Exhibit 99.1

EMI HOLDING, INC.

For the Quarterly Period Ended June 30, 2019

INDEX

 

 

 

Page

Part I.   Financial Information

 

 

 

 

Item 1.

Financial Statements

2

 

 

 

 

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

2

 

 

 

 

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

3

 

 

 

 

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

4

 

 

 

 

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

6

 

 

 

 

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

7

 

 

 

Item 2.

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

26

 

 

 

 

 


 

Item 1. Financial Statements

 

EMI HOLDING, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

As of

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents ($12,222 and $13,175 attributable to the VIE)

 

$

15,169

 

 

$

17,080

 

Accounts receivable, net

 

 

1,981

 

 

 

1,351

 

Inventories, net

 

 

5,906

 

 

 

4,705

 

Investment in marketable securities

 

 

32,890

 

 

 

49,343

 

Marketable securities, pledged to creditor

 

 

 

 

 

238

 

Prepaid expenses and other current assets ($463 and $273 attributable to the VIE)

 

 

703

 

 

 

743

 

Total current assets

 

 

56,649

 

 

 

73,460

 

PROPERTY AND EQUIPMENT, NET

 

 

145

 

 

 

152

 

OTHER ASSETS

 

 

 

 

 

 

 

 

Long-term investment at cost

 

 

 

 

 

538

 

Intangibles, net

 

 

47

 

 

 

54

 

Right of use assets

 

 

4,285

 

 

 

 

Deposits and other assets

 

 

365

 

 

 

352

 

Total other assets

 

 

4,697

 

 

 

944

 

Total assets

 

$

61,491

 

 

$

74,556

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses ($104 and $0 attributable to the VIE)

 

$

11,455

 

 

$

9,122

 

Deferred rent

 

 

 

 

 

19

 

Operating lease liabilities

 

 

857

 

 

 

 

Other current liabilities

 

 

5,259

 

 

 

5,181

 

Notes payable, net

 

 

11,163

 

 

 

6,394

 

Notes payable to related parties, net

 

 

470

 

 

 

468

 

Convertible notes payable, net

 

 

13,867

 

 

 

11,253

 

Convertible notes payable to related parties, net

 

 

14,180

 

 

 

5,089

 

Total current liabilities

 

 

57,251

 

 

 

37,526

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

Deferred rent

 

 

 

 

 

268

 

Operating lease liabilities

 

 

3,781

 

 

 

 

Other long-term liabilities

 

 

35,330

 

 

 

36,222

 

Warrant derivative liabilities

 

 

1,200

 

 

 

1,399

 

Notes payable, net

 

 

703

 

 

 

1,021

 

Convertible notes payable, net

 

 

450

 

 

 

5,485

 

Convertible notes payable to related parties, net

 

 

 

 

 

8,529

 

Total long-term liabilities

 

 

41,464

 

 

 

52,924

 

Total liabilities

 

 

98,715

 

 

 

90,450

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock — par value $0.001 per share, 100,000,000 shares authorized, 36,071,394 shares and 35,558,305 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

36

 

 

 

36

 

Additional paid-in capital

 

 

153,084

 

 

 

140,904

 

Accumulated other comprehensive income (loss)

 

 

(56

)

 

 

(69

)

Accumulated deficit

 

 

(189,503

)

 

 

(156,668

)

Total stockholders’ deficit

 

 

(36,439

)

 

 

(15,797

)

Noncontrolling interests

 

 

(785

)

 

 

(97

)

Total liabilities & stockholders’ deficit

 

$

61,491

 

 

$

74,556

 

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

2


 

EMI HOLDING, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES, NET

 

$

5,869

 

 

$

2,571

 

 

$

11,176

 

 

 

3,352

 

COST OF GOODS SOLD

 

 

195

 

 

 

221

 

 

 

395

 

 

 

355

 

GROSS PROFIT

 

 

5,674

 

 

 

2,350

 

 

 

10,781

 

 

 

2,997

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

540

 

 

 

396

 

 

 

1,053

 

 

 

807

 

Selling

 

 

1,903

 

 

 

1,569

 

 

 

3,388

 

 

 

2,439

 

General and administrative

 

 

3,851

 

 

 

3,142

 

 

 

7,532

 

 

 

6,948

 

  Total operating expenses

 

 

6,294

 

 

 

5,107

 

 

 

11,973

 

 

 

10,194

 

LOSS FROM OPERATIONS

 

 

(620

)

 

 

(2,757

)

 

 

(1,192

)

 

 

(7,197

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

 

 

 

 

 

 

 

 

 

 

(3,245

)

Impairment loss on long-term investment

 

 

(524

)

 

 

 

 

 

(524

)

 

 

 

Change in fair value of warrant derivative liabilities

 

 

247

 

 

 

55

 

 

 

199

 

 

 

895

 

Change in fair value of embedded conversion option

 

 

 

 

 

 

 

 

 

 

 

466

 

Net losses on equity investment in marketable securities

 

 

(10,013

)

 

 

(39,185

)

 

 

(16,470

)

 

 

(33,649

)

Interest and other income (loss)

 

 

274

 

 

 

(12

)

 

 

163

 

 

 

34

 

Interest expense

 

 

(8,474

)

 

 

(5,446

)

 

 

(15,439

)

 

 

(10,744

)

  Total other income (expenses)

 

 

(18,490

)

 

 

(44,588

)

 

 

(32,071

)

 

 

(46,243

)

LOSS BEFORE INCOME TAXES

 

 

(19,110

)

 

 

(47,345

)

 

 

(33,263

)

 

 

(53,440

)

INCOME TAXES

 

 

217

 

 

 

 

 

 

217

 

 

 

2

 

NET LOSS INCLUDING NONCONTROLLING INTERESTS

 

 

(19,327

)

 

 

(47,345

)

 

 

(33,480

)

 

 

(53,442

)

     Net (income) loss attributable to noncontrolling interests

 

 

688

 

 

 

 

 

 

674

 

 

 

 

NET LOSS ATTRIBUTABLE TO THE COMPANY

 

 

(18,639

)

 

 

(47,345

)

 

 

(32,806

)

 

 

(53,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(9

)

 

 

2

 

 

 

(2

)

 

 

16

 

Other comprehensive income (loss)

 

 

(9

)

 

 

2

 

 

 

(2

)

 

 

16

 

COMPREHENSIVE INCOME (LOSS)

 

 

(19,336

)

 

 

(47,343

)

 

 

(33,482

)

 

 

(53,426

)

Amounts attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (income) loss attributable to noncontrolling interest

 

 

688

 

 

 

 

 

 

674

 

 

 

 

Foreign currency translation adjustments

 

 

15

 

 

 

 

 

 

14

 

 

 

 

Comprehensive (income) loss attributable to noncontrolling interest

 

 

703

 

 

 

 

 

 

688

 

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY

 

$

(18,633

)

 

$

(47,343

)

 

$

(32,794

)

 

$

(53,426

)

NET LOSS PER COMMON SHARE

 

$

(0.52

)

 

$

(1.36

)

 

$

(0.91

)

 

$

(1.53

)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

 

 

36,029,940

 

 

 

34,824,961

 

 

 

35,857,944

 

 

 

34,858,022

 

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


 

3


 

EMI HOLDING, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

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

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Accumulated Deficit

 

 

Total Emmaus Stockholders' Equity / (Deficit)

 

 

Non-controlling Interests

 

 

Total Equity / (Deficit)

 

Balance at January 1, 2019

 

 

35,558,305

 

 

$

36

 

 

$

140,904

 

 

$

(69

)

 

$

(156,668

)

 

$

(15,797

)

 

$

(97

)

 

$

(15,894

)

Cumulative effect adjustment on adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29

)

 

 

(29

)

 

 

 

 

 

(29

)

Beneficial conversion feature relating to convertible and promissory notes payable

 

 

 

 

 

 

 

 

2,039

 

 

 

 

 

 

 

 

 

2,039

 

 

 

 

 

 

2,039

 

Exercise of warrants

 

 

500

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Stock issued for cash

 

 

307,500

 

 

 

 

 

 

2,530

 

 

 

 

 

 

 

 

 

2,530

 

 

 

 

 

 

 

2,530

 

Conversion of notes payable to common stock

 

 

81,332

 

 

 

 

 

 

329

 

 

 

 

 

 

 

 

 

329

 

 

 

 

 

 

329

 

Share-based compensation

 

 

 

 

 

 

 

 

536

 

 

 

 

 

 

 

 

 

536

 

 

 

 

 

 

536

 

Exercise of common stock options

 

 

167

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

 

 

1

 

 

 

8

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,167

)

 

 

(14,167

)

 

 

14

 

 

 

(14,153

)

Balance, March 31, 2019

 

 

35,947,804

 

 

$

36

 

 

$

146,344

 

 

$

(62

)

 

$

(170,864

)

 

$

(24,546

)

 

$

(82

)

 

$

(24,628

)

Beneficial conversion feature relating to convertible and promissory notes payable

 

 

 

 

 

 

 

 

5,391

 

 

 

 

 

 

 

 

 

5,391

 

 

 

 

 

 

5,391

 

Exercise of warrants

 

 

50,500

 

 

 

 

 

 

181

 

 

 

 

 

 

 

 

 

181

 

 

 

 

 

 

181

 

Stock issued for cash

 

 

73,090

 

 

 

 

 

 

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

 

 

36,071,394

 

 

$

36

 

 

$

153,084

 

 

$

(56

)

 

$

(189,503

)

 

$

(36,439

)

 

$

(785

)

 

$

(37,224

)

 

 

 

4


 

EMI HOLDING, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

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

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Treasury Stock, at cost

 

 

Accumulated Deficit

 

 

Total Emmaus Stockholders' Equity / (Deficit)

 

 

Non-controlling Interests

 

 

Total Equity / (Deficit)

 

Balance at January 1, 2018

 

 

34,885,506

 

 

$

35

 

 

$

113,112

 

 

$

41,276

 

 

$

 

 

$

(140,132

)

 

$

14,291

 

 

$

 

 

$

14,291

 

Cumulative effect adjustment on adoption of ASU 2016-01

 

 

 

 

 

 

 

 

 

 

 

(41,362

)

 

 

 

 

 

41,362

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature relating to convertible and promissory notes payable

 

 

 

 

 

 

 

 

3,638

 

 

 

 

 

 

 

 

 

 

 

 

3,638

 

 

 

 

 

 

3,638

 

Stock issued for cash

 

 

25,000

 

 

 

 

 

 

275

 

 

 

 

 

 

 

 

 

 

 

 

275

 

 

 

 

 

 

275

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,314

)

 

 

 

 

 

(1,314

)

 

 

 

 

 

(1,314

)

Share-based compensation

 

 

 

 

 

 

 

 

710

 

 

 

 

 

 

 

 

 

 

 

 

710

 

 

 

 

 

 

710

 

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,097

)

 

 

(6,097

)

 

 

 

 

 

(6,097

)

Balance at March 31, 2018

 

 

34,910,506

 

 

$

35

 

 

$

117,735

 

 

$

(72

)

 

$

(1,314

)

 

$

(104,867

)

 

$

11,517

 

 

$

 

 

$

11,517

 

Beneficial conversion feature relating to convertible and promissory notes payable

 

 

 

 

 

 

 

 

5,583

 

 

 

 

 

 

 

 

 

 

 

 

5,583

 

 

 

 

 

 

5,583

 

Stock issued for cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock

 

 

(700,000

)

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

955

 

 

 

 

 

 

 

 

 

 

 

 

955

 

 

 

 

 

 

955

 

Exercise of warrants (cashless)

 

 

8,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation effect

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,345

)

 

 

(47,345

)

 

 

 

 

 

(47,345

)

Balance at June 30, 2018

 

 

34,218,822

 

 

$

34

 

 

$

124,274

 

 

$

(70

)

 

$

(1,314

)

 

$

(152,212

)

 

$

(29,288

)

 

$

 

 

$

(29,288

)

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

 

 

5


 

EMI HOLDING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net loss

 

$

(33,480

)

 

$

(53,442

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

35

 

 

 

27

 

Impairment loss on long-term investment

 

 

524

 

 

 

 

Cost of scrapped inventory written off

 

 

 

 

 

11

 

Amortization of discount of convertible notes and notes payable

 

 

12,770

 

 

 

8,614

 

Foreign exchange adjustments on convertible notes and notes payable

 

 

49

 

 

 

39

 

Net losses on equity investment in marketable securities

 

 

16,470

 

 

 

33,649

 

Loss on debt settlement

 

 

 

 

 

3,245

 

Share-based compensation