ) |
Accumulated deficit |
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| (220,920 | ) |
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| (226,229 | ) |
Total stockholders’ deficit |
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| (4,732 | ) |
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| (11,053 | ) |
Total liabilities & stockholders’ deficit |
| $ | 65,992 |
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| $ | 59,456 |
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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)
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| As of |
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| September 30, 2019 |
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| December 31, 2018 |
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| (unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents ($12,220 and $13,175 attributable to the VIE) |
| $ | 13,546 |
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| $ | 17,080 |
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Accounts receivable, net |
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| 1,900 |
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| 1,351 |
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Inventories, net |
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| 7,491 |
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| 4,705 |
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Investment in marketable securities |
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| 27,643 |
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| 49,343 |
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Marketable securities, pledged to creditor |
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| — |
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| 238 |
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Prepaid expenses and other current assets ($610 and $273 attributable to the VIE) |
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| 1,194 |
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| 743 |
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Total current assets |
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| 51,774 |
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| 73,460 |
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PROPERTY AND EQUIPMENT, NET |
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| 163 |
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| 152 |
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OTHER ASSETS |
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Long-term investment at cost |
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| — |
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| 538 |
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Intangibles, net |
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| 44 |
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| 54 |
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Right of use assets |
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| 4,118 |
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| — |
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Deposits and other assets |
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| 383 |
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| 352 |
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Total other assets |
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| 4,545 |
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| 944 |
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Total assets |
| $ | 56,482 |
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| $ | 74,556 |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses ($148 and $0 attributable to the VIE) |
| $ | 10,706 |
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| $ | 9,122 |
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Deferred rent |
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| — |
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| 19 |
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Operating lease liabilities |
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| 844 |
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|
| — |
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Other current liabilities |
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| 5,412 |
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| 5,181 |
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Embedded conversion option liabilities |
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| 264 |
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|
| — |
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Notes payable, net |
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| 3,886 |
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|
| 6,394 |
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Notes payable to related party, net |
|
| 193 |
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|
| 468 |
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Convertible debentures |
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| 11,000 |
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|
| — |
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Convertible notes payable, net |
|
| 2,928 |
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|
| 11,253 |
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Convertible notes payable to related parties, net |
|
| — |
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|
| 5,089 |
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Total current liabilities |
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| 35,233 |
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|
| 37,526 |
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LONG-TERM LIABILITIES |
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Deferred rent |
|
| — |
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| 268 |
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Operating lease liabilities |
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| 3,714 |
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|
| — |
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Other long-term liabilities |
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| 34,556 |
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|
| 36,222 |
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Warrant derivative liabilities |
|
| — |
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|
| 1,399 |
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Embedded conversion option liabilities |
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| 29 |
|
|
| — |
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Notes payable, net |
|
| — |
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|
| 1,021 |
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Convertible debentures |
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| 1,200 |
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|
| — |
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Convertible notes payable, net |
|
| — |
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|
| 5,485 |
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Convertible notes payable to related parties, net |
|
| — |
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|
| 8,529 |
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Total long-term liabilities |
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| 39,499 |
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| 52,924 |
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Total liabilities |
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| 74,732 |
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| 90,450 |
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STOCKHOLDERS’ DEFICIT |
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Preferred stock — par value $0.001 per share, 15,000,000 shares authorized, none issued and outstanding |
|
| — |
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|
| — |
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Common stock — par value $0.001 per share, 250,000,000 shares authorized, 47,671,446 shares and 37,341,393 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively |
|
| 47 |
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| 37 |
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Additional paid-in capital |
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| 199,395 |
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| 140,903 |
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Accumulated other comprehensive income (loss) |
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| (51 | ) |
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| (69 | ) |
Accumulated deficit |
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| (216,916 | ) |
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| (156,668 | ) |
Total stockholders’ equity (deficit) |
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| (17,525 | ) |
|
| (15,797 | ) |
Noncontrolling interest |
|
| (725 | ) |
|
| (97 | ) |
Total liabilities & stockholders’ equity (deficit) |
| $ | 56,482 |
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| $ | 74,556 |
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| Three Months Ended March 31, |
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| 2020 |
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| 2019 Restated |
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REVENUES, NET | $ | 6,954 |
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| $ | 4,707 |
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COST OF GOODS SOLD |
| 478 |
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| 259 |
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GROSS PROFIT |
| 6,476 |
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| 4,448 |
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OPERATING EXPENSES |
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Research and development |
| 617 |
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| 513 |
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Selling |
| 1,068 |
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|
| 1,479 |
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General and administrative |
| 3,657 |
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|
| 3,737 |
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Total operating expenses |
| 5,342 |
|
|
| 5,729 |
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INCOME (LOSS) FROM OPERATIONS |
| 1,134 |
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|
| (1,281 | ) |
OTHER INCOME (EXPENSE) |
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Change in fair value of warrant derivative liabilities |
| 25 |
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|
| (938 | ) |
Change in fair value of embedded conversion option |
| (29 | ) |
|
| — |
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Net gains (losses) on investment in marketable securities |
| 6,839 |
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|
| (6,457 | ) |
Gain (loss) on equity method investment |
| (407 | ) |
|
| 9 |
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Interest and other income (loss) |
| 33 |
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|
| (77 | ) |
Interest expense |
| (1,800 | ) |
|
| (8,612 | ) |
Total other income (expense) |
| 4,661 |
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|
| (16,075 | ) |
INCOME (LOSS) BEFORE INCOME TAXES |
| 5,795 |
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|
| (17,356 | ) |
INCOME TAXES |
| 286 |
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|
| 52 |
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NET INCOME (LOSS) |
| 5,509 |
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|
| (17,408 | ) |
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COMPONENTS OF OTHER COMPREHENSIVE INCOME |
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|
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Foreign currency translation adjustments |
| 61 |
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|
| 7 |
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Other comprehensive income |
| 61 |
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|
| 7 |
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COMPREHENSIVE INCOME (LOSS) | $ | 5,570 |
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| $ | (17,401 | ) |
EARNINGS (NET LOSS) PER COMMON SHARE - BASIC AND DILUTED | $ | 0.11 |
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| $ | (0.46 | ) |
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING |
| 48,624,469 |
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|
| 37,473,431 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
EMMAUS LIFE SCIENCES, INC.
CONDESED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(In thousands, except share and per share amounts)
(Unaudited)
|
| Common Stock |
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| Additional Paid-In |
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| Accumulated Other Comprehensive |
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| Accumulated |
|
| Total Stockholder's |
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| Shares |
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| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Deficit |
| ||||||
Balance at January 1, 2020 |
|
| 48,471,446 |
|
| $ | 48 |
|
| $ | 215,207 |
|
| $ | (79 | ) |
| $ | (226,229 | ) |
| $ | (11,053 | ) |
Common stock issued for cash (net of issuance cost) |
|
| 515,743 |
|
|
| 1 |
|
|
| 141 |
|
|
| — |
|
|
| — |
|
|
| 142 |
|
Fair value of warrants including down-round protection adjustments |
|
| — |
|
|
| — |
|
|
| 600 |
|
|
| — |
|
|
| (200 | ) |
| $ | 400 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 209 |
|
|
| — |
|
|
| — |
|
| $ | 209 |
|
Foreign currency translation effect |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| — |
|
| $ | 61 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,509 |
|
|
| 5,509 |
|
Balance, March 31, 2020 |
|
| 48,987,189 |
|
| $ | 49 |
|
| $ | 216,157 |
|
| $ | (18 | ) |
| $ | (220,920 | ) |
| $ | (4,732 | ) |
|
| Common Stock |
|
| Additional Paid-In |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
| Total Stockholder's |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Deficit |
| ||||||
Balance at January 1, 2019, as restated |
|
| 37,341,393 |
|
| $ | 37 |
|
| $ | 149,682 |
|
| $ | (69 | ) |
| $ | (171,358 | ) |
| $ | (21,708 | ) |
Cumulative effect adjustment on adoption of ASC 842 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29 | ) |
|
| (29 | ) |
Beneficial conversion feature relating to convertible notes |
|
| — |
|
|
| — |
|
|
| 3,374 |
|
|
| — |
|
|
| — |
|
|
| 3,374 |
|
Exercise of warrants |
|
| 525 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Stock issued for cash (net of issuance cost) |
|
| 322,920 |
|
|
| 1 |
|
|
| 2,529 |
|
|
| — |
|
|
| — |
|
|
| 2,530 |
|
Conversion of notes payable to common stock |
|
| 85,411 |
|
|
| — |
|
|
| 329 |
|
|
| — |
|
|
| — |
|
|
| 329 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 588 |
|
|
| — |
|
|
| — |
|
|
| 588 |
|
Exercise of stock options |
|
| 175 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Foreign currency translation effect |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 7 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,408 | ) |
|
| (17,408 | ) |
Balance, March 31, 2019, as restated |
|
| 37,750,424 |
|
| $ | 38 |
|
| $ | 156,508 |
|
| $ | (62 | ) |
| $ | (188,795 | ) |
| $ | (32,311 | ) |
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, |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| |
| 2020 |
|
| Restated |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net Income (loss) | $ | 5,509 |
|
| $ | (17,408 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities |
|
|
|
|
|
|
|
Depreciation and amortization |
| 15 |
|
|
| 17 |
|
Amortization of discount of notes payable and convertible notes payable |
| 1,302 |
|
|
| 7,288 |
|
Foreign exchange adjustments |
| (50 | ) |
|
| 89 |
|
Net (gain) loss on investment in marketable securities |
| (6,839 | ) |
|
| 6,457 |
|
Loss (gain) on equity method investment |
| 407 |
|
|
| (9 | ) |
Share-based compensation |
| 209 |
|
|
| 588 |
|
Change in fair value of warrant derivative liabilities |
| (25 | ) |
|
| 938 |
|
Change in fair value of embedded conversion option |
| 29 |
|
|
| — |
|
Net changes in operating assets and liabilities |
|
|
|
|
|
|
|
Accounts receivable |
| 249 |
|
|
| (143 | ) |
Inventories |
| (285 | ) |
|
| (1,091 | ) |
Prepaid expenses and other current assets |
| 260 |
|
|
| (115 | ) |
Other non-current assets |
| 133 |
|
|
| (2,813 | ) |
Income tax receivable and payable |
| 286 |
|
|
| 52 |
|
Accounts payable and accrued expenses |
| 2,449 |
|
|
| 2,725 |
|
Deferred revenue |
| — |
|
|
| 500 |
|
Deferred rent |
| — |
|
|
| (287 | ) |
Other current liabilities |
| (5,025 | ) |
|
| 36 |
|
Other long-term liabilities |
| 3,184 |
|
|
| 1,997 |
|
Net cash flows provided by (used in) operating activities |
| 1,808 |
|
|
| (1,179 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Purchases of property and equipment |
| (3 | ) |
|
| (16 | ) |
Net cash flows used in investing activities |
| (3 | ) |
|
| (16 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Payments of convertible notes |
| (1,500 | ) |
|
| (3,048 | ) |
Proceeds from exercise of warrants |
| — |
|
|
| 5 |
|
Proceeds from issuance of common stock |
| 142 |
|
|
| 2,530 |
|
Proceeds from conversion of notes payable to common stock |
| — |
|
|
| 21 |
|
Net cash flows used in financing activities |
| (1,358 | ) |
|
| (492 | ) |
Effect of exchange rate changes on cash |
| (3 | ) |
|
| 22 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
| 444 |
|
|
| (1,665 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
| 1,769 |
|
|
| 3,905 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 2,213 |
|
| $ | 2,240 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES |
|
|
|
|
|
|
|
Interest paid | $ | 312 |
|
| $ | 385 |
|
NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Warrants issued | $ | 400 |
|
| $ | — |
|
Beneficial conversion feature relating to convertible notes | $ | — |
|
| $ | 3,374 |
|
Initial recognition of right to use assets | $ | — |
|
| $ | 2,922 |
|
Conversion of notes payable to common stock | $ | — |
|
| $ | 329 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts) (Unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
REVENUES, NET |
| $ | 6,084 |
|
| $ | 4,882 |
|
| $ | 17,260 |
|
|
| 8,235 |
|
COST OF GOODS SOLD |
|
| 178 |
|
|
| 141 |
|
|
| 573 |
|
|
| 497 |
|
GROSS PROFIT |
|
| 5,906 |
|
|
| 4,741 |
|
|
| 16,687 |
|
|
| 7,738 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 725 |
|
|
| 466 |
|
|
| 1,778 |
|
|
| 1,273 |
|
Selling |
|
| 1,789 |
|
|
| 1,224 |
|
|
| 5,177 |
|
|
| 3,663 |
|
General and administrative |
|
| 6,991 |
|
|
| 5,182 |
|
|
| 14,523 |
|
|
| 12,130 |
|
Total operating expenses |
|
| 9,505 |
|
|
| 6,872 |
|
|
| 21,478 |
|
|
| 17,066 |
|
LOSS FROM OPERATIONS |
|
| (3,599 | ) |
|
| (2,131 | ) |
|
| (4,791 | ) |
|
| (9,328 | ) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| — |
|
|
| 738 |
|
|
| — |
|
|
| 738 |
|
Loss on debt extinguishment |
|
| (6,427 | ) |
|
| — |
|
|
| (6,427 | ) |
|
| (3,245 | ) |
Impairment loss on long-term investment |
|
| — |
|
|
| — |
|
|
| (524 | ) |
|
| — |
|
Change in fair value of warrant derivative liabilities |
|
| 424 |
|
|
| 19,456 |
|
|
| 623 |
|
|
| 20,351 |
|
Change in fair value of embedded conversion option |
|
| 342 |
|
|
| — |
|
|
| 342 |
|
|
| 466 |
|
Net loss on investment in marketable securities |
|
| (5,248 | ) |
|
| 2,023 |
|
|
| (21,718 | ) |
|
| (31,627 | ) |
Transaction cost |
|
| (309 | ) |
|
| — |
|
|
| (309 | ) |
|
| — |
|
Notes conversion expense |
|
| (3,906 | ) |
|
| — |
|
|
| (3,906 | ) |
|
| — |
|
Interest and other income (loss) |
|
| (17 | ) |
|
| 8 |
|
|
| 146 |
|
|
| 43 |
|
Interest expense |
|
| (7,318 | ) |
|
| (5,525 | ) |
|
| (22,757 | ) |
|
| (16,269 | ) |
Total other income (expense) |
|
| (22,459 | ) |
|
| 16,700 |
|
|
| (54,530 | ) |
|
| (29,543 | ) |
INCOME (LOSS) BEFORE INCOME TAXES |
|
| (26,058 | ) |
|
| 14,569 |
|
|
| (59,321 | ) |
|
| (38,871 | ) |
INCOME TAXES |
|
| 25 |
|
|
| — |
|
|
| 242 |
|
|
| 2 |
|
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST |
|
| (26,083 | ) |
|
| 14,569 |
|
|
| (59,563 | ) |
|
| (38,873 | ) |
Net (income) loss attributable to noncontrolling interest |
|
| (54 | ) |
|
| — |
|
|
| 620 |
|
|
| — |
|
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY |
|
| (26,137 | ) |
|
| 14,569 |
|
|
| (58,943 | ) |
|
| (38,873 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 11 |
|
|
| (5 | ) |
|
| 10 |
|
|
| 11 |
|
Other comprehensive income (loss) |
|
| 11 |
|
|
| (5 | ) |
|
| 10 |
|
|
| 11 |
|
COMPREHENSIVE INCOME (LOSS) |
|
| (26,072 | ) |
|
| 14,564 |
|
|
| (59,553 | ) |
|
| (38,862 | ) |
Amounts attributable to noncontrolling interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interest |
|
| (54 | ) |
|
| — |
|
|
| 620 |
|
|
| — |
|
Foreign currency translation adjustments |
|
| (6 | ) |
|
| — |
|
|
| 8 |
|
|
| — |
|
Comprehensive (income) loss attributable to noncontrolling interest |
|
| (60 | ) |
|
| — |
|
|
| 628 |
|
|
| — |
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY |
| $ | (26,132 | ) |
| $ | 14,564 |
|
| $ | (58,925 | ) |
| $ | (38,862 | ) |
NET INCOME (LOSS) PER COMMON SHARE - BASIC |
| $ | (0.60 | ) |
| $ | 0.40 |
|
| $ | (1.49 | ) |
| $ | (1.06 | ) |
NET INCOME (LOSS) PER COMMON SHARE - DILUTIVE |
| $ | (0.60 | ) |
| $ | (0.13 | ) |
| $ | (1.49 | ) |
| $ | (1.58 | ) |
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING |
|
| 46,020,507 |
|
|
| 36,719,892 |
|
|
| 40,474,847 |
|
|
| 36,644,377 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share and per share amounts) (Unaudited)
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Accumulated Deficit |
|
| Total Emmaus Stockholders' Equity / (Deficit) |
|
| Non-controlling Interest |
|
| Total Equity / (Deficit) |
| ||||||||
Balance at January 1, 2019 |
|
| 37,341,393 |
|
| $ | 37 |
|
| $ | 140,903 |
|
| $ | (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 notes payable |
|
| — |
|
|
| — |
|
|
| 2,039 |
|
|
| — |
|
|
| — |
|
|
| 2,039 |
|
|
| — |
|
|
| 2,039 |
|
Exercise of warrants |
|
| 525 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Common stock issued for cash (net of issuance cost) |
|
| 322,920 |
|
|
| — |
|
|
| 2,530 |
|
|
| — |
|
|
| — |
|
|
| 2,530 |
|
|
|
|
|
|
| 2,530 |
|
Conversion of notes payable to common stock |
|
| 85,410 |
|
|
| — |
|
|
| 329 |
|
|
| — |
|
|
| — |
|
|
| 329 |
|
|
| — |
|
|
| 329 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 536 |
|
|
| — |
|
|
| — |
|
|
| 536 |
|
|
| — |
|
|
| 536 |
|
Exercise of stock options |
|
| 175 |
|
|
| — |
|
|
| 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 |
|
| 37,750,423 |
|
| $ | 37 |
|
| $ | 146,343 |
|
| $ | (62 | ) |
| $ | (170,864 | ) |
| $ | (24,546 | ) |
| $ | (82 | ) |
| $ | (24,628 | ) |
Beneficial conversion feature relating to convertible notes payable |
|
| — |
|
|
| — |
|
|
| 5,391 |
|
|
| — |
|
|
| — |
|
|
| 5,391 |
|
|
| — |
|
|
| 5,391 |
|
Exercise of warrants |
|
| 53,032 |
|
|
| — |
|
|
| 181 |
|
|
| — |
|
|
| — |
|
|
| 181 |
|
|
| — |
|
|
| 181 |
|
Common stock issued for cash (net of issuance cost) |
|
| 76,755 |
|
|
| — |
|
|
| 730 |
|
|
| — |
|
|
| — |
|
|
| 730 |
|
|
| — |
|
|
| 730 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 438 |
|
|
| — |
|
|
| — |
|
|
| 438 |
|
|
| — |
|
|
| 438 |
|
Foreign currency translation effect |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| (15 | ) |
|
| (9 | ) |
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18,639 | ) |
|
| (18,639 | ) |
|
| (688 | ) |
|
| (19,327 | ) |
Balance, June 30, 2019 |
|
| 37,880,210 |
|
| $ | 37 |
|
| $ | 153,083 |
|
| $ | (56 | ) |
| $ | (189,503 | ) |
| $ | (36,439 | ) |
| $ | (785 | ) |
| $ | (37,224 | ) |
Common stock issued for cash (net of issuance cost) |
|
| 477,338 |
|
|
| 1 |
|
|
| 2,949 |
|
|
| — |
|
|
| — |
|
|
| 2,950 |
|
|
| — |
|
|
| 2,950 |
|
Conversion of convertible notes payable and notes payable to common stock |
|
| 6,983,350 |
|
|
| 7 |
|
|
| 35,502 |
|
|
| — |
|
|
| — |
|
|
| 35,509 |
|
|
| — |
|
|
| 35,509 |
|
Notes conversion expense |
|
| — |
|
|
| — |
|
|
| 3,906 |
|
|
| — |
|
|
| — |
|
|
| 3,906 |
|
|
| — |
|
|
| 3,906 |
|
Reclassification of warrant liability to equity |
|
| — |
|
|
| — |
|
|
| 776 |
|
|
| — |
|
|
| — |
|
|
| 776 |
|
|
| — |
|
|
| 776 |
|
Common stock issued in merger |
|
| 2,330,548 |
|
|
| 2 |
|
|
| (1,644 | ) |
|
| — |
|
|
| — |
|
|
| (1,642 | ) |
|
| — |
|
|
| (1,642 | ) |
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| 129 |
|
Fair value of replacement equity awards |
|
| — |
|
|
| — |
|
|
| 2,438 |
|
|
| — |
|
|
| — |
|
|
| 2,438 |
|
|
| — |
|
|
| 2,438 |
|
Fair value of placement agent warrant including down-round protection adjustments |
|
| — |
|
|
| — |
|
|
| 2,256 |
|
|
| — |
|
|
| (1,276 | ) |
|
| 980 |
|
|
| — |
|
|
| 980 |
|
Foreign currency translation effect |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| 6 |
|
|
| 11 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,137 | ) |
|
| (26,137 | ) |
|
| 54 |
|
|
| (26,083 | ) |
Balance, September 30, 2019 |
|
| 47,671,446 |
|
| $ | 47 |
|
| $ | 199,395 |
|
| $ | (51 | ) |
| $ | (216,916 | ) |
| $ | (17,525 | ) |
| $ | (725 | ) |
| $ | (18,250 | ) |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share and per share amounts) (Unaudited)
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Treasury Stock, at Cost |
|
| Accumulated Deficit |
|
| Total Emmaus Stockholders' Equity / (Deficit) |
|
| Non-controlling Interest |
|
| Total Equity / (Deficit) |
| |||||||||
Balance at January 1, 2018 |
|
| 36,634,856 |
|
| $ | 37 |
|
| $ | 113,110 |
|
| $ | 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 notes payable |
|
| — |
|
|
| — |
|
|
| 3,638 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,638 |
|
|
| — |
|
|
| 3,638 |
|
Common stock issued for cash |
|
| 26,254 |
|
|
| — |
|
|
| 275 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 275 |
|
|
| — |
|
|
| 275 |
|
Repurchase of 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 |
|
| 36,661,110 |
|
| $ | 37 |
|
| $ | 117,733 |
|
| $ | (72 | ) |
| $ | (1,314 | ) |
| $ | (104,867 | ) |
| $ | 11,517 |
|
| $ | — |
|
| $ | 11,517 |
|
Beneficial conversion feature relating to convertible notes payable |
|
| — |
|
|
| — |
|
|
| 5,583 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,583 |
|
|
| — |
|
|
| 5,583 |
|
Common stock issued for cash |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase of stock |
|
| (735,102 | ) |
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 955 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 955 |
|
|
| — |
|
|
| 955 |
|
Exercise of warrants (cashless) |
|
| 8,733 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign currency translation effect |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (47,345 | ) |
|
| (47,345 | ) |
|
| — |
|
|
| (47,345 | ) |
Balance at June 30, 2018 |
|
| 35,934,741 |
|
| $ | 36 |
|
| $ | 124,272 |
|
| $ | (70 | ) |
| $ | (1,314 | ) |
| $ | (152,212 | ) |
| $ | (29,288 | ) |
| $ | — |
|
| $ | (29,288 | ) |
Beneficial conversion feature relating to convertible notes payable |
|
| — |
|
|
| — |
|
|
| 997 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 997 |
|
|
| — |
|
|
| 997 |
|
Exercise of warrants |
|
| 31,504 |
|
|
| — |
|
|
| 105 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 105 |
|
|
|
|
|
|
| 105 |
|
Stock issued for cash |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Cancellation of stock |
|
| — |
|
|
| — |
|
|
| (1,314 | ) |
|
| — |
|
|
| 1,314 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,078 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,078 |
|
|
| — |
|
|
| 2,078 |
|
Exercise of stock option (cashless) |
|
| 88,473 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercise of warrants (cashless) |
|
| 1,700,957 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign currency translation effect |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,569 |
|
|
| 14,569 |
|
|
| — |
|
|
| 14,569 |
|
Balance at September 30, 2018 |
|
| 37,755,675 |
|
| $ | 38 |
|
| $ | 126,136 |
|
| $ | (75 | ) |
| $ | — |
|
| $ | (137,643 | ) |
| $ | (11,544 | ) |
| $ | — |
|
| $ | (11,544 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
|
| Nine Months Ended September 30, |
| |||||
|
|
|
|
|
|
|
|
|
|
| 2019 |
|
| 2018 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
| $ | (59,563 | ) |
| $ | (38,873 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 54 |
|
|
| 44 |
|
Impairment loss on long-term investment |
|
| 524 |
|
|
| — |
|
Cost of inventory written off |
|
| — |
|
|
| 11 |
|
Amortization of discount of notes payable and convertible notes payable |
|
| 19,479 |
|
|
| 13,057 |
|
Foreign exchange adjustments on convertible notes and notes payable |
|
| 49 |
|
|
| (22 | ) |
Net loss on investment in marketable securities |
|
| 21,718 |
|
|
| 31,627 |
|
Loss on debt settlement |
|
| 6,427 |
|
|
| 3,245 |
|
Share-based compensation |
|
| 1,103 |
|
|
| 3,743 |
|
Fair value of replacement equity awards |
|
| 2,438 |
|
|
| — |
|
Notes conversion expense |
|
| 3,906 |
|
|
| — |
|
Change in fair value of warrant derivative liabilities |
|
| (623 | ) |
|
| (20,351 | ) |
Change in fair value of embedded conversion option |
|
| (342 | ) |
|
| (466 | ) |
Net changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (548 | ) |
|
| (1,390 | ) |
Inventories |
|
| (2,787 | ) |
|
| (2,735 | ) |
Prepaid expenses and other current assets |
|
| (426 | ) |
|
| (39 | ) |
Other non-current assets |
|
| (4,150 | ) |
|
| (238 | ) |
Accounts payable and accrued expenses |
|
| 4,857 |
|
|
| 2,585 |
|
Deferred revenue |
|
| 500 |
|
|
| — |
|
Deferred rent |
|
| (287 | ) |
|
| 246 |
|
Other current liabilities |
|
| 230 |
|
|
| 2,130 |
|
Other long-term liabilities |
|
| 2,363 |
|
|
| 2,690 |
|
Net cash flows used in operating activities |
|
| (5,078 | ) |
|
| (4,736 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Cash paid in connection with the Merger |
|
| (1,641 | ) |
|
| — |
|
Purchases of property and equipment |
|
| (55 | ) |
|
| (81 | ) |
Sales of marketable securities |
|
| 221 |
|
|
| 6,439 |
|
Purchase of marketable securities and investment at cost |
|
| — |
|
|
| (501 | ) |
Net cash flows provided by (used in) investing activities |
|
| (1,475 | ) |
|
| 5,857 |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Repurchase of common stock and warrants |
|
| — |
|
|
| (7,500 | ) |
Proceeds from notes payable issued, net of issuance cost and discount |
|
| — |
|
|
| 6,670 |
|
Proceeds from convertible notes payable issued, net of issuance cost and discount |
|
| — |
|
|
| 17,645 |
|
Payments of notes payable |
|
| — |
|
|
| (4,200 | ) |
Payments of convertible notes |
|
| (3,368 | ) |
|
| (20,000 | ) |
Proceeds from exercise of warrants |
|
| 186 |
|
|
| 105 |
|
Proceeds from issuance of common stock |
|
| 6,210 |
|
|
| 275 |
|
Net cash flows provided by (used in) financing activities |
|
| 3,028 |
|
|
| (7,005 | ) |
Effect of exchange rate changes on cash |
|
| (9 | ) |
|
| (10 | ) |
Net decrease in cash and cash equivalents |
|
| (3,534 | ) |
|
| (5,894 | ) |
Cash and cash equivalents, beginning of period |
|
| 17,080 |
|
|
| 22,556 |
|
Cash and cash equivalents, end of period |
| $ | 13,546 |
|
| $ | 16,662 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 1,239 |
|
| $ | 1,783 |
|
Income taxes paid |
| $ | 242 |
|
| $ | 2 |
|
Warrant liabilities reclassified to equity |
| $ | 776 |
|
| $ | — |
|
Conversion of convertible notes payable and notes payable to common stock |
| $ | 33,457 |
|
| $ | — |
|
Conversion of accrued interest payable to common stock |
| $ | 2,381 |
|
| $ | — |
|
Exercise of warrants and options on cashless basis |
|
| — |
|
|
| 1,798 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated interim financial statements of Emmaus Life Sciences, Inc., (formerly, “MYnd Analytics, Inc.”) and its direct and indirect consolidated subsidiaries (collectively, “we,” “our,” “us,” 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. 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. The consolidated interim financial statements do not include any adjustments that might result from the outcome of these uncertainties. Thecondensed consolidated interim financial statements should be read in conjunction with the Annual Report on Form 10-K10-K/A for the year ended December 31, 2018,2020 (the “Annual Report”) filed by EMI Holding, Inc. with the Securities and Exchange Commission (“SEC”) on March 21,August 10, 2021. The accompanying condensed consolidated balance sheet at December 31, 2019 (the “Annual Report”). Interimhas been derived from the audited consolidated balance sheet at December 31, 2019 contained in the From 10-K/A. The results of operations for the periods presented hereinthree months ended March 31, 2020, are not necessarily indicative of the results that mayto be expected for the fiscalfull year ending December 31, 2019.
Going Concern Assessment
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
Based on our loss to date, anticipatedor any future revenues and operating expenses, debt repayment obligations and cash and cash equivalent of $13.5 million, of which $12.2 million was attributable to a variable interest entity (“VIE”) as of September 30, 2019, we do not have sufficient operating capital for our business without raising additional capital and therefore there is substantial doubt about the Company’s ability to continue as a going concern.interim period.
Organization and Nature of Operations
AsThe Company is a commercial-stage biopharmaceutical company engaged in the discovery, development, marketing and sales of innovative treatments and therapies primarily for the period ending June 30, 2019, Emmaus Life Sciences, Inc. (“Emmaus,” “we,” “us,” “our,” or the “Company”), formerly known as MYnd Analytics, Inc., was a predictive analytics company that had developed a decision support tool to help physicians reduce trialrare and error treatment in mental health and provide more personalized care to patients.orphan diseases. On July 17, 2019, the Companywe completed itsa merger transaction with EMI Holding, Inc., formerly known as Emmaus Life Sciences, Inc. (“EMI”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 4, 2019, among the Company, Athena Merger Subsidiary, Inc. (“Merger Sub”), and Emmaus, as amended by Amendment No. 1 thereto, dated as of May 10, 2019 (as so amended, the “Merger Agreement”), pursuant to which Merger Sub merged with and into EMI, with EMI surviving as a wholly-owned subsidiary of the Company (the “Merger”). On July 17, 2019, immediately, with EMI surviving the Merger as a wholly owned subsidiary. Immediately after completion of the Merger, the Companywe changed itsour name to “Emmaus Life Sciences, Inc.”.
The Merger was treated as a reverse recapitalization with EMI being deemed the acquiring company for accounting purposes under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States. U.S. For accounting purposed, EMI was considered to have acquired us. The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
In connection with and prior to the Merger, the Companywe contributed and transferred to Telemynd, Inc. (“Telemynd”), a newly formed, wholly owned subsidiary of the Company, all or substantially all of the Company’sour historical business, assets and liabilities pursuant to the Amended and Restated Separation and Distribution Agreement, dated as of March 27, 2019, among the Company, Telemynd and MYnd Analytics, Inc., a wholly owned subsidiary of the Company (the “Separation Agreement”). On July 15, 2019, theour board of directors of the Company declared a stock dividend with respect to the shares of the Company common stock outstanding at the close of business on that day of one1 share of the Telemynd common stock held by the Company for each outstanding share of the Companyour common stock after giving effect to the reverse split described below. The dividend, which together with the contribution and transfer of MYnd’s business, assets and liabilities described above, is referred to as the “Spin-Off.” Prior to the Spin-Off, Telemynd engaged in no business or operations.
On July 17, 2019, in connection with, and prior to the completion of, the Merger, the Company effected a 1-for-6 reverse stock split (the “Reverse Split”) of itsour outstanding shares of common stock, par value $0.001 per share.stock.
As a result of the Spin-Offspin-off and the Merger, since July 17, 2019 the Company has operated through EMI and its direct and indirect subsidiaries and theour ongoing business of the Company is the EMIbecame EMI’s business, which is that of a commercial-stage biopharmaceutical company focused on the development, marketing and sale of innovative treatments and therapies, including those in the rare and orphan disease categories. As the acquiring company for accounting purposes, financial condition and results of operations of the Company reflected in the accompanying unaudited consolidated interim financial statements for periods prior to the Merger are those of EMI. .
Principles of consolidation—The consolidated financial statements include the accounts of the Company, EMI and EMI’s wholly‑owned subsidiary, Emmaus Medical, Inc., and Emmaus Medical, Inc.’s wholly‑owned subsidiaries, Newfield Nutrition Corp., Emmaus Medical Japan, Inc. (“EMJ”), Emmaus Life Sciences, Co. Ltd (“ELSK”) and Emmaus Medical Europe, Ltd (“EM Europe”).subsidiaries. All significant intercompany transactions have been eliminated.
The Company also consolidates EJ Holdings, Inc., a Japanese corporation, as a variable interest entity (VIE) on the basis that the Company is an indirect 40% shareholder and the primary beneficiary of the VIE. The Company is deemed to be the primary beneficiary of the VIE if it has both (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The preparation of the consolidated financial statements requires the use of management estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reported period. Actual results could differ materially from those estimates.
Restatement of Prior Period Amounts — In connection with the preparation of our December 31, 2019 consolidated financial statements, we identified the following material errors in our condensed consolidated financial statements as of and for the three months ended March 31, 2019.
1. | The misclassification as equity of warrants issued by EMI in October of 2018, which warrants should have been accounted for as liabilities based upon fair value; and |
2. | The erroneous consolidation as a variable interest entity, or VIE, of EMI’s interest in EJ Holdings, Inc., which should have been accounted for based upon the equity method. |
3. | The mistreatment of the fair value of cashless exercise warrants originally recorded in the Consolidated Statements of Operations and Comprehensive Loss, which fair value should have been recorded in additional paid-in capital in the |
Consolidated Balance Sheets. |
4. | In addition to the errors described above, the restated financial statements also include adjustments to correct certain immaterial errors identified during the audit of the Company’s financial statements for the year ended December 31, 2019. |
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
|
| As of March 31, 2019 |
| |||||||||
|
| Previously Reported |
|
| Adjustment |
|
| Restated |
| |||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 15,310 |
|
| $ | (13,070 | ) | (a) | $ | 2,240 |
|
Accounts receivable, net |
|
| 1,760 |
|
|
| 301 |
| (c) |
| 2,061 |
|
Inventories, net |
|
| 5,795 |
|
|
| — |
|
|
| 5,795 |
|
Investment in marketable securities |
|
| 42,873 |
|
|
| — |
|
|
| 42,873 |
|
Marketable securities, pledged to creditor |
|
| 251 |
|
|
| — |
|
|
| 251 |
|
Prepaid expenses and other current assets |
|
| 818 |
|
|
| (215 | ) | (a), (c) |
| 603 |
|
Total current assets |
|
| 66,807 |
|
|
| (12,984 | ) |
|
| 53,823 |
|
Property and equipment, net |
|
| 153 |
|
|
| — |
|
|
| 153 |
|
Long-term investment at cost |
|
| 527 |
|
|
| — |
|
|
| 527 |
|
Equity method investment |
|
| — |
|
|
| 13,470 |
| (a) |
| 13,470 |
|
Right of use assets |
|
| 2,838 |
|
|
| — |
|
|
| 2,838 |
|
Deposits and other assets |
|
| 410 |
|
|
| — |
|
|
| 410 |
|
Total assets |
| $ | 70,735 |
|
| $ | 486 |
|
| $ | 71,221 |
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 11,068 |
|
| $ | (371 | ) | (a), (c) | $ | 10,697 |
|
Operating lease liabilities, current portion |
|
| 682 |
|
|
| — |
|
|
| 682 |
|
Other current liabilities |
|
| 5,217 |
|
|
| 75 |
| (c) |
| 5,292 |
|
Warrant derivative liabilities |
|
| — |
|
|
| 9,877 |
| (b), (c) |
| 9,877 |
|
Notes payable, net of discount |
|
| 7,000 |
|
|
| 806 |
| (b) |
| 7,806 |
|
Notes payable to related parties |
|
| 470 |
|
|
| — |
|
|
| 470 |
|
Convertible notes payable, net of discount |
|
| 15,157 |
|
|
| — |
|
|
| 15,157 |
|
Convertible notes payable to related parties, net of discount |
|
| 13,896 |
|
|
| — |
|
|
| 13,896 |
|
Total current liabilities |
|
| 53,490 |
|
|
| 10,387 |
|
|
| 63,877 |
|
Operating lease liabilities, less current portion |
|
| 2,478 |
|
|
| — |
|
|
| 2,478 |
|
Other long-term liabilities |
|
| 35,637 |
|
|
| — |
|
|
| 35,637 |
|
Warrant derivative liabilities |
|
| 1,447 |
|
|
| (1,447 | ) | (c) |
| — |
|
Notes payable, net of discount, less current portion |
|
| 1,922 |
|
|
| (771 | ) | (b) |
| 1,151 |
|
Convertible debentures, net of discount, less current portion |
|
| 389 |
|
|
| — |
|
|
| 389 |
|
Total liabilities |
|
| 95,363 |
|
|
| 8,169 |
|
|
| 103,532 |
|
STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock — par value $0.001 per share, 20,000,000 shares authorized, NaN issued or outstanding |
|
| — |
|
|
| — |
|
|
| — |
|
Common stock — par value $0.001 per share, 250,000,000 shares authorized, 37,750,424 shares were issued and outstanding at March 31, 2019 |
|
| 36 |
|
|
| 2 |
| (d) |
| 38 |
|
Additional paid-in capital |
|
| 146,344 |
|
|
| 10,164 |
| (b), (e) |
| 156,508 |
|
Accumulated other comprehensive income (loss) |
|
| (62 | ) |
|
| — |
|
|
| (62 | ) |
Accumulated deficit |
|
| (170,864 | ) |
|
| (17,931 | ) | (e) |
| (188,795 | ) |
Total stockholders’ deficit |
|
| (24,546 | ) |
|
| (7,765 | ) |
|
| (32,311 | ) |
Noncontrolling interest |
|
| (82 | ) |
|
| 82 |
| (a) |
| — |
|
Total liabilities & stockholders’ deficit |
| $ | 70,735 |
|
| $ | 486 |
|
| $ | 71,221 |
|
(a) EJ Holdings adjustments: the correction of this misstatement resulted in increases of $13.5 million in equity method investment, $114,000 in accounts payable and accrued expenses, and $82,000 in non-controlling interest and decreases of $13.1 million in cash and cash equivalent and $205,000 in prepaid expenses and other current assets.
(b) Warrant adjustments: the correction of this misstatement resulted in increases of $8.5 million in warrant derivative current liabilities and $806,000 in short-term note payable and decreases of $771,000 in long-term notes payable and $9.7 million in additional paid-in capital.
(c) Corrections of other misstatement: period adjustment and reclassification of variable consideration resulted in an increase of $301,000 in accounts receivable and a decrease of $486,000 in accounts payable and accrued expenses, a decrease of $10,000 in income tax receivable and an increase of $23,000 in income tax payable; a correction of accounting treatment for convertible notes resulted in an increase of $1.3 million in additional paid-in capital; a reclassification of GPB warrants resulted an increase of short-term warrant liabilities and a decrease of long-term warrant liabilities of $1.4 million; and a correction of tax provision resulted in an increase of $52,000 in income tax payable.
(d) Retrospective adjustments made to common stock resulted from recapitalization transaction in July 2019.
(e) Balance includes carryforward impact on 2018 restatement adjustments, including cashless warrant adjustments which resulted in an increase in additional paid-in capital and a decrease in retained earnings of $18.3 million.
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 March 31, 2019 |
| |||||||||
|
| Previously Reported |
|
| Adjustment |
|
| Restated |
| |||
REVENUES, NET |
| $ | 5,307 |
|
| $ | (600 | ) | (c) | $ | 4,707 |
|
COST OF GOODS SOLD |
|
| 200 |
|
|
| 59 |
| (c) |
| 259 |
|
GROSS PROFIT |
| $ | 5,107 |
|
| $ | (659 | ) |
|
| 4,448 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 513 |
|
|
| — |
|
|
| 513 |
|
Selling |
|
| 1,485 |
|
|
| (6 | ) | (c) |
| 1,479 |
|
General and administrative |
|
| 3,681 |
|
|
| 56 |
| (a), (c) |
| 3,737 |
|
Total operating expenses |
|
| 5,679 |
|
|
| 50 |
|
|
| 5,729 |
|
LOSS FROM OPERATIONS |
|
| (572 | ) |
|
| (709 | ) |
|
| (1,281 | ) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant derivative liabilities |
|
| (48 | ) |
|
| (890 | ) | (b) |
| (938 | ) |
Net gains (losses) on equity investment in marketable securities |
|
| (6,457 | ) |
|
| — |
|
|
| (6,457 | ) |
Gain on equity method investment |
|
| — |
|
|
| 9 |
| (a) |
| 9 |
|
Interest and other income (loss) |
|
| (111 | ) |
|
| 34 |
| (a) |
| (77 | ) |
Interest expense |
|
| (6,965 | ) |
|
| (1,647 | ) | (b), (c) |
| (8,612 | ) |
Total other income (expenses) |
|
| (13,581 | ) |
|
| (2,494 | ) |
|
| (16,075 | ) |
LOSS BEFORE INCOME TAXES |
|
| (14,153 | ) |
|
| (3,203 | ) |
|
| (17,356 | ) |
INCOME TAXES |
|
| — |
|
|
| 52 |
| (c) |
| 52 |
|
NET LOSS INCLUDING NONCONTROLLING INTERESTS |
|
| (14,153 | ) |
|
| (3,255 | ) |
|
| (17,408 | ) |
Net (income) loss attributable to noncontrolling interest |
|
| (14 | ) |
|
| 14 |
| (a) |
| — |
|
NET LOSS ATTRIBUTABLE TO THE COMPANY |
|
| (14,167 | ) |
|
| (3,241 | ) |
|
| (17,408 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
| |||
Foreign currency translation adjustments |
|
| 8 |
|
|
| (1 | ) | (a) |
| 7 |
|
Other comprehensive income (loss) |
|
| 8 |
|
|
| (1 | ) |
|
| 7 |
|
COMPREHENSIVE INCOME (LOSS) |
|
| (14,145 | ) |
|
| (3,256 | ) |
|
| (17,401 | ) |
Amounts attributable to noncontrolling interest: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interest |
|
| (14 | ) |
|
| 14 |
| (a) |
| — |
|
Foreign currency translation adjustments |
|
| (1 | ) |
|
| 1 |
| (a) |
| — |
|
Comprehensive (income) loss attributable to noncontrolling interest |
|
| (15 | ) |
|
| 15 |
|
|
| — |
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY |
| $ | (14,160 | ) |
| $ | (3,241 | ) |
| $ | (17,401 | ) |
NET LOSS PER COMMON SHARE - BASIC AND DILUTED |
| $ | (0.38 | ) |
| $ | (0.09 | ) |
| $ | (0.46 | ) |
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING |
|
| 37,473,431 |
|
|
| — |
|
|
| 37,473,431 |
|
(a) EJ Holdings adjustments: the correction of this misstatement resulted in increases of $55,000 in general and administrative expenses, $9,000 in loss on equity method investment and $34,000 in interest income and decreases of $14,000 in net income attributable to noncontrolling interest and $1,000 in foreign currency translation adjustments.
(b) Warrant adjustments: the correction of this misstatement resulted in an increase of $312,000 in interest expense and a decrease of $890,000 in change in fair value of warrant derivative liabilities.
(c) Corrections of other misstatements: period adjustment of variable consideration resulted in a decrease of $600,000 in revenues, net; reclassification of shipping cost and royalty expense to cost of sales resulted in an increase of $59,000 in cost of sales and decreases of $6,000 and $53,000 in selling expense and general and administrative expense, respectively; correction of stock modification accounting resulted in a decrease of $52,000 in general and administrative expense; correction of accounting treatment for convertible notes resulted in an increase of $1.3 million in interest expense; a correction of tax provision resulted in an increase of $52,000 in tax provision
EMMAUS LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| Three months ended March 31,2019 |
| |||||||||
|
| Previously Reported |
|
| Adjustment |
|
| Restated |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (14,153 | ) |
| $ | (3,255 | ) |
| $ | (17,408 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 17 |
|
|
| — |
|
|
| 17 |
|
Amortization of discount of convertible notes |
|
| 5,641 |
|
|
| 1,647 |
| (b), (c) |
| 7,288 |
|
Foreign exchange adjustments |
|
| (19 | ) |
|
| 108 |
|
|
| 89 |
|
Net losses (gains) on equity investment in marketable securities |
|
| 6,457 |
|
|
| — |
|
|
| 6,457 |
|
Gain on equity method investment |
|
| — |
|
|
| (9 | ) | (a) |
| (9 | ) |
Share-based compensation |
|
| 536 |
|
|
| 52 |
| (c) |
| 588 |
|
Change in fair value of warrant derivative liabilities |
|
| 48 |
|
|
| 890 |
| (a) |
| 938 |
|
Net changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (409 | ) |
|
| 266 |
|
|
| (143 | ) |
Inventories |
|
| (1,091 | ) |
|
| — |
|
|
| (1,091 | ) |
Prepaid expenses and other current assets |
|
| (83 | ) |
|
| (32 | ) |
|
| (115 | ) |
Other non-current assets |
|
| (2,813 | ) |
|
| — |
|
|
| (2,813 | ) |
Income tax |
|
| — |
|
|
| 52 |
|
|
| 52 |
|
Accounts payable and accrued expenses |
|
| 2,339 |
|
|
| 386 |
|
|
| 2,725 |
|
Deferred revenue |
|
| 500 |
|
|
| — |
|
|
| 500 |
|
Deferred rent |
|
| (287 | ) |
|
| — |
|
|
| (287 | ) |
Other current liabilities |
|
| 36 |
|
|
| — |
|
|
| 36 |
|
Other long-term liabilities |
|
| 1,997 |
|
|
| — |
|
|
| 1,997 |
|
Net cash flows (used in) provided by operating activities |
|
| (1,284 | ) |
|
| 105 |
|
|
| (1,179 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (16 | ) |
|
| — |
|
|
| (16 | ) |
Net cash flows used in investing activities |
|
| (16 | ) |
|
| — |
|
|
| (16 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Payments of convertible notes |
|
| (3,048 | ) |
|
| — |
|
|
| (3,048 | ) |
Proceeds from exercise of warrants |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Proceeds from issuance of common stock |
|
| 2,530 |
|
|
| — |
|
|
| 2,530 |
|
Proceeds from conversion of notes payable to common stock |
|
| 21 |
|
|
| — |
|
|
| 21 |
|
Net cash flows used in financing activities |
|
| (492 | ) |
|
| — |
|
|
| (492 | ) |
Effect of exchange rate changes on cash |
|
| 22 |
|
|
| — |
|
|
| 22 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| (1,770 | ) |
|
| 105 |
|
|
| (1,665 | ) |
Cash and cash equivalents, beginning of period |
|
| 17,080 |
|
|
| (13,175 | ) |
|
| 3,905 |
|
Cash and cash equivalents, end of period |
| $ | 15,310 |
|
| $ | (13,070 | ) |
| $ | 2,240 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 385 |
|
| $ | — |
|
| $ | 385 |
|
NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised of warrants and options on cashless basis |
| $ | 3,374 |
|
| $ | — |
|
| $ | 3,374 |
|
Conversion of notes payable to common stock |
| $ | 329 |
|
| $ | — |
|
| $ | 329 |
|
Initial recognition of right-of-use lease asset |
| $ | 2,922 |
|
| $ | — |
|
| $ | 2,922 |
|
Refer to the descriptions of the adjustments in the Condensed Consolidated Balance Sheets and Statements of Comprehensive Loss and their impact on net loss above. In addition, a cash flow classification adjustment related to EJ Holdings resulted in a net decrease to cash flows used by operating activities of $105,000.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Refer toThe Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10K/A for a summary of significant accounting policies.the year ended December 31, 2020. There have been no material changes toin these policies or their application.
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s significant accounting policies during the nine months ended September 30, 2019 except for leases, which are discussed below. Below are disclosures of certain interim balances, transactions,consolidated financial statements and significant assumptions used in computing fair value as of and for the three and nine months ended September 30, 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 method. The adoption of ASC 606 didbelieves that these recent pronouncements will not have a material impacteffect 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.Company’s condensed consolidated financial statements.
The Company generates revenues through the sale of Endari® as a treatment for sickle cell disease (“SCD”) and to a much lesser extent from the sale of AminoPure®, a nutritional supplement.
Revenues from Endari® product sales are recognized upon deliveryNet loss per share — In accordance with 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. Dilutive loss per share is computed in a manner similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and transferif the additional common shares were dilutive. As of controlMarch 31, 2020 and March 31, 2019, the Company had outstanding potentially dilutive securities exercisable for or convertible into 16,698,829 shares and 17,995,514 shares, respectively, 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 chargebacks 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 arecommon stock. No potentially dilutive securities were included in the transaction price tocalculation of diluted net income per share since the extent that it is probable that a significant reversal inpotential dilutive securities were out of the amount of cumulative revenues recognized will not occur whenmoney for the uncertainty associated with the variable consideration is subsequently resolved.period ended March 31, 2020 and were anti-dilutive for period ended March 31, 2019.
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 revenues and earnings in the period such variances become known. NOTE 3 — REVENUES
Revenues disaggregated by category were as follows (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 Restated |
| ||
Endari® |
| $ | 6,714 |
|
| $ | 4,602 |
|
Other |
|
| 240 |
|
|
| 105 |
|
Revenues, net |
| $ | 6,954 |
|
| $ | 4,707 |
|
The following are our significant categories of variable consideration:table summarizes the revenue allowance and accrual activities for the three months ended March 31, 2020 and 2019 (in thousands):
|
| Trade Discounts, Allowances and Chargebacks |
|
| Government Rebates and Other Incentives |
|
| Returns |
|
| Total |
| ||||
Balance as of December 31, 2019 |
| $ | 228 |
|
| $ | 1,354 |
|
| $ | 315 |
|
| $ | 1,897 |
|
Provision related to sales in the current year |
|
| 942 |
|
|
| 1,122 |
|
|
| 71 |
|
|
| 2,135 |
|
Adjustments related prior period sales |
|
| 16 |
|
|
| (44 | ) |
|
| (22 | ) |
|
| (50 | ) |
Credit and payments made |
|
| (794 | ) |
|
| (709 | ) |
|
| — |
|
|
| (1,503 | ) |
Balance as of March 31, 2020 |
| $ | 392 |
|
| $ | 1,723 |
|
| $ | 364 |
|
| $ | 2,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
| $ | 84 |
|
| $ | 798 |
|
| $ | 99 |
|
| $ | 981 |
|
Provision related to sales in the current year |
|
| 292 |
|
|
| 729 |
|
|
| 54 |
|
|
| 1,075 |
|
Credit and payments made |
|
| (316 | ) |
|
| (581 | ) |
|
| — |
|
|
| (897 | ) |
Balance as of March 31, 2019, as restated |
| $ | 60 |
|
| $ | 946 |
|
| $ | 153 |
|
| $ | 1,159 |
|
Sales Discounts and Allowances: The Company provides itsfollowing table summarizes revenues attributable to each of our customers contractual prompt payment discounts and from time to time offers additional one-time discounts that are recorded asaccounted for 10% or more of our total revenues (as a reductionpercentage of revenues in the period the revenues are recognized.
total revenues):
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 Restated |
| ||
Customer A |
|
| 54 | % |
|
| 65 | % |
Customer B |
|
| 27 | % |
|
| 19 | % |
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 Part D prescription drug coverage gap program. The Company’s management estimates Medicaid and Medicare Part D 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 and pharmacy benefit management 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 NOTE 4 — 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.
SELECTED FINANCIAL STATEMENT CAPTIONS - ASSETS
Inventories — Substantially, all the raw material purchased during the three and nine months ended September 30, 2019 and the year ended December 31, 2018 were from one vendor. The below table presents inventory by category (in thousands):
|
|
|
| |||||
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Raw materials and components |
| $ | 1,089 |
|
| $ | 171 |
|
Work-in-process |
|
| 2,392 |
|
|
| 2,471 |
|
Finished goods |
|
| 4,010 |
|
|
| 2,063 |
|
Total |
| $ | 7,491 |
|
| $ | 4,705 |
|
Marketable securities— The Company’s marketable securities as of December 31, 2018 consisted of the following; (a) 39,250 sharesfollowing (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Raw materials and components |
| $ | 1,409 |
|
| $ | 1,187 |
|
Work-in-process |
|
| 1,851 |
|
|
| 1,629 |
|
Finished goods |
|
| 5,109 |
|
|
| 5,204 |
|
Inventory reserve |
|
| (114 | ) |
|
| (49 | ) |
Total |
| $ | 8,255 |
|
| $ | 7,971 |
|
Prepaid expenses and other current assets consisted of capital stockthe following (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Prepaid insurance |
| $ | 453 |
|
| $ | 735 |
|
Other prepaid expenses and current assets |
|
| 649 |
|
|
| 667 |
|
|
| $ | 1,102 |
|
| $ | 1,402 |
|
Property and equipment consisted of CellSeed, Inc., a Japanese Corporation (“CellSeed”) acquired in January 2009 at ¥680 JPY per share ($7.69 USD), which shares were sold in Junethe following (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Equipment |
| $ | 338 |
|
| $ | 335 |
|
Leasehold improvements |
|
| 39 |
|
|
| 77 |
|
Furniture and fixtures |
|
| 95 |
|
|
| 95 |
|
Total property and equipment |
|
| 472 |
|
|
| 507 |
|
Less: accumulated depreciation |
|
| (330 | ) |
|
| (356 | ) |
Property and Equipment, net |
| $ | 142 |
|
| $ | 151 |
|
During the three months ended March 31, 2020 and 2019, for cash proceedsdepreciation expense was approximately $12,000 and $14,000, respectively.
NOTE 5 — INVESTMENTS
Equity securities— As of approximately $221,000;March 31, 2020 and (b)December 31, 2019, the Company held 6,643,559 shares of capital stock of Telcon RF Pharmaceutical, Inc., a Korean corporation (formerly, Telcon Inc. and herein “Telcon”), which were acquired in July 2017 for ₩36,001,446,221 KRW (equivalent toapproximately $31.8 million USD) at ₩5,419 KRW per share.
million. As of September 30, 2019March 31, 2020, and December 31, 2018,2019, the closing prices per TelconTelecon share on the Korean Securities Dealers Automated Quotations (“KOSDAQ”) were ₩4,995 ($4.16 USD)approximately $5.23 and ₩8,280 KRW ($7.43 USD),$4.20, respectively. As of
Prior to December 31, 2018, the closing price per CellSeed share on the Tokyo Stock Exchange was ¥668 JPY ($6.07 USD).
As of September 30, 2019, and December 31, 2018, all shares of Telcon common stock were pledged to secure ourthe Company’s obligation under the revised API agreement with Telcon. In December 2019, the API agreement was amended to permit the release of the Telcon shares from the pledge and to permit the Company to sell the shares in exchange for a portion of the net sale proceeds to be used to purchase a 10-year convertible bond of Telcon in the principal amount of approximately $31.8 million to be substituted for the Telcon shares pledged to Telcon to secure the Company’s obligations under the revised API agreement with Telcon.
As of December 31, 2018, the 39,250 shares of CellSeed common stock were pledged to secure a $300,000 convertible note ofbetween the Company issuedand Telcon. Refer to Mitsubishi UFJ Capital III Limited Partnership that was due on demandNote 6, 11 and were classified as marketable securities, pledged to creditor in our balance sheet. During the nine months ended September 30, 2019, the Company repaid the convertible notes.
Prepaid expenses and other current assets — Prepaid expenses and other current assets consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
| |||||
| September 30, 2019 |
|
| December 31, 2018 |
| |||
Prepaid insurance |
| $ | 427 |
|
| $ | 82 |
|
Other prepaid expenses and current assets |
|
| 767 |
|
|
| 661 |
|
|
| $ | 1,194 |
|
| $ | 743 |
|
Other long-term liabilities—Other long-term liabilities consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Trade discount |
| $ | 24,052 |
|
| $ | 26,222 |
|
Unearned revenue |
|
| 10,500 |
|
|
| 10,000 |
|
Other long-term liabilities |
|
| 4 |
|
|
| — |
|
Total other long-term liabilities |
| $ | 34,556 |
|
| $ | 36,222 |
|
On June 12, 2017, the Company entered into an API Supply Agreement with Telcon pursuant to which Telcon advanced to the Company approximately ₩36.0 billion KRW (approximately $31.8 million USD) in consideration13 for the right to supply 25% of the Company’s requirements for bulk containers of pharmaceutical grade L-glutamine (“PGLG”). The advance was accounted for a trade discount. See Note 10 for additional details.
Fair value measurements — The following table presents the change in fair value of warrant derivative liabilities on a recurring basis using Level 3 inputs during the year ended December 31, 2018 (in thousands):
| Year Ended |
| ||
Warrant Derivative Liabilities—Stock Purchase Warrants |
| December 31, 2018 |
| |
Balance, beginning of period |
| $ | 26,377 |
|
Repurchased |
|
| (6,186 | ) |
Change in fair value included in the statement of comprehensive income (loss) |
|
| (20,191 | ) |
Balance, end of period |
| $ | — |
|
The following table presents the change in fair value of warrants issued to GPB Debt Holdings II, LLC as described in Note 8 as of September 30, 2019 and December 31, 2018 (in thousands):
|
| Nine Months Ended |
|
| Year Ended |
| ||||||||||
| September 30, 2019 |
|
| December 31, 2018 |
| |||||||||||
Warrant Derivative Liabilities—GPB |
| Warrants |
|
| Embedded Conversion Option |
|
| Warrants |
|
| Embedded Conversion Option |
| ||||
Balance, beginning of period |
| $ | 1,399 |
|
| $ | — |
|
| $ | 1,882 |
|
| $ | 1,289 |
|
Change in fair value included in the statement of comprehensive income (loss) |
|
| (623 | ) |
|
| — |
|
|
| (483 | ) |
|
| (466 | ) |
Extinguished upon debt repayment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (823 | ) |
Reclassification to equity |
|
| (776 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
| $ | — |
|
| $ | — |
|
| $ | 1,399 |
|
| $ | — |
|
The value of warrant derivative liabilities and the change in fair value of the warrant derivative liabilities were determined using a Binomial Monte-Carlo Cliquet Option Pricing Model. The model is similar to traditional Black-Scholes-type option pricing models, except that the exercise price resets at certain dates in the future. In connection with the Merger, the variable exercise price was fixed, and the warrants were reclassified to equity.
The value as of the dates set forth in the table above was based on upon following assumptions:
| July 17, 2019 |
|
| December 31, 2018 |
| |||
Stock price |
| $ | 7.02 |
|
| $ | 9.10 |
|
Risk‑free interest rate |
|
| 1.81 | % |
|
| 2.48 | % |
Expected volatility (peer group) |
|
| 70.00 | % |
|
| 70.00 | % |
Expected life (in years) |
|
| 3.96 |
|
|
| 4.00 |
|
Expected dividend yield |
|
| — |
|
| — |
| |
Number outstanding |
|
| 252,802 |
|
|
| 240,764 |
|
Balance, end of period: |
|
|
|
|
|
|
|
|
Warrant derivative liabilities (long-term) (in thousands) |
| $ | 776 |
|
| $ | 1,399 |
|
The embedded conversion option in our 10% senior secured convertible debentures is separately accounted at fair value as a derivative liability under the guidance in ASC 815 as of September 30, 2019 and any changes in the fair value of the embedded conversion option are recognized in earnings.more information regarding this arrangement.
The following table sets forth the fair value of the embedded conversion option measured as of September 30, 2019:
The value and the change in fair value of embedded conversion option liabilities were determined using a binomial lattice model. The model produces an estimated fair value based on changes in the price of the underlying common stock over successive periods of time.
The values as of September 30, 2019 and as of the Merger date were based upon following assumptions:
| September 30, 2019 |
|
| July 17, 2019 |
| |||
Conversion price |
| $ | 9.52 |
|
| $ | 10.00 |
|
Risk‑free interest rate |
|
| 1.74 | % |
|
| 1.92 | % |
Expected volatility (peer group) |
|
| 60.00 | % |
|
| 55.00 | % |
Expected life (in years) |
|
| 1.06 |
|
|
| 1.26 |
|
Expected dividend yield |
| — |
|
| — |
| ||
Balance, end of period: |
|
|
|
|
|
|
|
|
Embedded conversion option liabilities (in thousands) |
| $ | 293 |
|
| $ | 635 |
|
Net loss per share — As of September 30, 2019 and 2018, the Company had outstanding potentially dilutive securities exercisable for or convertible into 13,458,185 and 16,053,511 shares of Company common stock, respectively. No potentially dilutive securities were included in the calculation of diluted net loss per share since their effect would be anti-dilutive for the period ended September 30, 2019.
Recent accounting pronouncements— In June 2016, the FASB issued ASU 2016-13—Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which represents a new credit loss standard that will change the impairment model for most financial assets and certain other financial instruments. Specifically, this guidance will require entities to utilize a new “expected loss” model as it relates to trade and other receivables. In addition, entities will be required to recognize an allowance for estimated credit losses on available-for-sale debt securities, regardless of the length of time that a security has been in an unrealized loss position. This guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact of this new standard on our financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC 820. The amendments in ASU 2018-13 remove some disclosures, modify others, and add some new disclosure requirements. The amendments in this ASU are effective for all entities for fiscal years, and interim period within those fiscal years, beginning after December 15, 2019 with early adoption permitted. The Company is currently assessing the impact the adoption of ASU 2018-13 will have on its consolidated financial statements and accompanying footnote disclosures.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810) Targeted Improvements to Related Party guidance for Variable Interest Entities (“ASU 2018-17”), which amends two aspects of the related-party guidance in ASC 810.
Specifically, ASU 2018-17 (1) adds an elective private-company scope exception to the variable interest entity guidance for entities under common control and (2) removes a sentence in ASC 810-10-55-37D regarding the evaluation of fees paid to decision makers to conform with the amendments in ASU 2016-17, Interest Held Through Related Parties That Are Under Common Control. The amendments in ASU 2018-17 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not expect the adoption of ASU 2018-17 to have a material impact on its consolidated financial statements.
NOTE 3 — REVENUES
Revenues disaggregated by category were as follows (in thousands):
|
| Three Months Ended September 30, 2019 |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Endari® |
| $ | 5,994 |
|
| $ | 4,803 |
|
| $ | 16,960 |
|
| $ | 7,863 |
|
Other |
|
| 90 |
|
| $ | 79 |
|
|
| 300 |
|
|
| 372 |
|
Revenues, net |
|
| 6,084 |
|
|
| 4,882 |
|
|
| 17,260 |
|
|
| 8,235 |
|
The following table summarizes the revenue allowance and accrual activities for the nine months ended September 30, 2019 (in thousands):
|
| Trade Discounts, Allowances and Chargebacks |
|
| Government Rebates and Other Incentives |
|
| Returns |
|
| Total |
| ||||
Balance as of December 31, 2018 |
| $ | 303 |
|
| $ | 1,880 |
|
| $ | 181 |
|
| $ | 2,364 |
|
Provision related to sales in the current year |
|
| 1,039 |
|
|
| 2,368 |
|
|
| 190 |
|
|
| 3,597 |
|
Adjustments related prior period sales |
|
| (218 | ) |
|
| (1,082 | ) |
|
| — |
|
|
| (1,300 | ) |
Credit and payments made |
|
| (866 | ) |
|
| (1,816 | ) |
|
| — |
|
|
| (2,682 | ) |
Balance as of September 30, 2019 |
| $ | 258 |
|
| $ | 1,350 |
|
| $ | 371 |
|
| $ | 1,979 |
|
The following table summarizes revenues attributable to each of our customers who accounted for 10% or more of our total revenues (as a percentage of total revenues):
|
| Three Months Ended September 30, 2019 |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
AmerisourceBergen Specialty Group |
|
| 62 | % |
|
| 90 | % |
|
| 60 | % |
|
| 88 | % |
McKesson Plasma and Biologics LLC |
|
| 22 | % |
|
| 4 | % |
|
| 21 | % |
|
| 3 | % |
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
| September 30, 2019 |
|
| December 31, 2018 |
| |||
Equipment |
| $ | 333 |
|
| $ | 306 |
|
Leasehold improvements |
|
| 82 |
|
|
| 70 |
|
Furniture and fixtures |
|
| 95 |
|
|
| 79 |
|
Total property and equipment |
|
| 510 |
|
|
| 455 |
|
Less: accumulated depreciation |
|
| (347 | ) |
|
| (303 | ) |
Property and equipment, net |
| $ | 163 |
|
| $ | 152 |
|
During the three months ended September 30, 2019 and 2018, depreciation expense was approximately $16,000 and $13,000, respectively. During the nine months ended September 30, 2019 and 2018, depreciation expense was approximately $44,000 and $21,000, respectively.
NOTE 5 — INVESTMENTS
Equity Securities—Effective January 1, 2018, the Company adopted ASU 2016-01 which requires the Company to measuremeasures all equity investments that do not result in consolidation and are not accounted for under the equity method, at fair value and recognize in earningsrecognizes any changes in such fair value.value in earnings. The Company uses quoted market prices to determine the fair value of equity securities with readily determinable fair values. For equity securities without readily determinable fair values, the Company has elected the measurement alternative under which the Company measures these investments at cost minus impairment, if any, plus or minus
changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Management assesses each of these investments on an individual basis. Additionally, on a quarterly basis, management is required to make a qualitative assessment of whether the investment is impaired; however, the Company is not required to determine the fair value of these investments unless impairment indicators existed. When impairment indicators exist, the Company generally uses discounted cash flow analyses to determine the fair value. For the ninethree months ended September 30,March 31, 2020 and March 31, 2019, respectively, 0 impairment loss was recognized. For the year ended December 31, 2019, the Company recognized approximately $524,000$515,000 in impairment loss foron equity securities without readily determinable fair values attributable to an investment in KPS Co., Ltd. The Company recognized a cumulative effect adjustment of $41.4 million, net of $12.3 million income tax benefit, to increase the opening balance of retained earnings with an offset to accumulated other comprehensive income as of January 1, 2018, in connection with the adoption of ASU 2016-01.
At September 30, 2019As of March 31, 2020 and December 31, 2018,2019, the carrying values of equity securities were included in the following line items in our consolidated balance sheets (in thousands):
| September 30, 2019 |
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
|
| |||||||||||||
|
| Fair Value with Changes Recognized in Income |
|
| Measurement Alternative - No Readily Determinable Fair Value |
| Fair Value with Changes Recognized in Income |
|
| Measurement Alternative - No Readily Determinable Fair Value |
|
| Fair Value with Changes Recognized in Income |
|
| Fair Value with Changes Recognized in Income |
|
| ||||||
Marketable securities |
| $ | 27,643 |
|
| $ | — |
| $ | 49,581 |
|
| $ | — |
|
| $ | 34,768 |
|
| $ | 27,929 |
|
|
Long-term investment at cost |
|
| — |
|
|
| — |
|
| — |
|
|
| 538 |
| |||||||||
Total equity securities |
| $ | 27,643 |
|
| $ | — |
| $ | 49,581 |
|
| $ | 538 |
|
| $ | 34,768 |
|
| $ | 27,929 |
|
|
Net unrealized gain on marketable securities available-for-sale at March 31, 2020 was approximately $ 6.8 million and net unrealized loss on marketable securities available-for-sale still held at March 31, 2019 was approximately $6.5 million.
Equity method investment – During 2018, the Company and Japan Industrial Partners, Inc., or JIP, formed EJ Holdings to acquire, own and operate an amino acids manufacturing facility in Ube, Japan. As part of the formation, the Company invested approximately $32,000 in exchange for 40% of EJ Holdings voting shares. JIP owns 60% of EJ Holdings voting shares. In October 2018, the Company entered into a loan agreement with EJ Holdings under which the Company made an unsecured loan to EJ Holdings in the amount of $13.6 million. The loan was valued at $13.9 million and $13.8 million as of March 31, 2020 and December 31, 2019, respectively. The loan proceeds were used by EJ Holdings to purchase the Ube facility in December 2019 and pay related taxes. The loan matures on September 30, 2028 and bears interest at the rate of 1% per annum payable annually. The parties also contemplated that the Ube facility will eventually supply the Company with the facility’s output of amino acids, that the operation of the facility will be principally for our benefit and, as such, that major decisions affecting EJ Holdings and the Ube facility will be made by EJ Holdings’ board of directors, a majority of which are representatives of JIP, in consultation with the Company.
EJ Holdings is engaged in reestablishing operations at the Ube facility, including obtaining regulatory approvals for the manufacture of prescription grade L-glutamine (“PGLG”) in accordance with cGMP. EJ Holdings has had no significant revenues since its inception, has depended on loans from the Company to acquire the Ube facility and fund its operations and will continue to be dependent on loans from us or other financing unless and until the Ube facility is activated and EJ Holdings can secure customers for its products.
The Company has determined that EJ Holdings is a variable interest entity, or VIE, based upon the facts that the Company provided the loan financing to acquire the Ube facility and the EJ Holdings activities at the facility are principally for the Company’s benefit. JIP, however, owns 60% of EJ Holdings and is entitled to designate a majority of EJ Holdings’ board of directors and its Chief Executive Officer and outside auditors, and, as such, controls the management, business, and operations of EJ Holdings. Accordingly, the Company accounts for its variable interest in EJ Holdings under the equity method.
The Company’s share of the losses reported by EJ Holdings are classified as net losses from equity method investment. The investment is evaluated for impairment annually and if facts and circumstances indicate that the carrying value may not be recoverable, an impairment charge would be recorded.
The following table sets forth certain financial information of EJ Holdings for the three months ended March 31, 2020 and 2019 and at September 30, 2018 was approximately $21.7 million and approximately $24.1 million, respectively.(in thousands):
|
| Three months ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
REVENUES, NET |
| $ | 84 |
|
| $ | 57 |
|
GROSS PROFIT |
|
| 84 |
|
|
| 57 |
|
NET INCOME (LOSS) |
| $ | (1,021 | ) |
| $ | 23 |
|
NOTE 6 — ACCOUNTS PAYABLE AND ACCRUED EXPENSESSELECTED FINANCIAL STATEMENT CAPTIONS - LIABILITIES
At September 30, 2019 and December 31, 2018, accountsAccounts payable and accrued expenses consisted of the following at March 31, 2020 and December 31, 2019 (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Accounts payable: |
|
|
|
|
|
|
|
|
Clinical and regulatory expenses |
| $ | 279 |
|
| $ | 232 |
|
Professional fees |
|
| 1,347 |
|
|
| 1,183 |
|
Selling expenses |
|
| 1,068 |
|
|
| 1,303 |
|
Manufacturing costs |
|
| 6,369 |
|
|
| 4,541 |
|
Other vendors |
|
| 264 |
|
|
| 18 |
|
Total accounts payable |
|
| 9,327 |
|
|
| 7,277 |
|
Accrued interest payable, related parties |
|
| 173 |
|
|
| 42 |
|
Accrued interest payable |
|
| 462 |
|
|
| 991 |
|
Accrued expenses: |
|
|
|
|
|
|
|
|
Payroll expenses |
|
| 868 |
|
|
| 891 |
|
Government rebates and other rebates |
|
| 1,723 |
|
|
| 1,355 |
|
Due to EJ Holdings |
|
| 347 |
|
|
| 238 |
|
Other accrued expenses |
|
| 309 |
|
|
| 704 |
|
Total accrued expenses |
|
| 3,247 |
|
|
| 3,188 |
|
Total accounts payable and accrued expenses |
| $ | 13,209 |
|
|
| 11,498 |
|
Other long-term liabilities consisted of the following at March 31, 2020 and December 31, 2019 (in thousands):
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Accounts payable: |
|
|
|
|
|
|
|
|
Clinical and regulatory expenses |
| $ | 352 |
|
| $ | 83 |
|
Professional fees |
|
| 1,531 |
|
|
| 2,157 |
|
Selling expenses |
|
| 552 |
|
|
| 382 |
|
Manufacturing costs |
|
| 4,171 |
|
|
| — |
|
Other vendors |
|
| 794 |
|
|
| 980 |
|
Total accounts payable |
|
| 7,400 |
|
|
| 3,602 |
|
Accrued interest payable, related parties |
|
| 36 |
|
|
| 842 |
|
Accrued interest payable |
|
| 824 |
|
|
| 2,138 |
|
Accrued expenses: |
|
|
|
|
|
|
|
|
Payroll expenses |
|
| 819 |
|
|
| 713 |
|
Government rebates and other incentives |
|
| 1,350 |
|
|
| 1,744 |
|
Other accrued expenses |
|
| 277 |
|
|
| 83 |
|
Total accrued expenses |
|
| 2,446 |
|
|
| 2,540 |
|
Total accounts payable and accrued expenses |
| $ | 10,706 |
|
| $ | 9,122 |
|
|
|
|
| |||||
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Trade discount |
| $ | 26,422 |
|
| $ | 23,242 |
|
Unearned revenue |
|
| 10,536 |
|
|
| 10,500 |
|
Other long-term liabilities |
|
| 10 |
|
|
| 8 |
|
Total other long-term liabilities |
| $ | 36,968 |
|
| $ | 33,750 |
|
On June 12, 2017, the Company entered into an API Supply Agreement, as subsequently amended (as so amended, the “API agreement”), with Telcon pursuant to which Telcon advanced to the Company approximately $31.8 million as an advance trade discount in consideration of the Company’s agreement to purchase from Telcon the Company’s requirements for bulk containers of PGLG. The Company purchased $2.0 million and $1.8 million of PGLG from Telcon in the three months ended March 31, 2020 and March 31, 2019, respectively. As of March 31, 2020, and December 31, 2019, respectively, accounts payable to Telcon were $5.8 million and $3.7 million. See Note 11 for additional details.
NOTE 7 — NOTES PAYABLE
Notes payable consisted of the following at September 30, 2019March 31, 2020 and December 31, 20182019 (in thousands):
Year Issued |
| Interest Rate Range |
|
| Term of Notes |
| Conversion Price |
|
| Principal Outstanding September 30, 2019 |
|
| Discount Amount September 30, 2019 |
|
| Carrying Amount September 30, 2019 |
|
| Shares Underlying September 30, 2019 |
|
| Principal Outstanding December 31, 2018 |
|
| Discount Amount December 31, 2018 |
|
| Carrying Amount December 31, 2018 |
|
| Shares Underlying Notes December 31, 2018 |
| ||||||||||
Notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2013 |
| 10% |
|
| Due on demand |
|
| — |
|
| $ | 926 |
|
| $ | — |
|
| $ | 926 |
|
|
| — |
|
| $ | 909 |
|
| $ | — |
|
| $ | 909 |
|
|
| — |
| |
2015 |
| 10% |
|
| Due on demand |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
| |
2016 |
| 10% - 11% |
|
| Due on demand |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 843 |
|
|
| — |
|
|
| 843 |
|
|
| — |
| |
2017 |
| 5% - 11% |
|
| Due on demand |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,575 |
|
|
| — |
|
|
| 2,575 |
|
|
| — |
| |
2018 |
| 10% - 11% |
|
| Due on demand- 18 months |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,311 |
|
|
| 9,233 |
|
|
| 3,078 |
|
|
| — |
| |
2019 |
| 11% |
|
| Due on demand - 6 months |
|
| — |
|
|
| 2,960 |
|
|
| — |
|
|
| 2,960 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,886 |
|
| $ | — |
|
| $ | 3,886 |
|
|
| — |
|
| $ | 16,648 |
|
| $ | 9,233 |
|
| $ | 7,415 |
|
|
| — |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 3,886 |
|
| $ | — |
|
| $ | 3,886 |
|
|
| — |
|
| $ | 12,448 |
|
| $ | 6,054 |
|
| $ | 6,394 |
|
|
| — |
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 4,200 |
|
| $ | 3,179 |
|
| $ | 1,021 |
|
|
| — |
|
Notes payable - related parties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2016 |
| 10% |
|
| Due on demand |
|
| — |
|
| $ | 20 |
|
| $ | — |
|
| $ | 20 |
|
|
| — |
|
| $ | 270 |
|
| $ | — |
|
| $ | 270 |
|
|
| — |
| |
2017 |
| 10% |
|
| Due on demand |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| 39 |
|
|
| — |
| |
2018 |
| 11% |
|
| Due on demand |
|
| — |
|
|
| 159 |
|
|
| — |
|
|
| 159 |
|
|
| — |
|
|
| 159 |
|
|
| — |
|
|
| 159 |
|
|
| — |
| |
2019 |
| 10% |
|
| Due on demand |
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 193 |
|
| $ | — |
|
| $ | 193 |
|
|
| — |
|
| $ | 468 |
|
| $ | — |
|
| $ | 468 |
|
|
| — |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 193 |
|
| $ | — |
|
| $ | 193 |
|
|
| — |
|
| $ | 468 |
|
| $ | — |
|
| $ | 468 |
|
|
| — |
|
Convertible debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2019 |
| 10% |
|
| 18 months |
| $ | 9.52 |
|
| $ | 12,200 |
|
| $ | — |
|
| $ | 12,200 |
|
|
| 1,292 |
| (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 12,200 |
|
| $ | — |
|
| $ | 12,200 |
|
|
| 1,292 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 11,000 |
|
| $ | — |
|
| $ | 11,000 |
|
|
| 1,166 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | 1,200 |
|
|
|
|
|
| $ | 1,200 |
|
|
| 126 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
Convertible notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2011 |
| 10% |
|
| 5 years |
| $3.05 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 300 |
|
| $ | — |
|
| $ | 300 |
|
|
| 98 |
| ||
2014 |
| 10% |
|
| Due on demand - 2 years |
| $3.05 - $3.60 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 519 |
|
|
| — |
|
|
| 519 |
|
|
| 184 |
| ||
2016 |
| 10% |
|
| 1 year |
| $ | 4.50 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| — |
|
|
| 61 |
|
|
| 17 |
| |
2017 |
| 10% |
|
| Due on demand - 1 year |
| $3.50 - $4.50 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,820 |
|
|
| 349 |
|
|
| 2,471 |
|
|
| 899 |
| ||
2018 |
| 6% - 10% |
|
| Due on demand - 2 years |
| $3.50 - $10.00 |
|
|
| 3,000 |
|
|
| 72 |
|
|
| 2,928 |
|
|
| 356 |
| (b) |
| 19,556 |
|
|
| 6,169 |
|
|
| 13,387 |
|
|
| 3,664 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,000 |
|
| $ | 72 |
|
| $ | 2,928 |
|
|
| 356 |
|
| $ | 23,256 |
|
| $ | 6,518 |
|
| $ | 16,738 |
|
|
| 4,862 |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 3,000 |
|
| $ | 72 |
|
| $ | 2,928 |
|
|
| 356 |
|
| $ | 16,604 |
|
| $ | 5,351 |
|
| $ | 11,253 |
|
|
| 3,981 |
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 6,652 |
|
| $ | 1,167 |
|
| $ | 5,485 |
|
|
| 881 |
|
Convertible notes payable - related parties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2012 |
| 10% |
|
| Due on demand |
| $ | 3.30 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 200 |
|
| $ | — |
|
| $ | 200 |
|
|
| 74 |
| |
2015 |
| 10% |
|
| 2 years |
| $ | 4.50 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 200 |
|
|
| — |
|
|
| 200 |
|
|
| 58 |
| |
2017 |
| 10% |
|
| 2 years |
| $ | 10.00 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,000 |
|
|
| 311 |
|
|
| 4,689 |
|
|
| 533 |
| |
2018 |
| 10% |
|
| 2 years |
| $ | 10.00 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,400 |
|
|
| 871 |
|
|
| 8,529 |
|
|
| 972 |
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 14,800 |
|
| $ | 1,182 |
|
| $ | 13,618 |
|
|
| 1,637 |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 5,400 |
|
| $ | 311 |
|
| $ | 5,089 |
|
|
| 665 |
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 9,400 |
|
| $ | 871 |
|
| $ | 8,529 |
|
|
| 972 |
|
|
|
|
|
|
| Total |
|
|
|
|
| $ | 19,279 |
|
| $ | 72 |
|
| $ | 19,207 |
|
| $ | 1,648 |
|
| $ | 55,172 |
|
| $ | 16,933 |
|
| $ | 38,239 |
|
| $ | 6,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The notes are convertible to Emmaus Life Sciences, Inc. shares. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(b) The notes are convertible to EMI Holding, Inc. shares. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Issued |
| Interest Rate Range |
|
| Term of Notes |
| Conversion Price |
|
| Principal Outstanding March 31, 2020 |
|
| Discount Amount March 31, 2020 |
|
| Carrying Amount March 31, 2020 |
|
| Shares Underlying March 31, 2020 |
|
| ||||||
Notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
| 10% |
|
| Due on demand |
|
| — |
|
| $ | 925 |
|
| $ | — |
|
| $ | 925 |
|
|
| — |
|
| |
2019 |
| 11% |
|
| Due on demand - 6 months |
|
| — |
|
|
| 2,835 |
|
|
| — |
|
|
| 2,835 |
|
|
| — |
|
| |
2020 |
| 11% |
|
| Due on demand |
|
| — |
|
|
| 194 |
|
|
| — |
|
|
| 194 |
|
|
| — |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,954 |
|
| $ | — |
|
| $ | 3,954 |
|
| $ | — |
|
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 3,954 |
|
| $ | — |
|
| $ | 3,954 |
|
|
| — |
|
|
Notes payable - related parties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2016 |
| 10% |
|
| Due on demand |
|
| — |
|
| $ | 20 |
|
| $ | — |
|
| $ | 20 |
|
|
| — |
|
| |
2019 |
| 10% |
|
| Due on demand |
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 34 |
|
| $ | — |
|
| $ | 34 |
|
|
| — |
|
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 34 |
|
| $ | — |
|
| $ | 34 |
|
|
| — |
|
|
Convertible debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2019 |
| 10% |
|
| 18 months |
| $2.00-$9.52 |
| (a) | $ | 9,200 |
|
| $ | 2,406 |
|
| $ | 6,794 |
|
|
| 4,638,333 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| $ | 9,200 |
|
| $ | 2,406 |
|
| $ | 6,794 |
|
|
| 4,638,333 |
|
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 8,000 |
|
| $ | 2,092 |
|
| $ | 5,908 |
|
|
| 4,033,333 |
|
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | 1,200 |
|
| $ | 314 |
|
| $ | 886 |
|
|
| 605,000 |
|
|
Convertible note payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2020 |
| 12% |
|
| 3 years |
| $ | 10.00 |
| (b) | $ | 3,150 |
|
| $ | — |
|
| $ | 3,150 |
|
|
| 316,467 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,150 |
|
| $ | — |
|
| $ | 3,150 |
|
|
| 316,467 |
|
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 3,150 |
|
| $ | — |
|
| $ | 3,150 |
|
|
| 316,467 |
|
|
|
|
|
|
|
| Total |
|
|
|
|
| $ | 16,338 |
|
| $ | 2,406 |
|
| $ | 13,932 |
|
|
| 4,954,800 |
|
|
Year Issued |
| Interest Rate Range |
|
| Term of Notes |
| Conversion Price |
|
| Principal Outstanding December 31, 2019 |
|
| Discount Amount December 31, 2019 |
|
| Carrying Amount December 31, 2019 |
|
| Shares Underlying Notes December 31, 2019 |
|
| ||||||
Notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
| 10% |
|
| Due on demand |
|
| — |
|
| $ | 920 |
|
| $ | — |
|
| $ | 920 |
|
|
| — |
|
| |
2019 |
| 11% |
|
| Due on demand - 6 months |
|
| — |
|
|
| 2,829 |
|
|
| — |
|
|
| 2,829 |
|
|
| — |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,749 |
|
| $ | — |
|
| $ | 3,749 |
|
| $ | — |
|
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 3,749 |
|
| $ | — |
|
| $ | 3,749 |
|
|
| — |
|
|
Notes payable - related parties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2016 |
| 10% |
|
| Due on demand |
|
| — |
|
| $ | 20 |
|
| $ | — |
|
| $ | 20 |
|
|
| — |
|
| |
2018 |
| 11% |
|
| Due on demand |
|
| — |
|
|
| 159 |
|
|
| — |
|
|
| 159 |
|
|
| — |
|
| |
2019 |
| 10% |
|
| Due on demand |
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 193 |
|
| $ | — |
|
| $ | 193 |
|
|
| — |
|
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 193 |
|
| $ | — |
|
| $ | 193 |
|
|
| — |
|
|
Convertible debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2019 |
| 10% |
|
| 18 months |
| $2.00-$9.52 |
| (a) | $ | 10,200 |
|
| $ | 3,185 |
|
|
| 7,015 |
|
|
| 1,080,415 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| $ | 10,200 |
|
| $ | 3,185 |
|
| $ | 7,015 |
|
|
| 1,080,415 |
|
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 10,200 |
|
| $ | 3,185 |
|
| $ | 7,015 |
|
|
| 1,080,415 |
|
|
Convertible note payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2018 |
| 10% |
|
| 2 years |
| $ | 10.00 |
| (b) | $ | 3,000 |
|
| $ | 5 |
|
| $ | 2,995 |
|
|
| 363,876 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,000 |
|
| $ | 5 |
|
| $ | 2,995 |
|
|
| 363,876 |
|
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 3,000 |
|
| $ | 5 |
|
| $ | 2,995 |
|
|
| 363,876 |
|
|
|
|
|
|
|
| Total |
|
|
|
|
| $ | 17,142 |
|
| $ | 3,190 |
|
| $ | 13,952 |
|
|
| 1,444,291 |
|
|
(a) | The notes are convertible to Emmaus Life Sciences, Inc. shares. |
(b) | The notes are convertible to EMI Holding, Inc. shares. |
The weighted-average stated interest rate of notes payable was 10% as of September 30, 2019March 31, 2020 and December 31, 2018.2019. The weighted-averageaverage effective annual interest ratesrate of notes payable as of September 30, 2019March 31, 2020 and December 31, 2018 were 12%2019 was 58% and 35%66%, respectively, after giving effect to discounts relating to beneficial conversion features offeature, warrants and deferred financing cost in connection with these notes. The
As of March 31, 2020, future contractual principal payments due on notes payable and convertible notes payable contain no restrictive financial covenants or acceleration clauses associated with a material adverse change event. The convertible debentures contain negative covenants.were as follows:
Year Ending |
|
|
|
2020 (nine months) | $ | 12,138 |
|
2021 |
| 4,200 |
|
Total | $ | 16,338 |
|
Immediately prior to the completion of the Merger, all but one of the convertible notes payable were converted into shares of EMI common stock at their respective conversion prices. At theUpon completion of the Merger, the convertedconversion shares were exchanged for shares of the Company common stock in the same manner as other outstanding shares of common stock of EMI based on the Merger “exchange ratio.” The unconverted convertible note payable of EMI is convertible into shares of common stock of EMI at conversion price of $10.00 per share as of September 30, 2019.
Our 10% senior securedand included in convertible debentures were amended and restated immediately prior to the Merger to include, among other changes, an option to convert their debentures into shares of common stock of the Company at a conversion price of $9.52 per share during the term of the debentures. The conversion feature of the debentures is treated as a conversion feature derivative liability.
Contractual principal payments due on notes payable and debentures are as follows (in thousands):.
The Company estimatedestimates the total fair value of any beneficial conversion feature and any accompanying warrants in allocating the proceeds from the sale of convertible notes payable. The proceeds allocated to the beneficial conversion feature were determined by taking the estimated fair value of shares underlying the convertible notes less the fair value of the number of shares that would be issued if the conversion rate equaled the fair value of common stock as of the date of issuance.
The Company issued warrants with our 10% senior secured convertible debentures. The fair value of In situations where the warrants issued in conjunction with debentures were determined using the Binominal Monte-Carlo Cliquet Option Pricing Model with the following inputs for the nine months ended September 30, 2019 and year ended December 31, 2018 (See Note 8).
| Nine months ended September 30, 2019 |
| Year ended December 31, 2018 |
| ||
Stock price | $ | 6.86 |
| $ | 11.10 |
|
Exercise price | $ | 5.87 |
| $ | 11.30 |
|
Term until expiration | 4.26 years |
| 5 years |
| ||
Risk‑free interest rate |
| 1.79 | % |
| 3.05 | % |
Expected dividend yield |
| — |
|
| — |
|
Expected volatility |
| 65.0 | % |
| 70.0 | % |
With respect to the notes that included both a beneficial conversion feature and a warrant, the proceeds wereare allocated to the beneficial conversion feature and the warrantwarrants based on their respective pro ratarelative fair values.
NOTE 8 — STOCKHOLDERS’ DEFICIT
Private placement — On September 11, 2013,The 10% Senior Secured Debentures of EMI were amended and restated immediately prior to the Company issued an aggregate of 3,020,501 units at a price of $2.50 per unit (the “Private Placement”). Each unit consisted of one shareMerger to, among other things, make them convertible into shares of common stock of EMI and one common stock warrantto provide for adjustments in the purchaseconversion shares issuable upon conversion of an additional share of common stock. The aggregate purchasethe Debentures and the conversion price forin the units was approximately $7.6 million. In addition, 300,000 warrants for the purchaseevent of a sharemerger, reorganization and similar events. Accordingly, upon completion of common stock were issued to a broker under the same terms asMerger the Private Placement transaction (the “Broker Warrants”).
The warrants issued in the Private PlacementAmended and the Broker Warrants entitle the holders thereof to purchase, at any time on or prior to September 11, 2018,Restated 10% Senior Secured Convertible Debentures became convertible into shares of common stock of the Company at an exercise price of $3.50 per share. and included in convertible notes payable. See Note 8 for additional information regarding this arrangement.
The warrants contain non-standard anti-dilution protection and, consequently, are being accounted for as liabilities, were originally recorded at fair value, and are adjusted to fair market value each reporting period. Because the shares of common stock underlying the Private Placement warrants and Broker Warrants were not effectively registered for resale by September 11, 2014, the warrant holders have an option to exercise the warrants using a cashless exercise feature. The shares have not been registered for resale as of September 30, 2018. The availability to warrant holdersconversion feature of the cashless exercise feature as of September 11, 2014 caused the then-outstanding 2,225,036 Private
Placement warrantsAmended and Broker Warrants with fair value of approximately $7.1 million to be reclassified from liability classified warrants to warrant derivative liabilities and to continue to be remeasured at fair value each reporting period. On June 10, 2014, certain warrant holders exercised 1,095,465 warrants issued in the Private Placement for the exercise price of $3.50 per share, resulting in the Company receiving aggregate exercise proceeds of $3.8 million and issuing 1,095,465 shares of common stock. Prior to exercise, these Private Placement warrants wereRestated 10% Senior Secured Convertible Debentures was separately accounted for at fair value as liability classified warrants. As of June 10, 2014, immediately prior to exercise, the carrying value of these Private Placement warrants was reduced to their fair value of $1.8 million, representing their intrinsic value, with this adjusted carrying value of $1.8 million being transferred to additional paid-in capital. Also on June 10, 2014, based on an offer made to holders of Private Placement warrants in connection with such exercises, the Company issued an aggregate of 1,095,465 replacement warrants to holders exercising Private Placement warrants, which replacement warrants have terms that are generally the same as the exercised warrants, including an expiration date of September 11, 2018 and an exercise price of $3.50 per share.
The replacement warrants are treated for accounting purposes as liability classified warrants, and their issuance gave rise to a $3.5 million warrant exercise inducement expense based on their fair value as of issuance as determined using a Binomial Monte-Carlo Cliquet (aka Ratchet) Option Pricing Model. Because the shares of common stock underlying the replacement warrants were not effectively registered for resale by June 10, 2015, the warrant holders have an option to exercise the warrants using a cashless exercise feature. The availability to warrant holders of the cashless exercise feature as of June 10, 2015 caused the then-outstanding 1,095,465 replacement warrants with fair value of approximately $2.5 million to be reclassified from liability classified warrants to warrant derivative liabilities and to continue to beunder guidance in ASC 815 that is remeasured at fair value each reporting period.
As of September 11, 2018, allon a recurring basis using Level 3 inputs, with any changes in the fair value of the Private Placement warrants, replacement warrantsconversion feature liabilities recorded in earnings. The following table sets forth the fair value of the conversion feature liabilities as of March 31, 2020 and Broker Warrants had been exercised primarilyDecember 31, 2019 (in thousands):
|
| Three Months Ended |
|
| Year ended |
| ||
Conversion feature liabilities — Amended and Restated 10% Senior Secured Convertible Debentures |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Balance, beginning of period |
| $ | 1 |
|
| $ | — |
|
Fair value at issuance date |
|
| — |
|
|
| 132 |
|
Fair value at debt modification date |
|
| 118 |
|
|
| — |
|
Change in fair value included in the statement of comprehensive (income) loss |
|
| 29 |
|
|
| (131 | ) |
Balance, end of period |
| $ | 148 |
|
| $ | 1 |
|
The value and any change in fair value of conversion feature liabilities are determined using a binomial lattice model. The model produces an estimated fair value based on changes in the price of the underlying common stock over successive periods of time.
The fair values as of March 31, 2020, the February 21, 2020 modification date and December 31, 2019 were based upon following assumptions:
| March 31, 2020 |
| February 21, 2020 (Modification date) |
| December 31, 2019 |
| |||
Stock price | $ | 1.20 |
| $ | 1.89 |
| $ | 1.97 |
|
Conversion price | $ | 2.00 |
| $ | 3.00 |
| $ | 9.52 |
|
Selected yield |
| 21.09 | % |
| 19.12 | % |
| 16.77 | % |
Expected volatility (peer group) |
| 90 | % |
| 65 | % |
| 50 | % |
Expected life (in years) |
| 1.06 |
|
| 1.16 |
|
| 0.81 |
|
Expected dividend yield |
| — |
|
| — |
|
| — |
|
Risk‑free rate | Term structure |
| Term structure |
| Term structure |
|
See Note 13 for information regarding the prepayment of the Amended and Restated 10% Senior Secured Convertible Debentures.
The Company is party to a cashless basisrevolving line of credit agreement with Dr. Niihara, the Company’s Chairman and Chief Executive Officer. Under the agreement, at the Company’s request from time to time, Dr. Niihara may, but is not obligated to, loan or had expired. re-loan to the Company up to $1,000,000. Outstanding amounts under the agreement are due and payable upon demand and bear interest, payable monthly, at a variable annual rate equal to the Prime Rate in effect from time to time plus 3%. In addition to the payment of interest, the Company is obligated to pay Dr. Niihara a “tax gross-up” intended to make him whole for federal and state income taxes payable by him with respect to interest paid to him in the previous year. The outstanding balances under the revolving line of credit agreement of $600,000 as of March 31, 2020 and December 31, 2019 were reflected in revolving line of credit, related party on the Consolidated Balance Sheet. With the tax-gross up, the effective annual interest rate on the outstanding balance as of March 31, 2020 was 10.4%. The revolving line of credit agreement will expire on November 22, 2022. Refer to Note 12 for more information regarding this arrangement.
NOTE 8 — STOCKHOLDERS’ DEFICIT
Purchase Agreement with GPB—On December 29, 2017, the Company entered into the Purchase Agreement with GPB Debt Holdings II, LLC (“GPB”), pursuant to which the Company issued to GPB a $13 million principal amount senior secured convertible promissory note (the “GPB Note”) for an aggregate purchase price of approximately $12.5 million, which reflectedreflecting a 4.0% original issue discount.
In connection with the issuance of the GPB Note, the Company also issued to GPB a warrant (the “GPB Warrant”) to purchase up to 240,674240,764 of Company common stock at an exercise price of $10.80 per company share, with customary adjustments for stock splits, stock dividends and other recapitalization events and anti-dilution provisions set forth in the GPB Warrant. If the Company effects a public listing of common stock for trading on any securities market or exchange, whether through a direct listing application or merger transaction, at a price per share less than the exercise price, the exercise price will be adjusted on a one-time basis to a 10% premium to the dilutive issuance price and the number of shares issuable under the GPB Warrant will be increased on a full ratchet basis.events. The GPB Warrant became exercisable six months after issuance and has a term of five years afterfrom the initial exercise date.
In connection with
The Company determined that under ASC 815-40, GPB Warrant should be separately recognized at fair value as a liability. The warrant liability is remeasured at fair value on a recurring basis using Level 3 inputs and any change in the Purchase Agreement, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company has agreed to file a registration statement with SEC relating to the offer and sale by GPBfair value of the common stock underlyingliability is recorded in earnings.
The following table presents the change in fair value of the GPB Warrant within one hundred eighty (180) daysas of closing of a public listingMarch 31, 2020 and December 31, 2019 (in thousands):
|
| Three Months Ended |
|
| Year Ended |
| ||
Warrant Liability—GPB |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Balance, beginning of period |
| $ | 38 |
|
| $ | 1,399 |
|
Change in fair value included in the statement of comprehensive loss |
|
| (25 | ) |
|
| (1,361 | ) |
Balance, end of period |
| $ | 13 |
|
| $ | 38 |
|
The fair value of the Company’s Common Stock for trading on any national securities exchange (excluding any over-the-counter market), whether through a direct listing application or merger transaction. warrant derivative liability was determined using the Black-Scholes option pricing model.
The Company is required to have the registration statement become effective on the earlier of (A) the date that is two-hundred and forty (240) days following the later to occur of (i) the date of closingvalue as of the public listing or (ii) ordates set forth in the event the registration statement receives a “full review” by the Commission, the date that is 300 daystable above was based on upon following the date of closing of the public listing, or (B) the date which is within three (3) business days after the date on which the Commission informs the Company (i) that the Commission will not review the registration statement or (ii) that the Company may request the acceleration of the effectiveness of the registration statement. If the Company does not timely effect such registration, it will be required to pay GPB certain late payments specified in the Registration Rights Agreement.assumptions:
In February 2018, the Company prepaid the GPB Note in full. Upon such prepayment, the Purchase Agreement and the Company’s obligations under the transaction documents entered into pursuant to the Purchase Agreement terminated except for the GPB Warrant and the Registration Rights Agreement.
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Stock price |
| $ | 1.20 |
|
| $ | 1.97 |
|
Risk‑free interest rate |
|
| 0.30 | % |
|
| 1.64 | % |
Expected volatility (peer group) |
|
| 65.00 | % |
|
| 60.00 | % |
Expected life (in years) |
|
| 3.25 |
|
|
| 3.50 |
|
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
Number outstanding |
|
| 252,802 |
|
|
| 252,802 |
|
Purchase Agreement with Holders of 10% senior secured debenturesSenior Secured Debentures—In October 2018, the EMI sold and issued $12.2 million principal amount of 10% senior secured debenturesSenior Secured Debentures and common stock purchase warrants to purchase an aggregate of up to 1,220,000 shareshares of EMI common stock pursuant to a securities purchase agreement dated as of September 18, 2018 among EMI and limited number of accredited investors. EMI’s obligations under the Debentures were secured by a security interest in substantially all EMI assets and guaranteed by EMI’s U.S. subsidiaries. The net proceeds of the sale of the debentures and warrants were used to fund EMI’s original $13.2 million loan to EJ Holdings Inc., a variable interest entity (“VIE”),in October 2018 reflected inon the Company’s consolidated financial statements.balance sheets.
The debenturesAs described in Note 7 above, the Debentures were amended and restated in their entirety in conjunction with the merger of the Company on July 17, 2019 as described in Note 12. As originally issued, the debentures bore interest at the rate of 10% per annum, payable monthly commencing November 1, 2018, and were to mature on April 21, 2020. The Company was to be obligated to redeem $1 million principal amount of debentures monthly, commencing in May 2019 and to redeem the debentures in full upon a “subsequent financing” of at least $20 million, subject to certain exceptions, or in the “event of default” (as defined). The Company’s obligations under the debentures were secured by a security interest in substantially all of our assets, except for certain pledged marketable securities, and are guaranteed by the U.S. subsidiaries, Emmaus Medical, Inc. and Newfield Nutrition Corporation.
Merger. The common stock purchase warrants issued in conjunction with the original Debentures also were amended and restated in their entirety in conjunction with the Merger. As originally
The Amended and Restated 10% Senior Secured Convertible Debentures issued the common stock purchase warrants were exercisable for five years beginning April 22, 2019 at an initial exercise price of $11.30 per share, which was to be subject to reduction if EMI became a listed company or its common stock became listed or quoted on a trading market based upon the public offering price or “VWAP” of the common stock. The exercise price also was subject to adjustment in certain other customary circumstances.
T.R. Winston & Company, LLC acted as placement agent in connectionconjunction with the sale of the debentures and warrants pursuant to an amended and restated fee agreement with us dated October 1, 2018. In accordance with the fee agreement, EMI paid T.R. Winston a cash fee equal to 5% of the gross proceeds received from the purchasers, granted T.R. Winston warrants to purchase up to 120,000 shares of EMI common stock on the same terms as the common stock purchase warrants sold to the purchasers and reimbursed T.R. Winston for certain legal fees and expenses.
Effective as of March 5, 2019, EMI entered into a securities amendment agreement with the debenture and warrant holders which amended in certain respects the original securities purchase agreement provided that the debentures and warrantsMerger were to be amended in certain respects and restated in their entirety immediately prior to and subject to the completion of the then-pending Merger.
Pursuant to the terms of the securities amendment agreement, (i) the debenture holders waived their right to the monthly redemption of $1,000,000 principal amount of the debentures that was due May 1, 2019 and their right to accelerate the repayment of the debentures in connection with the proposed Merger and (ii) the provision of the debentures requiring their mandatory redemption in connection with any “subsequent financing” was eliminated. The debenture holders subsequently waived their rights to the monthly redemptions due June 1 and July 1, 2019 respectively.
The amended and restated debentures provide that the mandatory monthly redemption of $1,000,000 principal amount thereof will commence in November 2019 and that they will mature on October 21, 2020, six months later than the original maturity date of the debentures. Unlike the debentures, the amended and restated debentures are convertible at the option of each holder into shares of CompanyEMI common stock immediately prior to the Merger at a conversion price of $10.00 a share, subject to adjustment for stock splits, merger reorganizations and other customary events. The related amended and restated warrants will bewere exercisable immediately prior to the Merger for up to an aggregate of up to 1,460,000 shares of ourEMI common stock or 244,000 more shares than are currently purchasable under the original warrants, at an initial exercise price of $10.00 per share, or $1.30 less than the original exercise price of the warrants.share. The exercise price of the warrants was subject to reduction in connection with a “going public event,”event” such as the Merger based upon the “VWAP” (i.e., volume-weighted average trading price) of the Company common stock at the time of the Merger. The exercise price also will be subject to adjustment for stock splits and other customary events. Upon completion of the Merger, the amended and restated warrants became exercisable for shares of the Company common stock and the exercise price of the warrants and the number of underlying warrant shares were adjusted based upon “exchange ratio”exchange ratio in the Merger. Subsequent to the Merger,The exercise price of the amended and restated warrants was subsequently adjusted in accordance with their terms to $5.87 per share based upon the VWAP of the Company common stock on the day following completion of the Merger.
Pursuant to the terms of a securities amendment agreement entered into on February 21, 2020, the Amended and Restated 10% Senior Secured Convertible Debentures were once again amended and restated in their entirety to extend their maturity date to April 21, 2021 and reduce the conversion price thereof to $3.00 per share from $9.52 per share. The related amended and restate common stock purchase warrants also were amended and restated again to reduce the exercise price thereof to $3.00 per share from $5.87 per share. The newly Amended and Restated 10% Senior Secured Convertible Debentures and related newly amended and restated warrants provide for so-called full-ratchet anti-dilution adjustments in the event we sell or issue shares of common stock or common stock equivalents at an effective price per share less than the conversion price of the debentures or the exercise price of the warrants, subject to certain exceptions. The conversion price of the Amended and Restated 10% Senior Secured Convertible Debentures and the exercise price of the related amended and restated warrants were reduced to $2.00 a share as a result of the Company’s sale of 100,000 shares of common stock at a price of $2.00 a share under the Purchase Agreement with Lincoln Park Capital LLC described below and were subsequently reduced again as described in Note 13. See Note 13 for information regarding our recent prepayment of the Debentures.
The Company evaluated the common stock purchase warrants issued in connection with the original issuance of the 10% Senior Secured Debentures in October 2018 under ASC 815-40 and concluded that the warrants should be separately recognized at fair value as a liability. The liability is remeasured at fair value on a recurring basis using Level 3 input and any changes in fair value is recorded in earnings. In 2019, the Debentures were amended and restated to be convertible into common stock of EMI immediately prior to completion of the Merger, which resulted in the related warrants being reclassified to equity. The warrants also were amended and restated in their entirety in connection with the Merger.
The exercise price of the amended and restated warrants was reduced to $2.00 per share in February 2020 pursuant to the anti-dilution adjustment provisions of the warrants and were valued using Black-Scholes-Merton model. The fair values as of agreement date and the anti-dilution adjustments date were based upon following assumptions:
|
| February 28, 2020 (Anti-dilution adjustment date) |
|
| February 21, 2020 (Amendment date) |
| ||
Exercise price |
| $ | 2.00 |
|
| $ | 3.00 |
|
Common stock fair value |
| $ | 1.60 |
|
| $ | 1.89 |
|
Volatility |
|
| 93.00 | % |
|
| 92.00 | % |
Risk-free rate |
|
| 0.86 | % |
|
| 1.29 | % |
Expected life (in years) |
|
| 3.54 |
|
|
| 3.56 |
|
A summary of outstanding warrants as of September 30, 2019March 31, 2020 and December 31, 20182019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
Warrants outstanding, beginning of period |
|
| 3,436,431 |
|
|
| 5,265,432 |
|
|
| 4,931,099 |
|
|
| 3,436,431 |
|
Assumed as part of Merger |
|
| 1,044,939 |
|
|
|
|
|
|
| — |
|
|
| 1,044,939 |
|
Granted |
|
| 500,951 |
|
|
| 1,542,000 |
|
|
| — |
|
|
| 500,729 |
|
Exercised |
|
| (51,000 | ) |
|
| (2,385,317 | ) |
|
| — |
|
|
| (51,000 | ) |
Cancelled, forfeited or expired |
|
| — |
|
|
| (985,684 | ) |
|
| (115,953 | ) |
|
| — |
|
Warrants outstanding, end of period |
|
| 4,931,321 |
|
|
| 3,436,431 |
|
|
| 4,815,146 |
|
|
| 4,931,099 |
|
A summary of outstanding warrants by year issued and exercise price as of September 30, 2019March 31, 2020 is presented below:
|
|
|
|
| Outstanding |
|
| Exercisable |
| ||||||||||||||
Year issued and Exercise Price |
|
| Number of Warrants Issued |
|
| Weighted-Average Remaining Contractual Life (Years) |
|
| Weighted-Average Exercise Price |
|
| Total |
|
| Weighted-Average Exercise Price |
| |||||||
At December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 4.67 |
|
|
| 115,953 |
|
|
| 0.43 |
|
| $ | 4.67 |
|
|
| 115,953 |
|
| $ | 4.67 |
|
| 2015 Total |
|
|
| 115,953 |
|
|
|
|
|
|
|
|
|
|
| 115,953 |
|
|
|
|
| |
At December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 4.29 |
|
|
| 124,703 |
|
|
| 1.78 |
|
| $ | 4.29 |
|
|
| 124,703 |
|
| $ | 4.29 |
|
| $ | 4.48 |
|
|
| 78,760 |
|
|
| 1.59 |
|
| $ | 4.48 |
|
|
| 78,760 |
|
| $ | 4.48 |
|
| $ | 4.76 |
|
|
| 1,365,189 |
|
|
| 1.61 |
|
| $ | 4.76 |
|
|
| 1,365,189 |
|
| $ | 4.76 |
|
| 2016 Total |
|
|
| 1,568,652 |
|
|
|
|
|
|
|
|
|
|
| 1,568,652 |
|
|
|
|
| |
At December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 10.28 |
|
|
| 252,802 |
|
|
| 3.75 |
|
| $ | 10.28 |
|
|
| 252,802 |
|
| $ | 10.28 |
|
| 2017 Total |
|
|
| 252,802 |
|
|
|
|
|
|
|
|
|
|
| 252,802 |
|
|
|
|
| |
At December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 10.76 |
|
|
| 210,553 |
|
|
| 3.86 |
|
| $ | 10.76 |
|
|
| 210,553 |
|
| $ | 10.76 |
|
| $ | 5.87 |
|
|
| 1,407,188 |
|
|
| 4.06 |
|
| $ | 5.87 |
|
|
| 1,407,188 |
|
| $ | 5.87 |
|
| 2018 Total |
|
|
| 1,617,741 |
|
|
|
|
|
|
|
|
|
|
| 1,617,741 |
|
|
|
|
| |
At September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 6.12 |
|
|
| 32,391 |
|
|
| 4.66 |
|
| $ | 6.12 |
|
|
| 32,391 |
|
| $ | 6.12 |
|
| $ | 12.00 |
|
|
| 76,575 |
|
|
| 3.98 |
|
| $ | 12.00 |
|
|
| 76,575 |
|
| $ | 12.00 |
|
| $ | 14.04 |
|
|
| 174,999 |
|
|
| 3.50 |
|
| $ | 14.04 |
|
|
| 174,999 |
|
| $ | 14.04 |
|
| $ | 31.50 |
|
|
| 737,975 |
|
|
| 2.82 |
|
| $ | 31.50 |
|
|
| 737,975 |
|
| $ | 31.50 |
|
| $ | 36.24 |
|
|
| 22,333 |
|
|
| 2.82 |
|
| $ | 36.24 |
|
|
| 22,333 |
|
| $ | 36.24 |
|
| $ | 60.00 |
|
|
| 666 |
|
|
| 1.25 |
|
| $ | 60.00 |
|
|
| 666 |
|
| $ | 60.00 |
|
| $ | 5.87 |
|
|
| 256,234 |
|
|
| 4.08 |
|
| $ | 5.87 |
|
|
| 256,234 |
|
| $ | 5.87 |
|
| $ | 7.68 |
|
|
| 75,000 |
|
|
| 4.80 |
|
| $ | 7.68 |
|
|
| 75,000 |
|
| $ | 7.68 |
|
| 2019 Total |
|
|
| 1,376,173 |
|
|
|
|
|
|
|
|
|
|
| 1,376,173 |
|
|
|
|
| |
| Total |
|
|
| 4,931,321 |
|
|
|
|
|
|
|
|
|
|
| 4,931,321 |
|
|
|
|
|
|
|
|
|
| Outstanding |
|
| Exercisable |
| ||||||||||||||
Year issued and Exercise Price |
|
| Number of Warrants Issued |
|
| Weighted-Average Remaining Contractual Life (Years) |
|
| Weighted-Average Exercise Price |
|
| Total |
|
| Weighted-Average Exercise Price |
| |||||||
Prior to January 1, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $2.00-$10.76 |
|
|
| 3,439,007 |
|
|
| 2.38 |
|
| $ | 4.38 |
|
|
| 3,439,007 |
|
| $ | 4.38 |
| |
Prior to Jan 1, 2019 Total |
|
|
| 3,439,007 |
|
|
|
|
|
|
|
|
|
|
| 3,439,007 |
|
|
|
|
| ||
At December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 6.12 |
|
|
| 32,391 |
|
|
| 4.16 |
|
| $ | 6.12 |
|
|
| 32,391 |
|
| $ | 6.12 |
|
| $ | 12.00 |
|
|
| 76,575 |
|
|
| 3.48 |
|
| $ | 12.00 |
|
|
| 76,575 |
|
| $ | 12.00 |
|
| $ | 14.04 |
|
|
| 174,999 |
|
|
| 2.99 |
|
| $ | 14.04 |
|
|
| 174,999 |
|
| $ | 14.04 |
|
| $ | 31.50 |
|
|
| 737,975 |
|
|
| 2.32 |
|
| $ | 31.50 |
|
|
| 737,975 |
|
| $ | 31.50 |
|
| $ | 36.24 |
|
|
| 22,333 |
|
|
| 2.32 |
|
| $ | 36.24 |
|
|
| 22,333 |
|
| $ | 36.24 |
|
| $ | 60.00 |
|
|
| 666 |
|
|
| 0.75 |
|
| $ | 60.00 |
|
|
| 666 |
|
| $ | 60.00 |
|
| $ | 2.00 |
|
|
| 256,200 |
|
|
| 3.56 |
|
| $ | 2.00 |
|
|
| 256,200 |
|
| $ | 2.00 |
|
| $ | 7.68 |
|
|
| 75,000 |
|
|
| 4.30 |
|
| $ | 7.68 |
|
|
| 75,000 |
|
| $ | 7.68 |
|
| 2019 Total |
|
|
| 1,376,139 |
|
|
|
|
|
|
|
|
|
|
| 1,376,139 |
|
|
|
|
| |
At March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
| 4,815,146 |
|
|
|
|
|
|
|
|
|
|
| 4,815,146 |
|
|
|
|
|
Summary of Plans – Upon completion of the Merger, the EMI Amended and Restated 2011 Stock Incentive Plan was assumed by the Company. The 2011 Stock Incentive Plan permits grants of incentive stock options to employees, including executive officers, and other share-based awards such as stock appreciation rights, restricted stock, stock units, stock bonus and unrestricted stock awards to employees, directors, and consultants. consultants for up to 9,000,000 shares of common stock. Options granted under the 2011 Stock Incentive Plan expire ten years after grant. Options granted to directors vest in equal quarterly installments and all other option grants vest over a minimum period of three years, in each case, subject to the optionee’s all based on continuous service with the Company. Each stock option outstanding under the 2011 Stock Incentive Plan at the effective time of the Merger was automatically converted into a stock option to purchase a number of shares of the Company’s common stock and at an exercise price calculated based on the exchange ratio in the Merger.
The Company also maintains ahas an Amended and Restated 2012 Omnibus Incentive Compensation Plan under which the Company may grant incentive stock options and other stock awards to selected employees including officers, and to non-employee consultants and non-employee directors. All outstanding stock optionsaward under the 2012 Omnibus Incentive Compensation Plan were fully vested prior to the merger.Merger and the Company intends not to make any further awards under thereunder.
Stock options—During the ninethree months ended September 30,March 31, 2020, the Company did 0t issue any stock options. During the year ended December 31, 2019, the Company grantedstock options to purchase 50,000 shares of common stock. The options have an exercise price of $10.30 per share. During the year ended December 31, 2018, the Company grantedstock options to purchase up to 357,000 shares of Company common stock. All of the options are exercisable for ten years of from the date of grant and will vest and become exercisable with respect to the underlying shares as follows: as to one‑third (1/3) of the shareshares on the first anniversary of the grant date, and as to the remaining two‑thirds (2/3) of the shares in twenty‑four (24) approximately equal monthly installments over a period of two years thereafter.
Upon completion of the Merger, the option exercise prices and number of underlying option shares were adjusted based upon “exchange ratio” in the Merger.
A summary of outstanding stock options as of September 30, 2019March 31, 2020 and December 31, 2018 are2019 is presented below.
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||
|
| Number of Options |
|
| Weighted‑ Average Exercise Price |
|
| Number of Options |
|
| Weighted‑ Average Exercise Price |
|
| Number of Options |
|
| Weighted‑ Average Exercise Price |
|
| Number of Options |
|
| Weighted‑ Average Exercise Price |
| ||||||||
Options outstanding, beginning of period |
|
| 6,642,200 |
|
| $ | 4.40 |
|
|
| 6,775,200 |
|
| $ | 4.12 |
|
|
| 7,245,350 |
|
| $ | 4.68 |
|
|
| 6,642,200 |
|
| $ | 4.40 |
|
Granted or deemed granted |
|
| 636,683 |
|
| $ | 7.09 |
|
|
| 357,000 |
|
| $ | 11.28 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 636,683 |
| (a) | $ | 10.10 |
|
Exercised |
|
| (200 | ) |
| $ | 5.00 |
|
|
| (170,000 | ) |
| $ | 4.59 |
|
|
| 0 |
|
| $ | 0 |
|
|
| (167 | ) |
| $ | 5.00 |
|
Cancelled, forfeited and expired |
|
| (33,333 | ) |
| $ | 11.30 |
|
|
| (320,000 | ) |
| $ | 6.06 |
|
|
| 0 |
|
| $ | 0 |
|
|
| (33,366 | ) |
| $ | 11.29 |
|
Options outstanding, end of period |
|
| 7,245,350 |
|
| $ | 4.68 |
|
|
| 6,642,200 |
|
| $ | 4.40 |
|
|
| 7,245,350 |
|
| $ | 4.68 |
|
|
| 7,245,350 |
|
| $ | 4.68 |
|
Options exercisable, end of period |
|
| 6,987,464 |
|
| $ | 4.46 |
|
|
| 5,958,783 |
|
| $ | 3.87 |
|
|
| 7,039,339 |
|
| $ | 4.51 |
|
|
| 7,001,680 |
|
| $ | 4.47 |
|
Options available for future grant |
|
| 2,167,150 |
|
|
|
|
|
|
| 2,357,800 |
|
|
|
|
|
|
| 2,167,150 |
|
|
|
|
|
|
| 2,167,150 |
|
|
|
|
|
(a) | Upon the Merger, the exercise prices of outstanding EMI options and number of shares of the Company common stock underlying the options were adjusted based upon the exchange ratio in the Merger. |
During the ninethree months ended September 30,March 31, 2020 and March 31, 2019, and 2018, the Company recognized approximately $3.5$0.2 million and $1.7$0.6. million, respectively, of share-based compensation expense arising from stock options, including $1.9 million of one-time adjustments resulting from the Mergerexpense. As of September 30, 2019,March 31, 2020, there was approximately $1.7$1.9 million of total unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Company’s 2011 Stock Incentive Plan. That expensewhich is expected to be recognized over the weighted-average remaining vesting period of 1.91.5 years.
Purchase Agreement with Lincoln Park Capital Fund, LLC—On February 28, 2020, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company may elect to sell to LPC from time to time up to $25,000,000 in shares of its common stock, subject to certain limitations and conditions set forth in the Purchase Agreement, including 100,000 initial shares that the Company sold to LPC at a price of $2.00 per share.
Pursuant to the Purchase Agreement, on any business day over the 36-month term of the Purchase Agreement the Company has the right at its discretion and subject to certain conditions to direct LPC to purchase up to 20,000 shares of common stock, which amount is subject to increase under certain circumstances based upon increases in the market price of its common stock. The purchase price of the common stock will be based upon the prevailing market price of common stock at the time of the purchase without any fixed discount. In addition, the Company may direct LPC to purchase additional amounts as accelerated purchases and additional accelerated purchases under certain circumstances. Apart from the initial sale of shares described above, the Company is not obliged to sell any shares of common stock pursuant to the Purchase Agreement, and the Company will control the timing and amount of any such sales, but in no event will LPC be required to purchase more than $1,000,000 of common stock in any single regular purchase (excluding accelerated or additional accelerated purchases).
Concurrently with the execution of the Purchase Agreement on February 28, 2020, the Company entered into a Registration Rights Agreement pursuant to which the Company agreed to file a prospectus supplement pursuant to Rule 424(b) relating to the sale shares of common stock to be issued and sold to LPC under the Purchase Agreement under our effective shelf registration statement or a new registration statement and to use our reasonable best efforts to keep such registration statement effective during the term of the Purchase Agreement.
The Purchase Agreement contains customary representations, warranties, indemnification rights and other obligations and agreements of the company and LPC. There are no limitations and conditions to completing future transactions other than a prohibition against entering into a “Variable Rate Transaction” as defined in the Purchase Agreement. There is no upper limit on the
price per share that LPC could be obligated to pay for common stock, but shares will only be sold to LPC on a day the Company’s closing price is less than the floor price as set forth in the Purchase Agreement and if the sale of the shares would not result in LPC and its affiliates having beneficial ownership of more than 4.99% of the Company’s total outstanding shares of common stock. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. As consideration for LPC’s commitments under the Purchase Agreement, the Company issued to LPC 415,743 shares of common stock, which valued at $750,000, recorded as an addition to equity for common stock and reduction for cost of capital raised.
As of the date of filing of this Quarterly Report, the Company was out of compliance with certain terms and conditions of the Purchase Agreement and unable to utilize the Purchase Agreement. The Company may seek to bring itself into compliance or seek an appropriate waiver from LPC to regain the ability to utilize the Purchase Agreement, but there can be no assurance when or whether the Company may be able to do so. If the Company is able to utilize the Purchase Agreement, whether or to what extent the Company sells shares of common stock to LPC under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, its net revenue and other results of operations, its working capital and other funding needs, the prevailing market prices of the Company’s common stock and the availability of other sources of funding.
NOTE 9 — INCOME TAX
The quarterly provision for or benefit from income taxes is computed at an estimated annual effective tax rate to the year-to-date pre-tax income (loss).
For the three months ended March 31, 2020, the Company recorded a provision for income tax of $0.3 million. For the three months ended March 31, 2019, the Company recorded a provision for income tax of $52,000. The provisions for income taxes for the three months ended March 31, 2020, and 2019 were primarily related to state tax. The Company did not record a provision for federal income tax due to its net operating loss carryforwards. The Company established a full valuation allowance against its federal and state deferred tax asset and there was 0 unrecognized tax benefit as of March 31 2020 or 2019.
NOTE 10 — LEASES
Operating leases — The Company leases its office space under operating leases with unrelated entities.
We lease 13,734The Company leased 21,293 square feet of office space for our headquarters in Torrance, California, at a base rental of $48,087$78,543 per month. In December 2018, we have entered into an amended lease to expand our headquarter by an additional 7,559 square feet commencing September 9, 2019. The base monthly rent for this additional space of $27,590 will be payable commencing January 1, 2020. The amendedmonth, which lease will expire on May 31,September 30, 2026. WeThe Company also leaseleased an additional 1,600 square feet office space in Torrance, California, at a base rent of $2,240 per month and 2,9861,850 square feet office space in New York, New York, at a base rent of $5,500,$8,479, which leases will expire on January 31, 2020 and December 30, 2019, respectively.2023.
In addition, we leasethe Company leased 1,322 square feet of office space in Tokyo, Japan, which the lease will expire on September 30, 2020.
The rent expense during the three months ended September 30,March 31, 2020 and 2019 and 2018 amounted to approximately $286,000$311,000 and $191,000,$201,000, respectively. The rent expense during the nine months ended September 30, 2019 and 2018 amounted to approximately $705,000 and $493,000, respectively.
Future minimum lease payments under the lease agreements were as follows as of September 30, 2019March 31, 2020 (in thousands):
|
| Amount |
|
| Amount |
| ||
2019 (three months) |
| $ | 184 |
| ||||
2020 |
|
| 900 |
| ||||
2020 (nine months) |
| $ | 811 |
| ||||
2021 |
|
| 978 |
|
|
| 1,080 |
|
2022 |
|
| 1,006 |
|
|
| 1,110 |
|
2023 and thereafter |
|
| 3,668 |
| ||||
2023 |
|
| 1,043 |
| ||||
2024 and thereafter |
|
| 2,983 |
| ||||
Total lease payments |
|
| 6,736 |
|
|
| 7,027 |
|
Less: Interest |
|
| 2,178 |
|
|
| 2,138 |
|
Present value of lease liabilities |
| $ | 4,558 |
|
| $ | 4,889 |
|
The weighted average remaining lease term is 6.5 years and the weighted average discount rate is 13.1%.
The Company adopted ASUAccounting Standard Update (“ASU”) 2016-02– Lease (“Topic 842”) on January 1, 2019 using a modified retrospective approach and elected the transition method and the practical expedients permitted under the transition guidance, which allowed to carryforward the historical lease classification and our assessment on whether a contract is or contains a lease. The Company also elected to combine lease and non-lease components, such as common area maintenance charges, as single lease and elected to use the short-term lease exception permitted by the standard as noted in Note 2. Prior to
As a result of the adoption future minimumof Topic 842 on January 1, 2019, the Company recorded a $3.0 million in operating right-of-use asset and $3.3 million in lease payment underliability and derecognized $287,000 of deferred rent as of the non-cancellableadoption date. These were calculated
using the present value of the Company’s remaining lease payments using an estimated incremental borrowing rate. The Company also recorded a $29,000 cumulative effect increase on our accumulated deficit as of January 1, 2019. As of March 31, 2020, the Company had an operating lease right-of-use asset of $4.3 million and lease liability of $4.9 million in the balance sheet. The weighted average remaining term of the Company’s leases at Decemberas of March 31, 2018 were as follows (in thousands):
2020 was 6.3 years and the weighted-average discount rate was 12.8%.
NOTE 1011 — COMMITMENTS AND CONTINGENCIES
Management Control Acquisition Agreement — On June 12, 2017, the Company entered into a Management Control Acquisition Agreement (the “MCAA”) with Telcon Holdings, Inc., a Korean corporation, and Telcon RF Pharmaceutical Inc. (formerly Telcon Inc. and herein “Telcon”), a Korean-based public company whose shares are listed on KOSDAQ, a trading board of Korea Exchange in South Korea. In accordance with the MCAA, the Company invested the ₩36.0 billion KRW (approximately $31.8 million USD) of the proceeds from the advance payment by Telcon Inc. under the API Supply Agreement discussed below to purchase 6,643,559 shares of Telcon Inc.’s common shares at a purchase price of ₩5,419 KRW (approximately $4.79 USD) per share.
The MCAA was amended in certain respect and supplemented by an Agreement, dated as of September 29, 2017 (the “September 2017 Agreement”), among the parties. Pursuant to the September 2017 Agreement, among other things, Telcon purchased 4,444,445 shares of Company common stock from two non-affiliated stockholders of the Company at a price of $6.60 per share.
—On July 2, 2018, the Company entered into an additional agreement (the “Additional Agreement”) with Evercore Investment Holdings Co., Ltd. (formerly Telcon Holdings Co., Ltd.) (“Evercore”) and Telcon. In the Additional Agreement, the Company agreed to use the proceeds from any sales of the Company’s KPM Tech Co., Ltd. shares to repurchase shares of Company common stock from Telcon at a price of $7.60 a share, subject to certain exceptions, and Telcon granted the Company the right to repurchase all or a portion of Telcon’s shares of Company common stock at a price of $7.60 a share until October 31, 2018 and at a price to be agreed upon after October 31, 2018.
Raw Material Supply Agreement — As described in Note 2, on June 12, 2017, the Company entered into an API Supply Agreement with Telcon pursuant to which it advanced toTelcon paid the Company approximately ₩36.0 billion KRW (approximately $31.8 million USD) in consideration of the right to supply 25% of the Company’s requirements for bulk containers of PGLG for a term of fifteen (15) years.fifteen-year term. The amount advanced to the Company was recorded as a deferred Trade Discount.trade discount. On July 12, 2017, the partiesCompany entered into a Raw Materialraw material supply agreement with Telcon which revised certain terms of the original API Supply Agreement which superseded (the “revised API Supply Agreement.agreement”). The Raw Material Supply Agreementrevised API agreement is effective for a term of five years with tenand will renew automatically for 10 successive one-year renewal periods. The Raw Material Supply Agreement will automatically renew unless terminated byperiods, except as either party in writing. The Raw Material Supply Agreement provides thatmay determine. In the revised API agreement, the Company willhas agreed to purchase from Telcona total of 940,000 kilograms of PGLG at $50 USD per kilogram, or a total of $47.0 million. Themillion, over the term of the agreement. In September 2018, the Company purchases fromentered into an agreement with Ajinomoto Health and Nutrition North America, Inc. (“Ajinomoto”), the producer of the PGLG, and Telcon approximately $0.4 millionto facilitate Telcon’s purchase of PGLG monthlyfrom Ajinomoto for resale to the Company under the Raw Material Supply Agreement.revised API agreement.
On June 16, 2019, the Company entered into an agreement with Telcon to adjust the price payable to Telcon under the revised API agreement from $50 per kilogram of PGLG to $100 per kilogram from July 1, 2019 through June 30, 2020, with the price payable after June 30, 2020 to be subject to agreement between the parties. The PGLG raw material purchased from Telcon is includedrecorded in inventory at net realizable value (i.e., approximately $19 per kilogram as of September 30, 2019) withand the excess purchase price beingis recorded as a charge against the deferred Trade Discount.
trade discount. Refer to Note 6 for more information.
NOTE 1112 — RELATED PARTY TRANSACTIONS
The following table sets forth information relating to our loans from related persons outstanding on or at any timeas of March 31, 2020 and interest paid during the ninethree months ended September 30, 2019March 31, 2020 (in thousands):
Lender |
| Interest Rate |
|
| Date of Loan |
| Term of Loan |
| Principal Amount Outstanding at September 30, 2019 |
|
| Highest Principal Outstanding |
|
| Amount of Principal Repaid or Converted into Stock |
|
| Amount of Interest Paid |
|
| Conversion Rate |
|
| Shares Underlying Notes September 30, 2019 |
| Lender |
| Interest Rate |
|
| Date of Loan |
| Term of Loan |
| Principal Amount Outstanding at March 31, 2020 |
|
| Amount of Interest Paid |
|
| |||||||||||
Current, Promissory note payable to related parties: | Current, Promissory note payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current, Promissory note payable to related parties: |
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Lan T. Tran (2) |
| 10% |
|
| 4/29/2016 |
| Due on Demand |
|
| 20 |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Lan T. Tran (2) |
| 10% |
|
| 4/29/2016 |
| Due on Demand |
| $ | 20 |
|
| $ | — |
|
| ||
| Hope Hospice (1) |
| 10% |
|
| 6/3/2016 |
| Due on Demand |
|
| — |
|
|
| 250 |
|
|
| 250 |
|
|
| 78 |
|
|
| — |
|
|
| — |
| Lan T. Tran (2) |
| 11% |
|
| 2/10/2018 |
| Due on Demand |
|
| — |
|
|
| 35 |
|
| ||
| Lan T. Tran (2) |
| 10% |
|
| 2/9/2017 |
| Due on Demand |
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Lan T. Tran (2) |
| 10% |
|
| 2/9/2019 |
| Due on Demand |
|
| 14 |
|
|
| — |
|
| ||
| Yutaka Niihara (2)(3) |
| 10% |
|
| 9/14/2017 |
| Due on Demand |
|
| — |
|
|
| 904 |
|
|
| 27 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
| Subtotal |
|
| 34 |
|
|
| 35 |
|
| |
Revolving line of credit agreement | Revolving line of credit agreement |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
| Lan T. Tran (2) |
| 11% |
|
| 2/10/2018 |
| Due on Demand |
|
| 159 |
|
|
| 159 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Yutaka Niihara (2) |
| 5.25% |
|
| 12/27/2019 |
| Due on Demand |
|
| 600 |
|
|
| 10 |
|
| ||
| Lan T. Tran (2) |
| 10% |
|
| 2/9/2019 |
| Due on Demand |
|
| 14 |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
| Subtotal |
|
| 600 |
|
|
| 10 |
|
| |
|
|
|
|
|
|
|
|
| Subtotal |
| $ | 193 |
|
| $ | 1,359 |
|
| $ | 277 |
|
| $ | 80 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| Total |
| $ | 634 |
|
| $ | 45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Current, Convertible notes payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
| Yasushi Nagasaki (2) |
| 10% |
|
| 6/29/2012 |
| Due on Demand |
| $ | — |
|
| $ | 200 |
|
| $ | 200 |
|
| $ | 56 |
|
| $ | 3.30 |
|
|
| — |
| |||||||||||||||||||
| Yutaka & Soomi Niihara (2)(3) |
| 10% |
|
| 11/16/2015 |
| 2 years |
|
| — |
|
|
| 200 |
|
|
| 200 |
|
|
| 73 |
|
| $ | 4.50 |
|
|
| — |
| |||||||||||||||||||
| Wei Peu Zen (3) |
| 10% |
|
| 11/6/2017 |
| 2 years |
|
| — |
|
|
| 5,000 |
|
|
| 5,000 |
|
|
| 597 |
|
| $ | 10.00 |
|
|
| — |
| |||||||||||||||||||
| Profit Preview International Group, Ltd. (4) |
| 10% |
|
| 2/1/2018 |
| 2 years |
|
| — |
|
|
| 4,037 |
|
|
| 4,037 |
|
|
| 385 |
|
| $ | 10.00 |
|
|
| — |
| |||||||||||||||||||
| Profit Preview International Group, Ltd. (4) |
| 10% |
|
| 3/21/2018 |
| 2 years |
|
| — |
|
|
| 5,363 |
|
|
| 5,363 |
|
|
| 442 |
|
| $ | 10.00 |
|
|
| — |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
| Subtotal |
| $ | — |
|
| $ | 14,800 |
|
| $ | 14,800 |
|
| $ | 1,553 |
|
|
|
|
|
|
| — |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
| Total |
| $ | 193 |
|
| $ | 16,159 |
|
| $ | 15,077 |
|
| $ | 1,633 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
The following table sets forth information relating to our loans from related persons outstanding at any time during the year ended December 31, 2018:2019:
Lender |
| Interest Rate |
|
| Date of Loan |
| Term of Loan |
| Principal Amount Outstanding at December 31, 2018 |
|
| Highest Principal Outstanding |
|
| Amount of Principal Repaid or Converted into Stock |
|
| Amount of Interest Paid |
|
| Conversion Rate |
|
| Shares Underlying Notes December 31, 2018 |
| Lender |
| Interest Rate |
|
| Date of Loan |
| Term of Loan |
| Principal Amount Outstanding at December 31, 2019 |
|
| Highest Principal Outstanding |
|
| Amount of Principal Repaid or Converted into Stock |
|
| Amount of Interest Paid |
|
| Conversion Rate |
|
| ||||||||||||||
Current, Promissory note payable to related parties: | Current, Promissory note payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current, Promissory note payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Masaharu & Emiko Osato (3) |
| 11% |
|
| 12/29/2015 |
| Due on Demand |
| $ | — |
|
| $ | 300 |
|
| $ | 300 |
|
| $ | 76 |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||||||||||
| Lan T. Tran (2) |
| 11% |
|
| 2/10/2016 |
| Due on Demand |
|
| — |
|
|
| 131 |
|
|
| 131 |
|
|
| 29 |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||||||||||
| Masaharu & Emiko Osato (3) |
| 11% |
|
| 2/25/2016 |
| Due on Demand |
|
| — |
|
|
| 400 |
|
|
| 400 |
|
|
| 94 |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||||||||||
| Lan T. Tran (2) |
| 10% |
|
| 4/29/2016 |
| Due on Demand |
|
| 20 |
|
|
| 20 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Lan T. Tran (2) |
| 10% |
|
| 4/29/2016 |
| Due on Demand |
| $ | 20 |
|
| $ | 20 |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| ||
| Hope Hospice (1) |
| 10% |
|
| 6/3/2016 |
| Due on Demand |
|
| 250 |
|
|
| 250 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Hope International Hospice, Inc. (1) |
| 10% |
|
| 6/3/2016 |
| Due on Demand |
|
| — |
|
|
| 250 |
|
|
| 250 |
|
|
| 78 |
|
|
| — |
|
| ||
| Lan T. Tran (2) |
| 10% |
|
| 2/9/2017 |
| Due on Demand |
|
| 12 |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Lan T. Tran (2) |
| 10% |
|
| 2/9/2017 |
| Due on Demand |
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
| ||
| Yutaka Niihara (2)(3) |
| 10% |
|
| 9/14/2017 |
| Due on Demand |
|
| 27 |
|
|
| 904 |
|
|
| 877 |
|
|
| 95 |
|
|
| — |
|
|
| — |
| Yutaka Niihara (2)(3) |
| 10% |
|
| 9/14/2017 |
| Due on Demand |
|
| — |
|
|
| 904 |
|
|
| 27 |
|
|
| 2 |
|
|
| — |
|
| ||
| Lan T. Tran (2) |
| 11% |
|
| 2/10/2018 |
| Due on Demand |
|
| 159 |
|
|
| 159 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Lan T. Tran (2) |
| 11% |
|
| 2/10/2018 |
| Due on Demand |
|
| 159 |
|
|
| 159 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| ||
|
|
|
|
|
|
|
|
| Subtotal |
| $ | 468 |
|
| $ | 2,176 |
|
| $ | 1,708 |
|
| $ | 294 |
|
|
|
|
|
|
| — |
| Lan T. Tran (2) |
| 10% |
|
| 2/9/2019 |
| Due on Demand |
|
| 14 |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subtotal |
|
| 193 |
|
|
| 1,359 |
|
|
| 277 |
|
|
| 82 |
|
|
|
|
|
|
Current, Convertible notes payable to related parties: | Current, Convertible notes payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current, Convertible notes payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Yasushi Nagasaki (2) |
| 10% |
|
| 6/29/2012 |
| Due on Demand |
|
| 200 |
|
|
| 200 |
|
|
| — |
|
|
| — |
|
| $ | 3.30 |
|
|
| 74 |
| Yasushi Nagasaki (2) |
| 10% |
|
| 6/29/2012 |
| Due on Demand |
|
| — |
|
|
| 200 |
|
|
| 200 |
|
|
| 56 |
|
| $ | 3.30 |
|
| ||
| Yutaka & Soomi Niihara (2)(3) |
| 10% |
|
| 11/16/2015 |
| 2 years |
|
| 200 |
|
|
| 200 |
|
|
| — |
|
|
| — |
|
| $ | 4.50 |
|
|
| 58 |
| Yutaka & Soomi Niihara (2)(3) |
| 10% |
|
| 11/16/2015 |
| 2 years |
|
| — |
|
|
| 200 |
|
|
| 200 |
|
|
| 73 |
|
| $ | 4.50 |
|
| ||
| Wei Peu Zen (3) |
| 10% |
|
| 11/6/2017 |
| 2 years |
|
| 5,000 |
|
|
| 5,000 |
|
|
| — |
|
|
| 250 |
|
| $ | 10.00 |
|
|
| 533 |
| Wei Peu Zen (3) |
| 10% |
|
| 11/6/2017 |
| 2 years |
|
| — |
|
|
| 5,000 |
|
|
| 5,000 |
|
|
| 597 |
|
| $ | 10.00 |
|
| ||
|
|
|
|
|
|
|
|
| Subtotal |
| $ | 5,400 |
|
| $ | 5,400 |
|
| $ | — |
|
| $ | 250 |
|
|
|
|
|
|
| 665 |
| Profit Preview International Group, Ltd. (4) |
| 10% |
|
| 2/1/2018 |
| 2 years |
|
| — |
|
|
| 4,037 |
|
|
| 4,037 |
|
|
| 385 |
|
| $ | 10.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit Preview International Group, Ltd. (4) |
| 10% |
|
| 3/21/2018 |
| 2 years |
|
| — |
|
|
| 5,363 |
|
|
| 5,363 |
|
|
| 442 |
|
| $ | 10.00 |
|
| |
Non Current, Convertible notes payable to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| Subtotal |
|
| — |
|
|
| 14,800 |
|
|
| 14,800 |
|
|
| 1,553 |
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Revolving line of credit agreement | Revolving line of credit agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
| Profit Preview International Group, Ltd. (4) |
| 10% |
|
| 2/1/2018 |
| 2 years |
|
| 4,037 |
|
|
| 4,037 |
|
|
| — |
|
|
| 202 |
|
| $ | 10.00 |
|
|
| 420 |
| Yutaka Niihara (2) |
| 5% |
|
| 12/27/2019 |
| Due on Demand |
|
| 600 |
|
|
| 600 |
|
|
| — |
|
|
| — |
|
|
|
|
|
| ||
| Profit Preview International Group, Ltd. (4) |
| 10% |
|
| 3/21/2018 |
| 2 years |
|
| 5,363 |
|
|
| 5,363 |
|
|
| — |
|
|
| 268 |
|
| $ | 10.00 |
|
|
| 552 |
|
|
|
|
|
|
|
|
| Subtotal |
|
| 600 |
|
|
| 600 |
|
|
| — |
|
|
| — |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Subtotal |
| $ | 9,400 |
|
| $ | 9,400 |
|
| $ | — |
|
| $ | 470 |
|
|
|
|
|
|
| 972 |
|
|
|
|
|
|
|
|
| Total |
| $ | 793 |
|
| $ | 16,759 |
|
| $ | 15,077 |
|
| $ | 1,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 15,268 |
|
| $ | 16,976 |
|
| $ | 1,708 |
|
| $ | 1,014 |
|
|
|
|
|
|
| 1,637 |
|
(1) | Dr. Niihara, a Director and the Chairman, and Chief Executive Officer of the Company, is also a director and the Chief Executive Officer of Hope |
(2) | Officer. |
(3) | Director. |
See Notes 6, 11 and 13 for a discussion of the Company’s distribution and supply agreements with Telcon, which holds 4,147,491 shares of the Company common stock, or approximately 8.6% of the common stock outstanding as of March 31, 2020. As of March 31, 2020, the Company held 6,643,559 shares of Telcon stock as discussed in Note 5.
NOTE 1213 — SUBSEQUENT EVENTS
On May 8, 2020, the Company received a loan in the amount of $797,840 under the Small Business Administration Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loan, which was in the form of a Promissory Note dated April 29, 2020, matures on April 29, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on December 8, 2020 unless the PPP loan forgiveness process has commenced or is forgiven prior to the date of the first monthly payment. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The loan and accrued interest are forgivable after a specific period as long as the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness would be reduced if the Company were to terminate employees or reduce salaries during such period.The Company believes it has used the entire loan amount for purposes consistent with the PPP and has applied for forgiveness of the loan on October 30, 2020. There is no assurance that the loan will be forgiven.
On June 15, 2020, the holder of a convertible promissory note in the principal amount of $3,150,000 agreed to an extension of the maturity date to June 15, 2023. The interest for the note was increased from 11% to 12%. In conjunction with this amendment, the Company issued to the holder of note five-year common stock purchase warrants to purchase a total of up to 1,250,000 shares of the Company common stock at an exercise price of $2.05 a share.
On September 22, 2020, the Company and EMI entered into a securities amendment agreement (the “September 2020 Amendment”) with the holders of our outstanding 10% Senior Secured Convertible Debentures described above. The September 2020 Amendment amended in certain respects the securities purchase agreement among EMI and the Debenture holders originally entered into on September 8, 2018, as amended by the February 2020 Amendment, and provides that the Debentures are to be amended in certain respects as set forth in the form of Allonge Amendment No. 1 to the debentures included in the September 2020 Agreement (the “Allonge”). Pursuant to the Allonge, the aggregate monthly redemption payments under the Debentures were reduced to $500,000 from $1,000,000 in principal amount and the maturity date of the Debentures was extended from April 21, 2021 to August 31, 2021. The monthly redemption payments resumed in September 2020 and will continue on the first day of each month thereafter commencing October 1, 2020. The remaining principal balance of the Debentures will be due and payable upon maturity, subject to mandatory prepayment in connection with certain “Capital Events” as defined.
In consideration of the Debenture holder’s financial accommodations to the Company, the Company issued to the holders, pro rata based upon the relative principal amounts of their Debentures, five-year common stock purchase warrants to purchase a total of up to 1,840,000 shares of the Company common stock at an exercise price of $2.00 a share. The warrants provide for so-called full-ratchet anti-dilution adjustments in the event the Company sells or issues shares of common stock or common stock equivalents at an effective price per share less than the exercise price of the warrants, subject to certain exceptions. The exercise price also remains subject to adjustment for stock splits and other customary events. In October 2018, the Company granted to T.R. Winston and its affiliates for services relating to the September 2020 Amendment common stock purchase warrants to purchase up to 75,000 shares of the Company common stock at an exercise price of $2.10 a share and otherwise on terms identical to the warrants issued to the debenture holders described above. In March 2021, the conversion price of the Debentures, which have since been retired and the exercise price of the these and the other warrants related to the Debentures was reduced to $1.54 in connection with our issuance of shares of common stock to Kainos Medicine, Inc. referred to below in this Note 13. In March 2021, we prepaid the Debentures in full in accordance with their terms.
On September 28, 2020, the Company entered into a convertible bond purchase agreement with Telcon pursuant to which it purchasedon October 16, 2020 at face value a convertible bond of Telcon in the principal amount of $26.1 million, on the terms described in the purchase agreement. The Company purchased the convertible bond with a portion of the net proceeds from the sale of Telcon common shares owned by us. The sale of the Telcon shares and purchase of the Telcon convertible bond was in accordance with our December 23, 2019 agreement with Telcon. As contemplated by the December 23, 2019 agreement, the convertible bond and any proceeds therefrom, including proceeds from any exercise of the call option or early redemption right described below, replace the Company’s former Telcon shares and proceeds therefrom as collateral under the revised API Supply Agreement with Telcon.
The Telcon convertible bond matures on October 16, 2030 and bears interest at the rate of 2.1% a year, payable quarterly. Beginning on October 16, 2021, the holder of the convertible bond will be entitled on a quarterly basis to call for early redemption of all or any portion of the principal amount of the convertible bond. To the extent not previously redeemed, the principal amount of the bond will be due upon maturity. The convertible bond is convertible at the holder’s option at any time and from time to time into
common shares of Telcon at an initial conversion price of approximately $8.00 per share. The conversion price is subject to antidilution adjustments in the event of the issuance of Telcon shares or share equivalents at a price below the market price of Telcon shares, a merger or similar reorganization of Telcon or a stock split, reverse stock split, stock dividend or similar event.
In connection with the purchase of the convertible bond, the Company has evaluated subsequent eventsentered into a call option agreement dated September 28, 2020 with Telcon pursuant to which Telcon or its designee is entitled to repurchase, at par, up to 50% in principal amount of the convertible bond commencing October 16, 2021 and prior to maturity. If the Company transfers the convertible bond, it will be obliged under the call option agreement to see to it that the transferee is bound by such call option.
On October 28, 2020, the Company entered into a loan agreement with EJ Holdings pursuant to which it agreed to loan to EJ Holdings a total of approximately $6.5 million, in monthly installments through November 13, 2019,March 2021, including approximately $4.0 million, loaned through December 31, 2020. The loans will be unsecured general obligations of EJ Holdings, will bear interest at a nominal annual rate payable on September 30 of each year beginning in 2021 and will be due and payable in a lump sum at maturity on September 30, 2028. The proceeds of the loans will be used by EJ Holdings to fund its activities and operations at its Ube facility as described under “Equity method investment” in Note 5 above.
On February 9, 2021, the Company entered into a securities purchase agreement with an effective date of February 8, 2021 pursuant to which the Company agreed to sell and issue to the purchasers thereunder in a private placement pursuant to Rule 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D thereunder a total of up to $17 million in principal amount of convertible promissory notes of the Company for a purchase price equal to the principal amount thereof. As of April 5, 2021, the Company had sold approximately $14.5 million of the convertible promissory notes. Of the net proceeds from the sale of the convertible promissory notes, $6.2 million was used to prepay the outstanding 10% Senior Secured Convertible Debentures as described above.
Commencing one year from the original issue date, the financial statements were issued. No events requireconvertible promissory notes will be convertible at the option of the holder into shares of the Company common stock at an initial conversion price of $1.48 per share, which equaled the “Average VWAP” (as defined) of our common stock on the effective date. The initial conversion price will be adjusted as of the end of each three-month period following the original issue date, commencing May 31, 2021, to equal the Average VWAP as of the end of such three-month period if such Average VWAP is less than the then-conversion price. The conversion price will be subject to further adjustment of, or disclosure in the financial statements exceptevent of a stock split, reverse stock split or certain other events specified in the convertible promissory notes.
The convertible promissory notes will bear interest at the rate of 2% per annum payable semi-annually on the last business day of August and January of each year and will mature on the 3rd anniversary of the original issue date. The convertible promissory notes will become prepayable in whole or in part at the election of the holders on or after February 28, 2022 if our common shall not have been approved for listing on the common stock issuedNYSE American, the Nasdaq Capital Market or other “Trading Market” (as defined). The Company will be entitled to prepay up to 50% of the principal amount of the convertible promissory notes at any time after the first anniversary and on or before the second anniversary of the original issue date for a prepayment amount equal to the principal amount being prepaid, accrued and unpaid interest thereon and a prepayment premium equal to 50% of such principal amount. The convertible promissory notes are general, unsecured obligations of the Company.
Effective February 22, 2021, the Company’s subsidiary, Emmaus Medical, Inc., or Emmaus Medical, entered into a purchase and sale 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 70% (subject to increase to 75%) of the face amount of the accounts receivable, subject to a $7,500,000 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 discount fees of Prestige Capital ranging from 2.25% to 7.25% of the face amount, as follow: 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.
|
| Amount |
|
| Number of Shares Issued |
| ||
Common stock |
| $ | 2,400,000 |
|
|
| 800,000 |
|
In connection with the purchase and sale agreement, the Company agreed to guarantee Emmaus Medical’s obligations under the purchase and sale agreement. The Company’s obligations under the guarantee are unsecured.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
With respect toIn the following discussion, the terms, “we,” “us,” “our,” “Emmaus” or the “Company” refer to Emmaus Life Sciences, Inc., (formerly “MYnd Analytics, Inc.”) and its direct and indirect wholly-owned subsidiaries including EMI Holding, Inc. (“EMI”).
Forward-Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited consolidated financial statements and the related notes included in the EMI’sour Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the Securities and Exchange Commission (“SEC”) on March 21, 2019January 25, 2021 (the “Annual Report”).
This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than historical facts contained in this report, including statements regarding our future financial position, capital expenditures, cash flows, business strategy and plans and objectives of management for future operations are forward-looking statements. The words “anticipate,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including without limitation, our ability to raise additional capital to fund our operations, market acceptancethose set forth in the “Risk Factors” section of Endari®, our reliance on third-party manufacturers for our drug products, our exposure to product liability and defect claims, obtaining, and, or, maintaining the U.S. Food and Drug Administration (“FDA”) and other regulatory authorization to market Endari®, maintaining an active public trading market for our securities, and various other matters,Annual Report, many of which are beyond our control.
Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements. We undertake no duty to amend or update these statements beyond what is required by SEC reporting requirements.
Company Overview
We are a commercial-stage biopharmaceutical company engaged in the discovery, development, marketing and sale of innovative treatments and therapies, primarily for rare and orphan diseases. On July 7, 2017, the U.S. Food and Drug Administration, or FDA, approved Emmaus’our lead product, Endari® (L-glutamine (prescription-grade L-glutamine oral powder), to reduce the severe complications of sickle cell disease or SCD,(“SCD”) in adult and pediatric patients five years of age and older, and in January 2018, we began marketing and sellingolder. Endari® in the U.S. Endari® has received Orphan Drug designation from the FDA and Orphan Medical designation from the European Commission, or EC, which designations afford marketing exclusivity for Endari® for a seven-year period in the U.S. and ten-year period in the E.U.,European Union, respectively, following marketing approval.
We commenced commercialization of Endari® in the U.S. in January 2018 in collaboration with a contract sales organization. Effective January 2020, we have relied upon our in-house commercial sales team. Endari® is reimbursable by the Centers for Medicare and Medicaid Services, and every state provides coverage for Endari® for outpatient prescriptions to all eligible Medicaid enrollees within their state Medicaid programs. Endari® is also reimbursable by many commercial payors. We have distribution agreements in place with the nation’s leading distributors as well as physician group purchasing organizations and pharmacy benefits managers, making Endari® available at selected pharmacies nationwide.
Until we began marketing and selling Endari® in the U.S. in early 2018, we had minimal revenues and relied upon funding from sales of equity securities and debt financings and loans, including loans from related parties.parties to fund our business and operations. As of September 30, 2019,March 31, 2020, our accumulated deficit was $216.9$220.9 million and we had cash and cash equivalents of $13.5 million,$2.2 million. We expect net revenues to increase as we expand our commercialization of which $12.2 million was attributable to EJ Holdings Inc., a Japanese company which we consolidate as a variable interest entity (“VIE”). Endari® in the U.S. and expand or commence early access programs and eventual marketing and commercialization abroad.
Until we can generate sufficient Endari® salesnet revenues, our future cash requirements are expected to be financed through public or private equity offerings,or debt financings, loans or corporate collaboration and licensing arrangements. Becauseagreement.
As reported in more detail in our Current Report on Form 8-K filed with the SEC on July 22, 2019, as amended by our Form 8-K/A filed on August 14, 2019, on July 17, 2019, we completed our merger transaction with EMI Holding, Inc., formerly known as Emmaus Life Sciences, Inc. (“EMI”), in accordance with the terms of the numerous risks and uncertainties associated with pharmaceutical development, we are unable to predict if or when we will become profitable.
We were incorporated in Delaware on March 20, 1987 under the name Age Research, Inc. Prior to January 16, 2007, our company (then called Strativation, Inc.) existed as a “shell company” which nominal assets and whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge. On January 16, 2007, we entered into an Agreement and Plan of Merger with CNS Response,and Reorganization, dated as of January 4, 2019, among us, Athena Merger Subsidiary, Inc., and CNSEMI, as amended by Amendment No. 1 thereto, dated as of May 10, 2019, which we refer to as the merger agreement. Pursuant to the merger agreement, Athena Merger Corporation,Subsidiary, Inc. merged into EMI, with EMI surviving as our wholly owned subsidiary, pursuant to which CNS Merger Corporation merged with and into CNS Response, Inc., which survivedsubsidiary. On July 17, 2019, immediately after completion of the merger. On March 7, 2007,merger, we changed our corporate name to CNS Response, Inc. On November 2, 2015, we changed our corporate name to MYnd Analytics, Inc. As described above, on July 17, 2019, we changed our corporate name to Emmaus“Emmaus Life Sciences, Inc.
Our principal executive offices are located at 21250 Hawthorne Boulevard, Suite 800, Torrance, California 90503, and our telephone number there is (310) 214-0065.”
The merger was treated as a reverse recapitalization transaction under the acquisition method of accounting in accordance with accounting principles generally accepted in the U.S. For accounting purposes, EMI is considered to have acquired us. The merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
Financial Overview
Since January 2018, we have generated net revenues primarily through the sale of Endari® as a treatment for SCD. We also generate revenues to a much lesser extent from AminoPure, a nutritional supplement.
RevenuesNet revenues from Endari® product sales are recognized upon delivery and transfer of control of products to the Company’sour distributors and specialty pharmacy providers. Distributors resell theour products to other pharmacy and specialty pharmacy providers, health care providers, hospitals, patients and clinics. In addition to distribution agreements with these distributors, we enterhave entered into contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that provide for government-mandated and/or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products. These various discounts, rebates, and chargebacks are referred to as “variable consideration.” RevenuesRevenue from product sales areis recorded net of variable consideration.
PriorUnder the Accounting Standards Codification (“ASC”) 606, the Company recognizes revenue when its customers obtain control of the Company's product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that the Company expects to recognizing revenues, we forecast and estimate variable consideration. Amountsreceive in exchange for the product, or transaction price. To determine revenue recognition for contracts with customers within the scope of variable consideration are includedASC 606, the Company performs the following: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the extent that it is probable that a significant reversalCompany’s performance obligations in the amountcontract; and (v) recognize revenue when (or as) the Company satisfies the relevant performance obligations.
Revenue from product sales is recorded at the transaction price, net of cumulative revenues recognized will not occur when the uncertainty associated with theestimates for variable consideration consisting of sales discounts, returns, government rebates, chargebacks and commercial discounts. Variable consideration is subsequently resolved.
Provisions for returns and otherestimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible transaction prices. Actual variable consideration adjustments are provided for in the period in which the related revenues are recorded. Actual amounts of variable consideration ultimately received may differ from ourthe Company's estimates. If actual results in the future vary from ourthe Company's estimates, we will adjust these estimates, which would affect net product revenue and earningsthe Company adjusts the variable consideration in the period such variances become known.known, which would affect net revenues in that period. The following are our significant categories of variable consideration:
Sales Discounts and Allowances:: We provide our customers contractual prompt payment and large order discounts and from time to time offersoffer additional one-time discounts for bulk orders that are recorded as a reduction of revenuesrevenue in the period the revenues arerevenue is recognized.Sales attributable to one-time discounts offered by us increased in 2019 and in the three months ended March 31, 2020 and may adversely affect sales in subsequent periods.
Product Returns:Returns: We offer our distributors a right to return product purchased directly from usprincipally based principally upon (i) overstocks, (ii) inactive productsproduct or non-moving product due to market conditions, and (iii) expired products.product. Product return allowances are estimated and recorded at the time of sale.
Government Rebates:Rebates: We are subject to discount obligations under state Medicaid programs and the Medicare Part D prescription drug coverage gap program. We estimate Medicaid and Medicare Part D 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 inas accounts payable and accrued expenses on our balance sheet. Our liability for these rebates consists primarily of estimates of claims expected to be received in future periods related to recognized revenues.
Chargebacks and Discounts: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 us for the difference between what they pay for the products and our contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities. In addition, we have contractual agreements with pharmacy benefit managers who charge us for rebates and administrative fee in connection with the utilization of product.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 productsproduct by our distributors.
Cost of Goods Sold
Cost of goods sold includes theconsists primarily of expenses for raw materials, packaging, shipping and distribution costs of Endari® and of AminoPure, nutritional supplement..
Research and Development Expenses
Research and development costsexpenses consist of expenditures for new products and technologies whichconsisting primarily involveof fees paid to contract research organizations (“CRO”) that conduct clinical trials of our product candidates, payroll-related expenses, study site payments, consultant fees and activities related to regulatory filings, manufacturing development costs and other related supplies.costs. The costs of later-stage clinical studies such as Phase 2 and 3 trials are generally higher than those of earlier stages of development, such as preclinical studies and Phase 1 trials.studies. This is primarily due to the increasedlarger size, expanded scope, patient related healthcare and regulatory compliance costs, and generally longer duration of later-stage clinical studies.
TheOur contracts with CROs are generally based on time and materials expended, whereas study site agreements are generally based on costs per patient as well as other pass-through costs, including but not limited to, start-up costs and institutional review board fees. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.
Future research and development expenses will depend on any new product candidates or technologies that we may introduce into our research and development pipeline. In addition, we cannot forecast with any degree of certaintypredict which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree, if any, such arrangements would affect our development plans and capital requirements.
Due to the inherently unpredictable nature of the drug approval process for developing drugs, biologics and cell-based therapies and the interpretation of the regulatory requirements, we are unable to estimate with any degree of certainty the amount of costs which will be incurred inof obtaining regulatory approvalsapproval of Endari® outside of the U.S. andor the continued development of our other preclinical and clinical programs. Clinical development timelines, the probability of success and development costs can differ materially from expectations and can vary widely. These and other risks and uncertainties relating to product development are described in the Annual Report under the headings “Risk Factors—Risks Related to Development of our Product Candidates,” “Risk Factors—Risks Related to our Reliance on Third Parties,”Our Business” and “Risk Factors—Risks Related to Regulatory ApprovalOversight of our Product CandidatesOur Business and Other Legal Compliance Matters.with Law.”
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs, including share-based compensation for personnel inour directors and executive finance, business development, information technology, marketing and legal functions.officers, of our employees, including our in-house commercialization team. Other general and administrative expenses include facility costs, patent filing costs and professional fees and expenses for legal, consulting, auditing and tax services. Inflation has not had a material impact on our general and administrative expenses over the past two years.
Selling Expenses
Selling expenses consist principally of salaries and related costs for personnel involved in the launch, promotion, sale and marketing of our products. Other selling cost include advertising, commissions, third party consulting costs, the cost of contracted and in-house sales personnel and travel.travel-related costs. We expect selling expenses, as well as general and administrative expenses to increase as we addacquire additional sales and administrative personnel to support the commercialization of Endari®. in the U.S. and abroad.
Inventories
Inventories consist of raw material,materials, finished goods and work-in-process and are valued on a first-in, first-out basis and at the lower of cost or net realizable value. Substantially all of the raw materialmaterials purchased during the ninethree months ended September 30,March 31, 2020 and 2019 and 2018 was fromwere supplied by one vendor.
Results of OperationsOperations:
Three months ended September 30,March 31, 2020 and 2019 and 2018
Revenues, Net. Net revenues increased by $1.2$2.3 million, or 25%48%, to $6.1$7.0 million for the three months ended September 30, 2019 from $4.9March 31, 2020 compared to $4.7 million for the three months ended September 30, 2018. Substantially all of these revenues were from sales of Endari®, and revenues from sales of AminoPure were immaterial.March 31, 2019. The increase in net revenues iswas primarily attributable to the higher market acceptance of Endari® and expansion of our customer base. We expectbase and, to a lesser extent, a 4.0% price increase for Endari® revenues to continue to increase as we expand our commercialization efforts in the United States and abroad.implemented January 1, 2020.
Cost of Goods Sold. Cost of goods sold wereincreased by $0.2 million and $0.1or 85%, to $0.5 million for the three months ended September 30, 2019 andMarch 31, 2020 compared to $0.3 million for the three months ended September 30, 2018, respectively. Cost of goods sold includes costs for raw material, packaging, testing, shipping and costs related to scrapped inventory.March 31, 2019. Substantially all of the raw material purchased during the three months ended September 30,March 31, 2020 and 2019 and 2018 waswere from one vendor.
Research and Development Expenses. Research and development expenses increased by $0.3$0.1 million, or 56%20%, to $0.7$0.6 million for the three months ended September 30, 2019 fromMarch 31, 2020 compared to $0.5 million for the three months ended September 30, 2018.March 31, 2019. This increase was primarily due to an increase in expenses related to our sponsored diverticulosis study. We expect our research and development costs to increase in the remainder of 20192020 as the study progresses.
Selling Expenses. Selling expenses increaseddecreased by $0.6$0.4 million, or 46%28%, to $1.8$1.1 million for the three months ended September 30,March 31, 2019 from $1.2compared to $1.5 million for the three months ended September 30, 2018. Selling expenses consist primarily of distribution fees, sales force fees, promotion, travel, marketing and branding expenses for Endari® and to a much lesser extent costs of distribution and promotion related to AminoPure.March 31, 2019. The increasedecrease in selling expenses was primarily due to an increasea decrease of $0.1$1.1 million in contract sales force fees for Endari® andoffset by an increase of $0.5$0.7 million in salaries and other marketing activities including public relations,in-house sales meeting and sponsorships. We anticipate that our selling expenses will increase during the remainder of 2019team compensation as we expandhave relied on our in-house commercial team for marketing of Endari® marketing and sales activities.in the U.S. starting in January 2020.
General and Administrative Expenses. General and administrative expenses increaseddecreased slightly by $1.8$0.1 million, or 35%2%, to $7.0$3.7 million for the three months ended September 30, 2019 from $5.2March 31, 2020 compared to the three months ended March 31, 2019. The decrease of general and administrative expenses was primarily due to a decrease of $0.4 million in shared-based compensation expenses partially offset by increases of $0.2 million in insurance expenses and $0.1 million in office rent expenses.
Other Income (Expense). Total other income increased by $20.7 million, or 129%, to $4.7 million for the three months ended September 30, 2018. General and administrative expenses include share-based compensation expenses, professional fees, office rent and payroll expenses. The increase of general and administrative expenses is primarily dueMarch 31, 2020, compared to an increase of $0.9 million in professional services, an increase of $0.4 million in share-based compensation, $0.3 million in salaries and an increase of $0.2 million in insurance expense. The increase in share-based compensation includes $1.9 million of additional one-time expenses resulting from the Merger. We will continue to review and adjust our general and administrative expenses and expect them to remain the same during the remainder of 2019.
Other Income (Expense). Total other expense increased by $39.2 million, or 234%, to $22.5$16.1 million of other expense for the three months ended September 30, 2019, comparedMarch 31, 2019. The increase in other income was primarily due to $16.7an increase of approximately $13.3 million in net gain on investment in marketable securities and a decrease of other$6.8 million in interest expense.
Net Income (Loss). Net income for the three months ended September 30, 2018. The increase in other expense was primarily dueMarch 31, 2020 increased by $22.9 million, or 132% to a decrease of approximately $19$5.5 million infrom a change in fair value of warrant derivative liabilities, an increase of $7.3 million in a change in the net loss on investment in marketable securities, an increase of $6.4 million of loss on debt extinguishment, additional $3.9 million of note conversion expense and an increase of $1.8 million in interest expense. The increase in interest expense includes $6.3 million of accelerated amortization of beneficial conversion features on convertible notes as substantially all convertible notes were converted to equity in connection with the Merger.
Net Income (Loss). Net loss attributable to us for the three months ended September 30, 2019 increased by $40.7 million, or, to $26.1$17.4 million for the three months ended June 30, 2019 from $14.6 million for the three months ended September 30, 2018March 31, 2019. The net loss attributable to us isincrease was primarily a result of $ 39.2 million increase in other expenses and $2.6 million increase in operating expenses partially offset by $1.2 million increase in net revenues as discussed above.
Nine months ended September 30, 2019 and 2018
Revenues, Net. Net revenues increased by $9.0 million, or 110%, to $17.3 million for the nine months ended September 30, 2019 from $8.2 million for the nine months ended September 30, 2018. Substantially allincreases of these revenues were from Endari® sales, and revenues from AminoPure, a nutritional supplement product, were immaterial. The increase in net revenue is primarily attributable to an increase in sales personnel and higher market acceptance of Endari®. We expect Endari® revenues to continue to increase as we expand our commercialization efforts in the United States and abroad.
Cost of Goods Sold. Cost of goods sold were $0.6 million for the nine months ended September 30, 2019 and $0.5 million for the nine months ended September 30, 2018. Cost of goods sold includes costs for raw material, packaging, testing, shipping and costs related to scrapped inventory. Substantially all of the raw material purchased during the nine months ended September 30, 2019 and 2018 came from one vendor.
Research and Development Expenses. Research and development expenses increased by $0.5 million, or 40%, to $1.8 million for the nine months ended September 30, 2019 from $1.3 million for the nine months ended September 30, 2018. This increase was primarily due to an increase in expenses related to our sponsored diverticulosis study. We expect our research and development costs to increase in the remainder of 2019 as the study progresses.
Selling Expenses. Selling expenses increased by $1.5 million, or 41%, to $5.2 million for the nine months ended September 30, 2019 from $3.7 million for the nine months ended September 2018. Selling expenses include the distribution fees, sales
force fees, promotion, travel, marketing and branding expenses for Endari® and to a much lesser extent costs of distribution and promotion related to AminoPure. The increase was primarily related to increased contract sales force fees for Endari®. We anticipate that our selling expenses will increase during the remainder of 2019 as we expand our selling efforts.
General and Administrative Expenses. General and administrative expenses increased by $2.4 million, or 20%, to $14.5 million for the nine months ended September 30, 2019 from $12.1 million for the nine months ended September 30, 2018. General and administrative expenses include share-based compensation expenses, professional fees, office rent and payroll expenses. The increase of general and administrative expenses is primarily $1.1 million of employee salaries and $0.7 million of professional services. The general and administrative expenses also include $1.9 million in shared-based compensation adjustment resulting from the Merger.
Other Income and Expense. Total other expense increased by $25.0 million, or 85%, to $54.5 million for the nine months ended September 30, 2019 from $29.5$20.7 million in other expense for the nine months ended September 30, 2018. The increase was primarily due to a decrease of $19.7income and $2.4 million in a change in fair value of warrant derivative liabilities, $3.2 million in a loss on debt extinguishment, $3.9 million in note conversion expense and $6.5 million in interest expenses partially offset by a decrease of $ 9.9 million net loss on investment in marketable securities. In connection with the Merger, the Company recognized $6.5 million of a loss on debt extinguishment resultingincome from the modification of senior secured debenture, $3.9 million of note conversion expense and $6.3 million of accelerated amortization of beneficial conversion feature on convertible notes which is included as an interest expense.
Operating Expenses Overall. We anticipate that our overall operating expenses will increase for, among others, the following reasons:
We intend to reinforce our sales and marketing team to commercialize Endari® in the U.S. and to enter into one or more strategic partnerships to market Endari® in other territories, subject to marketing approvals;
We anticipate increases in payroll and employee expenses associated with an increase in personnel, higher consulting, legal, accounting and investor relations cost, and higher insurance premiums; and
We expect increases in research and development activities as we undertake to development of our product candidates continues.
Net Losses. Net losses attributable to us increased by $20.1 million, or 52%, to $58.9 million for the nine months ended September 30, 2019 from $38.9 million for the nine months ended September 30, 2018. The increase in net losses attributable to us is primarily a result of an increase of $25.0 million of other expenses and $4.4 million of operating expenses partially offset by an increase of $9.0 million in net revenuesoperations as discussed above. On an operating basis, our loss from operations decreased by $4.5 million or 49%, to $4.8 millionThese results are not necessarily indicative of the expected results for the nine months ended September 30, 2019 from $9.3 million for the nine months ended September 30, 2018. The decrease of loss is primarily due to a $9.0 million increase of net revenue partially offset by a $4.4 million increase of operating expenses as discussed above.full year.
Liquidity and Capital Resources
Based on our losses to date, anticipated future revenues and operating expenses, debt repayment obligations and cash and cash equivalents of $13.5 million, of which $12.2 million was attributable to a VIE, as of September 30, 2019, we do not have sufficient operating capital for our business without raising additional capital. We had an accumulated deficit of $216.9 million at September 30, 2019.
We anticipate that we will continue to incur net losses for the foreseeable future as we incur expenses for the commercialization of Endari®, research costs for our pilot study of our L-glutamine product in the treatment of diverticulosis and diabetes, research cost relating to corneal cell sheets using Cultured Autologous Oral Mucosal Epithelial Cell Sheet technology and the expansion of corporate infrastructure, including costs associated with being a public reporting company. We have previously relied on private equity offerings, debt financings and loans, including loans from related parties. As part of this effort, we have received various loans from officers, stockholders and other investors as discussed below. As of September 30, 2019, we had outstanding notes payable in an aggregate principal amount of $19.3 million, consisting of $4.1 million of non-convertible promissory notes, $3.0 million of convertible notes and $12.2 million of 10% senior secured convertible debentures. The convertible notes and non-convertible promissory notes bear interest at rates ranging from 10% to 11% per year and, are unsecured. The net proceeds of the loans were used for working capital purposes. Immediately prior to the Merger, approximately $35.5 million principal amount of, and accrued interest on, outstanding convertible notes payable and notes payable of the EMI were converted into shares of EMI common stock thereby increasing stockholders’ equity by the corresponding amount.
For the nine months ended September 30, 2019 and the year ended December 31, 2018, we borrowed varying amounts pursuant to convertible notes, non-convertible promissory notes and convertible debentures. As of September 30, 2019, and
December 31, 2018, the aggregate principal amounts outstanding under convertible notes, non-convertible promissory notes and convertible debentures totaled $19.3 million and $55.2 million, respectively.
Of the notes and convertible debentures outstanding as of September 30, 2019, approximately $18.1 million principal amounts of the notes and debentures are either due on demand or will become due and payable within the next 12 months. Our ability to repay the notes and debentures as they come due will require us to raise additional capital or to refinance the notes and debentures, and there is no assurance whether or on what terms we may be able to do so.
Our average monthly cash burn rate over the nine months ended September 30, 2019 was approximately $0.6 million.
Untiluntil we can generate aincreased net revenues from Endari® sales. Based on our losses, anticipated future revenues and operating expenses, cash and cash equivalents of $2.5 million as of December 31, 2020, and the remaining net proceeds from the recent sale of convertible promissory notes described below, we believe our working capital is sufficient product revenue,to meet our needs through at least through the third quarter of 2022. If future cash needsrevenues are expected to be financed through publicless than anticipated or private equity offerings, debt financings, loans, including loans from related parties,we incur more expenses than we anticipate, we may not have sufficient operating capital for our business without curtailing certain operations or other sources, suchraising additional capital. Except as strategic partnership agreements and licensing or other strategic arrangements. Wedescribed below, we have no understanding or arrangements with respect to future financings, and there can be no assurance of the availability of such capital on terms acceptable to us (oror at all). Dueall.
On February 28, 2020, we entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which we may elect to sell to LPC up to $25,000,000 in shares of our common stock, subject to certain limitations and conditions set forth in the uncertaintyPurchase Agreement from time to time over the 36-month term of the Purchase Agreement. As of the date of filing of this Quarterly Report, we are out of compliance with certain terms and conditions of the Purchase Agreement and unable to utilize the Purchase Agreement. We may seek to bring the Company into compliance or seek an appropriate waiver from LPC to regain our ability to meet our current operating and capital expenses,utilize the Purchase Agreement, but there is substantial doubt about our ability to continue as a going concern. There is alsocan be no assurance that revenueswhen or whether we may be able to do so.
On February 9, 2021, the Company entered into a securities purchase agreement with an effective date of February 8, 2021 pursuant to which the Company has agreed to sell and issue to the purchasers thereunder in a private placement pursuant to Rule 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D thereunder a total of up to $17 million in principal amount of convertible promissory notes of the Company for a purchase price equal to the principal amount thereof. As of March 31, 2021, we had sold approximately $14.5 million of the convertible promissory notes. Of the net proceeds from salesthe sale of Endari®the convertible promissory notes, $6.2 million was used to prepay the outstanding 10% Senior Secured Convertible Debentures as described above.
Effective February 22, 2021, our subsidiary, Emmaus Medical, Inc., or Emmaus Medical, entered into a purchase and sale 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 70% (subject to increase to 75%) of the face amount of the accounts receivable, subject to a $7,500,000 cap on advances at any time. The balance of the face amount of the accounts receivable will increasebe reserved by Prestige Capital and paid to Emmaus Medical, less discount fees of Prestige Capital ranging from 2.25% to 7.25% of the face amount, as expected.
and when Prestige Capital collects the entire face amount of the accounts receivable. In March 2021, we completed our first transaction under the purchase and sale agreement.
The table below lists our outstanding notes payable, convertible debentures and convertible notes payable as of September 30, 2019 and December 31, 2018 and the material terms of our outstanding borrowings:
Year Issued |
| Interest Rate Range |
|
| Term of Notes |
| Conversion Price |
|
| Principal Outstanding September 30, 2019 |
|
| Discount Amount September 30, 2019 |
|
| Carrying Amount September 30, 2019 |
|
| Shares Underlying September 30, 2019 |
|
| Principal Outstanding December 31, 2018 |
|
| Discount Amount December 31, 2018 |
|
| Carrying Amount December 31, 2018 |
|
| Shares Underlying Notes December 31, 2018 |
| ||||||||||
Notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2013 |
| 10% |
|
| Due on demand |
|
| — |
|
| $ | 926 |
|
| $ | — |
|
| $ | 926 |
|
|
| — |
|
| $ | 909 |
|
| $ | — |
|
| $ | 909 |
|
|
| — |
| |
2015 |
| 10% |
|
| Due on demand |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
| |
2016 |
| 10% - 11% |
|
| Due on demand |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 843 |
|
|
| — |
|
|
| 843 |
|
|
| — |
| |
2017 |
| 5% - 11% |
|
| Due on demand |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,575 |
|
|
| — |
|
|
| 2,575 |
|
|
| — |
| |
2018 |
| 10% - 11% |
|
| Due on demand- 18 months |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,311 |
|
|
| 9,233 |
|
|
| 3,078 |
|
|
| — |
| |
2019 |
| 11% |
|
| Due on demand - 6 months |
|
| — |
|
|
| 2,960 |
|
|
| — |
|
|
| 2,960 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,886 |
|
| $ | — |
|
| $ | 3,886 |
|
|
| — |
|
| $ | 16,648 |
|
| $ | 9,233 |
|
| $ | 7,415 |
|
|
| — |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 3,886 |
|
| $ | — |
|
| $ | 3,886 |
|
|
| — |
|
| $ | 12,448 |
|
| $ | 6,054 |
|
| $ | 6,394 |
|
|
| — |
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 4,200 |
|
| $ | 3,179 |
|
| $ | 1,021 |
|
|
| — |
|
Notes payable - related parties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2016 |
| 10% |
|
| Due on demand |
|
| — |
|
| $ | 20 |
|
| $ | — |
|
| $ | 20 |
|
|
| — |
|
| $ | 270 |
|
| $ | — |
|
| $ | 270 |
|
|
| — |
| |
2017 |
| 10% |
|
| Due on demand |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| 39 |
|
|
| — |
| |
2018 |
| 11% |
|
| Due on demand |
|
| — |
|
|
| 159 |
|
|
| — |
|
|
| 159 |
|
|
| — |
|
|
| 159 |
|
|
| — |
|
|
| 159 |
|
|
| — |
| |
2019 |
| 10% |
|
| Due on demand |
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 193 |
|
| $ | — |
|
| $ | 193 |
|
|
| — |
|
| $ | 468 |
|
| $ | — |
|
| $ | 468 |
|
|
| — |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 193 |
|
| $ | — |
|
| $ | 193 |
|
|
| — |
|
| $ | 468 |
|
| $ | — |
|
| $ | 468 |
|
|
| — |
|
Convertible debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2019 |
| 10% |
|
| 18 months |
| $ | 9.52 |
|
| $ | 12,200 |
|
| $ | — |
|
| $ | 12,200 |
|
|
| 1,292 |
| (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | 12,200 |
|
| $ | — |
|
| $ | 12,200 |
|
|
| 1,292 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 11,000 |
|
| $ | — |
|
| $ | 11,000 |
|
|
| 1,166 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | 1,200 |
|
|
|
|
|
| $ | 1,200 |
|
|
| 126 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
Convertible notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2011 |
| 10% |
|
| 5 years |
| $3.05 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 300 |
|
| $ | — |
|
| $ | 300 |
|
|
| 98 |
| ||
2014 |
| 10% |
|
| Due on demand - 2 years |
| $3.05 - $3.60 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 519 |
|
|
| — |
|
|
| 519 |
|
|
| 184 |
| ||
2016 |
| 10% |
|
| 1 year |
| $ | 4.50 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| — |
|
|
| 61 |
|
|
| 17 |
| |
2017 |
| 10% |
|
| Due on demand - 1 year |
| $3.50 - $4.50 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,820 |
|
|
| 349 |
|
|
| 2,471 |
|
|
| 899 |
| ||
2018 |
| 6% - 10% |
|
| Due on demand - 2 years |
| $3.50 - $10.00 |
|
|
| 3,000 |
|
|
| 72 |
|
|
| 2,928 |
|
|
| 356 |
| (b) |
| 19,556 |
|
|
| 6,169 |
|
|
| 13,387 |
|
|
| 3,664 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,000 |
|
| $ | 72 |
|
| $ | 2,928 |
|
|
| 356 |
|
| $ | 23,256 |
|
| $ | 6,518 |
|
| $ | 16,738 |
|
|
| 4,862 |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | 3,000 |
|
| $ | 72 |
|
| $ | 2,928 |
|
|
| 356 |
|
| $ | 16,604 |
|
| $ | 5,351 |
|
| $ | 11,253 |
|
|
| 3,981 |
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 6,652 |
|
| $ | 1,167 |
|
| $ | 5,485 |
|
|
| 881 |
|
Convertible notes payable - related parties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
2012 |
| 10% |
|
| Due on demand |
| $ | 3.30 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 200 |
|
| $ | — |
|
| $ | 200 |
|
|
| 74 |
| |
2015 |
| 10% |
|
| 2 years |
| $ | 4.50 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 200 |
|
|
| — |
|
|
| 200 |
|
|
| 58 |
| |
2017 |
| 10% |
|
| 2 years |
| $ | 10.00 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,000 |
|
|
| 311 |
|
|
| 4,689 |
|
|
| 533 |
| |
2018 |
| 10% |
|
| 2 years |
| $ | 10.00 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,400 |
|
|
| 871 |
|
|
| 8,529 |
|
|
| 972 |
| |
|
|
|
|
|
|
|
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 14,800 |
|
| $ | 1,182 |
|
| $ | 13,618 |
|
|
| 1,637 |
|
|
|
|
|
|
| Current |
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 5,400 |
|
| $ | 311 |
|
| $ | 5,089 |
|
|
| 665 |
|
|
|
|
|
|
| Non-current |
|
|
|
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | 9,400 |
|
| $ | 871 |
|
| $ | 8,529 |
|
|
| 972 |
|
|
|
|
|
|
| Total |
|
|
|
|
| $ | 19,279 |
|
| $ | 72 |
|
| $ | 19,207 |
|
| $ | 1,648 |
|
| $ | 55,172 |
|
| $ | 16,933 |
|
| $ | 38,239 |
|
| $ | 6,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The notes are convertible to Emmaus Life Sciences, Inc. shares. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(b) The notes are convertible to EMI Holding, Inc. shares. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows for the ninethree months ended September 30,March 31, 2020and March 31, 2019and September 30, 2018
Net cash from operating activities
Net cash flows used inprovided by operating activities increased by $0.3$3.0 million, or 7%253%, to a negative net cash flow of $5.1$1.8 million for the ninethree months ended September 30, 2019March 31, 2020 from negative net cash flowused in operation activities of $4.7$1.2 million for ninethe three months ended September 30, 2018.March 31, 2019. This increase was primarily due to a $20.7$2.4 million increase in net loss and a $3.5 million increase in working capital expenditures partially offset by increase of $23.8 million in the non-cash adjustments to net loss. The increase of working capital is due to timing of cash receipt and payments.income from operations.
Net cash from investing activities
Net cash flows provided by (used in) investing activities decreased by $7.4 million, or 125%, to $1.5 million negative net cash flowwas not material for ninethe three months ended September 30, 2019 compared to $5.9 million positive cash flows for the nine months ended September 30, 2018. Net cash used in investing activities includes sales and purchase of marketable securities and investment at cost, as well as purchase of property and equipment. The decrease of cash flows is mainly due to $1.6 million of cash paid in connection with the merger and a decrease in cash receipt from sales of marketable securities to $0.2 million for the nine months ended September 30, 2019 from $6.4 million for the nine months ended September 30, 2018.March 31, 2020 or March 31, 2019.
Net cash from financing activities
Net cash flows provided by (used in)used in financing activities increased by $10.0$0.9 million, or 143%176%, to $3.0$1.4 million positive cash flows for the ninethree months ended September 30, 2019March 31, 2020 from $7.0$0.5 million negative cash flows for the ninethree months ended September 30, 2018, as aMarch 31, 2019. This increase was the result of a decrease of $21.9 million in repayment of notes payable and convertible notes and increase of $5.9 million in net proceeds from the issuance of common stock and that there were no repurchases of common stock or warrants duringto $0.1 million for the ninethree months ended September 30,March 31, 2020 from $2.5 million for the same period in 2019, compared to $7.5 million used during the nine months ended September 30, 2018. The increase of cash inflowwhich was partially offset by the $24.3 milliondecreased repayments of proceeds from convertible notes and note payable issuedto $1.5 million during the three months ended March 31, 2020 from $3.0 million for the nine months ended September 30, 2018 while there were no corresponding proceeds during the nine months ended September 30,same period in 2019.
Off-Balance-Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S.accounting principles generally accepted accounting principlesin the United States (“GAAP”), on the basis that the Company will continue as a going concern. Due to the uncertainty of the Company’s ability to meet its current operating 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, successful and sufficient market acceptance of its products, and finally, achieving a profitable level of operations. The consolidated interim financial statements do not include any adjustments that might result from the outcome of these uncertainties.. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the present circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
Refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report for our critical accounting policies. There have been no material changes in any of our critical accounting policies during the ninethree months ended September 30, 2019 except for adopting the new lease accounting standard.March 31, 2020.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (“DCP”) are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. DCP include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures.
As of the end of the period covered by this Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of our DCP. Based upon thison that evaluation, and due to the material weaknesses in our internal control over financial reporting as of December 31, 2018 described below, our Chief Executive Officer and Interim Chief Financial Officer concluded that the Company’s DCP were not effective. Our management is working at remediating the material weaknesses in our internal controls over financial reporting. However, we have not yet completed a full annual accounting cycle since December 31, 2019 to fully validate the remediation of the material weaknesses in our internal controls and the effectiveness of the Company’s DCP.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2019March 31, 2020which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness and Plan of Remediation
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there ispose a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses would permitmight cause information required to be disclosed by the Company in the reports that it files or submits to not be recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
We conducted an evaluation pursuant to Rule 13a‑15 of the Exchange Act of the effectiveness of the design and operation of our DCP as of DecemberMarch 31, 2018.2020. This evaluation was conducted under the supervision (and with the participation) of our management, including our Chief Executive Officer and Interim Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our DCP were not effective as of DecemberMarch 31, 2018,2020, because of the continuance of a material weakness (the “Material Weakness”)weaknesses in our internal control over financial reporting first identified in 2019 due to inadequate application of GAAP on certain complex transactions, inadequate financial closing process, timely filing of periodic and annual financial statements, segregation of duties including access control of information technology especially financial information, inadequate documentation of policies and procedures over risk assessments, internal control and significant account process and insufficient entity risk assessment process.
We are committedIn 2019, we began to remediating the control deficiencies that constituted the Material Weakness by implementing changes to our internal control over financial reporting. In 2018, we implementedimplement measures designed to remediate the underlying causes of the control deficiencies that gave rise to the Material Weakness,material weaknesses, including, without limitation:
engaging a third-party accounting consulting firm to assist us in the review of our application of GAAP on complex debt financing transactions;
• | engaging a third-party accounting consulting firm to assist us in the review of our application of GAAP on complex debt financing transactions and revenue recognition under ASC 606; |
using a GAAP Disclosure and SEC Reporting Checklist;
• | using a GAAP Disclosure and SEC Reporting Checklist; |
increasing the amount of external continuing professional training and academic education on accounting subjects for accounting staff including management staff to receive professional certification as a CPA or CMA;
• | increasing the continuing professional training and academic education on accounting subjects for accounting staff; |
enhancing the level of the precision of review controls related to our financial close and reporting; and
• | enhancing the level of the precision of review controls related to our financial close and reporting; and |
engaging other supplemental internal and external resources.
• | engaging other supplemental internal and external resources. |
Our management and Boardboard of Directorsdirectors are committed to the remediation of the Material Weakness,material weaknesses, as well as the continued improvement of our overall system of DCP. We are in the process of implementing measures to remediate the underlying causes of theinternal control deficiencies that gave riseover financial reporting. In addition to the Material Weakness, which primarily include engaging additionalmeasures described above, we also intend to consider upgrading our financial accounting systems and supplemental internal and external resources with the technical expertise in GAAP,software as well asour finances permit. Further, we will consider establishing a Disclosure Committee to implement new policies and procedures to provideensure more effective controls to track, process, analyze, and consolidate the financial data and reports.
internal communications significant transactions.
We believe these measures once fully implemented, will remediate the control deficiencies that gave rise to the Material Weakness.material weakness. As we continue to evaluate and work to remediate these control deficiencies, we may determine that additional remedialremediation measures may be required.
We are required.committed to maintaining a strong internal control environment and believe that these remediation actions will represent improvements in our internal control over financial reporting when they are fully implemented. The material weaknesses will not be considered fully remediated until controls have been designed and implemented for a sufficient period of time for our management to conclude that the control environment is operating effectively. Additional remediation measures may be required, which may require additional implementation time. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluation of our internal control over financial reporting and DCP.
As we continue to evaluate and work to remediate the Material Weakness and enhance our internal control over financial reporting and DCP, we may determine that we need to modify or otherwise adjust the remediation measures described above. As a result, we cannot assure you that our remediation efforts will be successful or that our internal control over financial reporting or DCP will be effective.
Part II. Other Information
Not applicable.
Please refer to the risk factors disclosed in the “Risk Factors” section of the Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 9, 2019, EMI sold
Effective as of February 27, 2020, we entered into a securities amendment agreement (the “Amendment”) with the holders of $9.2 million principal amount of the outstanding Amended and issued an aggregate of 454,545Restated 10% Senior Secured Convertible Debentures (the “Former Debentures”) and related outstanding amended and restated common stock purchase warrants to purchase up to 1,663,200 shares of EMI Holding, Inc.’s (“EMI”) Company common stock (the “Former Warrants”). Pursuant to certain stockholders, at athe Amendment, the Former Debentures and the Former Warrants were amended to, among other things, reduce the conversion price of $6.60and the exercise price thereof to $3.00 per share for an aggregate pricefrom $9.52 and $5.87, respectively, per share and restated in their entirety.
The exchange of approximately $3,000,000.
On July 17, 2019, EMI issued an aggregate of 6,794,048 shares of common stock upon conversionthe newly Amended and Restated 10% Senior Secured Convertible Debentures of EMI convertible notes and notes payable.
The shares noted above were issued in reliance uponnewly amended and restated warrants of the exemption fromCompany for the Former Debentures and the Former Warrants was made without registration provided by Section 4(a)(2) ofunder the Securities Act of 1933, as amended (the “Securities Act”“Act”), or Regulation D underin reliance upon the Securities Act. These issuanceexemption from registration afforded by Section 3(a)(9) of the shares qualifiedAct for exemption under Section 4(a)(2) ofsecurities exchanged by the Securities Actissuer with its existing security holders exclusively where no commission or Regulation D because it did not involve a “public offering” based upon the following factors: (i) the shares were issued to a limited number of investors; (ii) there was no public solicitation; (iii) each investor was an “accredited investor” asother remuneration is given directly or indirectly for soliciting such term is defined by Rule 501 under the Securities Act; and (iv) the investment intent of the investors. No broker-dealers was used in connection with such issuance.exchange.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Item 6. Exhibits
(a)Exhibits
|
| Incorporated by Reference |
| |||
Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed/ |
2.1 | 8-K | 000-142031 | 2.1 | January 7, 2019 |
| |
2.2 | Amendment No.1 to Agreement and Plan of Merger and Reorganization dated as of May 10, 2019. | Form 424B3 | 333-229660 | Annex B | June 14. 2019 |
|
4.1 | 8-K | 000-142031 | 4.1 | March 11, 2019 |
| |
4.2 | 8-K | 000-142031 | 4.2 | March 11, 2019 |
| |
10.1 | Form of Emmaus Voting Agreement dated as of January 4, 2019, including form of irrevocable proxy. | 8-K | 000-142031 | 10.1 | January 7, 2019 |
|
10.2 | Form of MYnd Voting Agreement dated as of January 4, 2019, including form of irrevocable proxy. | 8-K | 000-142031 | 10.2 | January 7, 2019 |
|
10.3 | Form of Emmaus Lock-Up Agreement dated as of January 4, 2019. | 8-K | 000-142031 | 10.3 | January 7, 2019 |
|
10.4 | 8-K | 000-142031 | 10.4 | January 7, 2019 |
| |
10.5 | 8-K | 000-142031 | 10.1 | March 11, 2019 |
| |
10.6 | Form 424B3 | 333-229660 | Annex B | June 14. 2019 |
| |
10.7 |
|
|
|
| * | |
31.1+ |
|
|
|
| * | |
31.2+ |
|
|
|
| * |
|
| Incorporated by Reference |
| |||
Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed/ |
|
|
|
|
|
|
|
1.1 | 8-K | 001-35527 | 1.1 | March 3, 2020 |
| |
4.1 | 8-K | 001-35527 | 4.1 | February 27, 2020 |
| |
4.2 | Form of Second Amended and Restated Common Stock Purchase Warrant. | 8-K | 001-35527 | 4.2 | February 27, 2020 |
|
10.1 | 10-K | 001-35527 | 10.37 | May 4, 2021 |
| |
10.2 | 8-K | 001-35527 | 10.1 | March 3, 2020 |
| |
31.1+ |
|
|
|
| * | |
31.2+ |
|
|
|
| * | |
32.1+ |
|
|
|
| * | |
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
|
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
| Incorporated by Reference |
| |||
Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed/ |
|
|
| ||||
Inline XBRL | ||||||
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| |||||
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| |||||
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| |||||
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| |||||
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| |||||
document) |
|
|
|
|
|
* | Filed herewith. |
+ | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
EMMAUS LIFE SCIENCES, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Emmaus Life Sciences, Inc. | ||
|
|
|
|
Dated: | By: |
| /s/ Yutaka Niihara |
| Name: |
| Yutaka Niihara, M.D., M.P.H. |
| Its: |
| Chief Executive Officer |
|
|
|
|
|
|
|
|
| By: |
| /s/ |
| Name: |
|
|
| Its: |
| Interim Chief Financial Officer |
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