EMMAUS LIFE SCIENCES, INC. (Form: 10-Q, Received: 08/14/2014 14:54:58)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2014

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

For the transition period from to

Commission File No.: 000-53072

EMMAUS LIFE SCIENCES, INC.

(Exact name of Registrant as specified in its charter)

Delaware		41-2254389
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

20725 S. Western Avenue, Suite 136, Torrance, California 90501

(Address of principal executive offices) (Zip code)

(310) 214-0065

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company x

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

The registrant had 27,840,665 shares of common stock, par value $0.001 per share, outstanding as of August 8, 2014.

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EMMAUS LIFE SCIENCES, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2014

IN DEX

				Page
Part I	Financial Information

	Item 1.	Financial Statements

		(a)	Condensed Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013	1

		(b)	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)	2

		(c)	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Six Months Ended June 30, 2014 (Unaudited)	3

		(d)	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	4

		(e)	Notes to Condensed Consolidated Financial Statements as of and for the Six Months Ended June 30, 2014 (Unaudited)	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28

	Item 4.	Controls and Procedures		28

Part II	Other Information

	Item 1.	Legal Proceedings		30

	Item 1A.	Risk Factors		30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		30

	Item 3.	Defaults Upon Senior Securities		30

	Item 4.	Mine Safety Disclosures		30

	Item 5.	Other Information		30

	Item 6.	Exhibits		31

Signatures

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Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of
	June 30, 2014			December 31, 2013
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,604,594		$	3,638,600
Accounts receivable	64,652			35,237
Inventories, net	259,338			239,009
Marketable securities	106,206			162,564
Prepaid expenses and other current assets	151,405			81,046
Total current assets	4,186,195			4,156,456

PROPERTY AND EQUIPMENT, Net	41,562			26,120

OTHER ASSETS
Marketable securities, pledged to creditor	448,235			686,090
Intangibles, net	1,000,000			1,107,143
Deposits	144,443			137,900
Total other assets	1,592,678			1,931,133
Total Assets	$	5,820,435		$	6,113,709

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	2,263,110		$	2,283,446
Due to related party	594,446			394,446
Dissenting stockholders payable	—			125,000
Other current liability	40,200			—
Notes payable, net	1,180,000			1,765,070
Notes payable to related parties, net	825,562			925,641
Convertible notes payable, net	6,309,992			4,802,472
Convertible notes payable to related parties	560,706			560,706
Total current liabilities	11,774,016			10,856,781

LONG-TERM LIABILITIES
Liability classified warrants	9,678,000			5,928,000
Notes payable	833,335			200,000
Notes payable to related parties	133,333			—
Convertible notes payable, net	2,839,433			2,966,588
Total long-term liabilities	13,484,101			9,094,588
Total Liabilities	25,258,117			19,951,369

COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY (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, 29,834,828 and 29,228,306 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	29,835			29,228
Additional paid-in capital	44,482,067			35,669,291
Accumulated other comprehensive (loss) income	(32,205		)	262,683
Accumulated deficit	(63,917,379		)	(49,798,862		)
Total Stockholders’ Deficit	(19,437,682		)	(13,837,660		)
Total Liabilities & Stockholders’ Deficit	$	5,820,435		$	6,113,709

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

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EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013

REVENUES, Net	$	107,404		$	91,208		$	192,094		$	180,768

COST OF GOODS SOLD	60,881			54,988			107,783			98,972
GROSS PROFIT	46,523			36,220			84,311			81,796

OPERATING EXPENSES
Research and development	596,349			696,008			1,201,389			1,311,261
Selling	122,883			129,335			248,814			256,688
General and administrative	3,267,379			2,519,148			6,253,293			4,831,403
	3,986,611			3,344,491			7,703,496			6,399,352

LOSS FROM OPERATIONS	(3,940,088		)	(3,308,271		)	(7,619,185		)	(6,317,556		)

OTHER INCOME (EXPENSE)
Gain on derecognition of accounts payable	—			—			—			341,361
Change in fair value of liability classified warrants	643,256			—			(1,979,744		)	—
Warrant exercise inducement expense	(3,523,000		)	—			(3,523,000		)	—
Interest and other income (loss)	(4,761		)	5,081			(23,166		)	10,722
Interest expense	(553,561		)	(496,483		)	(970,922		)	(1,101,010		)
	(3,438,066		)	(491,402		)	(6,496,832		)	(748,927		)

LOSS BEFORE INCOME TAXES	(7,378,154		)	(3,799,673		)	(14,116,017		)	(7,066,483		)
INCOME TAXES (BENEFIT)	—			(134,640		)	2,500			(399,252		)
NET LOSS	(7,378,154		)	(3,665,033		)	(14,118,517		)	(6,667,231		)

COMPONENTS OF OTHER COMPREHENSIVE (LOSS) INCOME
Unrealized holding gain (loss) on securities available-for-sale	29,615			213,987			(294,213		)	638,596
Unrealized foreign translation	(1,561		)	(24,613		)	(675		)	(26,432		)
COMPREHENSIVE LOSS	$	(7,350,100	)	$	(3,475,659	)	$	(14,413,405	)	$	(6,055,067	)
NET LOSS PER COMMON SHARE	$	(0.25	)	$	(0.14	)	$	(0.48	)	$	(0.27	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	29,368,691			25,391,949			29,298,886			25,141,376

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

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EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD FROM DECEMBER 31, 2013 TO JUNE 30, 2014

(UNAUDITED)

	Common stock –par value $0.001 per share, 100,000,000 shares authorized					Additional			Accumulated Other
	Shares		Common Stock			Paid-in Capital			Comprehensive Income (Loss)			Accumulated Deficit			Total

Balance, December 31, 2013	29,228,306		$	29,228		$	35,669,291		$	262,683		$	(49,798,862	)	$	(13,837,660	)

Beneficial conversion feature relating to convertible notes payable	—		—			465,926			—			—			465,926
Warrant issued in conjunction with convertible note	—		—			126,732			—			—			126,732
Proceeds from exercise of warrants	1,106,522		1,107			3,866,745			—			—			3,867,852
Excess value of liability classified warrants upon exercise	—		—			1,752,744			—			—			1,752,744
Common stock repurchased and cancelled	(500,000	)	(500		)	(377,000		)	—			—			(377,500		)
Share-based compensation	—		—			2,977,629			—			—			2,977,629
Unrealized loss on marketable securities, net of tax	—		—			—			(294,213		)	—			(294,213		)
Foreign currency translation effect	—		—			—			(675		)	—			(675		)
Net loss	—		—			—			—			(14,118,517		)	(14,118,517		)
Balance, June 30, 2014	29,834,828		$	29,835		$	44,482,067		$	(32,205	)	$	(63,917,379	)	$	(19,437,682	)

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

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EMMAUS LIFE SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(14,118,517	)	$	(6,667,231	)
Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization	115,105			119,864
Interest expense accrued from discount of convertible note	384,523			580,064
Gain on derecognition of accounts payable	—			(341,361		)
Share-based compensation	2,977,629			2,247,268
Warrant exercise inducement expense	3,523,000			—
Change in fair value of liability classified warrants	1,979,744			—
Tax benefit recognized on unrealized gain on marketable securities available-for-sale	—			(401,802		)
Net changes in operating assets and liabilities
Accounts receivable	(29,219		)	34,036
Inventory	(17,001		)	32,436
Prepaid expenses and other current assets	(68,244		)	(21,771		)
Deposits	(6,324		)	94,640
Accounts payable and accrued expenses	(29,294		)	609,017
Due to related party	200,000			—
Other current liability	40,200			—
Net cash flows used in operating activities	(5,048,398		)	(3,714,840		)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(23,378		)	(1,202		)
Net cash flows used in investing activities	(23,378		)	(1,202		)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable issued	58,832			1,558,200
Proceeds from convertible notes payable issued	1,611,187			1,961,644
Due to dissenters	(125,000		)	(60,000		)
Repurchase of common stock	(377,500		)	—
Payments of notes payable	—			(522,236		)
Payments of convertible notes payable	—			(216,640		)
Proceeds from exercise of warrants	3,867,852			—
Proceeds from issuance of common stock	—			1,165,700
Net cash flows from financing activities	5,035,371			3,886,668
Effect of exchange rate changes on cash	2,399			(30,259		)

Net (decrease) increase in cash and cash equivalents	(34,006		)	140,367
Cash and cash equivalents, beginning of period	3,638,600			402,823
Cash and cash equivalents, end of period	$	3,604,594		$	543,190

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Interest paid	$	208,899		$	58,592
Income taxes paid	$	2,500		$	2,550
Non-cash financing activities:
Stock issued as a payment of professional fee	$	—		$	101,999
Conversion of notes payable to common stock	$	—		$	2,586,589
Conversion of accrued interest payable to common stock	$	—		$	6,311

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

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EMMAUS LIFE SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

NOTE 1 — DESCRIPTION OF BUSINESS

Organization — Emmaus Life Sciences, Inc. (the “Company” or “Emmaus”), which is engaged in the discovery, development, and commercialization of innovative treatments and therapies primarily for rare and orphan diseases, was incorporated in the state of Delaware on September 24, 2007. Pursuant to an Agreement and Plan of Merger, dated April 21, 2011 (the “Merger Agreement”), by and among the Company, AFH Merger Sub, Inc., a wholly-owned subsidiary of the Company (“AFH Merger Sub”), AFH Holding and Advisory, LLC (“AFH Advisory”), and Emmaus Medical, Inc. (“Emmaus Medical”), Emmaus Medical merged with and into AFH Merger Sub with Emmaus Medical continuing as the surviving entity (the “Merger”). Upon the closing of the Merger, the Company changed its name from “AFH Acquisition IV, Inc.” to “Emmaus Holdings, Inc.” and became the parent company of Emmaus Medical. The Company changed its name from “Emmaus Holdings, Inc.” to “Emmaus Life Sciences, Inc.” on September 14, 2011.

Emmaus Medical is a Delaware corporation originally incorporated on September 12, 2003. Emmaus Medical, LLC was organized on December 20, 2000. In October 2003, Emmaus Medical, LLC conducted a reorganization and merged with Emmaus Medical. As a result of the merger, Emmaus Medical acquired the exclusive patent rights for a treatment for sickle cell disease (“ SCD”).

In October 2010, the Company established Emmaus Medical Japan, Inc., a Japanese corporation (“EM Japan”) by paying 97% of the initial capital. EM Japan is engaged in the business of trading in nutritional supplements and other medical products and drugs. The results of EM Japan have been included in the consolidated financial statements of the Company since the date of formation. The aggregate formation cost was $52,500. Emmaus Medical acquired the additional 3% of the outstanding shares of EM Japan during the three months ended March 31, 2011 and is now the 100% owner of the outstanding share capital.

In November 2011, the Company formed Emmaus Medical Europe, Ltd. (“EM Europe”), a wholly-owned subsidiary of Emmaus Medical. EM Europe’s primary focus is expanding the business of Emmaus Medical in Europe.

Emmaus, its wholly-owned subsidiary, Emmaus Medical, and Emmaus Medical’s wholly-owned subsidiaries, Newfield Nutrition Corporation, EM Japan and EM Europe, are collectively referred to herein as the “Company.”

Nature of Business — The Company has undertaken the business of developing and commercializing cost-effective treatments and therapies for rare diseases. The Company’s primary business purpose is to commercialize its treatment for SCD.

To a lesser extent, the Company is also engaged in the marketing and sale of NutreStore®, which has received approval from the Food and Drug Administration (“FDA”), as a treatment for short bowel syndrome (“SBS”), in patients receiving specialized nutritional support when used in conjunction with a recombinant human growth hormone that is approved for this indication. The Company’s indirect wholly-owned subsidiary, Newfield Nutrition Corporation, sells L-glutamine as a nutritional supplement under the brand name AminoPure® through retail stores in multiple states and via importers and distributors in Japan, Taiwan and South Korea. The Company also owns a minority interest of less than 1% in CellSeed, Inc., a Japanese company listed on the Tokyo Stock Exchange, which is engaged in research and development of regenerative medicine products and the manufacture and sale of temperature-responsive cell culture equipment.

The Company also has certain rights to regenerative medicine products owned by CellSeed and is involved in research focused on providing innovative solutions for tissue-engineering through the development of novel cell harvest methods and 3-dimensional living tissue replacement products for “cell sheet therapy” and regenerative medicine and the commercialization of such products.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation — The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. These condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods ended June 30, 2014 and 2013.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2013, and the notes thereto, which are included in the Company’s filings with the Securities and Exchange Commission (“SEC”).

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Immaterial Corrections of Prior Year Amounts — During the preparation of its consolidated financial statements for the year ended December 31, 2013, the Company determined that it had incorrectly recognized share-based compensation expense prior to the grant date for stock options awarded to certain employees and consultants. The Company has corrected this immaterial error in its accompanying 2013 quarterly financial statements. The impact of this correction resulted in a $0.1 million reduction of share-based compensation expense for the three month period ended June 30, 2013 and a $0.2 million reduction for the six months ended June 30, 2013.

In the quarter ended June 30, 2013, the Company incorrectly accounted for the May 2013 issuance of shares of its common stock to the Company’s CEO in exchange for the termination of a promissory note held by the CEO and accrued interest thereon. The remaining unamortized loan discount of $249,861 was originally recorded as interest expense. This has been corrected to report the remaining unamortized loan discount of $249,861 as a debt extinguishment loss between related entities which is recorded as a capital transaction.

In the quarter ended June 30, 2013, the Company incorrectly recorded the cancelation of 2,504,249 shares of its common stock held by AFH Advisory, Griffin Ventures, Ltd. (“Griffin”), and The Amir & Kathy Heshmatpour Family Foundation (the “Foundation”), and the cancelation of a payment obligation to AFH Advisory in the amount of $394,446. The cancelations had been ordered by the court in connection with a partial summary judgment in the Company’s favor in the ongoing litigation against AFH Advisory, as further described in Note 9—Related Party Transactions. While the partial summary judgment in favor of the Company led to the cancelation of 2,504,249 shares of the Company’s common stock by the Company’s transfer agent on June 28, 2013, the cancelation of such shares and payment obligation is subject to appeal until 30 days after the completion of final court proceedings. The Company has made an adjustment to the accompanying consolidated financial statements for the year ended December 31, 2013 to continue to present these shares as outstanding, and has restored $394,446 to the balance sheet as an amount due to related parties until the right of appeal has lapsed and all contingencies have been resolved.

The Company also determined that it had not recognized a tax benefit on the unrealized gain on marketable securities in other comprehensive income. The Company has corrected this immaterial error in its accompanying 2013 quarterly financial statements. The impact of this correction resulted in a $0.1 million adjustment to the tax benefit recognized on unrealized gain on marketable securities for the three month period ended June 30, 2013 and a $0.4 million adjustment for the six months ended June 30, 2013.

Going concern — The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. The Company had losses for the six months ended June 30, 2014 totaling $14,118,517. In addition, the Company has a significant amount of notes payable and other obligations due within this year and is projecting that its operating losses and expected capital needs will exceed its existing cash balances and cash expected to be generated from operations for the foreseeable future, including the expected costs relating to the commercialization of the Company’s pharmaceutical grade L-glutamine treatment for SCD. In order to meet the Company’s expected obligations, management intends to raise additional funds through equity and debt financings and partnership agreements. However, there can be no assurance that the Company will be able to complete any additional equity or debt financings or enter into partnership agreements. Therefore, due to the uncertainty of the Company’s ability to meet its current operating and capital expenses, there is substantial doubt about the Company’s ability to continue as a going concern, as the continuation and expansion of its business is dependent upon obtaining further financing, successful and sufficient market acceptance of its products, and finally, achieving a profitable level of operations. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Principles of consolidation — The condensed consolidated financial statements include the accounts of the Company (and its wholly-owned subsidiary, Emmaus Medical, Inc., and Emmaus Medical’s wholly-owned subsidiaries, Newfield Nutrition Corporation, EM Japan and EM Europe). All significant intercompany transactions have been eliminated.

Estimates — Financial statements prepared in accordance with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management has estimated the useful lives of equipment and other assets, along with the variables used to calculate the valuation of stock options and warrants using the Black-Scholes-Merton option valuation model. Actual results could differ from those estimates.

In addition, the initial value of warrants issued by the Company in a private placement, as well as the fair value of additional warrants issued to replace the warrants exercised, and the change in fair value of the liability classified warrants were determined using a Binomial Monte-Carlo Cliquet (aka Ratchet) Option Pricing Model and were recorded as a liability classified warrants. The model is similar to traditional Black-Scholes-type option pricing models except that the exercise price resets at certain dates in the future.

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Inventories — Inventories as of June 30, 2014 are valued on a first-in, first-out basis at the lower of cost or market value. Work-in-process inventories consist of raw material L-glutamine for the Company’s AminoPure and NutreStore products that has not yet been packaged and labeled for sale.

All of the raw material purchased during the six months ended June 30, 2014 were from one vendor and during 2013 were from two vendors.

Inventory by category	June 30, 2014		December 31, 2013
Raw material	$	38,950	$	20,700
Work-in-process	1,716		68,887
Finished goods	218,672		149,422
	$	259,338	$	239,009

Advertising cost — Advertising costs are expensed as incurred. Advertising costs for the six months ended June 30, 2014 and 2013 were $132,475 and $100,308, respectively.

Comprehensive (loss) income — Comprehensive (loss) income includes net loss and other comprehensive (loss) income. The items of other comprehensive (loss) income for the Company are unrealized gains and losses on marketable securities classified as available-for-sale and foreign translation adjustments relating to its subsidiaries. When the Company realizes a gain or loss on securities available-for-sale for which an unrealized gain or loss was previously recognized, a corresponding reclassification adjustment is made to remove the unrealized gain or loss from accumulated other comprehensive income and reflect the realized gain or loss in current operations.

Marketable securities — Investment securities as of June 30, 2014 and December 31, 2013 are classified as available-for-sale. Available-for-sale securities are recorded at cost and any increases or decreases in fair market value are recorded as unrealized gain or loss, net of taxes in accumulated other comprehensive income. The Company monitors these investments for impairment and makes appropriate reductions in carrying values when necessary. CellSeed, Inc. securities are the only marketable security the Company currently carries on its books. The Company’s marketable securities consist of 48,550 shares of CellSeed stock which are part of 147,100 shares acquired in January 2009 for 100,028,000 Japanese Yen (equivalent to $1,109,819), at 680 Yen per share. CellSeed’s IPO (Tokyo Stock Exchange symbol 7776) was completed on March 16, 2010. As of June 30, 2014 and December 31, 2013, the closing price per share was 1,165 Yen and 1,840 Yen, respectively.

In July 2013, based on an increase in market value of CellSeed shares, Mitsubishi UFJ Capital III Limited Partnership (Mitsubishi) released to the Company 34,300 shares of CellSeed stock. This was part of the 73,550 shares of CellSeed stock held by Mitsubishi as collateral to secure a $500,000 convertible note issued to Mitsubishi which is due in 2016. The note is now secured by the remaining 39,250 shares of CellSeed stock held by Mitsubishi as collateral.

During the fourth quarter of 2013, the Company sold 25,000 of the shares released by Mitsubishi in open market transactions. As of June 30, 2014 and December 31, 2013, 9,300 shares of CellSeed stock are classified as a current asset, as they are available for sale by the Company. The remaining 39,250 shares of CellSeed stock are pledged to secure the Mitsubishi note and are classified as marketable securities, pledged to creditor.

Fair value measurements — The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company measures fair value under a framework that provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2: Inputs to the valuation methodology include:

· Quoted prices for similar assets or liabilities in active markets;

· Quoted prices for identical or similar assets or liabilities in inactive markets;

· Inputs other than quoted prices that are observable for the asset or liability;

· Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 inputs must be observable for substantially the full term of the asset or liability.

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Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value assigned to marketable securities is determined by obtaining quoted prices on nationally recognized securities exchanges, and are classified as Level 1 investments at June 30, 2014. The fair value of the Company’s debt instruments is not materially different from their carrying values as presented. The fair value of the Company’s convertible debt instruments was determined based on Level 2 inputs. The carrying value of the debt was discounted based on allocating proceeds to other financial instruments within the arrangement as discussed in Note 6.

The Company issued stock purchase warrants in conjunction with its September 2013 private placement and the June 2014 warrant exercises and issuance (see Note 7) that are accounted for as liability classified warrants whose fair market value is determined using Level 3 inputs. These inputs include expected term and expected volatility.

The following table presents the activity for those items measured at fair value on a recurring basis using Level 3 inputs during the six months ended June 30, 2014 and the year ended December 31, 2013:

	Liability Classified warrants – Stock Purchase Warrants
	June 30, 2014			December 31, 2013
Balance, beginning of period	$	5,928,000		$	—
Fair value at issuance date	3,523,000			6,860,000
To reduce the warrants exercised to intrinsic value	(1,770,256		)	—
To record settlement of liability associated with warrants exercised	(1,752,744		)	—
Change in fair value included in the statement of comprehensive loss	3,750,000			(932,000		)
Balance, end of period	$	9,678,000		$	5,928,000

The initial value of the liability classified warrants as of September 11, 2013 and the change in fair value of the liability classified warrants as of December 31, 2013, June 10, 2014 (the date of exercise and issuance) and June 30, 2014 were determined using a Binomial Monte-Carlo Cliquet (aka Ratchet) 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. The values as of September 11, 2013, December 31, 2013 and June 30, 2014 were calculated based on the following assumptions:

	June 30, 2014			June 10, 2014			December 31, 2013			Initial Value
Stock price	$	5.10		$	5.10		$	3.60		$	3.60
Risk-free interest rate	1.25		%	1.32		%	1.75		%	1.72		%
Expected volatility (peer group)	68.40		%	68.20		%	63.20		%	72.40		%
Expected life (in years)	4.20			4.26			4.70			5.00
Expected dividend yield	—			—			—			—
Number outstanding	3,020,501			3,020,501			3,020,501			3,020,501
Balance, end of period	$	9,678,000		$	9,714,000		$	5,928,000		$	6,860,000

Debt and Related Party Debt — The Company accounts for the proceeds from the issuance of convertible notes payable with detachable stock purchase warrants and embedded conversion features in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options. Under FASB ASC 470-20, the proceeds from the issuance of a debt instrument with detachable stock purchase warrants shall be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance. The portion of the proceeds allocated to the warrants is accounted for as additional paid-in capital and the remaining proceeds are allocated to the debt instrument which resulted in a discount to debt which is amortized and charged as interest expense over the term of the note agreement. Additionally, pursuant to FASB ASC 470-20, the intrinsic value of the embedded conversion feature of the convertible notes payable is included in the discount to debt and amortized and charged to interest expense over the life of the note agreement. The following chart shows the effective interest rates on the original loan principal amount for loans originated in the respective periods that either had a beneficial conversion interest or an attached warrant:

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Type of Loan	Term of Loan	Annual Interest Rate		Original Loan Principal Amount		Conv. Rate	Beneficial Conversion Discount Amount		Warrants	Exercise Price		Warrant FMV Discount Amount		Effective Interest Rate Including Discounts
2013 convertible notes payable	1~2 years	10	%	$	3,079,666	$3.30	$	396,801	50,000	—		$	116,831	19.1% ~ 61.6%
2014 convertible notes payable	6 mo~ 2 years	10	%	859,320		$3.05 ~ $3.30	465,926		50,000	$	3.50	$	126,732	28.0% ~ 100.4%
Total				$	3,938,986		$	862,727	100,000			$	243,563

Related party notes are disclosed as separate line items in the Company’s balance sheet presentation.

Net loss per share — In accordance with FASB ASC Topic 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 similar to the 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 if the additional common shares were dilutive. As of June 30, 2014 and 2013, there were 14,842,339 and 10,583,956 shares of potentially dilutive securities outstanding, respectively. As the Company reported a net loss, none of the potentially dilutive securities were included in the calculation of diluted loss per share since their effect would be anti-dilutive for all periods presented.

Recent accounting pronouncements — In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers . This amendment will eliminate transaction- and industry-specific revenue recognition guidance under current GAAP and replace it with a principle-based approach for determining revenue recognition. The core principle of the revenue recognition guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract(s); (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract(s); and (5) recognize revenue when (or as) the entity satisfies a performance obligation. For public companies, these amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period (early adoption prohibited). The standard permits the use of either the retrospective or cumulative effect transition method. Currently, the Company is assessing the impact of adoption of the amendment on its financial statements and accompanying notes.

NOTE 3 — PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

	June 30, 2014			December 31, 2013
Equipment	$	134,828		$	128,343
Leasehold improvements	31,939			23,054
Furniture and fixtures	60,410			52,269
Sub total	227,177			203,666
Less: accumulated depreciation	(185,615		)	(177,546		)
Total	$	41,562		$	26,120

During the six months ended June 30, 2014 and 2013, depreciation expense was $8,069 and $12,721, respectively.

NOTE 4 — INTANGIBLE ASSETS

The Company is licensed to market and sell NutreStore L-glutamine powder for oral solution as a treatment for SBS.

In April 2011, the Company entered into the Research Agreement and the Individual Agreement with CellSeed and, in August 2011, entered into an addendum to the Research Agreement. Pursuant to the Individual Agreement, CellSeed granted the Company the exclusive right to manufacture, sell, market and distribute Cultured Autologous Oral Mucosal Epithelial Cell Sheet (“CAOMECS”) for the cornea in the United States and agreed to disclose to the Company its accumulated information package for the joint development of CAOMECS. Under the Individual Agreement, the Company agreed to pay CellSeed $1.5 million, which it paid in February 2012. The technology acquired under the Individual Agreement is being used to support an ongoing research and development project and management believes the technology has alternative future uses in other future development initiatives.

Pursuant to the Research Agreement, the Company and CellSeed formed a relationship regarding the future research and development of cell sheet engineering regenerative medicine products, and the future commercialization of such products. Under the Research Agreement, as supplemented by the addendum, the Company agreed to pay CellSeed $8.5 million within 30 days of the completion of all of the following: (i) the execution of the Research Agreement; (ii) the execution of the Individual Agreement; and (iii) CellSeed’s delivery of the accumulated information package, as defined in the Research Agreement, to the Company and the Company providing written confirmation of its acceptance of the complete Package, which has not yet been completed as of June 30, 2014.

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The Company has estimated the economic life of the CAOMECS produced in connection with the CellSeed Research and Individual Agreement at seven years. The determination of this life is based in part on the Company’s estimate of economic useful life and the time period in which the Company may enjoy an advantage over competing technologies and techniques. Key reasons for a useful life shorter than the life of a patent include: (i) the patents related to this technology are yet to be approved, (ii) potential redundancy with similar medication/device due to changes in market preferences, (iii) uncertainty of regulatory approval and (iv) potential development of new treatments for the same disease.

Intangible assets consisted of the following at:

	June 30, 2014			December 31, 2013
License fees and patent filing costs	$	2,250,000		$	2,250,000
Less: accumulated amortization	(1,250,000		)	(1,142,857		)
Total	$	1,000,000		$	1,107,143

During the six months ended June 30, 2014 and 2013, amortization expense was $107,143. As of June 30, 2014, estimated aggregate amortization expense for the next five years is as follows:

Periods ending December 31,	Amount
2014	$	107,143
2015	214,286
2016	214,286
2017	214,286
2018	214,286
Thereafter	35,713
Total	$	1,000,000

NOTE 5 — ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at:

	June 30, 2014		December 31, 2013
Accounts payable
Clinical trial management expenses	$	24,102	$	270,694
Legal expenses	92,414		178,119
Other vendors	477,894		386,847
Subtotal	594,410		835,660
Accrued interest payable, related parties	148,453		195,051
Accrued interest payable	785,642		473,356
Accrued expenses	249,605		294,379
Deferred salary	485,000		485,000
Total accounts payable and accrued expenses	$	2,263,110	$	2,283,446

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NOTE 6 — NOTES PAYABLE

Notes payable consisted of the following at June 30, 2014:

Year Issued	Interest rate range	Term of Notes	Conv. Price	Principal Outstanding June 30, 2014		Discount Amount June 30, 2014		Carrying Amount June 30, 2014		Shares Underlying Principal as of June 30, 2014	Principal Outstanding December 31, 2013		Discount Amount December 31, 2013		Carrying Amount December 31, 2013		Shares Underlying Principal as of December 31, 2013
Convertible notes payable
2009	6.50 %	5 years	$3.05	$	—	$	—	$	—	—	$	254,460	$	—	$	254,460	83,366
2010	0 ~ 6.0%	5 years	$3.05	74,000		5,751		68,249		24,243	74,000		8,308		65,692		24,248
2011	10 %	5 years	$3.05	500,000		—		500,000		163,809	500,000		—		500,000		163,809
2012	10 %	2 years	$3.30~$3.60	251,100		—		251,100		71,000	251,100		—		251,100		71,000
2013	10 %	6 months ~ 2 years	$3.30~$3.60	6,057,601		48,622		6,008,979		1,746,547	6,913,606		215,798		6,697,808		1,998,215
2014	10 %	Due on demand ~2 years	$3.05~$7.00	2,721,652		400,555		2,321,097		579,239	—		—		—		—
				$	9,604,353	$	454,928	$	9,149,425	2,584,838	$	7,993,166	$	224,106	$	7,769,060	2,340,638

		Current		$	6,698,203	$	388,211	$	6,309,992	1,927,078	$	4,955,868	$	153,396	$	4,802,472	1,438,033
		Non-current		$	2,906,150	$	66,717	$	2,839,433	657,760	$	3,037,298	$	70,710	$	2,966,588	902,605

Convertible notes payable - related party
2012	10 %	Due on demand	$3.30	$	373,000	$	—	$	373,000	113,030	$	373,000	$	—	$	373,000	113,030
2013	10 %	1 year	$3.60	187,706		—		187,706		52,141	187,706		—		187,706		52,141
				$	560,706	$	—	$	560,706	165,171	$	560,706	$	—	$	560,706	165,171

		Current		$	560,706	$	—	$	560,706	165,171	$	560,706	$	—	$	560,706	165,171

Notes payable
2012	11 %	2 years	NA	$	—	$	—	$	—	—	$	833,335	$	18,265	$	815,070	—
2013	2% ~ 10%	Due on demand ~ 2 years	NA	1,180,000		—		1,180,000		—	1,150,000		—		1,150,000		—
2014	11 %	2 years	NA	833,335		—		833,335		—	—		—		—		—
				$	2,013,335	$	—	$	2,013,335	—	$	1,983,335	$	18,265	$	1,965,070	—

		Current		$	1,180,000	$	—	$	1,180,000	—	$	1,783,335	$	18,265	$	1,765,070	—
		Non-current		$	833,335	$	—	$	833,335	—	$	200,000	$	—	$	200,000	—

Notes payable - related party
2012	8% ~ 10%	Due on demand	NA	$	656,730	$	—	$	656,730	—	$	880,062	$	4,421	$	875,641	—
2013	8 %	Due on demand	NA	50,000		—		50,000		—	50,000		—		50,000		—
2014	11 %	Due on demand ~ 2 years	NA	252,165		—		252,165		—	—		—		—		—
				$	958,895	$	—	$	958,895	—	$	930,062	$	4,421	$	925,641	—

		Current		$	825,562	$	—	$	825,562	—	$	930,062	$	4,421	$	925,641	—
		Non-current		$	133,333	$	—	$	133,333	—	$	—	$	—	$	—	—

		Grand Total		$	13,137,289	$	454,928	$	12,682,361	2,750,009	$	11,467,269	$	246,792	$	11,220,477	2,505,809

The average stated interest rate of notes payable as of June 30, 2014 and December 31, 2013 was 10%. The average effective interest rate of notes payable as of June 30, 2014 and December 31, 2013 remained the same at 15%, after giving effect to discounts relating to beneficial conversion features and the fair value of warrants issued in connection with these notes. The notes payable and convertible notes payable do not have restrictive financial covenants or acceleration clauses associated with a material adverse change event. The holders of the convertible notes have the option to convert their notes into the Company’s common stock at the stated conversion price at any time during the term of their convertible notes. Conversion prices on the convertible notes payable range from $3.05 to $7.00 per share. All due on demand notes are treated as current liabilities.

Contractual principal payments due on notes payable are as follows at June 30, 2014:

Year Ending	Payments Due
2014	$	6,804,813
2015	3,085,761
2016	3,246,715
Total	$	13,137,289

The Company estimated the total fair value of any beneficial conversion feature and accompanying warrants in allocating the debt proceeds. The proceeds allocated to the beneficial conversion feature were determined by taking the estimated fair value of shares issuable under 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 the Company’s common stock as of the date of issuance (see Note 2). In situations where the debt included both a beneficial conversion feature and a warrant, the proceeds were allocated to the warrants and beneficial conversion feature based on the pro-rata fair value.

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NOTE 7 — STOCKHOLDERS’ DEFICIT

Private Placement — On September 11, 2013, 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 share of common stock and one common stock warrant for the purchase of an additional share of common stock. The aggregate purchase price for the units was $7,551,253.

The warrants entitle the holders thereof to purchase, at any time on or prior to September 11, 2018, shares of common stock of the Company at an exercise price of $3.50 per share. The warrants contain non-standard anti-dilution protection and, consequently, are being accounted for as a liability classified warrants, were originally recorded at fair value, and will be adjusted to fair market value each reporting period.

Stock warrants — In addition to the warrants issued in connection with the Private Placement discussed above, during the year ended December 31, 2013, the Company issued warrants in connection with the issuance of a convertible note to purchase an aggregate of 50,000 shares of common stock at a per share exercise price equal to $3.30 per share. Also, in December 2013, the warrants to purchase 500,000 shares of common stock at an exercise price of $1.00 per share that had previously been issued to a director expired. On May 1, 2014, in connection with the issuance of a convertible note, the Company issued a five year warrant to purchase an aggregate of 50,000 shares of common stock at an exercise price of $3.50 per share in 2014.

Warrant exercises and issuance — 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 were 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 immediately prior to exercise 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 the ir fair value as of issuance as determined using a Binomial Monte-Carlo Cliquet (aka Ratchet) Option Pricing Model.

A summary of outstanding warrants as of June 30, 2014 is presented below.

	Six months ended June 30, 2014		Year ended December 31, 2013
Warrants outstanding, beginning of period	6,279,296		3,408,795
Granted	1,145,465		3,370,501
Exercised	(1,106,522	)	—
Cancelled, forfeited and expired	(25,001	)	(500,000	)
Warrants outstanding, end of period	6,293,238		6,279,296

A summary of outstanding warrants by year issued and exercise price as of June 30, 2014 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
Balance 2012
$1.00	1,222,058	0.46	$	1.00	1,222,058	$	1.00
$2.50	1,000,000	1.16	$	2.50	1,000,000	$	2.50
$3.05	287,436	0.89	$	3.05	287,436	$	3.05
75% of FMV	363,243	0.28	75% of FMV		363,243	75% of FMV
2012 total	2,872,737				2,872,737

During 2013
$3.50	2,225,036	4.20	$	3.50	2,225,036	$	3.50
$3.30	50,000	3.84	$	3.30	50,000	$	3.30
2013 total	2,275,036				2,275,036

During 2014
$3.50	1,145,465	4.23	$	3.50	1,145,465	$	3.50
Total	6,293,238				6,293,238

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Stock options — Management has valued stock options at their date of grant utilizing the Black-Scholes-Merton Option pricing model. The fair value of the underlying shares was determined based on recent sales of Company shares to third parties. The expected volatility was calculated using the historical volatility of a similar public entity in the industry through August 2013 and a group of similar public entities thereafter. The following table shows assumptions used on recent dates on which options were granted by the Board of Directors.

	May 8, 2014			February 26, 2014			July 18, 2013			February 28, 2013
Stock price	$	4.90		$	3.60		$	3.60		$	3.60
Exercise price	$	4.90		$	3.60		$	3.60		$	3.60
Term	10 years			10 years			10 years			10 years
Risk-Free Interest Rate	2.61		%	2.67		%	2.56		%	1.89		%
Dividend Yield	0		%	0		%	0		%	0		%
Volatility	75.50		%	76.60		%	113.60		%	119.30		%

In making the determination of fair value and finding similar companies, the Company considered the industry, stage of life cycle, size and financial leverage of such other entities. While the Company was initially able to identify only one similar public company using these criteria, based on the more advanced stage of development of the Company additional similar companies with enough historical data that met the industry criterion have now been identified. Accordingly, the Company has based its expected volatility on the historical stock prices of a group of companies since September 2013.

The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options. The expected life of options used was based on the contractual life of the option granted.

During the six months ended June 30, 2014, the Company’s Board of Directors granted 740,000 options to its directors, employees and consultants. Of these options, 438,000 options will vest over three years starting February 26, 2015, have an exercise price of $3.60 per share, and are exercisable through 2024, the remaining 302,000 options will vest over three years starting May 8, 2015, have an exercise price of $4.90 per share, and are exercisable through 2024. In addition, 340,000 options that were approved by the Company’s Board of Directors in April 2012 were deemed issued during the six months ended June 30, 2014. Two-thirds of these options have vested and the remaining one-third will vest by April 2015. These options have an exercise price of $3.60 per share and are exercisable through 2022. The aggregate fair value of these groups of options was approximately $2.7 million. As of June 30, 2014, there were 5,569,000 options outstanding under the 2011 Stock Incentive Plan and 11,795 options outstanding that were issued prior to the 2011 Stock Incentive Plan.

A summary of outstanding options as of June 30, 2014 is presented below.

		2011 Stock Incentive Plan
	Prior Plan	June 30, 2014		December 31, 2013
Options outstanding, beginning of period	11,795	4,504,000		1,199,000
Granted	—	1,080,000		3,305,000
Exercised	—	—		—
Cancelled, forfeited and expired	—	(15,000	)	—
Options outstanding, end of period	11,795	5,569,000		4,504,000

Registration Rights — The Company has agreed to use its commercially reasonable best efforts to have on file with the SEC, by September 11, 2014 and at the Company’s sole expense, a registration statement to permit the public resale of 4,115,966 shares of the Company’s common stock and 3,320,501 shares of common stock underlying warrants (collectively, the “Registrable Securities”). In the event such registration statement includes securities to be offered and sold by the Company in a fully underwritten primary public offering pursuant to an effective registration under the Securities Act, and the Company is advised in good faith by any managing underwriter of securities being offered pursuant to such registration statement that the number of Registrable Securities proposed to be sold in such offering is greater than the number of such securities which can be included in such offering without materially adversely affecting such offering, the Company will include in such registration (i) first, any securities the Company proposes to sell, and (ii) second, the Registrable Securities, with any reductions in the number of Registrable Securities actually included in such registration to be allocated on a pro rata basis among the holders thereof. The registration rights described above apply until all Registrable Securities have been sold pursuant to Rule 144 under the Securities Act or may be sold without registration in reliance on Rule 144 under the Securities Act without limitation as to volume and without the requirement of any notice filing. If the shares of common stock underlying warrants to purchase 2,225,036 shares are not registered for resale at the time of exercise on or after September 11, 2014 or if the shares of common stock underlying warrants to purchase 1,095,465 shares are not registered for resale at the time of exercise on or after June 10, 2015, and in each such case the registration rights described above then apply with respect to the holder of such warrants, such holder may exercise such warrants on a cashless basis.

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NOTE 8 — COMMITMENTS AND CONTINGENCIES

Distribution contract — Cardinal Health Specialty Pharmacy Services has been contracted to distribute NutreStore to other wholesale distributors and some independent pharmacies since April 2008. For these services, the Company pays a monthly commercialization management fee of $5,000 with discount.

Operating leases — The Company leases its office space under operating leases with unrelated entities. The rent expense during the six months ended June 30, 2014 and 2013 amounted to $58,530 and $66,420, respectively.

Future minimum lease payments under the agreements are as follows:

2014	$	65,723
2015	75,346
2016	9,797
	$	150,866

Licensing agreement — The Company licensed certain current and future technology from CellSeed (see Note 4 for further discussion). CellSeed may terminate these agreements with the Company if the Company is unable to make timely payments required under the agreements. At the time the Company entered into the agreements with CellSeed, it left for further negotiation provisions covering how the Company and CellSeed will share any financial results of commercializing any cell sheet engineering regenerative medicine products that it is seeking to develop in collaboration with CellSeed. If the Company is not able to successfully negotiate these terms, its current development and commercialization plans with respect to any of these products would be materially adversely affected.

NOTE 9 — RELATED PARTY TRANSACTIONS

The following table sets forth information relating to the Company’s loans from related persons outstanding as of June 30, 2014.

Class	Lender	Interest rate		Date of loan	Term of Loan	Principal Amount Outstanding at June 30, 2014		Highest Principal outstanding		Amount of Principal Repaid		Amount of Interest Paid		Conv. Rate		Shares underlying principal at June 30, 2014
Current, Promissory note payable to related parties:
	Hope Int’l Hospice (1)	8	%	1/17/2012	Due on demand	$	200,000	$	200,000	$	—	$	8,000	NA		—
	Hope Int’l Hospice (1)	8	%	6/14/2012	Due on demand	200,000		200,000		—		12,000		NA		—
	Hope Int’l Hospice (1)	8	%	6/21/2012	Due on demand	100,000		100,000		—		4,000		NA		—
	Yutaka Niihara (2)(4)	10	%	12/5/2012	Due on demand	156,730		1,213,700		1,056,970		60,851		NA		—
	Hope Int’l Hospice (1)	8	%	2/11/2013	Due on demand	50,000		50,000		—		2,000		NA		—
	Lan T Tran (2)	11	%	2/10/2014	2 years (3)	106,976		106,976		—		—		NA		—
	Cuc T Tran (5)	11	%	3/5/2014	1 year	11,856		11,856		—		—		NA		—
					Sub total	$	825,562	$	1,882,532	1,056,970		86,851		—		—

Current, Convertible notes payable to related parties:
	Yasushi Nagasaki (2)	10	%	6/29/2012	Due on demand	$	373,000	$	388,800	$	15,800	$	—	$	3.30	113,030
	Hideki & Eiko Uehara (5)	10	%	9/7/2013	1 year	35,640		35,640		—		—		$	3.60	9,900
	MLPF&S Cust. FBO Willis C.Lee (2)	10	%	10/5/2013	1 year	152,066		152,066		—		—		$	3.60	42,241
					Sub total	$	560,706	$	576,506	$	15,800	$	—	—		165,171

Long-term, Promissory note payable to related parties:
	Hideki & Eiko Uehara (5)	11	%	2/15/2014	2 years	$	133,333	$	133,333	$	—	$	7,363	NA		—
					Sub total	$	133,333	$	133,333	$	—	$	7,363	—		—

					Total	$	1,519,601	$	2,592,371	$	1,072,770	$	94,215	—		165,171

(1) Dr. Niihara is also the CEO of Hope International Hospice, Inc.

(2) Officer

(3) Due on demand

(4) Director

(5) Family of Officer/Director

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The foregoing table does not reflect $200,000 of subscription proceeds received from one director and a relative of such director during June 2014. The proceeds are included in due to related parties because the convertible notes subscribed for had not yet been issued at June 30, 2014.

The following table sets forth information relating to the Company’s loans from related persons outstanding as of December 31, 2013.

Class	Lender	Interest rate		Date of loan	Term of Loan	Principal Amount Outstanding as of December 31, 2013			Highest Principal outstanding		Amount of Principal Repaid			Amount of Interest Paid			Conv. Rate		Shares Underlying Principal as of December 31, 2013
Current, Promissory note payable to related parties:
	Hope Int’l Hospice(1)	8	%	1/17/2012	Due on demand	$	200,000		$	200,000	$	—		$		20,000	NA		—
	Lan T Tran(2)	11	%	2/10/2012	2 years(3)	80,000			205,000		125,000			—			NA		—
	Hideki & Eiko Uehara(5)	11	%	2/15/2012	2 years(3)	133,333			133,333		—			14,433			NA		—
	Hope Int’l Hospice(1)	8	%	6/14/2012	Due on demand	200,000			200,000		—			20,000			NA		—
	Hope Int’l Hospice(1)	8	%	6/21/2012	Due on demand	100,000			100,000		—			10,000			NA		—
	Cuc T Tran(5)	11	%	6/27/2012	1 year	10,000			10,000		—			—			NA		—
	Yutaka Niihara(2)(4)	10	%	12/5/2012	Due on demand	156,730			1,213,700		1,056,970			—			NA		—
	Hope Int’l Hospice(1)	8	%	2/11/2013	Due on demand	50,000			50,000		—			3,000			NA		—
					Sub total	$	930,063		$	2,112,033	$		1,181,970	$	67,433		—		—
					Less discount	$	(4,422	)
					Total	$	925,641

Current, Convertible notes payable to related parties:
	Yasushi Nagasaki(2)	10	%	6/29/2012	Due on demand	$	373,000		$	388,800	$	15,800		$		—	$	3.30	113,030
	Hideki & Eiko Uehara(5)	10	%	9/7/2013	1 year	35,640			35,640		—			—			$	3.60	9,900
	MLPF&S Cust. FBO Willis C.Lee(2)(4)	10	%	10/5/2013	1 year	152,066			152,066		—			—			$	3.60	42,240
					Sub total	$	560,706		$	576,506	$	15,800		$		—	—		165,170

					Total	$	1,486,347		$	2,688,539	$	1,197,770		$		67,433	—		165,170

(1) Dr. Niihara, who is the Company’s CEO, is also the CEO of Hope International Hospice, Inc.

(2) Officer

(3) Due on demand

(4) Director

(5) Family of Officer/Director

Since July 2012, the Company has been engaged in litigation with AFH Advisory, which was the sole stockholder of AFH Acquisition IV immediately prior to its combination with Emmaus Medical pursuant to the Merger in May 2011. In September 2012 AFH Advisory and related parties filed a complaint against the Company in the Superior Court of Delaware. In October 2012, the Company filed counterclaims against the plaintiffs and third-party claims against Amir Heshmatpour. Mr. Heshmatpour is a former officer of AFH Acquisition IV, Inc. (prior to the Merger) and former director of the Company and is the Managing Partner of AFH Advisory. On June 27, 2013, the Superior Court of the State of Delaware issued an order implementing a partial summary judgment in favor of the Company in its litigation against AFH Advisory, Griffin, the Foundation and Amir Heshmatpour. The order, among other things, (i) stated that a letter of intent previously entered into between the Company and AFH Advisory (the “Letter of Intent”) was properly terminated as of July 19, 2012 by the Company, and (ii) ordered the transfer agent for the Company to effect the cancellation of 2,504,249 shares of the Company’s common stock held by AFH Advisory, Griffin and the Foundation. The cancellation of such shares was effected by the Company’s transfer agent on June 28, 2013. While no appeal of this ruling has been pursued, if the court’s ruling is appealed, it could result in the Company incurring liabilities and expenses that may have a material adverse effect on its financial condition and cash flows. The cancellation of such shares is subject to appeal until 30 days after the completion of trial court proceedings. While the partial summary judgment in favor of the Company in this litigation noted above led to the cancellation of 2,504,249 shares of the Company’s common stock by the transfer agent on June 28, 2013, the Company will continue to present these shares in its financial statements as outstanding until the right of appeal has lapsed and all contingencies have been resolved. The Company’s cause of action for fraud, which was not part of the summary judgment, has not yet been litigated or settled.

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NOTE 10 — GEOGRAPHIC INFORMATION

For the six months ended June 30, 2014 and 2013, the Company earned revenue from countries outside of the United States as outlined in the table below. The Company did not have any significant currency translation or foreign transaction adjustments during the six months ended June 30, 2014 or 2013.

Country	Sales six months ended June 30, 2014		% of Total revenue six months ended June 30, 2014	Sales six months ended June 30, 2013		% of Total revenue six months ended June 30, 2013
Japan	$	78,388	41%	$	88,629	49%
South Korea	45,312		24%	—		—
Taiwan	27,730		15%	3,480		2%

NOTE 11 — SUBSEQUENT EVENTS

In July 2014, an aggregate of $1,423,676 in principal and accrued interest on convertible notes was converted into common stock at a conversion price of $3.30 per share.

In July 2014, warrants were exercised to purchase 78,000 shares of the Company’s common stock at an exercise price of $3.675 per share.

NOTE 12 — AMOUNTS RECLASSIFIED OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables show amounts added to and reclassified out of accumulated other comprehensive income:

	Unrealized holding gain (loss) on securities available-for-sale			Unrealized foreign translation			Total
Balance – December 31, 2013	$	289,389		$	(26,706	)	$	262,683
Other comprehensive income before reclassifications	(294,213		)	(675		)	(294,888		)
Amounts reclassified from accumulated other comprehensive income	—			—			—
Net current period other comprehensive income	(294,213		)	(675		)	(294,888		)
Balance – June 30, 2014	$	(4,824	)	$	(27,381	)	$	(32,205	)

Balance – December 31, 2012	$	(4,386	)	$	(8,046	)	$	(12,432	)
Other comprehensive income before reclassifications	638,596			(26,432		)	612,164
Amounts reclassified from accumulated other comprehensive income	—			—			—
Net current period other comprehensive income	638,596			(26,432		)	612,164
Balance – June 30, 2013	$	634,210		$	(34,478	)	$	599,732
Amounts in parentheses indicate debits.
All amounts are net of tax.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion relates to the financial condition and results of operations of Emmaus Life Sciences, Inc. (the “Company”), its wholly-owned subsidiary Emmaus Medical, Inc., a Delaware corporation (“Emmaus Medical”), and Emmaus Medical’s wholly-owned subsidiaries Newfield Nutrition Corporation, a Delaware corporation (“Newfield”), Emmaus Medical Japan, Inc., a Japanese corporation (“EM Japan”), and Emmaus Medical Europe, Ltd. (“EM Europe”).

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 for the years ended December 31, 2013 and 2012 and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on May 8, 2014 (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 “anticipated,” “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, obtaining FDA and other regulatory authorization to market our drug and biological products, successful completion of our clinical trials, our ability to achieve regulatory authorization to market our L-glutamine treatment for SCD, our ability to commercialize our L-glutamine treatment for SCD, our reliance on third party manufacturers for our drug products, market acceptance of our products, our dependence on licenses for certain of our products, our reliance on the expected growth in demand for our products, exposure to product liability and defect claims, development of a public trading market for our securities, and various other matters, 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 and accordingly there can be no assurances made with respect to the actual results or developments.

Company Overview

We are a biopharmaceutical company engaged in the discovery, development and commercialization of innovative treatments and therapies primarily for rare and orphan diseases. We are initially focusing our product development efforts on SCD, a genetic disorder. Our lead product candidate is an oral pharmaceutical grade L-glutamine treatment that demonstrated positive clinical results in our completed Phase 3 clinical trial for sickle cell anemia and sickle ß 0 -thalassemia, two of the most common forms of SCD.

SCD is an inherited blood disorder characterized by the production of an altered form of hemoglobin which polymerizes and becomes fıbrous, causing red blood cells to become rigid and change form so that they appear sickle shaped instead of soft and rounded. Patients with SCD suffer from debilitating episodes of sickle cell crisis, which occur when the sickle shaped, adhesive and inflexible red blood cells occlude blood vessels. Sickle cell crisis causes excruciating pain as a result of insufficient oxygen being delivered to tissue, referred to as tissue ischemia, and inflammation. These events may lead to organ damage, stroke, pulmonary complications, skin ulceration, infection and a variety of other adverse outcomes.

We have completed a 230 patient randomized, double-blind, placebo-controlled, parallel-group, multi-center Phase 3 clinical trial which enrolled adult and pediatric patients as young as five years of age, involving 31 sites in the United States. Our L-glutamine treatment and the placebo were randomized by site and by patients using hydroxyurea, a chemotherapeutic agent first approved for SCD by the FDA in 1998.

Preliminary data from this clinical trial adjusted for hydroxyurea use demonstrate that patients treated with our L-glutamine product candidate over a 48-week period experienced a statistically significant 25% reduction (from four to three; p-value = 0.008) in the median frequency of sickle cell crises and a statistically significant 33% reduction (from three to two; p-value = 0.018) in the median frequency of hospitalizations. Positive results were observed for both those on hydroxyurea and those not taking hydroxyurea.

To account for the wide variation in number of subjects enrolled at each site and to be able to perform meaningful analyses, the sites were grouped into five geographic regions. Once stratified, or adjusted, for both hydroxyurea use and geographic region, the p-value for the reduction in the number of painful sickle cell crises was 0.063, which did not meet the p-value of 0.045 that had been pre-specified for this Phase 3 clinical trial. Using the same stratification factors, the p-value for the reduction in hospitalization was 0.041, which met the p-value of 0.045 that had been pre-specified for this Phase 3 clinical trial.

On June 11, 2014, we met with the FDA to discuss the preliminary data from our Phase 3 clinical trial and our plans to submit a New Drug Application, or NDA, based on our single Phase 3 clinical trial. In minutes of the meeting that the FDA has provided to us, based on their review of partial data from our Phase 3 clinical trial, the FDA expressed concern that the data on the primary endpoint of painful sickle cell crisis (controlling for both geographic region and hydroxyurea use) did not reach the pre-specified p-value significance level of 0.045.

The FDA commented that the primary efficacy results were inconsistent among geographic regions, as shown by the large difference in results observed based on the stratified analyses adjusted for both geographic region and hydroxyurea use versus being adjusted for hydroxyurea use only. The FDA commented that a reduction in the median number of painful sickle cell crises by one (from four to three) is not clinically meaningful and is not consistent across geographic regions. The FDA asked us to provide explanations for the differences in results observed based on the stratified analysis adjusted for geographic region and hydroxyurea.

The FDA also commented on the number of patients who discontinued the study, which was greater in the L-glutamine group, and the FDA would need to understand what impact the imputation of such data, which is a method of accounting for missing information, would have on the interpretation of the results.

Based on preliminary data, the FDA recommended a second Phase 3 study be conducted to support the indication for SCD and suggested enrolling patients with a higher baseline level of sickle cell crises to help demonstrate a larger difference in the mean results. The FDA’s recommendation was without consideration of complete data and information, which we intend to provide to the FDA.

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Based on other questions we submitted to the FDA regarding the previous pre-clinical work and evidence gathered for the L-glutamine treatment related to pharmacology, toxicology, and clinical pharmacology, the FDA noted that the information provided appeared to be acceptable; however, final affirmations regarding such matters would be made during the NDA review. The FDA also made certain recommendations to the chemistry, manufacturing and controls of our L-glutamine treatment for SCD which we believe we will be able to successfully incorporate or address.

We believe that the complete Phase 3 study data, including supplemental analysis, will address the FDA’s questions and comments. These additional data and information we believe will provide clinically meaningful and statistically very persuasive findings that support consideration of our NDA without a second Phase 3 study. We intend to submit the complete study results and additional analysis for pre-NDA review to the FDA during the third quarter of 2014. There can be no assurance that the additional data and analysis will affect the position expressed by the FDA.

Regarding the submission of NDAs that include only one Phase 3 clinical trial, the FDA has in some cases accepted evidence from one clinical trial to support a finding of substantial evidence of effectiveness. A change in the law under the U.S. Food and Drug Administration Modernization Act of 1997 made clear that the FDA may consider data from only one adequate and well-controlled clinical investigation and confirmatory evidence if the FDA determines that such evidence is sufficient to establish effectiveness of the medicine under study. In a guidance document titled “Providing Clinical Evidence of Effectiveness for Human Drug and Biological Products” (May 1998), the FDA stated that reliance on a single clinical trial is generally limited to situations in which a trial has demonstrated a clinically meaningful effect on mortality, irreversible morbidity, or prevention of a disease with a potential serious outcome, and where confirmation of the result in a second trial would be impractical or unethical. The factors the FDA considers for accepting a single clinical trial include, but are not limited to, having large multi-centered studies, consistent data across subgroups, multiple endpoints, and statistically very persuasive findings. We believe a second clinical trial of an orphan drug to treat SCD, a rare and severely debilitating, sometimes fatal, disease, would not be required if a single Phase 3 clinical trial satisfies these factors.

Our single Phase 3 clinical trial was multi-centered with multiple endpoints. We believe that this design coupled with the complete results of the trial and our supplemental analysis of those results — which we intend to submit during the third quarter of 2014 to the FDA for pre-NDA review — will address the FDA’s questions and comments about the preliminary results described above and will provide a clinically meaningful and statistically persuasive basis for the FDA’s acceptance for filing of our NDA without the need for a second Phase 3 clinical trial. There can be no assurance that the FDA will agree that the complete Phase 3 study results and our supplemental analysis will address its concerns.

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To a lesser extent, we are also engaged in the marketing and sale of NutreStore L-glutamine powder for oral solution, which has received FDA approval, as a treatment for SBS, in patients receiving specialized nutritional support when used in conjunction with a recombinant human growth hormone that is approved for this indication. Our indirect wholly owned subsidiary, Newfield Nutrition Corporation, sells L-glutamine as a nutritional supplement under the brand name AminoPure through retail stores in multiple states and via importers and distributors in Japan, Taiwan and South Korea. Since inception, we have generated minimal revenues from the sale and promotion of NutreStore and AminoPure.

In May 2006, we formed Newfield, a wholly-owned subsidiary of Emmaus Medical, that distributes L-glutamine as a nutritional supplement under the brand name AminoPure.

In October 2010, we formed EM Japan, a wholly-owned subsidiary of Emmaus Medical, that markets and sells AminoPure in Japan and other countries in Asia. EM Japan also manages our distributors in Japan and may also import other medical products in the future.

In November 2011, we formed EM Europe, a wholly-owned subsidiary of Emmaus Medical, whose primary focus is expanding our business in Europe. Our corporate structure is illustrated as follows:

Emmaus Medical, LLC was organized on December 20, 2000. In October 2003, Emmaus Medical, LLC undertook a reorganization and merged with Emmaus Medical, Inc., which was originally incorporated in September 2003.

Pursuant to an Agreement and Plan of Merger dated April 21, 2011, which we refer to as the Merger Agreement, by and among us, AFH Merger Sub, Inc., our wholly-owned subsidiary, which we refer to as AFH Merger Sub, AFH Advisory and Emmaus Medical, Emmaus Medical merged with and into AFH Merger Sub on May 3, 2011 with Emmaus Medical continuing as the surviving entity, which we refer to as the Merger. Upon the closing of the Merger, we changed our name from “AFH Acquisition IV, Inc.” to “Emmaus Holdings, Inc.” Subsequently, on September 14, 2011, we changed our name from “Emmaus Holdings, Inc.” to “Emmaus Life Sciences, Inc.”

Our future capital requirements are substantial and may increase beyond our current expectations depending on many factors, including, but not limited to: the duration and results of the clinical trials for our various product candidates going forward; unexpected delays or developments when seeking regulatory approvals; the time and cost in preparing, filing, prosecuting, maintaining and enforcing patent claims; current and future unexpected developments encountered in implementing our business development and commercialization strategies; the outcome of litigation in which we are currently engaged or may become engaged in the future; and further arrangements, if any, with collaborators. Until we can generate a sufficient amount of product revenue, future cash requirements are expected to be financed through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. As of June 30, 2014, our accumulated deficit is $63.9 million and we had cash and cash equivalents of $3.6 million. Since inception we have had minimal revenues and have been required to rely on funding from sales of equity securities and borrowings from officers and stockholders. Currently, we estimate we will need approximately $1.1 million to administratively close out the post-clinical aspects of our Phase 3 clinical trial of our pharmaceutical grade L-glutamine treatment for SCD and submit a NDA to the FDA.

We also own a minority interest of less than 1% in CellSeed, Inc., a Japanese company listed on the Tokyo Stock Exchange, which is engaged in research and development of regenerative medicine products and the manufacture and sale of temperature-responsive cell culture equipment. In collaboration with CellSeed, we are engaged in research and development of cell sheet engineering regenerative medicine products and the future commercialization of such products.

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Recent Highlights

In May and June 2014, we issued convertible notes to third parties totaling $1,520,000 in aggregate principal amount, which bear interest at 10% per annum and mature on the respective two-year anniversary dates of the notes. If we complete a qualified public offering, the principal amount of the notes will automatically convert into shares of our common stock at a conversion price equal to 80% of the initial public offering price in the qualified public offering. At or after the first anniversary of the loan date, the holders of the notes may convert some or all of the unpaid principal amount thereof, including unpaid accrued interest, into shares of our common stock at a conversion price of $7.00 per share.

On June 10, 2014 , certain holders of warrants issued in our September 11, 2013 p rivate p lacement exercised 1,095,465 warrants for the exercise price of $3.50 per share, as a result of which we received aggregate exercise proceeds of $3.8 million and issu ed 1,095,465 shares of common stock. Also on June 10, 2014 , based on an offer made to such holders in connection with such exercises, we issued an aggregate of 1,095,465 replacement warrants having 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 .

Financial Overview

Revenue

Since our inception in 2000, we have had limited revenue from the sale of NutreStore, an FDA approved prescription drug to treat SBS and AminoPure, a nutritional supplement. We have funded operations principally through the private placement of equity securities and debt financings. Emmaus’ operations to date have been primarily limited to staffing, licensing and promoting products for SBS, outsourcing distribution and sales activities, sponsoring clinical trials of our pharmaceutical grade L-glutamine treatment for SCD, manufacturing products and maintaining and improving its patent portfolio.

Currently, we generate revenue through the sale of NutreStore L-glutamine powder for oral solution as a treatment for SBS as well as AminoPure, a nutritional supplement. Pursuant to the exclusive sublicense agreement of US Patent No. 5,288,703, or SBS Patent, we are required to pay an annual royalty equal to 10% of adjusted gross sales of NutreStore to CATO Holding Company (“CATO”). We made royalty payments to CATO in the amount of $6,501 in June 2014. Management expects that any revenues generated from the sale of NutreStore and AminoPure will fluctuate from quarter to quarter based on the timing of orders and the amount of product sold.

Cost of Goods Sold

Cost of goods sold includes the raw materials, packaging, shipping and distribution costs of NutreStore and AminoPure.

Research and Development Expenses

Research and development costs consist of expenditures for new products and technologies, which primarily involve fees paid to the contract research organization (“CRO”) that conducts the 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. 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. This is primarily due to the increased size, expanded scope, patient-related healthcare and regulatory compliance costs, and generally longer duration of later stage clinical studies.

The most significant clinical trial expenditures are related to the CRO costs and the payments to study sites. The contract with the CRO is based on time and material expended, whereas the study site agreements are based on per patient costs 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 certainty which of our 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. We currently estimate that we will need an additional $1.1 million to administratively close out the post-clinical aspects of our Phase 3 clinical trial and submit a NDA to the FDA. Our current cash burn rate is approximately $1.0 million per month.

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At this time, due to the inherently unpredictable nature of the 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 in obtaining FDA approval of our pharmaceutical grade L-glutamine treatment for SCD and 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 related risks and uncertainties are described in our 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”, and “Risk Factors — Risks Related to Regulatory Approval of our Drug Candidates and Other Legal Compliance Matters.”

We estimate that the cost to us to develop in the United States corneal cell sheet products based on CAOMECS technology will be approximately $3.0 million, in addition to the $8.5 million fee payable to CellSeed under the Research Agreement. This estimate includes the anticipated cost of obtaining FDA approval for the corneal cell sheets and assumes that we will need the FDA to approve a Biologic License Application (“BLA”) for the corneal cell sheets, rather than a NDA. We estimate that we will need another $2.0 million to commercialize any approved products based on corneal cell sheet technology.

In addition, we estimate that we will need $2.5 million for research related to other cell sheet applications and to build a cGMP laboratory to establish the infrastructure and production capabilities related to regenerative medicine products. At this time, we do not plan to incur any additional research and development costs for our NutreStore and AminoPure products.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, information technology, marketing, and legal functions. Other general and administrative expenses include share-based compensation, facility costs, patent filing costs, and professional fees 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.

Environmental Expenses

The cost of compliance with environmental laws has not been material over the past two years and any such costs are included in general and administrative costs.

Inventories

Inventories consist of finished goods and work-in-process and are valued on a first-in, first-out basis and at the lower of cost or market value. All of the raw material purchased during the six months ended June 30, 2014 were from one vendor and during 2013 were from two vendors.

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Results of operations

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013

REVENUES, Net	$	107,404		$	91,208		$	192,094		$	180,768

COST OF GOODS SOLD	60,881			54,988			107,783			98,972
GROSS PROFIT	46,523			36,220			84,311			81,796

OPERATING EXPENSES
Research and development	596,349			696,008			1,201,389			1,311,261
Selling	122,883			129,335			248,814			256,688
General and administrative	3,267,379			2,519,148			6,253,293			4,831,403
	3,986,611			3,344,491			7,703,496			6,399,352

LOSS FROM OPERATIONS	(3,940,088		)	(3,308,271		)	(7,619,185		)	(6,317,556		)

OTHER INCOME (EXPENSE)
Gain on derecognition of accounts payable	—			—			—			341,361
Change in fair value of liability classified warrants	643,256			—			(1,979,744		)	—
Warrant exercise inducement expense	(3,523,000		)	—			(3,523,000		)	—
Interest and other income (loss)	(4,761		)	5,081			(23,166		)	10,722
Interest expense	(553,561		)	(496,483		)	(970,922		)	(1,101,010		)
	(3,438,066		)	(491,402		)	(6,496,832		)	(748,927		)

LOSS BEFORE INCOME TAXES	(7,378,154		)	(3,799,673		)	(14,116,017		)	(7,066,483		)
INCOME TAXES (BENEFIT)	—			(134,640		)	2,500			(399,252		)
NET LOSS	(7,378,154		)	(3,665,033		)	(14,118,517		)	(6,667,231		)
NET LOSS PER COMMON SHARE	$	(0.25	)	$	(0.14	)	$	(0.48	)	$	(0.27	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	29,368,691			25,391,949			29,298,886			25,141,376

Three months ended June 30, 2014 and 2013

Net Losses . Net losses increased by $3.7 million, or 101%, to $7.4 million from $3.7 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The increase in losses is primarily a result of $3.5 million in warrant exercise inducement expense incurred in connection with the warrant exercises and issuance, partially offset by a $0.6 million change in fair value of liability classified warrants, and increased operating expenses as discussed below. As of June 30, 2014, we had an accumulated deficit of approximately $63.9 million. Losses will continue as we advance our pharmaceutical grade L-glutamine treatment for SCD toward regulatory approval and potential commercialization. As a result, we anticipate that we will continue to incur net losses and be unprofitable for the foreseeable future. There can be no assurance that we will ever operate at a profit, even if all of our products are commercialized.

Revenues, Net . Revenues, Net remained approximately the same at just over $0.1 million and just under $0.1 million for the three months ended June 30, 2014 and 2013, respectively. We estimate our sales returns based upon our prior sales and return history. Historically, sales returns have been very nominal. We continue to monitor our sales returns and will adjust our estimates based on our actual sales return experience.

Cost of Goods Sold . Cost of goods sold remained approximately the same at $0.06 million for the three months ended June 30, 2014 and 2013. Cost of goods sold includes costs for raw material, packaging, testing, shipping and costs related to scrapped inventory. All of the purchases during the three months ended June 30, 2014 were from one vendor and during 2013 were from two vendors.

Research and Development Expenses . Research and development expenses decreased by $0.1 million, or 14%, to $0.6 million from $0.7 million for the three months ended June 30, 2014 and 2013, respectively. Cost in 2013 were primarily CRO costs and payments to sites. Cost in 2014 are primarily related to the cost of compiling and analyzing data from our Phase 3 clinical trial and other end of study costs. Such costs will continue for the remainder of 2014.

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Selling Expenses . Selling expenses remained approximately the same at just over $0.1 million for the three months ended June 30, 2014 and 2013. Selling expenses includes the costs for distribution, promotion, travel, tradeshows and exhibits related to NutreStore and AminoPure.

General and Administrative Expenses. General and administrative expenses increased by $0.8 million, or 30%, to $3.3 million from $2.5 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The increase was primarily due to a $0.4 million increase in professional fees including accounting and consulting fees, a $0.1 million increase in payroll related costs and a $0.1 million increase in travel expenses.

Other Income and Expense . Total other income and expense increased by $2.9 million for the three months ended June 30, 2014, compared to the three months ended June 30, 2013, primarily due to an increase in warrant exercise inducement expense of $3.5 million incurred in connection with warrant exercises and issuance, offset in part by a change in fair value of liability classified warrants of $0.6 million.

We anticipate that our operating expenses will increase for, among others, the following reasons:

· as a result of increased payroll, expanded infrastructure and higher consulting, legal, accounting and investor relations costs, and director and officer insurance premiums associated with being a public company;

· to support research and development activities, which we expect to expand as development of our product candidates continues; and

· to build a sales and marketing team before we receive regulatory approval of our pharmaceutical grade L-glutamine treatment for SCD in anticipation of commercial launch.

Six months ended June 30, 2014 and 2013

Net Losses . Net losses increased by $7.4 million, or 112%, to $14.1 million from $6.7 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The increase in losses is primarily a result of $3.5 million in warrant exercise inducement expense incurred in connection with warrant exercises and issuance, an increase in change in fair value of liability classified warrants of $2.0 million and increased operating expenses as discussed below. As of June 30, 2014, we had an accumulated deficit of approximately $63.9 million. Losses will continue as we advance our pharmaceutical grade L-glutamine treatment for SCD toward regulatory approval and potential commercialization. As a result, we anticipate that we will continue to incur net losses and be unprofitable for the foreseeable future. There can be no assurance that we will ever operate at a profit, even if all of our products are commercialized.

Revenues, Net . Revenues, Net remained approximately the same at just under $0.2 million for the six months ended June 30, 2014 and 2013. We estimate our sales returns based upon our prior sales and return history. Historically, sales returns have been very nominal. We continue to monitor our sales returns and will adjust our estimates based on our actual sales return experience.

Cost of Goods Sold . Cost of goods sold remained approximately the same at just over $0.1 million and just under $0.1 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Cost of goods sold includes costs for raw material, packaging, testing, shipping and costs related to scrapped inventory. All of the purchases during the six months ended June 30, 2014 were from one vendor and during 2013 were from two vendors.

Research and Development Expenses . Research and development expenses decreased $0.1 million, or 8%, from $1.3 million to $1.2 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Cost in 2013 were primarily CRO costs and payments to sites. Cost in 2014 are primarily related to the cost of compiling and analyzing data from our Phase 3 clinical trial and other end of study costs. Such costs will continue for the remainder of 2014.

Selling Expenses . Selling expenses remained approximately the same at just under $0.3 million and just over $0.3 million for the six months ended June 30, 2014 and 2013, respectively. Selling expenses includes the costs for distribution, promotion, travel, tradeshows and exhibits related to NutreStore and AminoPure.

General and Administrative Expenses. General and administrative expenses increased $1.4 million, or 29%, to $6.2 million from $4.8 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The increase is due to a $0.7 million increase in share-based compensation, a $0.3 million increase in professional fees, absence of gain on derecognition of accounts payable of $0.3 million and a $0.1 million increase in payroll expense.

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Other Income and Expense . Total other income and expense decreased by $5.7 million for the six months ended June 30, 2014, compared to the six months ended June 30, 2013, primarily due to an increase in warrant exercise inducement expense of $3.5 million incurred in connection with warrant exercises and issuance, an increase in change in fair value of liability classified warrants of $2.0 million and the absence of gain on derecognition of accounts payable that was $0.3 million for the six months ended June 30, 2013.

Liquidity and Capital Resources

Based on our losses to date, anticipated future revenue and operating expenses, debt repayment obligations and cash and cash equivalents balance of $3.6 million as of June 30, 2014, we do not have sufficient operating capital for our business without raising additional capital. We incurred losses of $14.1 million for the six months ended June 30, 2014 and $6.7 million for the six months ended June 30, 2013. We had an accumulated deficit at June 30, 2014 of $63.9 million. We anticipate that we will continue to incur net losses for the foreseeable future as we incur expenses for the commercialization of our pharmaceutical grade L-glutamine for treatment of sickle cell disease, research costs for corneal cell sheets using CAOMECS 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 stockholders and other investors. As of June 30, 2014, we had total outstanding notes payable of $13.1 million, consisting of $3.0 million of non-convertible promissory notes and $10.1 million of convertible notes. Of the $13.1million aggregate outstanding principal amount of notes outstanding as of June 30, 2014, approximately $9.3 million will become due and payable within one year. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategies, including the commercialization of our pharmaceutical grade L-glutamine treatment for SCD and development in the United States of CAOMECS-based corneal cell sheet technology.

As described in Note 2 to the condensed consolidated financial statements, we have had recurring operating losses, have a significant amount of notes payable and other obligations due within the next year and projected operating losses including the expected costs relating to the commercialization of our pharmaceutical grade L-glutamine treatment for SCD that exceed both the existing cash balances and cash expected to be generated from operations for at least the next year. In order to meet our expected obligations, management intends to raise additional funds through equity and debt financings and partnership agreements. In addition, we may seek to raise additional funds through collaborations with other companies or financing from other sources. Additional funding may not be available in amounts or on terms which are acceptable to us, if at all. Due to the uncertainty of our ability to meet our current operating and capital expenses, there is substantial doubt about our ability to continue as a going concern.

On April 8, 2011, pursuant to a Research Agreement with CellSeed, we agreed to pay CellSeed $8.5 million within 30 days of the completion of all of the following: (i) the execution of the Research Agreement; (ii) the execution of the Individual Agreement; and (iii) CellSeed’s delivery to us of the accumulated information package, as defined in the Research Agreement . Pursuant to the Individual Agreement with CellSeed, we agreed to pay $1.5 million to CellSeed and a royalty to be agreed upon by the parties. We paid the $1.5 million due to CellSeed pursuant to the Individual Agreement in February 2012. We currently anticipate that the additional $8.5 million payment obligation under the Research Agreement will become due and payable after we begin to generate revenues from the commercialization of our pharmaceutical grade L-glutamine treatment for SCD. If the payment obligation becomes due and payable prior to our generation of revenue from the commercialization of our pharmaceutical grade L-glutamine treatment for SCD, we will need to seek other funding sources, including the sale of additional equity or debt securities, and partnership arrangements in order to make the payment. CellSeed may terminate these agreements if we are unable to make timely payments as required under the agreements.

In addition, we currently estimate that we will need an additional $1.1 million to perform the post-clinical study tasks required for closing our Phase 3 clinical trial, completing the associated end-of-study data analysis and report, and submitting a NDA to the FDA. Our current cash burn rate is approximately $1.0 million per month.

As discussed under the caption “Company Overview” above, if the FDA does not accept our NDA for filing or does not approve our NDA based on a single Phase 3 clinical trial, in each case unless we conduct a second Phase 3 clinical trial, the potential approval of our product candidate will be delayed. Under these circumstances, we will incur additional costs to seek to convince the FDA that a second clinical trial is unnecessary, or to design and conduct a second Phase 3 clinical trial, or both. If we conduct a second Phase 3 clinical trial, it is possible that the results of that trial will be less favorable than the results of our completed trial and further delay or complicate the approval process. The incurrence of additional costs may require us to raise additional capital, and any delay in obtaining approval of our product candidate will reduce the period during which we can market and sell our product with patent protection and may affect our ability to obtain other protections against competition.

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Our cash flow from operations is not adequate and our future capital requirements will be substantial and may increase beyond our current expectations depending on many factors including, but not limited to: the number, duration and results of the clinical trials for our various product candidates going forward; unexpected delays or developments in seeking regulatory approvals; the time and cost in preparing, filing, prosecuting, maintaining and enforcing patent claims; other unexpected developments encountered in implementing our business and commercialization strategies; the outcome of existing and any future litigation; and further arrangements, if any, with collaborators. We will rely, in part, on sales of AminoPure for revenues, which we expect will increase due to the expected growth in its export volume as we have added additional distributors and expanded retail markets outside of the United States. Revenues from NutreStore are currently not significant and we are unsure whether sales of NutreStore will increase. Until we can generate a sufficient amount of product revenue, future cash needs are expected to be financed through public or private equity offerings, debt financings, loans, including loans from related parties, or other sources, such as strategic partnership agreements and corporate collaboration and licensing arrangements. Until we can generate a sufficient amount of product revenue, there can be no assurance of the availability of such capital on terms acceptable to us (or at all).

For the six months ended June 30, 2014 and during the year ended December 31, 2013, we borrowed varying amounts pursuant to convertible notes and non-convertible promissory notes, the majority of which have been issued to our stockholders. As of June 30, 2014 and December 31, 2013, the amounts outstanding under convertible notes and non-convertible promissory notes totaled $13.1 million and $11.5 million, respectively. The convertible notes and non-convertible promissory notes bear interest at rates ranging from 0% to 11% and, except for the convertible note listed below in the principal amount of $0.5 million are unsecured. Interest on 0% loans was imputed at the incremental borrowing rate of 6.25% per annum. The net proceeds of the loans were used for working capital.

The table below lists our outstanding notes payable as of June 30, 2014 and the material terms of our outstanding borrowings:

Year Issued	Interest rate range	Term of Notes	Conv. Price	Principal Outstanding June 30, 2014		Discount Amount June 30, 2014		Carrying Amount June 30, 2014		Shares Underlying Principal as of June 30, 2014	Principal Outstanding December 31, 2013		Discount Amount December 31, 2013		Carrying Amount December 31, 2013		Shares Underlying Principal as of December 31, 2013
Convertible notes payable
2009	6.50 %	5 years	$3.05	$	—	$	—	$	—	—	$	254,460	$	—	$	254,460	83,366
2010	0 ~ 6.0%	5 years	$3.05	74,000		5,751		68,249		24,243	74,000		8,308		65,692		24,248
2011	10 %	5 years	$3.05	500,000		—		500,000		163,809	500,000		—		500,000		163,809
2012	10 %	2 years	$3.30~$3.60	251,100		—		251,100		71,000	251,100		—		251,100		71,000
2013	10 %	6 months ~ 2 years	$3.30~$3.60	6,057,601		48,622		6,008,979		1,746,547	6,913,606		215,798		6,697,808		1,998,215
2014	10 %	Due on demand ~2 years	$3.05~$7.00	2,721,652		400,555		2,321,097		579,239	—		—		—		—
				$	9,604,353	$	454,928	$	9,149,425	2,584,838	$	7,993,166	$	224,106	$	7,769,060	2,340,638

		Current		$	6,698,203	$	388,211	$	6,309,992	1,927,078	$	4,955,868	$	153,396	$	4,802,472	1,438,033
		Non-current		$	2,906,150	$	66,717	$	2,839,433	657,760	$	3,037,298	$	70,710	$	2,966,588	902,605

Convertible notes payable - related party
2012	10 %	Due on demand	$3.30	$	373,000	$	—	$	373,000	113,030	$	373,000	$	—	$	373,000	113,030
2013	10 %	1 year	$3.60	187,706		—		187,706		52,141	187,706		—		187,706		52,141
				$	560,706	$	—	$	560,706	165,171	$	560,706	$	—	$	560,706	165,171

		Current		$	560,706	$	—	$	560,706	165,171	$	560,706	$	—	$	560,706	165,171

Notes payable
2012	11 %	2 years	NA	$	—	$	—	$	—	—	$	833,335	$	18,265	$	815,070	—
2013	2% ~ 10%	Due on demand ~ 2 years	NA	1,180,000		—		1,180,000		—	1,150,000		—		1,150,000		—
2014	11 %	2 years	NA	833,335		—		833,335		—	—		—		—		—
				$	2,013,335	$	—	$	2,013,335	—	$	1,983,335	$	18,265	$	1,965,070	—

		Current		$	1,180,000	$	—	$	1,180,000	—	$	1,783,335	$	18,265	$	1,765,070	—
		Non-current		$	833,335	$	—	$	833,335	—	$	200,000	$	—	$	200,000	—

Notes payable - related party
2012	8% ~ 10%	Due on demand	NA	$	656,730	$	—	$	656,730	—	$	880,062	$	4,421	$	875,641	—
2013	8 %	Due on demand	NA	50,000		—		50,000		—	50,000		—		50,000		—
2014	11 %	Due on demand ~ 2 years	NA	252,165		—		252,165		—	—		—		—		—
				$	958,895	$	—	$	958,895	—	$	930,062	$	4,421	$	925,641	—

		Current		$	825,562	$	—	$	825,562	—	$	930,062	$	4,421	$	925,641	—
		Non-current		$	133,333	$	—	$	133,333	—	$	—	$	—	$	—	—

		Grand Total		$	13,137,289	$	454,928	$	12,682,361	2,750,009	$	11,467,269	$	246,792	$	11,220,477	2,505,809

Cash flows for the six months ended June 30, 2014 and June 30, 2013

Net cash used in operating activities

Net cash flows used in operating activities increased by $1.3 million, or 36%, to $5.0 million from $3.7 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. This increase was primarily due to a $7.4 million increase in net loss and a decrease of cash provided by accounts payable of $0.6 million, both of which were partially offset by an increase of non-cash expense of $3.5 million of warrant exercise inducement expense, $0.7 million of share-based compensation, absence of a tax benefit recognized on unrealized gain on securities of $0.4 million and $2.0 million of change in the fair value of liability classified warrants.

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Net cash used in investing activities

Net cash flows used in investing activities increased by $0.02 million to $0.02 million from $0.0 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The increase was due to purchases of property and equipment. No other investing activities occurred in the six months ended June 30, 2014 or 2013.

Net cash from financing activities

Net cash flows from financing activities increased by $1.1 million, or 30%, to $5.0 million from $3.9 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, primarily as a result of the receipt of $3.9 million in proceeds from the issuance of common stock upon the exercise of warrants (compared to the receipt of $1.2 million of proceeds from issuance of common stock during the six months ended June 30, 2013) and the absence of $0.7 million in payments of promissory and convertible notes payable, offset, in part, by a $1.9 million decrease in proceeds from promissory and convertible notes payable issued and a $0.4 million repurchase of common stock.

Off-Balance-Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

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 accounting principles generally accepted in the United States (“GAAP”). 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.

While our significant accounting policies are more fully described in Note 2 to our condensed consolidated financial statements which are provided in Item 1 of this Form 10-Q, we believe that the following accounting policies are the most critical to assist you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements.

Notes Payable, Convertible Notes Payable and Warrants

From time to time, we obtain financing in the form of notes payable and/or notes with detachable warrants, some of which are convertible into shares of our common stock and some of which are issued to related parties. We analyze all of the terms of our convertible notes and related detachable warrants to determine the appropriate accounting treatment, including determining whether conversion features are required to be bifurcated and treated as liability classified warrants, allocation of fair value of the issuance to the debt instrument, detachable stock purchase warrant, and any beneficial conversion features, and the applicable classification of the convertible notes payable and warrants as debt, equity or temporary equity (mezzanine).

We allocate the proceeds from the issuance of a debt instrument with detachable stock purchase warrants to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance. We account for the portion of the proceeds allocated to warrants in additional paid-in capital and the remaining proceeds are allocated to the debt instrument. The allocation to debt instrument results in a discount to notes payable which is amortized using the effective interest method to interest expense over the expected term of the note. We include the intrinsic value of the embedded conversion feature of convertible notes payable in the discount to notes payable, which is amortized and charged to interest expense over the expected term of the note.

We also estimate the total fair value of any beneficial conversion feature and accompanying warrants in allocating debt proceeds. The proceeds allocated to the beneficial conversion feature are determined by taking the estimated fair value of shares issuable under 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 our common stock as of the date of issuance. I n situations where the debt includes both a beneficial conversion feature and a warrant, the proceeds are allocated to the warrants and beneficial conversion feature based on the pro-rata fair value. We use the Black Scholes-Merton option pricing model to determine the fair value of our warrants.

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Notes payable to related parties and interest expense and accrued interest to related parties are separately identified in our condensed consolidated financial statements. We also disclose significant terms of all transactions with related parties.

Share-based Compensation

We recognize compensation cost for share-based compensation awards during the service term of the recipients of the share-based awards. The fair value of share-based awards is calculated using the Black-Scholes-Merton pricing model. The Black-Scholes-Merton model requires subjective assumptions regarding future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of awards granted is derived from historical data on awards exercised and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the vesting period of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the common stock of comparable publicly traded companies. These factors could change, affecting the determination of stock-based awards expense in future periods.

Fair Value of Common Stock

The fair value of the common stock underlying our share-based awards was determined on each grant date by our board of directors, with input from management, primarily based on recent sales of equity and equity related financial instruments to non-affiliated purchasers in arm’s length negotiated transactions, as well as other factors our board of directors considered relevant to the valuation of our common stock. Given the absence of a public trading market for our common stock, our board of directors exercised reasonable judgment and considered a range of objective and subjective factors to estimate the fair value of our common stock.

More specifically, the fair value of the underlying shares was determined based on recent arms-length sales of our equity to third parties and other factors determined by management to be relevant to the valuation of such shares, including:

· progress of our research and development efforts;

· our operating results and financial condition, including our levels of available capital resources;

· our stages of development and material risks related to our business;

· the achievement of enterprise milestones, including entering into collaboration or license agreements and our progress in clinical trials;

· the valuation of publicly-traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

· equity market conditions affecting comparable public companies;

· the likelihood of achieving a liquidity event for the shares of common stock, such as an initial public offering given prevailing market and biotechnology sector conditions; and

· that the grants involved illiquid securities.

Fair Value Measurements

We define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We measure fair value under a framework that provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.

Level 2: Inputs to the valuation methodology include:

· Quoted prices for similar assets or liabilities in active markets;

· Quoted prices for identical or similar assets or liabilities in inactive markets;

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· Inputs other than quoted prices that are observable for the asset or liability;

· Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value assigned to marketable securities is determined by obtaining quoted prices on nationally recognized securities exchanges, and are classified as Level 1 investments at June 30, 2014. The fair value of our debt instruments is not materially different from their carrying values as presented. The fair value of our convertible debt instruments was determined based on Level 2 inputs. The carrying value of the debt was discounted based on allocating proceeds to other financial instruments within the arrangement as discussed in Note 6 to our condensed consolidated financial statements.

Marketable Securities

Securities available-for-sale are recorded at cost and any increases or decreases in fair market value are recorded as unrealized gains or losses, net of taxes in accumulated other comprehensive income. We monitor these investments for impairment and make appropriate reductions in carrying values when necessary.

Revenue Recognition

Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable and collection is reasonably assured. With our prior written approval, in certain situations, product is returnable only by our direct customers for a returned goods credit, for product that is expired, damaged in transit, or which is discontinued, withdrawn or recalled. We estimate our sales returns based upon our prior sales and return history and accrues a Sales Return Allowance at the time of sale. Historically, sales returns have been immaterial. We pay royalties on an annual basis based on existing license arrangements. These royalties are recognized as cost of goods sold upon sale of the products.

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 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 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures 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 disclosure.

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 Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon this evaluation and due to the material weakness in our internal control over financial reporting as of December 31, 2013 described below, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not effective.

Changes in Internal Control Over Financial Reporting

Based on the evaluation of our management as required by paragraph (d) of Rule 13a-15 of the Exchange Act, and the material weakness described below, our management concluded that our internal control over financial reporting was not effective as of December 31, 2013. We are presently continuing to identify, evaluate and improve our existing internal control documentation and procedures to develop clear identification of key financial and reporting controls over complex or significant unusual transactions.

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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 is 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 permit 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. In conducting our review of our internal control over financial reporting as of December 31, 2013, the Company identified a material weakness in our internal control over financial reporting relating to the adequacy of resources and controls resulting from the Company not having an adequate level of resources with the appropriate level of training and experience in regards to the application of generally accepted accounting principles for certain complex transactions. In addition, the Company did not maintain effective controls over the completeness and accuracy of financial reporting for complex or significant unusual transactions. This material weakness resulted in a material misstatement of our liabilities, shareholders’ deficit, net loss, non-cash expenses and related financial disclosures for the three month period ended September 30, 2013 that was not prevented or detected on a timely basis and, consequently, a restatement of the unaudited condensed consolidated financial statements contained in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013. Additionally, other prior period corrections related to recording of share-based compensation and other items described in Note 2 to our unaudited condensed consolidated financial statements contained in this Form 10-Q are attributable to the Company not having an adequate level of resources in regard to these transactions.

To remediate this existing material weakness, the Company has hired one additional accounting professional and engaged a consulting professional with knowledge and experience in GAAP. The Company is also evaluating and improving our existing internal control documentation and procedures to develop clear identification of key financial and reporting controls over complex or significant unusual transactions. The Company will be continuing to modify and improve its procedures and staffing levels in order to fully address this material weakness.

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Part II. Other Information

Item 1. Legal Proceedings

Please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on May 8, 2014 (the “Annual Report”), for a summary of material developments regarding legal proceedings reported in the Annual Report.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Annual Report. Please see the information under the caption “Company Overview” in Item 2 of Part I of this Form 10-Q for developments relating to the risks summarized in the risk factor in the Annual Report under the caption “Risk Factors — Risks Related To Development of our Product Candidates — If the FDA does not accept for filing the NDA with only one Phase 3 clinical trial, instead of two such studies, to demonstrate substantial evidence of effectiveness of our pharmaceutical grade L-glutamine product candidate for the treatment of SCD, we may be forced to incur the time, expense, and risk of undertaking a second such study, which could have a material adverse effect on our business, financial condition and operating results.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 1, 2014, the Company refinanced its principal and interest obligations under a convertible note payable to Paul Terasaki, a shareholder, with an original principal amount of $550,000 by issuing a new convertible note in the principal amount $605,000 which bears interest at 10% per annum and matures on the 6 month anniversary date of the note. The principal amount plus the unpaid accrued interest due under the new convertible note is convertible into shares of the Company’s common stock at $3.30 per share or, if then publicly traded, at the average closing sale price per share for the three (3) trading days immediately preceding the exercise thereof, whichever is lower. In connection with the issuance of the new convertible note, the Company issued Mr. Terasaki five-year warrants to purchase 50,000 shares of the Company’s common stock at an exercise price of $3.50 per share.

In May and June 2014, the Company issued convertible notes to third parties totaling $1,520,000 in aggregate principal amount, which bear interest at 10% per annum and mature on the respective two-year anniversary dates of the notes. If the Company completes a qualified public offering, the principal amount of the notes will automatically convert into shares of the Company’s common stock at a conversion price equal to 80% of the initial public offering price in the qualified public offering. At or after the first anniversary of the loan date, the holders of the notes may convert some or all of the unpaid principal amount thereof, including unpaid accrued interest, into shares of the Company’s common stock at a conversion price of $7.00 per share.

On June 10, 2014 , certain holders of warrants issued in the Company’s September 11, 2013 p rivate p lacement exercised 1,095,465 warrants 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. Also on June 10, 2014 , based on an offer made to such holders in connection with such exercises, the Company issued an aggregate of 1,095,465 replacement warrants to such holders having 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 .

All such securities were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder. The issuance of these securities was in each case exempt from the registration requirements of the Securities Act as a transaction by an issuer not involving a public offering. No underwriters were used in connection with such sales of unregistered securities.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

(a) Exhibits

Exhibit Number		Description of Document

4.1		Form of Convertible Promissory Note issued by the registrant to the persons indicated in Schedule A attached to the Form of Convertible Promissory Note.

4.2		Convertible Promissory Note, Dated May 1, 2014, issued by the registrant to Paul Terasaki.

4.3		Form of warrant issued by the registrant to Paul Terasaki.

4.4		Form of warrant issued by the registrant on June 10, 2014 to holders of warrants issued by the registrant in its September 11, 2013 private placement who exercised such warrants.

31.1		Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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.

Table of Contents

EMMAUS LIFE SCIENCES, INC.

SIGNATURES

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: August 14 , 2014	By:	/s/ Yutaka Niihara
	Name:	Yutaka Niihara, M.D., MPH
	Its:	President and Chief Executive Officer (principal executive officer and duly authorized officer)

	By:	/s/ Peter Ludlum
	Name:	Peter Ludlum
	Its:	Chief Financial Officer (principal financial and accounting officer)

Exhibit 4.1

THIS CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES INTO WHICH IT MAY BE CONVERTED HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). NO SALE OR DISPOSITION MAY BE AFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN APPLICABLE EXEMPTION THEREFROM.

EMMAUS LIFE SCIENCES , INC.

Convertible Promissory Note

Principal Amount:			Loan Date:

Currency:	U.S. Dollars		Term:	Two Years

Interest Rate:	10%		Loan Due Date:

Interest Payment Period:		Interest is accrued and paid upon Loan Due Date

Lender:

FOR VALUE RECEIVED, Emmaus Life Sciences, Inc., a Delaware corporation, located at 20725 S. Western Ave., Suite 136, Torrance, CA 90501 (“Borrower”) hereby promises to pay to the order of Lender the sum of the Principal Amount in the stated Currency, together with any accrued interest at the stated Interest Rate, under the following terms and conditions of this Convertible Promissory Note (“Note”).

1. Terms of Repayment (Balloon Payment) : The entire unpaid Principal Amount and any accrued interest shall become immediately due and payable upon the stated Loan Due Date. Simple interest at the stated Interest Rate will accrue on the outstanding Principal Amount commencing on the Loan Date of this Note and the Borrower shall make payments of interest only as per the stated Interest Payment Period.

2. Prepayment : This Note may be prepaid in whole or in part at any time after six months from the Loan Date without premium or penalty upon ten days advance written notice by Borrower to Lender. In the event such notice provides for prepayment on a date at or after the first anniversary of the Loan Date, Lender shall be permitted to exercise its conversion rights, if any, pursuant to Section 4(c) hereof at any time or from time to time prior to the expiration of such ten-day period. All prepayments shall first be applied to interest, and then to principal payments.

3. Place of Payment: All payments due under this Note shall be sent to the Lender’s address, as noted in Attachment 1 hereto, or at such other place as the Lender or subsequently assigned holder (“Holder”) of this Note may designate in writing in the future.

4. Conversion:

(a) Mandatory Conversion : Upon the first closing of the sale of shares of common stock of the Borrower (“Common Stock”) in a Qualifying Public Offering (as hereinafter defined), (i) the entire outstanding Principal Amount of this Note shall automatically be converted into a number of shares of Common Stock determined by dividing (x) the outstanding Principal Amount of this Note by (y) an amount equal to the product obtained by multiplying (A) the Qualifying Public Offering Price Per Share and (B) 0.80. Within thirty days of such closing, all accrued and unpaid interest on the Note will be paid to the Holder in cash. “Qualifying Public Offering” means a firm commitment public offering of shares of Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, which results in aggregate cash proceeds to the Borrower of not less than $20,000,000; provided that in connection therewith the Common Stock is listed for trading on a national securities exchange; and provided further that the quoted market price per share of the Common Stock is at least $5.00 at the time of such listing. “Qualifying Public Offering Price Per Share” means the initial public offering price per share of Common Stock in such Qualifying Public Offering.

The Borrower shall notify the holder of this Note at least seven (7) calendar days prior to the initial closing of a Qualifying Public Offering. At the time of the initial closing of such Qualifying Public Offering, the holder of this Note shall deliver this Note to the Borrower and, as soon as reasonably practicable thereafter, the Borrower shall issue and deliver to the holder of this Note a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of this Note, and provision shall be made for any fraction of a share as provided in Section 4(b) below. At the time of the initial closing of the Qualifying Public Offering, and provided that the Borrower has complied fully with all of its obligations under this Section 4(a), the holder of this Note shall not have any further rights under this Note (including the right to receive payment of principal or interest hereunder) other than those rights set forth in this Section 4.

Lender agrees, if requested by the managing underwriter of such Qualifying Public Offering, to enter into an agreement not to sell or transfer any shares of Common Stock of the Company (excluding shares acquired in or following the Qualifying Public Offering), for a period of up to 180 days, plus such additional necessary to comply with applicable regulatory requirements, following the Qualifying Public Offering (provided all directors and officers of the Borrower agree to the same restrictions).

(b) Fractional Shares : No fractional shares or scrip shall be issued upon conversion of this Note. The number of full shares of Common Stock issuable upon conversion of this Note shall be computed on the basis of the aggregate value of outstanding principal of and, as applicable in accordance with the terms of this Section 4, accrued interest on this Note so surrendered. The value of any fractional shares of Common Stock shall be paid in cash.

(c) Conversion at the Election of the Holder : At or after the first anniversary of the Loan Date, Lender may by giving written Notice of Conversion to the Borrower in the form attached hereto as Exhibit A, elect to convert some or all of the unpaid Principal Amount, including up to all the interest accrued and unpaid thereon, into a number of shares of Common Stock determined by dividing (x) the outstanding Principal Amount of this Note by (y) the Conversion Price Per Share. As used in this Section 4(c), “Conversion Price Per Share” means $7.00 per share of Common Stock (subject to appropriate adjustment in the event of any stock splits, stock dividends, recapitalizations and similar transactions with respect to the capital stock of Borrower). Within two weeks following receipt of such Notice of Conversion, Borrower shall deliver to Lender one or more original stock certificates representing the full number of shares of Common Stock issuable upon such conversion, and provision shall be made for any fraction of a share as provided in Section 4(b) above. Upon such conversion, and provided that the Borrower has complied fully with all of its obligations under this Section 4(c), the holder of this Note shall not have any further rights under this Note (including the right to receive payment of principal or interest hereunder) other than those rights set forth in this Section 4.

5 . Default: In the event of default, the Borrower agrees to pay all costs and expenses incurred by the Lender, including all reasonable attorney fees as permitted by law for the collection of this Note upon default.

6 . Acceleration of Debt: If the Borrower (i) fails to make any payment due under the terms of this Note or seeks relief under the U.S. Bankruptcy Code, (ii) fails to deliver shares to the Lender by the deadline set forth in Section 4 hereof, (iii) suffers an involuntary petition in bankruptcy or receivership that is not vacated within thirty (30) days, (iv) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official or such appointment is not discharged or stayed within 30 days, (v) makes a general assignment for the benefit of its creditors or (vi) admits in writing that it is generally unable to pay its debts as they become due, the entire balance of this Note and any interest accrued thereon shall be immediately due and payable to the holder of this Note.

7 . Modification: No modification or waiver of any of the terms of this Note shall be allowed unless by written agreement signed by the Borrower and the Lender. No waiver of any breach or default hereunder shall be deemed a waiver of any subsequent breach or default of the same or similar nature.

8. Complete Note: This Note is the complete and exclusive statement of agreement of the Borrower and Lender with respect to matters in this Note. This Note replaces and supersedes all prior written or oral agreements or statements by and among the Borrower and Lender with respect to the matters covered by it. No representation, statement, condition or warranty not contained in this Note is binding on either the Borrower or Lender. Each Holder of this Note, by its acceptance hereof, agrees to be bound by, and shall be entitled to the benefits of, the terms set forth herein.

9 . Transfer of the Note:

(a) Subject to Section 9(b) hereof, t his Note may be transferred, in whole or in part, at any time or from time to time, by the Lender. The Borrower hereby agrees to remain bound by the terms of this Note subsequent to any such transfer, and agrees that the terms of this Note may be fully enforced by any subsequent holder of this Note. If this Note is to be transferred, the Lender shall surrender this Note to the Borrower, together with such additional documentation as the Lender may reasonably request, whereupon the Borrower will forthwith issue and deliver upon the order of the Lender a new Note registered as the Lender may request, representing the outstanding Principal Amount being transferred by the Lender and, if less then the entire outstanding Principal Amount is being transferred, a new Note to the Lender representing the outstanding Principal Amount not being transferred. The person in whose name this Note or any new Note issued in replacement hereof shall be registered shall be deemed and treated as the owner and holder thereof, and the Borrower shall not be affected by any notice or knowledge to the contrary except as provided in this Section 9(a). This Note may not be transferred by the Borrower, by operation of law or otherwise, without the prior written consent of the Lender.

(b) Lender acknowledges and agrees that this Note has been acquired for investment and has not been registered under the securities laws of the United States of America or any state thereof.

Accordingly, notwithstanding Section 9(a), neither this Note nor any interest thereon may be offered for sale, sold or transferred in the absence of registration under applicable federal and state securities laws or an opinion of counsel of the Holder reasonably satisfactory to the Borrower that such registration is not required.

10. Lost, Stolen or Mutilated Note: Upon receipt by the Borrower of evidence reasonably satisfactory to the Borrower of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Lender to the Borrower in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Borrower shall execute and deliver to the Lender a new Note representing the outstanding Principal Amount and accrued and unpaid interest thereon.

11 . Remedies: The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Lender’s right to pursue actual and consequential damages for any failure by the Borrower to comply with the terms of this Note.

12 . Severability of Provisions : If any portion of this Note is deemed unenforceable, all other provisions of this Note shall remain in full force and effect.

13 . Reservation of Shares : The Borrower shall at all times at and after the first anniversary of the Loan Date and, as applicable, at the time of closing of Qualifying Public Offering reserve and keep available, free from preemptive rights, out of its authorized and unissued Common Stock the full number of shares of Common Stock then issuable upon the conversion in full of this Note.

14 . Choice of Law: All terms and conditions of this Note shall be interpreted under the laws of California, U.S.A., without regard to conflict of law principles.

Signed Under Penalty of Perjury, this day of ,

Emmaus Life Sciences, Inc.



By: Yutaka Niihara, MD, President and CEO

ATTACHMENT 1

Lender’s Name:

Lender’s Address:

EXHIBIT A

NOTICE OF CONVERSION

(To be executed by the Lender in order to convert the Note)

TO: Emmaus Life Sciences, Inc.

The undersigned hereby irrevocably elects to convert $ of the principal amount of the Note issued to the Lender by Emmaus Life Sciences, Inc. (the “Company”) into shares of Common Stock of the Company according to the conditions stated therein, as of the Conversion Date written below.

Conversion Date:
Applicable Conversion Price:
Signature:
Name:
Address:
Amount to be converted:	$
Amount of Note unconverted:	$
Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the following address:
Address:
Address:
Phone Number:

[INFORMATION FOR PURPOSES OF FILING WITH THE SECURITIES AND EXCHANGE COMMISSION]

SCHEDULE A

NOTEHOLDERS

Lender	Interest rate		Date of loan	Term of Loan	Principal Amount Outstanding at June 30, 2014		Conv. Rate
W L Pak Eric & H S Mei Grace	10.0	%	5/12/2014	2 years	$	400,000	$	7.00
The Takemoto Family	10.0	%	5/30/2014	2 years	$	300,000	$	7.00
Wong Shuk Ching Judy	10.0	%	6/2/2014	2 years	$	378,000	$	7.00
Mayumi Yoshida	10.0	%	6/6/2014	2 years	$	100,000	$	7.00
Wong Shuk Ching Judy	10.0	%	6/9/2014	2 years	$	272,000	$	7.00
Young Kam Sang Marianne	10.0	%	6/9/2014	2 years	$	70,000	$	7.00

*If the Company completes a qualified public offering the principal amount will automatically convert into common shares at a conversion price equal to 80% of the initial public offering price.

Exhibit 4.2

EMMAUS LIFE SCIENCES, INC.

Convertible Promissory Note

(Cash Interest)

(6 Months)

Principal Amount: $605,000.00

Loan Date: May 1, 2014

FOR VALUE RECEIVED, Emmaus Life Sciences, Inc., a Delaware corporation, located at 20725 S. Western Ave., Suite 136, Torrance, CA 90501 (“Borrower”) agrees to pay to the order of Dr. Paul Terasaki or his assigns (“Lender”), the sum of SIX HUNDRED FIVE THOUSAND ( $605,000.00) U.S. Dollars (“Principal Amount”), together with accrued interest on the outstanding balance of the Principal Amount at the rate of ten percent (10%) per annum from the date hereof until paid in full, as set forth in Attachment 1 hereto, upon the following terms and subject to the following conditions of this Convertible Promissory Note (“Note”).

1. Terms of Repayment (Balloon Payment) : The entire unpaid Principal Amount of this Note and all accrued, unpaid interest thereon shall become immediately due and payable upon the six (6) month anniversary of the Loan Date, November 1, 2014 (the “Maturity Date”).

2. Prepayment : Subject to Lender’s Conversion Right pursuant to Section 4 hereof, the indebtedness evidenced by this Note may be prepaid in whole or in part at any time and from time to time without premium or penalty upon not less than ten (10) business days’ prior written notice to Lender. All prepayments shall first be applied to interest, and then to principal payments in the order of their maturity.

3. Place of Payment: A ll payments due under this Note shall be sent to the Lender’s address, as noted in Attachment 1 hereto, or at such other place as the holder of this Note may designate in writing in the future.

4. Conversion Option: At any time during prior to the Maturity Date and from time to time, Lender shall have the right to convert the outstanding balance of the Principal Amount and/or accrued, unpaid interest thereon, either in whole or in part, to shares of Common Stock of Borrower (the “Shares”) at the Conversion Price of $3.30 per Share or, if then publicly traded, at the average closing sale price per Share for the three (3) trading days immediately preceding the exercise thereof, whichever is lower (the “Conversion Right”) by giving written Notice of Conversion to the Borrower in the form attached hereto as Exhibit A. Upon conversion of this Note, Lender shall be subject to all requirements and transfer restrictions that Borrower may then have in effect with respect to the Shares and purchasers of Shares. The Conversion Price of $3.30 per Share shall be adjusted proportionately for any increase or decrease in the number of outstanding shares of Common Stock resulting from any combination, subdivision or reclassification of any class of equity securities of the Borrower, any stock split, stock dividend or reverse stock split or any other increase or decrease in the number of outstanding shares of all classes of equity securities of the Borrower.

5. Warrant: Lender is entitled to the warrant to purchase 50,000 shares. The warrant shall be exercisable within five (5) years of Loan Date. The warrant share price shall be $3.50.

6. Default: In the event of default, an additional warrant will be issued for 25,000 shares, and the Borrower agrees to pay all costs and expenses incurred by the Lender, including all reasonable attorneys’ fees as permitted by law for the collection of this Note upon default.

7. Additional Guarantor: Lender understands and acknowledges that Emmaus Life Sciences, Inc. is the Borrower of this Note. However, for added security to Lender, this Note is guaranteed by Yutaka Niihara, M.D., CEO.

8. Acceleration of Debt: If the Borrower fails to make any payment when due under the terms of this Note or seeks relief under the U.S. Bankruptcy Code, or suffers an involuntary petition in bankruptcy or receivership that is not vacated within thirty (30) days, the entire balance of this Note and all interest accrued thereon shall be immediately due and payable to the holder of this Note.

9. Interest Rate Limitation. It is the intent of the Lender and the Borrower that the holder of this Note shall never be entitled to receive, collect or apply, as interest or other consideration of any kind under this Note, any amount in excess of the maximum rate of interest permitted to be charged by applicable law; and in the event the holder of this Note ever receives, collects or applies as interest or other consideration of any kind any such excess, such amount which would be excess interest or other consideration that exceeds the maximum rate of interest permitted by applicable law shall be deemed a partial prepayment of principal and treated hereunder as such; and if the principal is paid in full, any remaining excess interest or other consideration shall be paid to the Borrower forthwith upon demand.

10. Certain Waivers. Except as otherwise expressly required hereunder, Borrower hereby waives presentment, demand, notice of demand, dishonor, notice of dishonor, notice of nonpayment, protest, notice of protest and any and all other notices and demands required by applicable law.

11. Modification: No modification or waiver of any of the terms of this Note shall be allowed unless by written agreement signed by the parties. No waiver of any breach or default hereunder shall be deemed a waiver of any subsequent breach or default of the same or similar nature.

12. Transfer of the Note: The Borrower hereby waives any notice of the transfer of this Note by the Lender or by any subsequent holder of this Note, agrees to remain bound by the terms of this Note subsequent to any transfer, and agrees that the terms of this Note may be fully enforced by any subsequent holder of this Note.

13. Severability of Provisions : If any portion of this Note is deemed unenforceable, all other provisions of this Note shall remain in full force and effect.

14. Choice of Law: All terms and conditions of this Note shall be interpreted under the laws of California, U.S.A, without reference to its principles of conflict of laws.

15. Authority: Borrower has the power and authority to enter into this Note and to carry out its obligations hereunder..

IN WITNESS WHEREOF, the Borrower has executed this Note as of this 12 th day of June, 2014.

EMMAUS LIFE SCIENCES, INC.
a Delaware corporation


By:
Yutaka Niihara, M.D., President and CEO


By:

Name:
Secretary

GUARANTY OF PAYMENT

FOR VALUE RECEIVED , the undersigned, Yutaka Niihara, M.D. (“ Guarantor ”), hereby unconditionally and irrevocably (i) guarantees the full and prompt payment when due of all sums due and payable by the Borrower pursuant to the foregoing Convertible Promissory Note by Emmaus Life Sciences, Inc., a Delaware corporation, as borrower (“ Borrower ”), payable to the order of Dr. Paul Terasaki, or his assigns, (“ Lender ”), in the original principal amount of SIX HUNDRED FIVE THOUSAND DOLLARS ($605,000.00) , together with interest thereon as therein provided, (ii) waives acceptance of this Guaranty and presentment, notice of presentment, demand, notice of demand, dishonor, notice of dishonor, notice of nonpayment, protest, notice of protest and any and all other notices and demands required by applicable law, (iii) waives any right to require the holder of said Note to proceed against the Borrower or any other guarantor, or to exhaust the collateral security, if any, of Borrower or any other guarantor now or hereafter held by the holder of said Note, as a condition to the enforcement of this Guaranty against any one or more of the guarantors, (iv) agrees to pay all costs and expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred by the holder of said Note in the enforcement hereof, whether or not suit be brought, and (v) to the maximum extent permitted under applicable laws, waives the right to trial by jury in any litigation arising out of or relating to this Guaranty in which the holder of said Note is an adverse party.


	YUTAKA NIIHARA, M.D., AN INDIVIDUAL

ATTACHMENT 1

Lender’s Name:	Paul Terasaki Ph.D.

Lender’s Address:




Loan Amount:	USD $605,000

Annual Interest at 10%
Per Annum on Loan Amount:	$60,500

Maturity Date:	November 1, 2014

EXHIBIT A

NOTICE OF CONVERSION

(To be executed by the Lender in order to convert the Note)

TO: Emmaus Life Sciences, Inc.

Conversion Date:
Applicable Conversion Price:
Signature:
Name:
Address:
Amount to be converted:	$
Amount of Note unconverted:	$
Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the following address:
Address:
Address:
Phone Number:

Exhibit 4.3

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

Date of Issuance:	Void after:

May 1, 2014	May 1, 2019

EMMAUS LIFE SCIENCES, INC.

WARRANT TO PURCHASE SHARES OF

COMMON STOCK

FOR VALUE RECEIVED, Paul Terasaki (“ Holder ”), is entitled to purchase from the Company, subject to the provisions of this Warrant (“ Warrant ”), from Emmaus Life Sciences, Inc., a Delaware corporation (“ Company ”), at any time not later than 5:00 P.M., Pacific Time on May 1, 2019 (the “ Expiration Date ”), 50,000 shares (the “ Warrant Shares ”) of the Company’s Common Stock, par value $0.001 per share (“ Common Stock ”) at a price per share equal to $3.50 (the “Exercise Price”). The Exercise Price and the number of Warrant Shares purchasable upon exercise of this Warrant shall be subject to adjustment from time to time as described herein.

1. Method of Exercise.

(a) Subject to compliance with the terms and conditions of this Warrant and applicable securities laws, this Warrant may be exercised, in whole or in part at any time or from time to time, on or before the Expiration Date by the delivery (including, without limitation, delivery by facsimile) of the form of Notice of Exercise attached hereto as Exhibit A (the “ Notice of Exercise ”), duly executed by the Holder, at the principal office of the Company, and as soon as practicable after such date, surrendering:

(i) this Warrant at the principal office of the Company, and

(ii) payment, (i) in cash (by check) or by wire transfer, (ii) by cancellation by the Holder of indebtedness of the Company to the Holder; or (iii) by a combination of (i) and (ii), of an amount equal to the product obtained by multiplying the number of shares of Common Stock being purchased upon such exercise by the then effective Exercise Price (the “ Exercise Amount ”):

(b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant is surrendered to the Company as provided above. The person or persons entitled to receive the Warrant Shares issuable upon exercise of this Warrant shall be treated for all purposes as the holder of record of such Warrant Shares as of the close of business on the date the Holder is deemed to have exercised this Warrant.

(c) As soon as practicable after the exercise of this Warrant in whole or in part, the Company at its expense will cause to be issued in the name of, and delivered to, the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct:

(i) a certificate or certificates for the number of Warrant Shares to which such Holder shall be entitled, and

(ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Shares equal to the number of such Warrant Shares described in this Warrant minus the number of such Warrant Shares purchased by the Holder upon all exercises made in accordance with this Section 1.

2. Representations and Warranties of the Company.

In connection with the transactions provided for herein, the Company hereby represents and warrants to the Holder that:

(a) Organization, Good Standing, and Qualification. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

(b) Authorization. Except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights, all corporate action has been taken on the part of the Company, its officers and directors necessary for the authorization, execution and delivery of this Warrant. The Company has taken all corporate action required to make all the obligations of the Company reflected in the provisions of this Warrant the valid and enforceable obligations they purport to be. The issuance of this Warrant will not be subject to preemptive rights of any stockholders of the Company. The Company has authorized sufficient shares of Common Stock to allow for the exercise of this Warrant.

3. Representations and Warranties of the Holder. In connection with the transactions provided for herein, the Holder hereby represents and warrants to the Company that:

(a) Authorization. Holder represents that it has full power and authority to enter into this Warrant. This Warrant constitutes the Holder’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(b) Purchase Entirely for Own Account. The Holder acknowledges that this Warrant is entered into by the Holder in reliance upon such Holder’s representation to the Company that the Warrant and the Warrant Shares (collectively, the “ Securities ”) will be acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in or otherwise distributing the same. By acknowledging this Warrant, the Holder further represents that the Holder does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.

(c) Disclosure of Information. The Holder acknowledges that it has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities.

(d) Investment Experience. The Holder is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, the Holder also represents it has not been organized solely for the purpose of acquiring the Securities.

(e) Accredited Investor. The Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (the “ Act ”).

(f) Restricted Securities. The Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, Holder represents that it is familiar with Rule 144, as presently in effect, as promulgated by the SEC under the Act (“ Rule 144 ”), and understands the resale limitations imposed thereby and by the Act.

(g) Further Limitations on Disposition. The Holder, by acceptance hereof, agrees that, absent an effective registration statement filed with the SEC under the Act covering the disposition or sale of this Warrant or the Warrant Shares issued or issuable upon exercise hereof, as the case may be, and registration or qualification under applicable state securities laws, such Holder will not sell, transfer, pledge, or hypothecate any or all of this Warrant or such Warrant Shares, as the case may be, unless either (i) the Company has received an opinion of counsel, in form and substance reasonably satisfactory to the Company, to the effect that such registration is not required in connection with such disposition or (ii) the sale of such Securities is made pursuant to SEC Rule 144.

(h) Legends. It is understood that the Securities may bear the following or a similar legend:

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.”

4. Valid Issuance; Taxes. All Warrant Shares issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery thereof. The Company shall not be required to pay any tax or other charge imposed in connection with any transfer involved in the issuance of any certificate for Warrant Shares in any name other than that of the Holder of this Warrant, and in such case the Company shall not be required to issue or deliver any stock certificate or security until such tax or other charge has been paid, or it has been established to the Company’s reasonable satisfaction that no tax or other charge is due.

5. Adjustment of Exercise Price and Number and Kind of Warrant Shares. The number and kind of Warrant Shares purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances. If the Company shall at any time after the issuance but prior to the expiration of this Warrant subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock as a dividend with respect to any shares of its Common Stock, the Exercise Price shall be proportionally decreased and the number of Warrant Shares issuable on the exercise of this Warrant shall be proportionately increased in the case of a subdivision or stock dividend. The Exercise Price shall be proportionally increased and the number of Warrant Shares issuable on the exercise of this Warrant shall be proportionately decreased in the case of a combination. Any adjustment under this Section 5(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b) Reclassification, Reorganization and Consolidation. In case of any reclassification, capital reorganization or change in the capital stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 5(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Warrant Shares by the Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the per-share Exercise Price payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Notice of Adjustment. When any adjustment is required to be made in the number or kind of Warrant Shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the new Exercise Price and number of Warrant Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

6. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

7. No Stockholder Rights. Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Warrant Shares, including (without limitation) the right to vote such Warrant Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as otherwise provided in this Warrant, such Holder shall not be entitled to any stockholder notice or other communication concerning the business or affairs of the Company.

8. Restrictions on Transfer. As provided herein, this Warrant may be transferred only pursuant to a registration statement filed under the Act, or an exemption from such registration. Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender hereof for transfer, properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of its counsel to the effect that such transfer is exempt from the registration requirements of the Act, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company.

9. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Warrant shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California. The Company and, by accepting this Warrant, the Holder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of California located in Los Angeles County and the United States District Court for the Central District of California for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

10. Successors and Assigns. The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

11. Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

12. Notices. Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (a) if given by personal delivery, then such notice shall be deemed given upon such delivery, (b) if given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (c) if given by mail, then such notice shall be deemed given upon the earlier of (i) receipt of such notice by the recipient or (ii) three days after such notice is deposited in first class mail, postage prepaid, and (d) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier. All notices shall be addressed as follows: if to the Holder, at its address as set forth in the Company’s books and records and, if to the Company, at the address as follows, or at such other address as the Holder or the Company may designate by ten days’ advance written notice to the other:

If to the Company:

Emmaus Life Sciences, Inc.

20725 South Western Avenue, Suite 136

Torrance, CA 90501

Attn: Peter Ludlum, Chief Financial Officer

Fax: (310) 214-0075

With a copy to:

Nixon Peabody

555 West 5 th St. 46 th Floor

Los Angeles, CA 90013

Attn: Matthew Grazier

Fax: (866) 216-9523

13. Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

14. Entire Agreement; Amendments and Waivers. This Warrant and any other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Nonetheless, any term of this Warrant may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder; or if this Warrant has been assigned in part, by the holders or rights to purchase a majority of the shares originally issuable pursuant to this Warrant.

15. Severability. If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

IN WITNESS WHEREOF, the parties have executed this Warrant as of the date above written.

	EMMAUS LIFE SCIENCES, INC.


	By:
	Name: Yutaka Niihara MD, MPH
	Title: CEO

EXHIBIT A

NOTICE OF EXERCISE

EMMAUS LIFE SCIENCES, INC.

Attention: Chief Financial Officer

The undersigned hereby elects to purchase, pursuant to the provisions of the Warrant, as follows:

shares of Common Stock pursuant to the terms of the attached Warrant at $ per share (the applicable Exercise Price as of the date of this Notice of Exercise) , and tenders herewith payment in cash of the Exercise Price of such Warrant Shares in full, together with all applicable transfer taxes, if any.

The undersigned hereby represents and warrants that Representations and Warranties in Section 3 of the Warrant are true and correct as of the date hereof.

HOLDER:

Date:			By:
			Name:
			Address:

Name in which shares should be registered:

Exhibit 4.4

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED FOR VALUE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION (INCLUDING, WITHOUT LIMITATION, A PLEDGE PERMITTED HEREUNDER IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES WHERE THE PLEDGEE ACKNOWLEDGES THE RESTRICTIONS ON TRANSFER OF SUCH SECURITIES) NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

FORM OF COMMON STOCK PURCHASE WARRANT

EMMAUS LIFE SCIENCES, INC.

Warrant Shares:	Initial Exercise Date: June 10, 2014
Warrant No.

THIS COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received, (the “ Purchaser ”) or its registered assigns (the Purchaser or its registered assigns, the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “ Initial Exercise Date ”) and on or prior to the close of business on September 11, 2018 (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from Emmaus Life Sciences, Inc., a Delaware corporation (the “ Company ”), up to shares (as subject to adjustment hereunder, the “ Warrant Shares ”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Except as specifically otherwise provided herein, the Warrant Shares shall bear the same terms and conditions as such securities described under the caption “Description of Common Stock” in the Memorandum and as designated in the Company’s Certificate of Incorporation and any amendments thereto, and the holders shall have such registration rights under the Securities Act for the Warrant Shares as set forth in the Subscription Agreement.

Section 1 . Definitions . Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Subscription Agreement (the “ Subscription Agreement ”), dated September 11, 2013, between the Company and the Purchaser.

Section 2 . Exercise .

a) Exercise of Warrant . Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and until 5:00 p.m., Los Angeles time, on the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the notice of exercise (“ Notice of Exercise ”) in the form annexed hereto and, within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, payment to the Company of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. As used herein, “ Trading Day ” means a day on which the NYSE MKT, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing) are open for trading. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within two (2) Business Days of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof. Notwithstanding any provision herein to the contrary, the Company shall not be required to register any Warrant Shares issued or issuable upon exercise of this Warrant (in whole or in part) in the name of any person who acquired such Warrant Shares or this Warrant (in whole or in part) in a transaction that contravenes the restrictions on transfer of this Warrant and the Warrant Shares set forth in this Warrant.

b) Exercise Price . The exercise price per share of the Common Stock under this Warrant shall be $3.50, subject to adjustment hereunder (the “ Exercise Price ”).

c) Cashless Exercise . If at any time after the twelve (12) month anniversary of the Initial Exercise Date, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) x (X)] by (A), where:

(A) = the VWAP (as defined below) on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise, in whole or in part, were by means of a cash exercise rather than a cashless exercise.

For purposes of this Warrant, the term “ VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (each, a “ Trading Market ”), the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or quoted on a Trading Market and is then listed or quoted for trading on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Link LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined in good faith by the independent members of the Board of Directors of the Company.

d) Mechanics of Exercise .

i. Delivery of Warrant Shares Upon Exercise . Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“ DWAC ”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of one or more certificates, as requested by the Holder, representing such Warrant Shares to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) receipt by the Company of the aggregate Exercise Price for the Warrant Shares (unless exercised on a cashless basis pursuant to Section 2(c), and (C) surrender of this Warrant (if required) (such date, the “ Warrant Share Delivery Date ”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid.

ii. Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant

Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii. Rescission Rights . If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise . In addition to any other rights available to the Holder, if (A) the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before the second Trading Day following the Warrant Share Delivery Date, (B) as a result of such failure, either the Holder or the Holder’s broker is required to purchase in an open market transaction or otherwise shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares that the Holder anticipated receiving upon such exercise (such purchase of such shares of Common Stock being required for such delivery being a “ Buy-In ”), and (C) the total purchase price (including brokerage commissions, if any) payable by the Holder for such Buy-In exceeds the proceeds to the Holder from such sale of such Warrant Shares (such excess being the “Excess Buy-In Cost”), then the Company shall pay in cash to the Holder the amount of the Excess Buy-In Cost within five (5) Trading Days of the second Trading Day following the Warrant Share Delivery Date; provided, however, that the obligation of the Company to make payment of any Excess Buy-in Cost shall only apply to the Warrant Shares issuable upon exercise of this Warrant in respect of which the Holder satisfied the requirements hereunder in respect of such exercise, and in respect of any portion of this Warrant in respect of which the Holder did not so comply with such requirements, the Company shall reinstate to this Warrant the number of Warrant Shares represented by such portion of this Warrant for which such requirements were not so satisfied; provided further, however , that, in the event the sale by the Holder giving rise to the Buy-In is executed at less than a then-current market price, the Excess Buy-In Cost shall be equal to the lesser of (x) the Excess Buy-In Cost as determined in accordance with the foregoing provisions of this Section 2(d)(iv) and (y) the amount by which (1) the total purchase price (including brokerage commissions, if any) payable by the Holder for such Buy-In exceeds (2) the product obtained by multiplying the VWAP on the date of such sale transaction (or, if such date is not a Trading Day, the immediately preceding Trading Day) by the number of Warrant Shares sold in such sale transaction. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company prompt written notice indicating the occurrence of a Buy-in and the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

v. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise (after aggregating all the Warrant Shares then being purchased by the Holder upon exercise of

Warrants held by the Holder), the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi. Charges, Taxes and Expenses . Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise.

vii. Closing of Books . The Company will not, except upon dissolution, liquidation, or winding up of the Company, close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3 . Certain Adjustments .

a) Stock Dividends and Subdivisions; Combinations; Reclassifications . If the Company, at any time and from time to time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b) Adjustment for Diluting Issuances .

i. Deemed Issue of Additional Shares of Common Stock.

A. If the Company at any time or from time to time after the date hereof shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities (as defined herein)) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction

of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

B. If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Exercise Price pursuant to the terms of Section 3(b)(ii), are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Company upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Exercise Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Exercise Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this Section 3(b)(i)(B) shall have the effect of increasing the Exercise Price to an amount which exceeds the lower of (i) the Exercise Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Exercise Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

C. If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Exercise Price pursuant to the terms of Section 3(b)(ii) (either because the consideration per share (determined pursuant to Section 3(b)(iii)) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Exercise Price then in effect, or because such Option or Convertible Security was issued before the date hereof), are revised after the date hereof as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Company upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Section 3(b)(i)) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

D. Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Exercise Price pursuant to the terms of Section 3(b)(ii), the Exercise Price shall be

readjusted to such Exercise Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

E. If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Company upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Exercise Price provided for in this Section 3(b)(i)(E) shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (B) and (C) of this subsection). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Company upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Exercise Price that would result under the terms of this subsection at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Exercise Price that such issuance or amendment took place at the time such calculation can first be made.

ii. Adjustment of Exercise Price Upon Issuance of Additional Shares of Common Stock .

A. Adjustment of Warrant Shares . The Exercise Price shall be subject to adjustment from time to time as set forth in this Section 3(b)(ii). Upon each adjustment of the Exercise Price pursuant to this Section 3(b)(ii), the registered holder shall (until another such adjustment) thereafter be entitled to purchase at the Exercise Price the number of shares of Common Stock obtained by dividing (a) the product of the number of Warrant Shares multiplied by the initial Exercise Price by (b) the adjusted Exercise Price.

B. Adjustment of the Exercise Price for Common Stock Issuances . In the event the Company shall at any time after the date hereof issue Additional Shares of Common Stock (excluding Additional Shares of Common Stock deemed to be issued pursuant to Section 3(b)(i)), without consideration or for a consideration per share less than the lower of (i) the Exercise Price in effect immediately prior to such issue or (ii) $2.50, then the Exercise Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the formula set forth in Section 3(b)(ii)(D).

C. Adjustment of the Exercise Price for Options or Convertible Securities Issuances . In the event the Company shall at any time after the date hereof issue Additional Shares of Common Stock deemed to be issued pursuant to Subsection 3(b)(i), without consideration or for a consideration per share less than the Exercise Price in effect immediately prior to such issue, then the Exercise Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the formula set forth in Section 3(b)(ii)(D).

D. Exercise Adjustment Formula . Any reductions in the Exercise Price pursuant to Sections 3(b)(ii)(B) or 3(b)(ii)(C) shall be determined in accordance with the following formula:

EP 2 = EP 1 * (A + B) ÷ (A + C)

For purposes of the foregoing formula, the following definitions shall apply:

“EP 2 ” shall mean the Exercise Price in effect immediately after such issue of Additional Shares of Common Stock

“EP 1 ” shall mean the Exercise Price in effect immediately prior to such issue of Additional Shares of Common Stock;

“A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock assuming conversion of all warrants to purchase Common Stock issued pursuant to the Company’s Amended and Restated Confidential Private Placement Memorandum dated September 9, 2013, as amended and supplemented, that are outstanding immediately prior to such issue, including, without limitation, this Warrant;

“B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to EP 1 (determined by dividing the aggregate consideration received by the Company in respect of such issue by EP 1 ); and

“C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.

iii. Determination of Consideration . For purposes of this Section 3(b), the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows:

A. Cash and Property : Such consideration shall: (i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company, excluding amounts paid or payable for accrued interest; (ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Company; and (iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Company.

B. Options and Convertible Securities . The consideration per share received by the Company for Additional Shares of Common Stock deemed to have been issued pursuant to Section 3(b)(i), relating to Options and Convertible Securities, shall be determined by dividing: (i) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise

of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

iv. Term of Adjustment for Diluting Issuances . The requirement to perform adjustments for diluting issuances under this Section 3(b) shall terminate and be of no further force or effect on the earliest to occur of the following: (i) immediately prior to a firm commitment underwritten public offering by the Company of shares of its Common Stock which results in aggregate cash proceeds to the Company of not less than $20,000,000 and in connection therewith the Company lists its Common Stock on a national securities exchange provided that the price per share of such Common Stock is at least $5.00 at the time of such listing or (ii) the fifth (5th) anniversary of the date hereof.

v. Exempted Securities . “Exempted Securities” shall mean (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities:

A. all Options, Convertible Securities and Promissory Notes outstanding as of the Private Placement Closing Date;

B. shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or similar transaction or other distribution on shares of Common Stock;

C. shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Company or any of its subsidiaries or authorized to be issued pursuant to a plan, agreement or arrangement approved by the board of directors of the Company (the “ Board ”);

D. shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities or Promissory Notes, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security or in the case of Promissory Notes such issuance is not below the fair market value of Common Stock as determined by the Board, provided that the Company may not issue more than 2.55 million shares of Common Stock at a fair market value less than $2.50 in exchange of Promissory Notes under this clause (iv);

E. shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board that do not exceed an aggregate of $500,000 of the Company’s shares of Common Stock at the fair market value of Common Stock as determined by the Board (including shares

underlying (directly or indirectly) any such Options or Convertible Securities);

F. shares of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board that do not exceed an aggregate of $500,000 of the Company’s shares of Common Stock at the fair market value of Common Stock as determined by the Board (including shares underlying (directly or indirectly) any such Options or Convertible Securities);

G. shares of Common Stock, Options or Convertible Securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided that such issuances are approved by the Board and do not exceed an aggregate of 10% of the outstanding shares of Common Stock at the time immediately preceding such transaction (including shares underlying (directly or indirectly) any such Options or Convertible Securities); and

H. shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, marketing or other similar agreements or strategic partnerships approved by the Board that do not exceed an aggregate of $500,000 of the Company’s shares of Common Stock at the fair market value of Common Stock as determined by the Board (including shares underlying (directly or indirectly) any such Options or Convertible Securities).

c) [RESERVED]

d) Pro Rata Distributions . If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock, then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the board of directors of the Company in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. At the time of any such distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this subsection or an adjustment to the Exercise Price, which shall be effective as of the day following the record date for such distribution.

e) Fundamental Transaction .

i. For purposes of this Warrant, the term “Fundamental Transaction” means a transaction whereby (1) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (2) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (3) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (4) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (5) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination).

ii. If at any time while this Warrant is outstanding the Company or its successor engages in, or is the subject of, one or more Fundamental Transactions, then, in respect of each such Fundamental Transaction, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable (or any successor to this Warrant arising from a prior Fundamental Transaction) immediately prior to such Fundamental Transaction.

iii. For purposes of any such exercise described in clause (ii) this Section 3(e), the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.

iv. Prior to the consummation of any Fundamental Transaction, the Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in

form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

f) Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be; provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least one cent or 1/100th of a share. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

g) Notice to Holder .

i. Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall prepare and promptly mail to the Holder a certificate, executed by the Chief Financial Officer of the Company, and approved by the independent members of the Board of Directors of the Company, setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth, in reasonable detail, the events requiring such adjustment and the method by which such adjustment was calculated, including, but not limited to, a statement of (i) the Exercise Price at the time in effect, and (ii) the number of additional or fewer securities and the type and amount, if any, of other property which at the time would be receivable upon exercise of the Warrants.

ii. Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any

consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register (as defined in Section 4(c)) of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified (or such lesser number of calendar days to the extent such lesser number complies with any law, regulation, or by-law of the Company applicable to the sending of such notice to the stockholders of the Company), a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

iii. Notice Deemed Given . Notwithstanding anything contained herein to the contrary, notice shall be deemed given in the event the Company makes a public disclosure via the SEC EDGAR website within any applicable time period for notice as provided for herein.

Section 4 . Transfer of Warrant .

a) Transferability . Subject to compliance with any applicable securities laws and the conditions set forth in Sections 4(d) and 4(e) hereof, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b) New Warrants . This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice

specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

c) Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d) Transfer Restrictions . If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, require the transferee to agree in writing to be bound by the provisions of the Subscription Agreement that related to the Purchaser. Notwithstanding any provision herein to the contrary, the Company shall not be required to register this Warrant or the Warrant Shares issuable upon exercise (in whole or in part) in the name of any person who acquired all or any part of this Warrant or the Warrant Shares directly or indirectly in a transaction that contravenes the restrictions set forth in Section 4(e) hereof.

e) Representation by the Holder . The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act. The Holder covenants that neither it nor any person acting on its behalf or pursuant to any understanding with it will (i) directly or indirectly pledge or otherwise transfer or assign to a third party this Warrant (in whole or in part) or any of the Warrant Shares issuable upon exercise as security for a margin loan or other loan at any time prior to the earliest of (A) the date the Common Stock of the Company is listed for trading on a national securities exchange, (B) the date the Common Stock of the Company is quoted on an automated quotation system, (C) the date the Common Stock of the Company listed or quoted for trading on the OTC Bulletin Board, or (D) the date prices for the Common Stock of the Company are first reported in the “Pink Sheets” published by OTC Link LLC (or a similar organization or agency succeeding to its functions of reporting prices) or (ii) engage in any transactions in the Common Stock or other securities of the Company (including Short Sales (as defined below)) the intent and purpose of which is to cause a decrease in the price of such Common Stock or other securities on any Trading Market, the OTC Bulletin Board, or other market on which such Common Stock or other securities is then listed or quoted. For purposes of this Section 4(e), the term “Short Sales” means, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Securities Exchange Act of 1934, as amended, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.

Section 5 . Miscellaneous.

a) No Rights as Stockholder Until Exercise . This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i); provided, however, if at any time prior to the expiration of the warrants and their exercise, any of the following events shall occur: (i) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company or (ii) the Company shall offer to all the holders of its common stock any additional shares of capital stock of the company or securities convertible into or exchangeable for shares of capital stock of the company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, then the Company shall give written notice of such event to the Holder no later than the date of prior notice of such event required to be given to the stockholders of the Company under any applicable law, regulation, rule of any exchange on which the Company’s shares of Common Stock are then quoted, or by-law of the Company, but in no event later than twenty (20) calendar days prior to the date fixed as a record date of the date of closing the transfer books for the determination of the stockholders of the Company entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notices shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale.

b) Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c) Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day. For purposes of this Warrant, the term “Business Day” means days other than Saturdays, Sundays, and days in respect of which banks in the State of California are authorized to be closed.

d) Authorized Shares .

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares

upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e) Jurisdiction . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Subscription Agreement.

f) Restrictions . The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

g) Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h) Notices . Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with Section 12 of the Subscription Agreement.

i) Limitation of Liability . No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j) Remedies . The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant in respect of which monetary damages would not be adequate compensation for any loss incurred by reason of a breach by the Company of the provisions of this Warrant and not resulting from failure of the Holder to satisfy the requirements of this Warrant applicable to the Holder, and in respect of any such action for specific performance by the Holder under such circumstances, the Company hereby agrees to waive and not to assert the defense that a remedy at law would be adequate in respect of such loss.

k) Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

l) Applicable Law . This Warrant shall be governed by and construed in accordance with the laws of the State of California applicable to contracts to be wholly-performed within said State, and without regard to the conflicts of laws principles thereof.

m) Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder .

n) Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

o) Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Page Follows)

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

	EMMAUS LIFE SCIENCES, INC.


	By:
		Name:
		Title:

NOTICE OF EXERCISE

TO: EMMAUS LIFE SCIENCES, INC.

(1) The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

The Warrant Shares shall be delivered to the following DWAC Account Number:

(4) Investor Status . The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity :
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:

EXHIBIT B

ASSIGNMENT FORM

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

Name:
				(Please Print)

Address:
				(Please Print)

Dated: ,

Holder’s Signature:

Holder’s Address:

Exhibit 31.1

Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Yutaka Niihara, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Emmaus Life Sciences, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2014

/s/ Yutaka Niihara
Yutaka Niihara, M.D., MPH
President and Chief Executive Officer
(Principal Executive Officer)

Exhibit 31.2

Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Peter Ludlum, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Emmaus Life Sciences, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2014

/s/ Peter Ludlum
Peter Ludlum
Chief Financial Officer
(Principal Financial Officer)

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Emmaus Life Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the date indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Yutaka Niihara
Yutaka Niihara, M.D., MPH
President and Chief Executive Officer
(Principal Executive Officer)
August 14, 2014

/s/ Peter Ludlum
Peter Ludlum
Chief Financial Officer
(Principal Financial and Accounting Officer)
August 14, 2014