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, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File No.:  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

Common Stock, $0.001 par value

EMMA

OTCQB

Common Stock Purchase Warrants

EMMAW

OTC Pink

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

The registrant had 48,471,446 shares of common stock, par value $0.001 per share, outstanding as of November 11, 2019.

 

 


 

EMMAUS LIFE SCIENCES, INC.

For the Quarterly Period Ended September 30, 2019

INDEX

 

 

 

Page

Part I. Financial Information

 

 

 

 

Item 1.

Financial Statements

4

 

 

 

 

(a)Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018

4

 

 

 

 

(b)Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

5

 

 

 

 

(c)Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

6

 

 

 

 

(d)Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited)

8

 

 

 

 

(e)Notes to Consolidated Financial Statements as of and for the nine months ended September 30, 2019 (Unaudited)

9

 

 

 

Item 2.

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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

Part II Other Information

 

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 3.

Defaults Upon Senior Securities

36

 

 

 

Item 4.

Mine Safety Disclosures

36

 

 

 

Item 5.

Other Information

36

 

 

 

Item 6.

Exhibits

37

 

 

 

Signatures

39

 

 


 

EXPLANATORY NOTE

 

This Quarterly Report is filed by Emmaus Life Sciences, Inc. (“Emmaus,” “we,” “us,” “our,” or 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 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, the board of directors of the Company declared a dividend with respect to the shares of the Company common stock outstanding at the close of business on that day of one share of the Telemynd common stock held by 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-Off and the Merger, since July 17, 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 those 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 to the completion of the Merger and the Spin-Off which includes financial statements of EMI 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.

 

3


 

Item 1. Financial Statements

 

EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

As of

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents ($12,220 and $13,175 attributable to the VIE)

 

$

13,546

 

 

$

17,080

 

Accounts receivable, net

 

 

1,900

 

 

 

1,351

 

Inventories, net

 

 

7,491

 

 

 

4,705

 

Investment in marketable securities

 

 

27,643

 

 

 

49,343

 

Marketable securities, pledged to creditor

 

 

 

 

 

238

 

Prepaid expenses and other current assets ($610 and $273 attributable to the VIE)

 

 

1,194

 

 

 

743

 

Total current assets

 

 

51,774

 

 

 

73,460

 

PROPERTY AND EQUIPMENT, NET

 

 

163

 

 

 

152

 

OTHER ASSETS

 

 

 

 

 

 

 

 

Long-term investment at cost

 

 

 

 

 

538

 

Intangibles, net

 

 

44

 

 

 

54

 

Right of use assets

 

 

4,118

 

 

 

 

Deposits and other assets

 

 

383

 

 

 

352

 

Total other assets

 

 

4,545

 

 

 

944

 

Total assets

 

$

56,482

 

 

$

74,556

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses ($148 and $0 attributable to the VIE)

 

$

10,706

 

 

$

9,122

 

Deferred rent

 

 

 

 

 

19

 

Operating lease liabilities

 

 

844

 

 

 

 

Other current liabilities

 

 

5,412

 

 

 

5,181

 

Embedded conversion option liabilities

 

 

264

 

 

 

 

Notes payable, net

 

 

3,886

 

 

 

6,394

 

Notes payable to related party, net

 

 

193

 

 

 

468

 

Convertible debentures

 

 

11,000

 

 

 

 

Convertible notes payable, net

 

 

2,928

 

 

 

11,253

 

Convertible notes payable to related parties, net

 

 

 

 

 

5,089

 

Total current liabilities

 

 

35,233

 

 

 

37,526

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

Deferred rent

 

 

 

 

 

268

 

Operating lease liabilities

 

 

3,714

 

 

 

 

Other long-term liabilities

 

 

34,556

 

 

 

36,222

 

Warrant derivative liabilities

 

 

 

 

 

1,399

 

Embedded conversion option liabilities

 

 

29

 

 

 

 

Notes payable, net

 

 

 

 

 

1,021

 

Convertible debentures

 

 

1,200

 

 

 

 

Convertible notes payable, net

 

 

 

 

 

5,485

 

Convertible notes payable to related parties, net

 

 

 

 

 

8,529

 

Total long-term liabilities

 

 

39,499

 

 

 

52,924

 

Total liabilities

 

 

74,732

 

 

 

90,450

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Preferred stock — par value $0.001 per share, 15,000,000 shares authorized, none issued and outstanding

 

 

 

 

 

 

Common stock — par value $0.001 per share, 250,000,000 shares authorized, 47,671,446 shares and 37,341,393 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

47

 

 

 

37

 

Additional paid-in capital

 

 

199,395

 

 

 

140,903

 

Accumulated other comprehensive income (loss)

 

 

(51

)

 

 

(69

)

Accumulated deficit

 

 

(216,916

)

 

 

(156,668

)

Total stockholders’ equity (deficit)

 

 

(17,525

)

 

 

(15,797

)

Noncontrolling interest

 

 

(725

)

 

 

(97

)

Total liabilities & stockholders’ equity (deficit)

 

$

56,482

 

 

$

74,556

 

 

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

4


 

EMMAUS LIFE SCIENCES, INC.

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.


 

5


 

EMMAUS LIFE SCIENCES, INC.

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

)

 

6


 

EMMAUS LIFE SCIENCES, INC.

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