EMMAUS LIFE SCIENCES, INC. (Form: 10-Q, Received: 11/14/2016 16:59:14)

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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 September 30, 2016

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.)

21250 Hawthorne Boulevard, Suite 800, Torrance, California		90503
(Address of principal executive offices)		(Zip code)

(310) 214-0065

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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		Smaller reporting company x
(Do not check if a smaller reporting company)

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 34,671,633 shares of common stock, par value $0.001 per share, outstanding as of November 11, 2016.

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EMMAUS LIFE SCIENCES, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2016

INDEX

			Page
Part I	Financial Information

	Item 1.	Financial Statements

		(a) Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015	1

		(b) Consolidated Statements of Comprehensive Loss for the Three Months and Nine Months ended September 30, 2016 and 2015 (Unaudited)	2

		(c) Consolidated Statement of Changes in Stockholders’ Deficit for the Nine Months ended September 30, 2016 (Unaudited)	3

		(d) Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2016 and 2015 (Unaudited)	4

		(e) Notes to Consolidated Financial Statements as of and for the Nine Months ended September 30, 2016 (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	25

	Item 4.	Controls and Procedures	25

Part II	Other Information

	Item 1.	Legal Proceedings	27

	Item 1A.	Risk Factors	27

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

	Item 3.	Defaults Upon Senior Securities	27

	Item 4.	Mine Safety Disclosures	27

	Item 5.	Other Information	27

	Item 6.	Exhibits	28

Signatures			29

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Item 1. Financial Statements

EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

	As of
	September 30, 2016			December 31, 2015
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	6,628,291		$	472,341
Investment capital reserve	14,000,000			—
Accounts receivable	20,422			101,639
Inventories, net	251,903			219,163
Marketable securities, pledged to creditor	225,295			219,015
Prepaid expenses and other current assets	123,609			131,113
Total current assets	21,249,520			1,143,271

PROPERTY AND EQUIPMENT, Net	50,225			58,227

OTHER ASSETS
Deposits	262,578			275,500
Total other assets	262,578			275,500
Total Assets	$	21,562,323		$	1,476,998

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	4,835,321		$	3,780,494
Other current liability	100,035			88,331
Notes payable, net	6,220,742			4,656,749
Notes payable to related parties, net	2,953,128			2,766,304
Convertible notes payable, net	6,633,105			6,000,347
Convertible notes payable to related parties, net	254,000			298,000
Total current liabilities	20,996,331			17,590,225

LONG-TERM LIABILITIES
Deferred rent	58,765			59,886
Warrant derivative liabilities	7,779,000			7,863,000
Convertible notes payable, net	1,791,999			4,206,873
Convertible notes payable to related parties, net	220,000			320,000
Total long-term liabilities	9,849,764			12,449,759
Total Liabilities	30,846,095			30,039,984

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT
Preferred stock — par value $0.001 per share, 20,000,000 shares authorized, none issued and outstanding	—			—
Common stock — par value $0.001 per share, 100,000,000 shares authorized, 34,656,183 and 28,163,478 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	34,656			28,163
Additional paid-in capital	89,589,474			56,508,984
Accumulated other comprehensive loss	(265,532		)	(318,324		)
Accumulated deficit	(98,642,370		)	(84,781,809		)
Total Stockholders’ Deficit	(9,283,772		)	(28,562,986		)
Total Liabilities and Stockholders’ Deficit	$	21,562,323		$	1,476,998

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

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EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

REVENUES, net	$	61,828		$	77,173		$	313,908		$	318,268

COST OF GOODS SOLD	20,997			36,854			132,069			150,513
GROSS PROFIT	40,831			40,319			181,839			167,755

OPERATING EXPENSES
Research and development	368,580			465,455			1,455,576			1,012,580
Selling	103,680			80,758			282,314			326,280
General and administrative	2,655,879			2,170,963			7,204,307			7,383,842
Total operating expenses	3,128,139			2,717,176			8,942,197			8,722,702

LOSS FROM OPERATIONS	(3,087,308		)	(2,676,857		)	(8,760,358		)	(8,554,947		)

OTHER INCOME (EXPENSE)
Gain on derecognition of amounts due to related party and settlement of litigation	—			—			—			418,366
Gain on debt extinguishment	1,019			—			1,019			—
Loss on debt settlement	(266,736		)	—			(266,736		)	—
Change in fair value of liability classified warrants	—			—			—			661,000
Change in fair value of warrant derivative liabilities	132,000			173,000			75,110			1,495,000
Convertible note inducement expense	(1,444,863		)	—			(1,444,863		)	—
Interest and other income (loss)	3,318			(10,933		)	(56,153		)	71,248
Interest expense	(1,595,625		)	(929,572		)	(3,406,180		)	(2,432,071		)
Total other income (expenses)	(3,170,887		)	(767,505		)	(5,097,803		)	213,543

LOSS BEFORE INCOME TAXES	(6,258,195		)	(3,444,362		)	(13,858,161		)	(8,341,404		)
INCOME TAXES	—			—			2,400			2,200
NET LOSS	(6,258,195		)	(3,444,362		)	(13,860,561		)	(8,343,604		)

COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS )
Unrealized income (loss) on securities available-for-sale	7,065			(56,576		)	6,280			(198,921		)
Unrealized foreign currency translation	18,899			4,446			46,512			2,471
Total other comprehensive income (loss)	25,964			(52,130		)	52,792			(196,450		)
COMPREHENSIVE LOSS	$	(6,232,231	)	$	(3,496,492	)	$	(13,807,769	)	$	(8,540,055	)
NET LOSS PER COMMON SHARE	$	(0.22	)	$	(0.12	)	$	(0.48	)	$	(0.29	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING	29,031,346			28,124,375			28,688,376			29,231,370

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

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EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(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 Stockholders’ Deficit

Balance, December 31, 2015	28,163,478	$	28,163	$	56,508,984		$	(318,324	)	$	(84,781,809	)	$	(28,562,986	)
Stock issued for cash	5,079,666	5,080		22,133,414			—			—			22,138,494
Warrants issued in conjunction with convertible and non-convertible promissory notes	—	—		644,550			—			—			644,550
Beneficial conversion feature relating to convertible and promissory notes payable	—	—		1,709,137			—			—			1,709,137
Share-based compensation	—	—		2,259,834			—			—			2,259,834
Exercise of common stock options (cashless)	15,866	16		(16		)	—			—			—
Conversion of notes payable and accrued interest to common stock	1,397,173	1,397		4,888,708			—			—			4,890,105
Convertible note inducement	—	—		1,444,863			—			—			1,444,863
Unrealized income on marketable securities, net of tax	—	—		—			6,280			—			6,280
Foreign currency translation effect	—	—		—			46,512			—			46,512
Net loss	—	—		—			—			(13,860,561		)	(13,860,561		)

Balance, September 30, 2016	34,656,183	34,656		89,589,474			(265,532		)	(98,642,370		)	(9,283,772		)

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

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EMMAUS LIFE SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine months ended September 30,
	2016			2015

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(13,860,561	)	$	(8,343,604	)
Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization	11,210			175,897
Amortization of discount of convertible and promissory notes	1,807,592			1,278,364
Foreign exchange adjustments on convertible notes and notes payable	377,288			24,111
Gain on settlement of litigation	—			(418,366		)
Gain on debt extinguishment	(1,019		)	—
Loss on debt settlement	266,736			—
Share-based compensation	2,259,834			2,968,028
Convertible note inducement expense	1,444,863			—
Change in fair value of liability classified warrants	—			(661,000		)
Change in fair value of warrant derivative liabilities	(75,110		)	(1,495,000		)
Net changes in operating assets and liabilities
Investment capital reserve	(14,000,000		)	—
Accounts receivable	88,396			19,605
Inventories	(22,892		)	(43,366		)
Prepaid expenses and other current assets	76,180			(40,977		)
Deposits	18,419			29,136
Accounts payable and accrued expenses	1,753,171			976,221
Other current liability	11,704			—
Deferred rent	(1,320		)	58,095
Net cash flows used in operating activities	(19,845,509		)	(5,472,856		)

CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property and equipment	(1,897		)	(3,953		)
Net cash flows used in investing activities	(1,897		)	(3,953		)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable issued	2,754,700			3,935,566
Proceeds from convertible notes payable issued	2,461,710			1,893,343
Payments of notes payable	(453,077		)	(250,000		)
Payments of convertible notes	(976,488		)	(279,800		)
Proceeds from exercise of warrants	—			102,885
Proceeds from issuance of common stock	22,138,494			—
Net cash flows from financing activities	25,925,339			5,401,994
Effect of exchange rate changes on cash	78,017			1,264

Net increase (decrease) in cash and cash equivalents	6,155,950			(73,551		)
Cash and cash equivalents, beginning of period	472,341			556,318
Cash and cash equivalents, end of period	$	6,628,291		$	482,767

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Interest paid	$	599,038		$	253,223
Income taxes paid	$	2,400		$	2,200

SUPPLEMENTAL DISCLOSURES OF NON-CASH INFORMATION
Conversion of notes payable to common stock	4,600,930			18,000
Conversion of accrued interest payable to common stock	289,175			—
Derecognition of amounts due to related party from settlement of litigation	$	—		$	394,446
Acquisition of marketable securities from settlement of litigation	$	—		$	23,920

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

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EMMAUS LIFE SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements of Emmaus Life Sciences, Inc. and subsidiaries (collectively, the “Company” or “Emmaus”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) on the basis that the Company will continue as a going concern. The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All significant intercompany transactions have been eliminated. The Company’s unaudited consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to present fairly the Company’s consolidated financial position, results of operations, comprehensive income (loss) and cash flows. Due to the uncertainty of the Company’s ability to meet its current operating and capital expenses, there is substantial doubt about the Company’s ability to continue as a going concern, as the continuation and expansion of its business is dependent upon obtaining further financing, successful and sufficient market acceptance of its products, and finally, achieving a profitable level of operations. The consolidated interim financial statements do not include any adjustments that might result from the outcome of these uncertainties. The consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on May 20, 2016 (the “Annual Report”). Interim results for the periods presented herein are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.

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

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Refer to the Annual Report for a summary of significant accounting policies. There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2016. Below are disclosures of certain interim balances, transactions, and significant assumptions used in computing fair value as of and for the nine months ended September 30, 2016 and comparative amounts from the prior fiscal periods:

Inventories — All of the raw material purchased during the nine months ended September 30, 2016 and for the year ended December 31, 2015 was from one vendor. The below table presents inventory by category:

Inventory by category	September 30, 2016		December 31, 2015
Work-in-process	$	87,852	$	45,355
Finished goods	164,051		173,808
	$	251,903	$	219,163

Advertising cost — Advertising costs are expensed as incurred. Advertising costs for the three months ended September 30, 2016 and 2015 were $9,101 and $11,720, respectively. Advertising costs for the nine months ended September 30, 2016 and 2015 were $24,540 and $47,955, respectively.

Marketable securities — The Company’s marketable securities consist of 39,250 shares of CellSeed, Inc. (“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 September 30, 2016 and December 31, 2015, the closing price per share for CellSeed was 581 Yen ($5.74) and 672 Yen ($5.58), respectively.

As of September 30, 2016, 39,250 shares of CellSeed stock are pledged to secure a $300,000 convertible note issued to Mitsubishi UFJ Capital III Limited Partnership that is due on demand and are classified as current assets, as marketable securities, pledged to creditor.

Prepaid expenses and other current assets — Prepaid expenses and other current assets consisted of the following at September 30, 2016 and December 31, 2015:

	September 30, 2016		December 31, 2015
Prepaid insurance	$	82,146	$	97,708
Other prepaid expenses and current assets	41,463		33,405
	$	123,609	$	131,113

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Fair value measurements — The following table presents the activity for those items measured at fair value on a recurring basis using Level 3 inputs during the nine months ended September 30, 2016 and the year ended December 31, 2015:

	Period ended
Liability Classified Warrants—Stock Purchase Warrants	September 30, 2016		December 31, 2015
Balance, beginning of period	$	—	$	3,206,000
Reclassification to warrant derivative liabilities	—		(2,545,000		)
Change in fair value included in consolidated statements of comprehensive loss	—		(661,000		)
Balance, end of period	$	—	$	—

	Period ended
Warrant Derivative Liabilities—Stock Purchase Warrants	September 30, 2016			December 31, 2015
Balance, beginning of period	$	7,863,000		$	6,520,000
Reclassification from liability classified warrants	—			2,545,000
Change in fair value included in consolidated statements of comprehensive loss	(84,000		)	(1,202,000		)
Balance, end of period	$	7,779,000		$	7,863,000

	Period ended
Warrant Derivative Liabilities—Lender Warrants	September 30, 2016			December 31, 2015
Balance, beginning of period	$	—		$	—
Warrants issued in conjunction with secured loans	316,610			—
Change in fair value included in consolidated statements of comprehensive loss	8,890			—
Reclassified to additional paid-in capital	(325,500		)	—
Balance, end of period	$	—		$	—

The value of the liability classified warrants, the value of warrant derivative liabilities and the change in fair value of the liability classified warrants and warrant derivative liabilities 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. T he values as of September 30, 2016, December 31, 2015 and the initial value as of September 11, 2013 were calculated based on the following assumptions:

	September 30, 2016			December 31, 2015			Initial Value
Stock price	$	5.00		$	4.70		$	3.60
Risk-free interest rate	0.76		%	1.23		%	1.72		%
Expected volatility (peer group)	63.6		%	64.10		%	72.40		%
Expected life (in years)	1.95			2.70			5.00
Number outstanding	3,320,501			3,320,501			3,320,501
Balance, end of period:
Liability classified warrants	$	—		$	—		$	7,541,000
Warrant derivative liabilities	$	7,779,000		$	7,863,000		$	—

The values of lender equity classified warrants as of September 30, 2016, May 13, 2016 and April 18, 2016 were calculated based on the following assumptions:

	September 30, 2016			May 13, 2016			April 18, 2016
Stock price	$	5.00		$	5.00		$	5.00
Risk-free interest rate	1.14		%	1.24		%	1.27		%
Expected volatility (peer group)	69.59		%	73.30		%	72.90		%
Expected life (in years)	4.75			5.13			5.20

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Debt and related party debt — The following table presents the effective interest rates on the original loan principal amount for loans originated in the respective periods that either had a beneficial conversion feature or an attached warrant:

Type of Loan	Term of Loan	Stated Annual Interest Rate		Original Loan Principal Amount		Conversion Rate	Beneficial Conversion Discount Amount		Warrants Issued with Notes	Exercise Price		Warrant FMV Discount Amount		Effective Interest Rate Including Discounts
2015 convertible notes payable	Due on demand - 2 years	10	%	$	4,051,022	$3.50- $4.50	$	1,388,201	110,417	$	4.90	$	220,071	14% - 109%
2016 convertible notes payable	Due on demand - 2 years	10	%	5,951,105		$3.50- $4.50	1,442,401		75,000	$	4.70	161,658		14% - 102%
2016 promissory notes	11.5 - 12.5 months	10	%	1,295,000		—	—		118,750	$	4.50	474,002		47%
Total				$	11,297,127		$	2,830,602	304,167			$	855,731

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

Net loss per share — As of September 30, 2016 and 2015, respectively, potentially dilutive securities exercisable or convertible into 14,859,090 and 11,311,625 shares of Company common stock were outstanding. 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 January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities . The amendments applicable to the Company in this Update (1) supersede the guidance to classify equity securities, except equity method securities, with readily determinable fair values into trading or available-for-sale categories and require equity securities to be measured at fair value with changes in the fair value recognized through net income, (2) allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment, (3) require assessment for impairment of equity investments without readily determinable fair values qualitatively at each reporting period, (4) eliminate the requirement to disclose the methods and significant assumptions used in calculating the fair value of financial instruments required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (6) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements, (7) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the Update. The impact of the adoption of the amendments in this Update will depend on the amount of equity securities and financial instruments subject to the amendments in this Update held by the Company at the time of adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases . The amendments in this Update require a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases with terms greater than twelve months. For leases less than twelve months, an entity is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those years, with early adoption permitted. The Company is currently in the process of evaluating the impact of adoption of the amendments in this Update on the Company’s consolidated financial position and results of operations; however, adoption of the amendments in this Update are expected to be material for most entities who have a material lease with a term of greater than twelve months.

In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . The amendments in this Update simplify the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This Update is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted. The Company is currently in the process of evaluating this new Update.

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In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”). The amendments in ASU 2016-10 clarify identification of performance obligations and licensing implementation. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606: For public companies, this Update is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. The Company is currently evaluating the impact that the implementation of ASU 2016-10 will have on the Company’s financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the impact the adoption of ASU 2016-15 will have on its financial statements.

NOTE 3 — PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

	September 30, 2016			December 31, 2015
Equipment	$	167,527		$	164,931
Leasehold improvements	32,012			30,579
Furniture and fixtures	75,173			74,682
Subtotal	274,712			270,192
Less: accumulated depreciation	(224,487		)	(211,965		)
Total	$	50,225		$	58,227

During the three months ended September 30, 2016 and 2015, depreciation expense was $3,808 and $4,210, respectively. During the nine months ended September 30, 2016 and 2015, depreciation expense was $11,210 and $15,182, respectively.

NOTE 4 — ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at:

	September 30, 2016		December 31, 2015
Accounts payable
Clinical and regulatory expenses	$	221,817	$	322,193
Legal expenses	305,788		242,384
Consulting fees	385,935		74,700
Accounting fees	136,223		230,598
Selling expenses	41,775		34,279
Investor relations and public relations expenses	37,005		18,097
Other vendors	210,022		318,269
Total accounts payable	1,338,565		1,240,520
Accrued interest payable, related parties	258,508		176,940
Accrued interest payable	1,730,624		1,586,472
Accrued expenses	1,215,958		484,896
Deferred salary	291,666		291,666
Total accounts payable and accrued expenses	$	4,835,321	$	3,780,494

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NOTE 5 — NOTES PAYABLE

In April and May of 2016, the Company entered into secured loan agreements pursuant to which it borrowed an aggregate amount of $1,295,000 at a fixed interest rate of 10% per annum. These loans will mature on the earlier of the closing of a new debt financing (subject to certain exceptions, including refinancings of its outstanding convertible notes) or May 1, 2017. These loans are secured by all of the Company’s personal property and are personally guaranteed by Dr. Niihara, its Chairman and Chief Executive Officer, and secured by certain of his real property. Furthermore, the loan agreements contain certain negative covenants that may hinder the Company’s ability to raise additional capital or might otherwise affect its liquidity, including restrictions on its ability to (1) acquire material assets outside of the ordinary course of business, (2) sell, lease, license transfer or dispose of its personal property outside of the ordinary course of business, (3) pay or declare dividends, (4) make investments in or loans to other persons, (5) redeem or repurchase its stock, (6) make deposits or investments unless they are subject to a deposit control account, (7) incur additional indebtedness other than permitted debt, (8) make payments on subordinated obligations, (9) undergo a merger, change in control or sale of a substantial portion of its assets, or (10) use loan proceeds to make payments to its affiliates. If the Company is unable to repay these loans when they become due, or if it otherwise suffers an event of default under the loan agreements, the lender may have the right to foreclose on its collateral, which could have a material and adverse effect on the Company’s business, financial condition, liquidity and operations.

In connection with these loans, the Company issued the lender warrants for the purchase of 62,500 shares of Company common stock at an exercise price of the lowest of the fair market value of the common stock during the quarter ended June 30, 2016 or the lowest public sale price of the common stock during the quarter ended June 30, 2016. In addition, if these loans remain outstanding for at least 30 days during the 90-day periods ending June 30, 2016, September 30, 2016 and December 31, 2016, the Company is obligated to issue the lender additional warrants for the purchase of 37,500, 18,750 and 18,750 shares of Company common stock, respectively, for an exercise price of the lowest of the fair market value of the common stock as of the start or end of such 90-day period or the lowest public sale price of the common stock during the quarter ended on the applicable measurement date. As these loans have been outstanding for more than 30 days during the 90-day period ending June 30, 2016 and September 30, 2016, the Company accordingly issued the lender additional warrants for the purchase of 37,500 and 18,750 shares, respectively, of Company common stock on the terms set forth above. These warrants may be exercised through a cashless exercise feature.

In August and September 2016, the Company issued convertible notes to third parties totaling $1,221,600 in aggregate principal amount, which notes bear interest at 10% per annum starting from October 1, 2016 and mature on the respective one-year anniversary dates of the notes. If the Company completes the listing on the OTC market, the principal amount of the notes will automatically convert into shares of Company common stock at a fixed conversion price of $4.50 (subject to appropriate adjustment in the event of any stock splits, stock dividends, recapitalizations and similar transactions with respect to the capital stock of the Company). Within thirty days of such closing, all accrued and unpaid interest on the notes, if any, will be payable to the holders in cash. At or after the first anniversary of the loan dates, the holders of the notes may convert some or all of the unpaid principal amount of the notes, including unpaid accrued interest, into shares of Company common stock at a conversion price of $4.50 per share.

On August 26, 2016, the Company offered all of its note holders an opportunity to convert all or a portion of the principal amount of and accrued interest on their notes into shares of Company common stock at a price of $3.50 per share. Pursuant to the offer, 19 note holders elected to convert a total of $4,007,598 of principal and $260,124 of accrued interest on their notes into an aggregate of 1,219,350 shares of our common stock.

The conversion price of $3.50 per share was less than the stated conversion price of the convertible notes that were converted, which conversion prices ranged from $4.50 to $7.00 per share. Accordingly, the conversion resulted in the Company recognizing an inducement expense of $1,444,863, which represents the fair value of the incremental increase in the number of shares of Company common stock received by the convertible note holders.

The note holders of a total of $622,384 of principal and accrued interest on non-convertible notes participated in the offer. Under the guidance of ASC 405-20, the Company de-recognized the principal and accrued interest on these non-convertible notes in consideration for issuing Company common stock. As a result of delivering its common stock to the holders of these non-convertible notes holders, the Company concluded that it has satisfied and is released from its legal obligation for the notes. The fair value of the common stock provided as consideration was $889,120 whereas the face value of the principal and accrued interest was $622,384, resulting in a loss on the debt settlement of $266,736 charged in full against the earning during the quarter ended September 30, 2016.

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Notes payable consisted of the following at September 30, 2016 and December 31, 2015:

Year Issued	Interest Rate Range	Term of Notes	Conversion Price	Principal Outstanding September 30, 2016		Discount Amount September 30, 2016		Carrying Amount September 30, 2016		Shares Underlying Notes September 30, 2016	Principal Outstanding December 31, 2015		Discount Amount December 31, 2015		Carrying Amount December 31, 2015		Shares Underlying Notes December 31, 2015
Notes payable
2013	10%	Due on demand	—	$	988,100	$	—	$	988,100	—	$	830,000	$	—	$	830,000	—
2014	11%	Due on demand - 2 years	—	613,615		—		613,615		—	1,446,950		—		1,446,950		—
2015	11%	Due on demand - 2 years	—	2,547,386		—		2,547,386		—	2,379,799		—		2,379,799		—
2016	10 - 11%	Due on demand - 12.5 months	—	2,378,335		306,694		2,071,641		—	—		—		—		—
				$	6,527,436	$	306,694	$	6,220,742	—	$	4,656,749	$	—	$	4,656,749	—

		Current		$	6,527,436	$	306,694	$	6,220,742	—	$	4,656,749	$	—	$	4,656,749	—
		Non-current		$	—	$	—	$	—	—	$	—	$	—	$	—	—
Notes payable - related party
2012	8% - 10%	Due on demand	—	$	626,730	$	—	$	626,730	—	$	626,730	$	—	$	626,730	—
2013	8%	Due on demand	—	50,000		—		50,000		—	50,000		—		50,000		—
2014	11%	Due on demand - 2 years	—	—		—		—		—	240,308		—		240,308		—
2015	10% - 11%	Due on demand	—	1,415,888		—		1,415,888		—	1,849,266		—		1,849,266		—
2016	10% - 11%	Due on demand	—	860,510				860,510		—	—		—		—		—
				$	2,953,128	$	—	$	2,953,128	—	$	2,766,304	$	—	$	2,766,304	—

		Current		$	2,953,128	$	—	$	2,953,128	—	$	2,766,304	$	—	$	2,766,304	—
		Non-current		$	—	$	—	$	—	—	$	—	$	—	$	—	—
Convertible notes payable
2010	6%	5 years	$3.05	$	2,000	$	—	$	2,000	656	$	2,000	$	—	$	2,000	656
2011	10%	5 years	$3.05	300,000		—		300,000		98,285	500,000		—		500,000		163,809
2013	10%	2 years	$3.60	—		—		—		—	525,257		—		525,257		185,553
2014	10%	Due on demand - 2 years	$3.05-$3.60	2,728,357		14,665		2,713,692		908,478	4,378,563		353,700		4,024,863		1,120,470
2015	10%	2 years	$3.50-$3.60	2,904,800		196,276		2,708,524		869,724	5,681,166		526,066		5,155,100		1,517,996
2016	10%	Due on demand - 2 years	$3.50-$4.50	3,334,508		633,620		2,700,888		856,257	—		—		—		—
				$	9,269,665	$	844,561	$	8,425,104	2,733,400	$	11,086,986	$	879,766	$	10,207,220	2,988,484

		Current		$	7,225,761	$	592,656	$	6,633,105	2,209,995	$	6,358,698	$	358,351	$	6,000,347	1,762,849
		Non-current		$	2,043,904	$	251,905	$	1,791,999	523,405	$	4,728,288	$	521,415	$	4,206,873	1,225,635
Convertible notes payable - related party
2012	10%	Due on demand	$3.30	$	254,000	$	—	$	254,000	92,592	$	298,000	$	—	$	298,000	108,505
2015	10%	2 years	$4.50	220,000		—		220,000		53,230	320,000		—		320,000		72,354
				$	474,000	$	—	$	474,000	145,822	$	618,000	$	—	$	618,000	180,859

		Current		$	254,000	$	—	$	254,000	92,592	$	298,000	$	—	$	298,000	108,505
		Non-current		$	220,000	$	—	$	220,000	53,230	$	320,000	$	—	$	320,000	72,354
		Grand Total		$	19,224,229	$	1,151,255	$	18,072,974	2,879,222	$	19,128,039	$	879,766	$	18,248,273	3,169,343

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The average stated interest rate of notes payable as of September 30, 2016 and December 31, 2015 was 10%. The average effective interest rate of notes payable for the nine-month period ended September 30, 2016 and the year ended December 31, 2015 was 26% and 23% respectively, 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 Company common stock at the stated conversion price during the term of their convertible notes. Conversion prices on these convertible notes payable range from $3.05 to $3.60 per share. Certain notes with a $4.50 or a $7.00 stated conversion price in the second year of their two-year term are subject to automatic conversion into shares of Company common stock at a conversion price equal to 80% of the initial public offering price at the time of a qualified public offering. All due on demand notes are treated as current liabilities.

Contractual principal payments due on notes payable are as follows:

Year Ending	September 30, 2016
2016	$	11,809,115
2017	6,252,280
2018	1,162,834
Total	$	19,224,229

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 Company common stock as of the date of issuance (see Note 2). The fair value of the warrants issued in conjunction with notes was determined using the Black Scholes Merton Option Pricing Model with the following inputs for the periods ended:

	September 30, 2016			December 31, 2015
Stock price	$	5.00		$	4.50
Exercise price	$	4.50 - 4.70		$	4.90
Term	5 years			5 years
Risk-free interest rate	1.01 - 1.28		%	1.57		%
Expected dividend yield	—			—
Expected volatility	65.4 - 69.6		%	67.3		%

In situations where the notes included both a beneficial conversion feature and a warrant, the proceeds were allocated to the warrants and beneficial conversion feature based on their respective pro rata fair values.

NOTE 6 — 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. In addition, 300,000 warrants for the purchase of a share of common stock were issued to a broker under the same terms as the Private Placement transaction (the “Broker Warrants”).

The warrants issued in the Private Placement and the Broker 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 liabilities, were originally recorded at fair value, and are adjusted to fair market value each reporting period. Because the shares of common stock underlying the Private Placement warrants and Broker Warrants were not effectively registered for resale by September 11, 2014, the warrant holders have an option to exercise the warrants using a cashless exercise feature. The shares have not been registered for resale as of September 30, 2016. The availability to warrant holders of the cashless exercise feature as of September 11, 2014 caused the then-outstanding 2,225,036 Private Placement warrants and Broker Warrants with fair value of $7,068,000 to be reclassified from liability classified warrants to warrant derivative liabilities and to continue to be remeasured at fair value each reporting period. On June 10, 2014, certain warrant holders exercised 1,095,465 warrants issued in the Private Placement for the exercise price of $3.50 per share, resulting in the Company receiving aggregate exercise proceeds of $3.8 million and issuing 1,095,465 shares of common stock. Prior to exercise, these Private Placement warrants 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.

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The replacement warrants are treated for accounting purposes as liability classified warrants, and their issuance gave rise to a $3.5 million warrant exercise inducement expense based on their fair value as of issuance as determined using a Binomial Monte-Carlo Cliquet (aka Ratchet) Option Pricing Model. Because the shares of common stock underlying the replacement warrants were not effectively registered for resale by June 10, 2015, the warrant holders have an option to exercise the warrants using a cashless exercise feature. The shares have not been registered for resale as of September 30, 2016. The availability to warrant holders of the cashless exercise feature as of June 10, 2015 caused the then-outstanding 1,095,465 replacement warrants with fair value of $2,545,000 to be reclassified from liability classified warrants to warrant derivative liabilities and to continue to be remeasured at fair value each reporting period.

As of September 30, 2016, the aggregate fair value of the Private Placement warrants, replacement warrants, and the Broker Warrants was $7,779,000 (see Note 2). For further details regarding registration rights associated with the Private Placement warrants, replacement warrants and Broker Warrants, see the Registration Rights section below in this footnote.

A summary of outstanding warrants as of September 30, 2016 and December 31, 2015 is presented below:

	Nine months ended September 30, 2016	Year ended December 31, 2015
Warrants outstanding, beginning of period	3,530,918	5,101,450
Granted	1,493,750	110,417
Exercised	—	(148,256	)
Cancelled, forfeited or expired	—	(1,532,693	)
Warrants outstanding, end of period	5,024,668	3,530,918

A summary of outstanding warrants by year issued and exercise price as of September 30, 2016 is presented below:

		Outstanding				Exercisable
Exercise Price		Number of Warrants Issued	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Total	Weighted Average Exercise Price
At December 31, 2013
$	3.30	50,000	1.58	$	3.30	50,000	$	3.30
$	3.50	2,225,036	1.95	$	3.50	2,225,036	$	3.50
2013 total		2,275,036				2,275,036

At December 31, 2014
$	3.50	1,145,465	1.98	$	3.50	1,145,465	$	3.50
2014 total		1,145,465				1,145,465

At December 31, 2015
$	4.90	110,417	3.43	$	4.90	110,417	$	4.90
2015 total		110,417				110,417
During 2016
$	4.50	118,750	4.75	$	4.50	118,750	$	4.50
$	4.70	75,000	4.59	$	4.70	75,000	$	4.70
$	5.00	1,300,000	4.61	$	5.00	1,300,000	$	5.00
Total		5,024,668				5,024,668

Stock options — During the nine months ended September 30, 2016, the Company’s Board of Directors granted 2,596,200 stock options to its officers, directors and employees. Of these options, 300,000 granted to its directors will vest in equal one-third installments on each of the first three anniversaries of the grant date, have an exercise price of $4.70 per share and are exercisable through 2026. The remaining 2,296,200 options will vest as follows: one-third (1/3) will vest on the first anniversary of the grant date, and the remaining two-thirds (2/3) will vest in twenty-four approximately equal monthly installments over a period of two years thereafter, except for 300,000 options granted to its directors which will vest in equal one-third installments over three years starting May 10, 2017. These options have an exercise price of $5.00 per share and are exercisable through 2026. During the year ended December 31, 2015, no options were granted by the Company’s Board of Directors. As of September 30, 2016, there were 6,955,200 options outstanding under the Emmaus Life Sciences, Inc. 2011 Stock Incentive Plan.

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A summary of outstanding options as of September 30, 2016 is presented below.

	September 30, 2016				December 31, 2015
	Number of Options		Weighted- Average Exercise Price		Number of Options		Weighted- Average Exercise Price
Options outstanding, beginning of period	4,753,335		$	3.60	5,669,000		$	3.68
Granted or deemed issued	2,596,200		$	4.97	—		$	—
Exercised	(15,866	)	$	3.60	(2,000	)	$	3.60
Cancelled, forfeited and expired	(378,469	)	$	3.91	(913,665	)	$	4.05
Options outstanding, end of period	6,955,200		$	4.10	4,753,335		$	3.60
Options exercisable, end of period	4,353,167		$	3.59	4,379,335		$	3.60
Options available for future grant, end of period	2,044,800				4,246,665

During the nine months ended September 30, 2016 and 2015, the Company recognized $2.3 million and $2.2 million, respectively, of share-based compensation expense arising from stock options. As of September 30, 2016, there was $9.1 million of total unrecognized compensation expense related to unvested share-based compensation arrangements granted under the 2011 Stock Incentive Plan. That expense is expected to be recognized over the weighted-average remaining period of 2.3 years.

Registration rights — Pursuant to the Subscription Agreements relating to the Private Placement and certain warrants, as well as pursuant to the replacement of certain warrants by the Company on June 10, 2014, the Company 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 Company 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 of 1933, as amended (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 the following securities in the following order of priority: (i) any securities the Company proposes to sell, and (ii) 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 these warrants to purchase 3,320,501 shares are not registered for resale at the time of exercise, and 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. In such a cashless exercise of all the shares covered by the warrant, the warrant holder would receive a number of shares equal to the quotient of (i) the difference between the fair market value of the common stock, as defined, and the $3.50 exercise price, as adjusted, multiplied by the number of shares exercisable under the warrant, divided by (ii) the fair market value of the common stock, as defined. As of September 30, 2016, based on a fair market value of a share of Company common stock of $5.00 and 3,320,501 warrants issued and outstanding and eligible for cashless exercise, the maximum number of shares the Company would be required to issue, if the warrant holders elected to exercise the cashless exercise feature with respect to all then eligible warrants, is 996,150 shares. If the fair market value of a share of Company common stock were to increase by $1.00 from $5.00 to $6.00, the maximum number of shares the Company would be required to issue, if the warrant holders elected to exercise the cashless exercise feature with respect to all then eligible warrants, would increase to 1,383,542 shares as of September 30, 2016.

The Company has not yet filed a registration statement with respect to the resale of the Registrable Securities. The Company believes that it has used commercially reasonable efforts to file a registration statement with respect to the resale of Registrable Securities.

Korean Private Placement — On September 12, 2016, the Company entered into Letter of Agreement with KPM Tech Co., Ltd. (“KPM”) and Hanil Vacuum Co., Ltd. (“Hanil”), both Korean-based public companies whose shares are listed on KOSDAQ, a trading board of Korea Exchange in South Korea. In the Letter of Agreement, the parties agreed that KPM and Hanil would purchase by September 30, 2016 $17 million and $3 million, respectively, of shares of our common stock at a price of $4.50 per share. In exchange, the Company agreed to invest $13 million and $1 million in future capital increases by KPM and Hanil, respectively, at prices based upon the trading prices of KPM and Hanil shares on KOSDAQ. The Letter of Agreement contemplates that KPM and Hanil may purchase additional shares of our common stock in a second transaction to be mutually agreed upon by the parties. In connection with the Letter of Agreement, KPM and Hanil entered into our standard form subscription agreement with respect to their purchase of shares which contains customary representations and warranties of the parties.

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On September 29, 2016, KPM and Hanil purchased and acquired from the Company 3,777,778 shares and 666,667 shares, respectively, of common stock at a price of $4.50 a share for $17 million and $3 million, respectively, for a gross total of $20 million. The Company recognized $720,000 as a reduction to its additional paid-in-capital for fees and commissions payable by the Company in connection with the transaction.

Pursuant to the Letter of Agreement dated September 12, 2016, the Company intends to invest $13 million and $1 million in future capital increases by KPM and Hanil, respectively, at prices based upon the trading prices of KPM and Hanil shares on KOSDAQ. Accordingly, the Company allocated $13 million and $1 million for a total of $14 million from the funds received from KPM and Hanil on September 29, 2016 for $17 million and $3 million, respectively, as an investment capital reserve on the balance sheet as of September 30, 2016.

Pursuant to the terms of a subscription agreement dated as of September 11, 2013 among the Company and certain purchasers of shares of our common stock and warrants to purchase shares of our common stock, the purchasers are entitled to participation rights with respect to the sale of shares pursuant to the Letter of Agreement. To the extent the purchasers exercise their participation rights, we may be obliged to sell to them a specified number of shares of our common stock at the price per share and other terms set forth in the Letter of Agreement. There can be no assurance that any purchaser will exercise its participation rights or that any shares of our common stock will be issued to any purchaser.

Subsequent to the quarter ended September 30, 2016 and pursuant to the terms of the Letter of Agreement dated September 12, 2016, the Company invested $13 million and $1 million in capital increases by KPM and Hanil, respectively, at $15.32 and $3.68, respectively, per capita share.

On August 26, 2016, the Company offered all note holders an opportunity to convert all or a portion of the principal amount of and accrued interest on their notes into shares of Company common stock at a price of $3.50 per share. Pursuant to the offer, 19 note holders elected to convert a total of $4,007,598 of principal and $260,124 of accrued interest on their notes.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Korean Private Placement — On September 12, 2016, the Company entered into Letter of Agreement with KPM Tech Co., Ltd. (“KPM”) and Hanil Vacuum Co., Ltd. (“Hanil”), both Korean-based public companies whose shares are listed on KOSDAQ, a trading board of Korea Exchange in South Korea. In the Letter of Agreement, the parties agreed that KPM and Hanil would purchase by September 30, 2016 $17 million and $3 million, respectively, of shares of our common stock at a price of $4.50 per share. In exchange, the Company agreed to invest $13 million and $1 million in future capital increases by KPM and Hanil, respectively, at prices based upon the trading prices of KPM and Hanil shares on KOSDAQ. The Letter of Agreement contemplates that KPM and Hanil may purchase additional shares of our common stock in a second transaction to be mutually agreed upon by the parties. In connection with the Letter of Agreement, KPM and Hanil entered into our standard form subscription agreement with respect to their purchase of shares which contains customary representations and warranties of the parties.

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.

Operating leases — The Company leases its office space under operating leases with unrelated entities. The rent expense during the three months ended September 30, 2016 and 2015 amounted to $151,958 and $124,980, respectively. The rent expense during the nine months ended September 30, 2016 and 2015 amounted to $ 443,921 and $368,294, respectively.

Future minimum lease payments under the agreements are as follows as of September 30, 2016:

Year	Amount
2016 (three months)	$	143,519
2017	564,392
2018	518,860
2019	123,875
	$	1,350,646

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NOTE 8 — RELATED PARTY TRANSACTIONS

The following table sets forth information relating to the Company’s loans from related parties outstanding as of September 30, 2016.

Class	Lender	Interest Rate		Date of Loan	Term of Loan	Principal Amount Outstanding at September 30, 2016		Highest Principal Outstanding		Amount of Principal Repaid		Amount of Interest Paid		Conversion Rate		Shares Underlying Notes September 30, 2016
Current, Promissory note payable to related parties:
	Hope Hospice (1)	8	%	1/17/2012	Due on demand	$	200,000	$	200,000	$	—	$	8,000	$	—	—
	Hope Hospice (1)	8	%	6/14/2012	Due on demand	200,000		200,000		—		4,000		—		—
	Hope Hospice (1)	8	%	6/21/2012	Due on demand	100,000		100,000		—		2,000		—		—
	Yutaka Niihara (2)(3)	10	%	12/5/2012	Due on demand	126,730		1,213,700		1,086,970		—		—		—
	Hope Hospice (1)	8	%	2/11/2013	Due on demand	50,000		50,000		—		2,000		—		—
	Hope Hospice (1)	10	%	1/7/2015	Due on demand	100,000		100,000		—		—		—		—
	Lan T. Tran (2)	10	%	2/9/2015	Due on demand	10,000		10,000		—		—		—		—
	IRA Service Trust Co. FBO Peter B. Ludlum (2)	10	%	2/20/2015	Due on demand	10,000		10,000		—		—		—		—
	Cuc T. Tran (4)	11	%	3/5/2015	1 year	13,161		13,161		—		—		—		—
	Yutaka Niihara (2)(3)	10	%	4/7/2015	Due on demand	156,623		500,000		343,377		15,603		—		—
	Yutaka Niihara (2)(3)	10	%	5/21/2015	Due on demand	826,105		826,105		—		47,822		—		—
	Masaharu & Emiko Osato (3)	11	%	12/29/2015	Due on demand	300,000		300,000		—		—		—		—
	Lan T. Tran (2)	11	%	2/10/2016	Due on demand	130,509		130,509		—		—		—		—
	Masaharu & Emiko Osato (3)	11	%	2/25/2016	Due on demand	400,000		400,000		—		—		—		—
	Hope Hospice (1)	10	%	4/4/2016	Due on demand	50,000		50,000		—		—		—		—
	Lan T. Tran (2)	10	%	4/29/2016	Due on demand	20,000		20,000		—		—		—		—
	IRA Service Trust Co. FBO Peter B. Ludlum (2)	10	%	5/5/2016	Due on demand	10,000		10,000		—		—		—		—
	Hope Hospice (1)	10	%	6/3/2016	Due on demand	250,000		250,000		—		—		—		—
					Sub total	$	2,953,128	$	4,383,475	$	1,430,347	$	79,425	$	—	—
Current, Convertible notes payable to related parties:
	Yasushi Nagasaki (2)	10	%	6/29/2012	Due on demand	$	254,000	$	388,800	$	134,800	$	27,824	$	3.30	92,592
					Sub total	$	254,000	$	388,800	$	134,800	$	27,824	$	—	92,592
Non-Current, Convertible notes payable to related parties:
	Charles & Kimxa Stark (2)	10	%	10/1/2015	2 years	20,000		20,000		—		—		4.50		4,890
	Yutaka & Soomi Niihara (2)(3)	10	%	11/16/2015	2 years	200,000		200,000		—		—		4.50		48,340
					Sub total	$	220,000	$	220,000	$	—	$	—	$	—	53,230

					Total	$	3,427,128	$	4,992,275	$	1,565,147	$	107,249	$	—	145,822

(1) Dr. Niihara, a director and officer of the Company, is also the Chief Executive Officer of Hope Hospice.

(2) Officer.

(3) Director.

(4) Family of Officer/Director.

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The following table sets forth information relating to the Company’s loans from related parties outstanding as of December 31, 2015.

Class	Lender	Annual Interest Rate		Date of Loan	Term of Loan	Principal Amount Outstanding at December 31, 2015		Highest Principal Outstanding		Amount of Principal Repaid		Amount of Interest Paid		Conversion Rate		Shares Underlying Notes at December 31, 2015
Current, Notes payable to related parties:
	Hope Hospice(1)	8	%	1/17/2012	Due on demand	$	200,000	$	200,000	$	—	$	8,000	$	—	—
	Hope Hospice(1)	8	%	6/14/2012	Due on demand	200,000		200,000		—		8,000		—		—
	Hope Hospice(1)	8	%	6/21/2012	Due on demand	100,000		100,000		—		4,000		—		—
	Yutaka Niihara(2)(3)	10	%	12/5/2012	Due on demand	126,730		1,213,700		1,086,970		56,722		—		—
	Hope Hospice(1)	8	%	2/11/2013	Due on demand	50,000		50,000		—		2,000		—		—
	Lan T. Tran(2)	11	%	2/10/2014	Due on demand	106,976		106,976		—		—		—		—
	Hideki & Eiko Uehara(4)	11	%	2/15/2014	2 years	133,333		133,333		—		—		—		—
	Hope Hospice(1)	10	%	1/7/2015	Due on demand	100,000		100,000		—		—		—		—
	James Lee(4)	10	%	1/26/2015	Due on demand	50,000		50,000		—		—		—		—
	Hope Hospice(1)	10	%	1/29/2015	Due on demand	30,000		30,000		—		—		—		—
	Yutaka Niihara(2)(3)	10	%	1/29/2015	Due on demand	—		20,000		20,000		773		—		—
	Lan T. Tran(2)	10	%	2/9/2015	Due on demand	10,000		10,000		—		—		—		—
	Charles Stark(2)	10	%	2/10/2015	Due on demand	10,000		10,000		—		—		—		—
	IRA Service Trust Co. FBO Peter B. Ludlum(2)	10	%	2/20/2015	Due on demand	10,000		10,000		—		—		—		—
	Cuc T. Tran(4)	11	%	3/5/2015	1 year	13,161		13,161		—		—		—		—
	Yutaka Niihara(2)(3)	10	%	4/7/2015	Due on demand	500,000		500,000		—		—		—		—
	Yutaka Niihara(2)(3)	10	%	5/21/2015	Due on demand	826,105		826,105		—		—		—		—
	Masaharu & Emiko Osato(3)	11	%	12/29/2015	Due on demand	300,000		300,000		—		—		—		—
					Sub total	$	2,766,304	$	3,873,275	$	1,106,970	$	79,495	$	—	—
Current, Convertible notes payable to related parties:
	Yasushi Nagasaki(2)	10	%	6/29/2012	Due on demand	$	298,000	$	388,800	$	90,800	$	—	$	3.30	108,505
					Sub total	$	298,000	$	388,800	$	90,800	$	—	$	—	108,505
Non-Current, convertible notes payable to related parties:
	Yutaka Niihara(2)(3)	10	%	9/29/2015	2 years	$	100,000	$	100,000	$	—	$	—	$	4.50	22,794
	Charles & Kimxa Stark(2)	10	%	10/1/2015	2 years	20,000		20,000		—		—		4.50		4,556
	Yutaka & Soomi Niihara(2)(3)	10	%	11/16/2015	2 years	200,000		200,000		—		—		4.50		45,004
					Sub total	320,000		320,000		$	—	$	—	$	—	72,354
					Total	$	3,384,304	$	4,582,075	$	1,197,770	$	—	$	—	180,859

(1) Dr. Niihara, a director and officer of the Company, is also the Chief Executive Officer of Hope Hospice.

(2) Officer.

(3) Director.

(4) Family of Officer/Director.

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NOTE 9 — GEOGRAPHIC INFORMATION

For the nine months ended September 30, 2016 and 2015, the Company earned revenue from countries outside of the United States as outlined in the table below:

Country	Revenues for the nine months ended September 30, 2016		% of total revenue for the nine months ended September 30, 2016		Revenues for the nine months ended September 30, 2015		% of total revenue for the nine months ended September 30, 2015
Japan	$	120,280	38	%	$	99,613	41	%
Taiwan	138,313		44	%	110,104		46	%

For the three months ended September 30, 2016 and 2015, the Company earned revenue from countries outside of the United States as outlined in the table below:

Country	Revenues for the three months ended September 30, 2016		% of total revenue for the three months ended September 30, 2016		Revenues for the three months ended September 30, 2015		% of total revenue for the three months ended September 30, 2015
Japan	$	39,185	63	%	$	57,379	40	%
Taiwan	4,046		7	%	67,491		47	%

The Company did not have any significant currency translation or foreign transaction adjustments during the nine months ended September 30, 2016 or 2015.

NOTE 10 — SUBSEQUENT EVENTS

S ubsequent to September 30, 2016, the Company issued the following:

Note issued after September 30, 2016	Amount		Annual Interest Rate		Term of Note	Conversion Price
Convertible notes	$	419,075	10.00	%	1 year	$	4.50
Total	$	419,075

Subsequent to September 30, 2016, the Company issued the following:

Common Shares Issued after September 30, 2016	Amount		Number of Shares Issued
Common shares	$	69,525	15,450
Total	$	69,525	15,450

As disclosed in Notes 6 and 7, subsequent to September 30, 2016, we acquired a minority interest of 8.2% in KPM Tech Co., Ltd., for $13 million and of 0.8% in Hanil Vacuum Co., Ltd., for $1 million, both Korean-based public companies whose shares are listed on KOSDAQ, a trading board of Korea Exchange in South Korea. KPM is principally engaged in the manufacturing and distribution of surface treatment chemicals. Hanil is principally engaged in the design, manufacturing and sale of vacuum coating systems.

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

With respect to the following discussion, the terms, “we,” “us,” “our” or the “Company” refer to Emmaus Life Sciences, Inc., and its wholly-owned subsidiary Emmaus Medical, Inc., a Delaware corporation, which we refer to as Emmaus Medical, and Emmaus Medical’s wholly-owned subsidiaries, Newfield Nutrition Corporation, a Delaware corporation, which we refer to as Newfield Nutrition, Emmaus Medical Japan, Inc., a Japanese corporation, which we refer to as EM Japan, and Emmaus Medical Europe Ltd., a U.K. corporation, which we refer to as 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, 2015 and 2014 and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on May 20, 2016 (the “Annual Report”).

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than historical facts contained in this report, including statements regarding our future financial position, capital expenditures, cash flows, business strategy and plans and objectives of management for future operations are forward-looking statements. The words “anticipate,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, our ability to raise additional capital to fund our operations, obtaining U.S. Food and Drug Administration (“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 pharmaceutical grade L-glutamine treatment for sickle cell disease (“SCD”), our ability to commercialize our pharmaceutical grade 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.

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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 and a significant unmet medical need. 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 ß0-thalassemia, two of the most common forms of SCD.

On September 7, 2016 we submitted a New Drug Application (“NDA”) to the FDA requesting U.S. marketing approval for our orally-administered pharmaceutical grade L-glutamine treatment for SCD and the NDA has been accepted for review.

The NDA represents the first potential treatment for pediatric patients with SCD, and the first potential new treatment in nearly 20 years for adult patients. Our SCD therapy has Orphan Drug and Fast Track designation from the FDA. We are awaiting notice from the FDA regarding the request for a priority review.

Orphan Medicinal Product designation in the European Union has also been granted for the L-glutamine treatment for SCD. We plan to submit a marketing authorization application to the European Medicines Agency.

We plan to market our L-glutamine treatment in the United States, if approved, by either strategic partnership or by building our own targeted sales force of approximately 30 sales representatives. We intend to utilize strategic partnerships to market our treatment in the rest of the world, if and when approved for marketing.

We have extensive experience in the field of SCD, including the development, outsourced manufacturing and conduct of clinical trials of our prescription grade L-glutamine product candidate for the treatment of SCD. Yutaka Niihara, M.D., M.P.H., is a leading hematologist in the field of SCD. Dr. Niihara is licensed to practice medicine in both the United States and Japan and has been actively engaged in SCD research and the care of patients with SCD for over 20 years, primarily at the University of California Los Angeles and the Los Angeles Biomedical Research Institute (“LA BioMed”), a nonprofit biomedical research institute at Harbor UCLA Medical Center.

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 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. Our indirect wholly owned subsidiary, Newfield Nutrition , 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 Nutrition, 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 and drugs 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 below:

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Emmaus Medical, LLC was organized on December 20, 2000. In October 2003, Emmaus Medical, LLC undertook a reorganization and merged with Emmaus Medical, 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 products 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 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 registered or unregistered equity offerings, debt financings or corporate collaboration and licensing arrangements. As of September 30, 2016, our accumulated deficit was $98.6 million and we had cash and cash equivalents of $6.6 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.

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.

Subsequent to September 30, 2016, we acquired a minority interest of 8.2% in KPM Tech Co., Ltd., and of 0.8% in Hanil Vacuum Co., Ltd., both Korean-based public companies whose shares are listed on KOSDAQ, a trading board of Korea Exchange in South Korea. KPM is principally engaged in the manufacturing and distribution of surface treatment chemicals. Hanil is principally engaged in the design, manufacturing and sale of vacuum coating systems.

Financial Overview

Revenue

S ince 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. Our operations to date have been primarily limited to staffing, licensing and promoting products for SBS, outsourcing distribution and sales activities, developing and sponsoring clinical trials of our pharmaceutical grade L-glutamine treatment for SCD, manufacturing products and maintaining and improving our 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®. Pursuant to the exclusive sublicense agreement for US Patent No. 5,288,703, we are required to pay an annual royalty equal to 10% of adjusted gross sales of NutreStore® to CATO Holding Company (“CATO”). 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

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

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Research and Development Expenses

R esearch and development costs consist of expenditures for new products and technologies, which primarily involve fees paid to the contract research organizations (“CRO”) that conduct 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 in prior years have been 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 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.

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 risks and uncertainties relating to product development are described in the Annual Report under the headings “Risk Factors—Risks Related to Development of our Product Candidates,” “Risk Factors—Risks Related to our Reliance on Third Parties,” and “Risk Factors—Risks Related to Regulatory Approval of our Product 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 Cultured Autologous Oral Mucosal Epithelial Cell-Sheets (“CAOMECS”) technology will be approximately $3.0 million. 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 an NDA. We estimate that we will need another $2.4 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 current Good Manufacturing Practices (“cGMP”) laboratory to establish the infrastructure and production capabilities related to regenerative medicine products. At this time, we do not plan to incur any research and development costs for our NutreStore® and AminoPure® products.

General and Administrative Expenses

G eneral and administrative expenses consist principally of salaries and related costs, including share-based compensation, for personnel in executive, finance, business development, information technology, marketing and legal functions. Other general and administrative expenses include facility costs, patent filing costs and professional fees and expenses for legal, consulting, auditing and tax services. Inflation has not had a material impact on our general and administrative expenses over the past two years.

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

I nventories 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 nine months ended September 30, 2016 and 2015 were from one vendor.

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Results of Operations

Three months ended September 30, 2016 and 2015

Net Losses . Net losses increased by $2.8 million, or 82%, to $6.3 million from $3.5 million for the three months ended September 30, 2016 and 2015, respectively. The increase in losses is primarily a result of increased other expenses and operating expenses, in each case as discussed below. As of September 30, 2016, we had an accumulated deficit of approximately $98.6 million. Losses, partially offset by revenue from commercialized products, will continue as we advance our sickle cell treatment toward potential regulatory approval and 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 . Net revenues decreased by $15,000, or 20%, to $62,000 from $77,000 for the three months ended September 30, 2016 and 2015. Combined revenues from our AminoPure® L-glutamine nutritional supplement product and our NutreStore® L-glutamine powder for oral solution for treatment of SBS remained at the same level during these periods.

Cost of Goods Sold . Cost of goods sold decreased by $16,000, or 43%, to $21,000 from $37,000 for the three months ended September 30, 2016 and 2015. Cost of goods sold includes costs for raw material, packaging, testing, shipping and costs related to scrapped inventory. All of the raw material purchased during the three months ended September 30, 2016 and 2015 was from one vendor. Cost of goods sold decreased due to increased sales in direct sales, which has a higher gross profit margin, associated with our AminoPure® L-glutamine nutritional supplement product.

Research and Development Expenses . Research and development expenses decreased by $0.1 million, or 21%, to $0.4 million from $0.5 million for the three months ended September 30, 2016 and 2015. This decrease was primarily due to a decrease in our preparation of NDA submission activities. We expect our research and development costs to remain at the same level in the rest of 2016 to support our NDA post-submission activities, work on marketing approvals outside the US and potentially future clinical trial activity.

Selling Expenses . Selling expenses increased by $23,000, or 28%, from $81,000 to $104,000 for the three months ended September 30, 2016 and 2015. Selling expenses includes the costs for distribution, promotion, travel, tradeshows and exhibits related to NutreStore® and AminoPure® as well as the marketing and branding expenses for our pharmaceutical grade L-glutamine treatment for SCD. The increase was due to an increase in the branding cost of our pharmaceutical grade L-glutamine treatment for SCD as we approach the potential regulatory approval and commercialization.

General and Administrative Expenses. General and administrative expenses increased by $0.5 million, or 22%, to $2.7 million from $2.2 million for the three months ended September 30, 2016 and 2015. General and administrative expenses include share-based compensation expenses, professional fees, office rent and payroll expenses. This increase was primarily due to an increase of $0.5 million in share-based compensation expense due to issuance of stock options and a $0.1 million increase in office rent expenses, partially offset by a $0.1 million decrease in professional fees.

Other Income and Expense . Total other expense increased by $2.4 million, or 313%, to $3.2 million expense for the three months ended September 30, 2016, compared to $0.8 million expense for the three months ended September 30, 2015. The increase was primarily due to a $1.4 million increase in convertible note inducement expense, a $0.7 million increase in interest costs as a result of increased debt and a $0.3 million increase in loss on debt settlement from promissory note conversion into Company common stock.

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 candidate(s) continues and the post-submission activities of an NDA for pharmaceutical grade L-glutamine treatment for SCD; and

· to build a sales and marketing team before we receive regulatory approval of a product candidate in anticipation of commercial launch.

Nine months ended September 30, 2016 and 2015

Net Losses . Net losses increased by $5.5 million, or 66%, to $13.9 million from $8.4 million for the nine months ended September 30, 2016 and 2015, respectively. The increase in losses is primarily a result of increased other expenses, partially offset by decreased operating expenses, in each case as discussed below. As of September 30, 2016, we had an accumulated deficit of approximately $98.6 million. Losses, partially offset by revenue from commercialized products, will continue as we advance our sickle cell treatment toward potential regulatory approval and 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.

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Revenues, Net . Net revenues remained approximately the same at $0.3 million for the nine months ended September 30, 2016 and 2015. Combined revenues from our AminoPure® L-glutamine nutritional supplement product and our NutreStore® L-glutamine powder for oral solution for treatment of SBS remained at the same level during these periods.

Cost of Goods Sold . Cost of goods sold decreased by $18,000, or 12%, to $132,000 from $150,000 for the nine months ended September 30, 2016 and 2015. Cost of goods sold includes costs for raw material, packaging, testing, shipping and costs related to scrapped inventory. All of the raw material purchased during the nine months ended September 30, 2016 and 2015 was from one vendor.

Research and Development Expenses . Research and development expenses increased by $0.4 million, or 44%, to $1.4 million from $1.0 million for the nine months ended September 30, 2016 and 2015. This increase was primarily due to an increase in our preparation of NDA submission activities. We expect our research and development costs to continue through the rest of 2016 to support our NDA post-submission activities, work on marketing approvals outside the US and potentially future clinical trial activity.

Selling Expenses . Selling expenses decreased by $44,000, or 13%, to $282,000 from $326,000 for the nine months ended September 30, 2016 and 2015 due primarily to a decrease in marketing, advertising and travel expenses. Selling expenses includes the costs for distribution, promotion, travel, tradeshows and exhibits related to NutreStore® and AminoPure® as well as the marketing and branding expenses for our pharmaceutical grade L-glutamine treatment for SCD.

General and Administrative Expenses. General and administrative expenses decreased by $0.2 million, or 2%, to $7.2 million from $7.4 million for the nine months ended September 30, 2016 and 2015. General and administrative expenses include share-based compensation expenses, professional fees, office rent, and payroll expenses. This decrease was primarily due to a decrease of $1.2 million for share-based compensation due to expiration of certain options, partially offset by increases of $0.2 million for professional fees, $0.2 million for fund raising expenses including due diligence and account management fees, $0.1 million for office rent expenses and $0.1 million for insurance expenses.

Other Income and Expense . Total other expense increased by $5.3 million, or 2,487%, to $5.1 million expense for the nine months ended September 30, 2016, compared to $0.2 million income for the nine months ended September 30, 2015, primarily due to absences of gain on derecognition of accounts payable and settlement of litigation of $0.4 million and change in fair value of liability classified warrants of $0.7 million, a negative change in fair value of warrant derivative liabilities of $1.4 million, $1.4 million of convertible note inducement expense, an increase in interest costs of $1.0 million as a result of increased debt and an increase in loss on debt settlement of $0.3 million for the promissory note conversion into Company common stock.

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

· to build a sales and marketing team before we receive regulatory approval of a product candidate in anticipation of commercial launch.

Liquidity and Capital Resources

B ased on our losses to date, anticipated future revenue and operating expenses, debt repayment obligations, investment commitment and cash and cash equivalents balance of $6.6 million as of September 30, 2016, we do not have sufficient operating capital for our business without raising additional capital. We incurred losses of $13.8 million for the nine months ended September 30, 2016 and had an accumulated deficit at September 30, 2016 of $98.6 million. We anticipate that we will continue to incur net losses for the foreseeable future as we incur expenses for post-submission activities of the NDA, the commercialization of our pharmaceutical grade L-glutamine treatment of SCD, research costs for the corneal cell sheets using CAOMECS technology and the expansion of corporate infrastructure, including costs associated with being a public reporting company and additional expenses that may be associated with pursuing a possible initial public offering. We have previously relied on unregistered equity offerings, debt financings and loans, including loans from related parties. As part of this effort, we have received various loans from officers, stockholders and other investors as discussed below. As of September 30, 2016, we had outstanding notes payable in an aggregate principal amount of $19.2 million, consisting of $9.5 million of non-convertible promissory notes and $9.7 million of convertible notes. Of the $19.2 million aggregate principal amount of notes outstanding as of September 30, 2016, approximately $17.0 million is either due on demand or will become due and payable within the next twelve months. 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 the development in the United States of CAOMECS-based cell sheet technology.

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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. In addition, we may seek to raise additional funds through collaborations with other companies or financing from other sources and a possible initial public offering. 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.

In addition, we currently estimate that we will need an additional $0.9 million for our post-NDA submission expenses with the FDA for our pharmaceutical grade L-glutamine treatment for SCD. Our cash burn rate for the first nine months ending September 30, 2016 was approximately $2.2 million per month.

As discussed in our Annual Report under the heading “Risk Factors—Risks Related to Development of our Product Candidates,” if the FDA does not accept for filing our NDA for our pharmaceutical grade L-glutamine treatment 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 or confirmatory study, 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 confirmatory study is unnecessary for filing or approval, or to design and conduct a second Phase 3 clinical trial or confirmatory study, or both. If we conduct a second Phase 3 clinical trial or confirmatory study prior to the approval of our NDA, it is possible that the results of that trial will be less favorable than the results of our completed Phase 3 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.

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 and expenses incurred during 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® currently are 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 registered or unregistered 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 nine months ended September 30, 2016 and during the year ended December 31, 2015, we borrowed $5.2 million and $7.3 million, respectively, pursuant to convertible notes and non-convertible promissory notes, of which $0.8 million and $2.2 million, respectively, have been issued to related parties. As of September 30, 2016 and December 31, 2015, the aggregate principal amounts outstanding under convertible notes and non-convertible promissory notes totaled $19.2 million and $19.1 million, respectively. The convertible notes and non-convertible promissory notes bear interest at rates ranging from 6% to 11% and are unsecured, except for a 2011 convertible note in the principal amount of $0.3 million and two of 2016 non-convertible promissory notes in an aggregate principal amount of $1.3 million. The net proceeds of the loans were used for working capital, and general corporate purposes.

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The table below lists our outstanding notes payable as of September 30, 2016 and December 31, 2015 and the material terms of our outstanding borrowings:

Year Issued	Interest Rate Range	Term of Notes	Conversion Price	Principal Outstanding September 30, 2016		Discount Amount September 30, 2016		Carrying Amount September 30, 2016		Shares Underlying Notes September 30, 2016	Principal Outstanding December 31, 2015		Discount Amount December 31, 2015		Carrying Amount December 31, 2015		Shares Underlying Notes December 31, 2015
Notes payable
2013	10%	Due on demand	—	$	988,100	$	—	$	988,100	—	$	830,000	$	—	$	830,000	—
2014	11%	Due on demand - 2 years	—	613,615		—		613,615		—	1,446,950		—		1,446,950		—
2015	11%	Due on demand - 2 years	—	2,547,386		—		2,547,386		—	2,379,799		—		2,379,799		—
2016	10 - 11%	Due on demand - 12.5 months	—	2,378,335		306,694		2,071,641		—	—		—		—		—
				$	6,527,436	$	306,694	$	6,220,742	—	$	4,656,749	$	—	$	4,656,749	—

		Current		$	6,527,436	$	306,694	$	6,220,742	—	$	4,656,749	$	—	$	4,656,749	—
		Non-current		$	—	$	—	$	—	—	$	—	$	—	$	—	—
Notes payable - related party
2012	8% - 10%	Due on demand	—	$	626,730	$	—	$	626,730	—	$	626,730	$	—	$	626,730	—
2013	8%	Due on demand	—	50,000		—		50,000		—	50,000		—		50,000		—
2014	11%	Due on demand - 2 years	—	—		—		—		—	240,308		—		240,308		—
2015	10% - 11%	Due on demand	—	1,415,888		—		1,415,888		—	1,849,266		—		1,849,266		—
2016	10% - 11%	Due on demand	—	860,510				860,510		—	—		—		—		—
				$	2,953,128	$	—	$	2,953,128	—	$	2,766,304	$	—	$	2,766,304	—

		Current		$	2,953,128	$	—	$	2,953,128	—	$	2,766,304	$	—	$	2,766,304	—
		Non-current		$	—	$	—	$	—	—	$	—	$	—	$	—	—
Convertible notes payable
2010	6%	5 years	$3.05	$	2,000	$	—	$	2,000	656	$	2,000	$	—	$	2,000	656
2011	10%	5 years	$3.05	300,000		—		300,000		98,285	500,000		—		500,000		163,809
2013	10%	2 years	$3.60	—		—		—		—	525,257		—		525,257		185,553
2014	10%	Due on demand - 2 years	$3.05-$3.60	2,728,357		14,665		2,713,692		908,478	4,378,563		353,700		4,024,863		1,120,470
2015	10%	2 years	$3.50-$3.60	2,904,800		196,276		2,708,524		869,724	5,681,166		526,066		5,155,100		1,517,996
2016	10%	Due on demand - 2 years	$3.50-$4.50	3,334,508		633,620		2,700,888		856,257	—		—		—		—
				$	9,269,665	$	844,561	$	8,425,104	2,733,400	$	11,086,986	$	879,766	$	10,207,220	2,988,484

		Current		$	7,225,761	$	592,656	$	6,633,105	2,209,995	$	6,358,698	$	358,351	$	6,000,347	1,762,849
		Non-current		$	2,043,904	$	251,905	$	1,791,999	523,405	$	4,728,288	$	521,415	$	4,206,873	1,225,635
Convertible notes payable - related party
2012	10%	Due on demand	$3.30	$	254,000	$	—	$	254,000	92,592	$	298,000	$	—	$	298,000	108,505
2015	10%	2 years	$4.50	220,000		—		220,000		53,230	320,000		—		320,000		72,354
				$	474,000	$	—	$	474,000	145,822	$	618,000	$	—	$	618,000	180,859

		Current		$	254,000	$	—	$	254,000	92,592	$	298,000	$	—	$	298,000	108,505
		Non-current		$	220,000	$	—	$	220,000	53,230	$	320,000	$	—	$	320,000	72,354
		Grand Total		$	19,224,229	$	1,151,255	$	18,072,974	2,879,222	$	19,128,039	$	879,766	$	18,248,273	3,169,343

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Cash flows for the nine months ended September 30, 2016 and September 30, 2015

Net cash used in operating activities

Net cash flows used in operating activities increased by $14.4 million, or 263%, to $19.8 million from $5.4 million for the nine months ended September 30, 2016 and 2015, respectively. This increase was primarily due to a $5.5 million increase in net loss partially offset by a $13.1 million decrease of working capital, a $4.2 million increase in the non-cash adjustments to net loss. The increase in non-cash adjustments to net loss was primarily attributable to the following: $2.1 million for the change in the fair value of liability classified warrants and warrant derivative liabilities, $1.4 million for convertible note inducement expense, $0.8 million increase in interest expense accrued from discount of notes, $0.4 million for gain on derecognition of accounts payable and settlement of litigation, $0.4 million for a foreign exchange adjustment on notes payable and $0.3 million for loss on debt settlement for promissory note conversion into Company common stock, partially offset by a $0.7 million decrease in share-based compensation and a $0.2 million decrease in depreciation and amortization expense.

Net cash used in investing activities

Net cash flows used in investing activities decreased by $2,000, or 52%, to $2,000 from $4,000 for the nine months ended September 30, 2016 and 2015, respectively. Net cash used in investing activities includes purchase of property and equipment.

Net cash from financing activities

Net cash flows from financing activities increased by $20.5 million, or 380%, to $25.9 million from $5.4 million for the nine months ended September 30, 2016 and 2015, respectively, as a result of an $22.1 million increase in proceeds of issuance of common stocks, partially offset by a $0.6 million decrease in proceeds from issuance of convertible and non-convertible promissory notes, a $0.9 million increase in repayment of convertible and non-convertible promissory notes and a $0.1 million decrease in proceeds from exercise of warrants.

Off-Balance-Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

M anagement’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), on the basis that the Company will continue as a going concern. Due to the uncertainty of the Company’s ability to meet its current operating 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 consolidated interim financial statements do not include any adjustments that might result from the outcome of these uncertainties. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the present circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report for our critical accounting policies. There have been no material changes in any of our critical accounting policies during the nine months ended September 30, 2016.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

N ot required for a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

D isclosure 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.

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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, 2015 described below, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not effective. Our management is working at remediating the material weakness in our internal controls over financial reporting. However, we have not yet completed a full annual accounting cycle since December 31, 2015 to fully validate the remediation of the material weakness in our internal controls and the effectiveness of the Company’s disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2016 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Material Weakness and Plan of Remediation

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there 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.

We conducted an evaluation pursuant to Rule 13a-15 of the Exchange Act of the effectiveness of the design and operation of our internal control over financial reporting as of December 31, 2015. This evaluation was conducted under the supervision of our management, including our Chief Executive Officer, Chief Business Officer, Sr. Vice President of Finance, and our Interim Chief Financial Officer. Based on that evaluation, we have concluded that our internal control over financial reporting was not effective as of December 31, 2015 principally due to the continuance of a material weakness in our internal control over financial reporting, initially identified in our evaluations of the effectiveness of our internal control over financial reporting as of December 31, 2014 and 2013, with respect to the application of GAAP on certain complex transactions as well as maintaining effective controls over the completeness and accuracy of financial reporting for complex or unusual transactions. Further, as of mid-August 2015 through December 2015 we did not have a sufficient number of independent directors to constitute an audit committee.

Our management and Board of Directors are committed to the remediation of the material weakness, as well as the continued improvement of our overall system of internal control over financial reporting. We are in the process of implementing measures to remediate the underlying causes of the control deficiency that gave rise to the material weakness, which primarily include engaging additional and supplemental internal and external resources with the technical expertise in GAAP, as well as to implement new policies and procedures to provide more effective controls to track, process, analyze, and consolidate the financial data and reports.

We believe these measures will remediate the control deficiencies that gave rise to a material weakness. As we continue to evaluate and work to remediate these control deficiencies, we may determine that additional remedial measures are required.

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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, 2015, filed with the SEC on May 20, 2016 (the “Annual Report”), for a prior discussion of our legal proceedings.

Item 1A. Risk Factors

Please refer to the risk factors disclosed in the “Risk Factors” section of the Annual Report.

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

On August 23, 2016, the Company issued a convertible note to a third party in the principal amount of $500,000, which note bears interest at 10% per annum and matures in six months with an option on the part of the holder to renew for up to two years. The principal amount plus any unpaid accrued interest due under the convertible note is convertible into shares of Company common stock at $3.50 per share.

In August and September 2016, the Company issued convertible notes to third parties totaling $1,221,600 in aggregate principal amount, which notes bear interest at 10% per annum starting from October 1, 2016 and mature on the respective one-year anniversary dates of the notes. If the Company completes the listing on the OTC market, the principal amount of the notes will automatically convert into shares of Company common stock at a fixed conversion price of $4.50 (subject to appropriate adjustment in the event of any stock splits, stock dividends, recapitalizations and similar transactions with respect to the capital stock of the Company). Within 30 days of such closing, all accrued and unpaid interest on the notes, if any, will be paid to the holder in cash. 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 Company common stock at a conversion price of $4.50 per share.

In connection with certain secured loans, on September 30, 2016 the Company issued the lender an additional warrant for the purchase of 18,750 shares of our common stock as these loans have been outstanding for more than 30 days during the 90-day period ending September 30, 2016 per the terms of the loans. These warrants may be exercised through a cashless exercise feature.

On August 26, 2016, the Company offered all of its note holders an opportunity to convert all or a portion of the principal amount of and accrued interest on their notes into shares of Company common stock at a price of $3.50 per share. Pursuant to the offer, 19 note holders elected to convert a total of $4,007,598 principal amount of and $260,124 of accrued interest on their notes into an aggregate of 1,219,350 shares of our common stock.

On September 27, 2016, a holder of options exercised its right to purchase 50,000 shares of common stock using a cashless exercise feature. As a result of this cashless exercise, we issued 14,000 shares of our common stock to the holder of these options and withheld issuing 36,000 shares of our common stock in satisfaction of the exercise price under the option.

All such securities noted above were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) or Regulation D under the Securities Act or, in the case of refinancings and conversions, upon the exemption from registration provided by Section 3(a)(9) of the Securities Act. These securities qualified for exemption under Section 4(a)(2) of the Securities Act or Regulation D because the issuances did not involve a “public offering.” The issuances were not a public offering based upon the following factors: (i) a limited number of securities were issued to a limited number of investors; (ii) there was no public solicitation; (iii) each investor was an “accredited investor” as such term is defined by Rule 501 under the Securities Act; and (iv) the investment intent of the investors. 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†		Convertible Promissory Note issued by the registrant to The Shitabata Family Trust

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

4.3†		Warrant to Purchase Shares of Common Stock issued by the registrant to Yutaka Niihara

10.1†		Promissory Note dated July 5, 2016 issued by the registrant to Shuk Young Wong

10.2†		Letter of Agreement, dated September 12, 2016, among the registrant, KPM Tech Co. Ltd. and Hanil Vacuum Co., Ltd.

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

† Filed herewith.

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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EMMAUS LIFE SCIENCES, INC.

SIGNATURES

P ursuant 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: November 14, 2016	By:	/s/ Yutaka Niihara
	Name:	Yutaka Niihara, M.D., M.P.H.
	Its:	Chief Executive Officer
		(principal executive officer and duly authorized officer)


	By:	/s/ Willis C. Lee
	Name:	Willis C. Lee
	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

(6 Months Up To 2 Years)

Principal Amount:	$500,000		Loan Date:	08/23/2016

Currency:	US Dollar		Term:	6 Months up to 2 years_

Interest Rate:	10%		Loan Due Date:	02/23/2017

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

Conversion Price per Share:		$3.50

Lender: The Shitabata Family Trust

FOR VALUE RECEIVED, Emmaus Life Sciences, Inc., a Delaware corporation, located at 21250 Hawthorne Blvd., Suite 800, Torrance, CA 90503 (“Borrower”) agrees to pay to 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) and Conversion : The entire unpaid Principal Amount and any accrued interest shall become immediately due and payable upon the stated Loan Due Date. Lender has an option to renew this Note with the same term, up to a total of two years. Simple interest at the stated Interest Rate will accrue on the outstanding Principal Amount commencing on the Loan Date of this Note.

At any time during the term of this Note, Lender shall by giving written Notice of Conversion to the Borrower in the form attached hereto as Exhibit A, have the right to convert some or all of the unpaid Principal Amount, including up to all the interest accrued and unpaid thereon, into shares of Common Stock of Borrower (the “Shares”) at the stated Conversion Price Per Share (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 each conversion of this Note, Borrower shall deliver to Lender one or more original stock certificates representing the shares of common stock issued upon such conversion.

2. Prepayment : This Note may be prepaid in whole or in part without premium or penalty upon ten days advance written notice by Borrower to Lender, provided that Lender shall be permitted to exercise its conversion rights pursuant to Section 1 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 of this Note may designate in writing in the future.

4. 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.

5. 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.

6. 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.

7. Complete Note: This Note is the complete and exclusive statement of agreement of the parties with respect to matters in this Note. This Note replaces and supersedes all prior written or oral agreements or statements by and among the parties with respect to the matters covered by it. No representation, statement, condition or warranty not contained in this Note is binding on the parties.

8. Transfer of the Note: This Note may be transferred, in whole or in part, at any time or from time to time, by the Lender. 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. If this Note is to be transferred, the Lender shall surrender this Note to the Borrower, 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. This Note may not be transferred by the Borrower, by operation of law or otherwise, without the prior written consent of the Lender.

9. 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.

10 . 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.

11 . 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.

12 . Insufficient Authorized Shares: The Borrower shall take all reasonable best action necessary to increase the Borrower’s authorized shares of common stock to an amount sufficient to allow Borrower to reserve the Required Reserve Amount for the Note.

13 . 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.

14 . 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.

Signed Under Penalty of Perjury, this 23rd day of August , 2016

Emmaus Life Sciences, Inc.

/s/ Yutaka Niihara
By: Yutaka Niihara, M.D., M.P.H., Chairman and CEO

ATTACHMENT 1

Lender’s Name:	The Shitabata Family Trust

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:

Exhibit 4.2

EMMAUS LIFE SCIENCES , INC.

Convertible Promissory Note

Principal Amount:		Loan Date:

Currency:	U.S. Dollars	Term:		One Year

Interest Rate:	10% beginning October 1, 2016		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 21250 Hawthorne Blvd., Suite 800, Torrance, CA 90503 (“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 October 1, 2016.

2. Prepayment : This Note may be prepaid in whole or in part at any time without premium or penalty upon ten days advance written notice by Borrower to Lender. 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 listing of shares of common stock of the Borrower (“Common Stock”) on the OTC market, (i) the entire outstanding Principal Amount of this Note shall automatically be converted into the number of shares of Common Stock determined by dividing (x) the outstanding Principal Amount of this Note by a fixed share price of $4.50 (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 thirty days of such closing, all accrued and unpaid interest on the Note, if any, will be paid to the Holder in cash.

The Borrower shall notify the holder of this Note at least seven (7) calendar days prior to the completion of the listing on the OTC market. At the time of the listing completion, 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 listing on the OTC market, 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.

(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 : If the mandatory conversion is not executed, by 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 $4.50 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. 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:

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.

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	Annual Interest Rate		Date of loan	Term of Loan	Loan Due Date	Principal Loan Amount		Interest Payment Period	Conversion Price
Yoshiko Takemoto	10.0	%	08/25/2016	1 year	08/25/2017	$	100,000	Paid upon loan due date	$	4.50
Masaru & Setsuko Fujiwara	10.0	%	08/29/2016	1 year	08/29/2017	$	10,035	Paid upon loan due date	$	4.50
Suk Sun Young	10.0	%	09/01/2016	1 year	09/01/2017	$	30,105	Paid upon loan due date	$	4.50
Takeo Imahata	10.0	%	09/02/2016	1 year	09/02/2017	$	31,500	Paid upon loan due date	$	4.50
Aiko Yamagata	10.0	%	09/06/2016	1 year	09/06/2017	$	45,000	Paid upon loan due date	$	4.50
Hiromi Saito	10.0	%	09/07/2016	1 year	09/07/2017	$	171,000	Paid upon loan due date	$	4.50
Keiko Kawazoe	10.0	%	09/07/2016	1 year	09/07/2017	$	10,035	Paid upon loan due date	$	4.50
Kazushige Nishimura	10.0	%	09/08/2016	1 year	09/08/2017	$	20,070	Paid upon loan due date	$	4.50
Fumitoshi Ishikawa	10.0	%	09/08/2016	1 year	09/08/2017	$	20,070	Paid upon loan due date	$	4.50
Toshiaki & Akemi Kato	10.0	%	09/08/2016	1 year	09/08/2017	$	250,470	Paid upon loan due date	$	4.50
Junko Yonemochi	10.0	%	09/09/2016	1 year	09/09/2017	$	126,000	Paid upon loan due date	$	4.50
Masuyo Eida	10.0	%	09/09/2016	1 year	09/09/2017	$	19,418	Paid upon loan due date	$	4.50
Hiroomi Nakamura	10.0	%	09/12/2016	1 year	09/12/2017	$	40,500	Paid upon loan due date	$	4.50
Keiko Furukawa	10.0	%	09/13/2016	1 year	09/13/2017	$	10,035	Paid upon loan due date	$	4.50
Masayuki Chibana	10.0	%	09/13/2016	1 year	09/13/2017	$	40,001	Paid upon loan due date	$	4.50
Kaoru Maeda	10.0	%	09/13/2016	1 year	09/13/2017	$	39,218	Paid upon loan due date	$	4.50
Masako Hasegawa	10.0	%	09/13/2016	1 year	09/13/2017	$	20,007	Paid upon loan due date	$	4.50
Kumiko Shiragami	10.0	%	09/13/2016	1 year	09/13/2017	$	10,035	Paid upon loan due date	$	4.50
Yasuyuki Suzuki	10.0	%	09/14/2016	1 year	09/14/2017	$	46,080	Paid upon loan due date	$	4.50
Tetsuo Kinjo	10.0	%	09/14/2016	1 year	09/14/2017	$	10,035	Paid upon loan due date	$	4.50
Nobuaki Yonemochi	10.0	%	09/14/2016	1 year	09/14/2017	$	99,000	Paid upon loan due date	$	4.50
Masao Fujita	10.0	%	09/14/2016	1 year	09/14/2017	$	13,500	Paid upon loan due date	$	4.50
Mihoko Ota	10.0	%	09/15/2016	1 year	09/15/2017	$	19,418	Paid upon loan due date	$	4.50
M’s Support, Ltd	10.0	%	09/16/2016	1 year	09/16/2017	$	10,035	Paid upon loan due date	$	4.50
Lidia Maeshiro	10.0	%	09/30/2016	1 year	09/30/2017	$	10,035	Paid upon loan due date	$	4.50
Ken Ohishi, Jr	10.0	%	09/30/2016	1 year	09/30/2017	$	20,000	Paid upon loan due date	$	4.50

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 10, 2016	May 9, 2021

EMMAUS LIFE SCIENCES, INC.

WARRANT TO PURCHASE SHARES OF

COMMON STOCK

FOR VALUE RECEIVED, Yutaka Niihara (“ Holder ”), is entitled to purchase, subject to the provisions of this Warrant (“ Warrant ”), from Emmaus Life Sciences, Inc., a Delaware corporation (“ Company ”), 1,300,000 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 $5.00 (the “ Exercise Price ”) in the amounts and during the exercise periods specified herein. 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. Amounts and Exercise Periods.

(a) Holder may exercise this Warrant, in whole or in part, as to 650,000 Warrant Shares from January 1, 2018 to May 9, 2021 (the “ 2018 Warrant Shares ”). In no event may this Warrant with respect to the 2018 Warrant Shares be exercised after the date in this Section 1(a).

(b) Holder may exercise this Warrant, in whole or in part, as to the remaining 650,000 Warrant Shares from January 1, 2019 to May 9, 2021 (the “ 2019 Warrant Shares ”). In no event may this Warrant with respect to the 2019 Warrant Shares be exercised after the date in this Section 1(b).

2. Method of Exercise.

(a) Subject to compliance with the terms and conditions of this Warrant and applicable securities laws, this Warrant may be exercised, from time to time in accordance with Section 1 hereof 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, 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 of Common Stock 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 2.

3. 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.

4. 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.”

5. 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.

6. 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.

7. Termination of Warrant.

(a) General . Subject to the first paragraph of this Warrant and Section 1, if the Holder’s service to the Company shall terminate for any reason, including retirement, other than (i) Cause (as defined below), (ii) death or (iii) disability, this Warrant, to the extent that it is exercisable at the time of such termination, shall remain exercisable for the 90 day period following such termination, but in no event shall the Holder be permitted to purchase any of the 2018 Warrant Shares after May 9, 2021 or any of the 2019 Warrant Shares after May 9, 2021. This Warrant to the extent that it remains unexercisable as of the date of such a termination shall be terminated at the time of such termination.

(b) Death or Disability . In the event that the Holder’s service to the Company shall terminate on account of the death or disability of the Holder, Holder (or the Holder’s legal representatives, heirs or legatees) shall be entitled to purchase those number of Warrant Shares that the Holder was entitled to purchase upon exercise of this Warrant prior to such termination of the Holder’s service, for the one year period

following such termination, but in no event shall the Holder (or the Holder’s legal representatives, heirs or legatees) be permitted to purchase any of the 2018 Warrant Shares after May 9, 2021 or any of the 2019 Warrant Shares after May 9, 2021. The portion of this Warrant that remains unexercisable as of the date of a termination due to death or disability shall be terminated at the time of such termination.

(c) Cause . If Holder is removed from service as a director of the Company by action of the Board of Directors or stockholders of the Company for Cause, this Warrant shall terminate at the commencement of business on the date of such removal. For purposes of this Warrant “Cause” shall mean (i) the Holder’s willful and intentional repeated failure or refusal, continuing after notice that specifically identifies the breach(es) complained of, to perform substantially his material duties, responsibilities and obligations (other than a failure resulting from Holder’s incapacity due to physical or mental illness or other reasons beyond the control of Holder), and which failure or refusal results in demonstrable direct and material injury to the Company; (ii) any willful and intentional act or failure to act involving fraud, misrepresentation, theft, embezzlement, dishonesty or moral turpitude (collectively, “ Fraud ”), that results in demonstrable direct and material injury to the Company; and (iii) conviction of (or a plea of nolo contendere to) an offense that is a felony in the jurisdiction involved or which is a misdemeanor in the jurisdiction involved but which involves Fraud. For purposes of determining whether Cause exists, no act, or failure to act, on the Holder’s part shall be deemed “willful” or “intentional” unless done, or omitted to be done, by such Holder in bad faith, and without reasonable belief that his action or omission was in the best interests of the Company. If, subsequent to the Holder’s voluntary termination or involuntary termination without Cause, it is discovered that the Holder’s service to the Company could have been terminated for Cause, the Company may deem such Holder’s service to the Company to have been terminated for Cause. The Holder’s termination for Cause shall be effective as of the date of the occurrence of the event giving rise to Cause, regardless of when the determination of Cause is made.

8. 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.

9. 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.

10. No Right to Continued Service or Directorship. Nothing contained in this Warrant will confer upon the Holder any right to become or remain in the service of the Company or any subsidiary, nor limit or affect in any manner the right of the Company or any subsidiary to terminate the service of Holder.

11. 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.

12. 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, except for provisions that apply to the regulation of the Company as a Delaware corporation, in which case Delaware General Corporate Law shall

apply. 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.

13. 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.

14. 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.

15. 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.

21250 Hawthorne Blvd, Suite 800

Torrance, CA 90503

Attn: Chief Financial Officer

Fax: (310) 214-0075

16. 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.

17. 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.

18. 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:	/s/ Lan Tran
	Name:	Lan Tran, M.P.H.
	Title:	Co-President and Chief Administrative Officer

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 10.1

EMMAUS LIFE SCIENCES , INC.

Promissory Note

Principal Amount:	US$100,000.00	Loan Date:	07/05/2016

Currency:	US dollar	Term:	Due on demand

Interest Rate:	11.0%	Loan Due Date:	Due on demand

Interest Payment Period:	Annually

Lender:	Wong, Shuk Yung

2. Prepayment : This Note may be prepaid in whole or in part at any time after six months of the Loan Date without premium or penalty. All prepayments shall first be applied to interest, and then to principal payments.

4 . 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.

5 . 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.

6 . 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.

8 . Transfer of the Note: This Note may be transferred, in whole or in part, at any time or from time to time, by the Lender. 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. If this Note is to be transferred, the Lender shall surrender this Note to the Borrower, 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. This Note may not be transferred by the Borrower, by operation of law or otherwise, without the prior written consent of the Lender.

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 . 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.

12 . 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 12th day of September , 2016

Emmaus Life Sciences, Inc.

/s/ Willis C. Lee
By:	Willis C. Lee, COO

ATTACHMENT 1

Lender’s Name:	Wong, Shuk Yung

Lender’s Address:

Exhibit 10.2

Letter of Agreement

본 협약서는 엠마우스생명과학 (Emmaus Life Sciences Inc. (USA)) 의 ‘ 주식매입 ’ 과 ‘ 상호협력사업 투자 및 추진 ’ 을 위해 대한민국에 소재한 1) 케이피엠테크 ( 이하 ‘Party A’ 라 한다 ) , 2) 한일진공 ( 이하 ‘Party B’ 라 한다 ) , 미국 캘리포이나주에 소재한 3) Emmaus Life Sciences Inc. USA( 이하 ‘Party C’ 라 한다 ) 간에 2016 년 9 월 12 일 체결되었다 .

THIS LETTER of AGREEMENT (the “Agreement”) is made as of the 12th day of September 2016, by and among ‘KPM Tech Co., Ltd’ (hereafter ‘Party A’) in Ansan South Korea, ‘Hanil Vacuum Coater Co., Ltd’(hereafter ‘Party B’) in Incheon South Korea and ‘Emmaus Life Sciences Inc.’( hereafter ‘Party C’) in State of California USA, together hereafter ‘Parties’ to proceed the ‘Purchase of Company Stock’ of Emmaus Life Sciences Inc. (‘Party C’) and ‘mutual investment and business cooperation’.

‘Party A’ 와 Party B’, 그리고 ‘Party C’ 는 ‘Emmaus Life Sciences Inc. USA’ 에 대한 투자금액 , 조건 , 방식 , 일정 등 기본내용을 본 협약서를 통해 아래와 같이 합의한다 .

‘Party A’, ‘Party B’ and ‘Party C’ agree to specify the basic outline of the amount, terms, way and milestone of investment on ‘Emmaus Life Sciences Inc. (‘Party C’)’ in this ‘Agreement’ like the followings

제 1 조 [ 목 적 ]

본 협약서는 제약 부문 협력사업 추진 및 상호 투자 진행을 위해 ‘Party A’ 와 ‘Party B’ 가 ‘Party C’ 의 주식매입을 위한 기본 조건 , 일정 등을 정의하기 위해 체결되었다 .

Article 1. Purpose

This Agreement is established to define the basic terms and milestones of purchase of ‘Party C’’s company stocks by ‘Party A’ and ‘Party B’ for the purpose of cooperation and mutual investment in pharmaceutical business area among the ‘Parties’.

제 2 조 [ 투자규모 / 조건 / 일정 ]

Article 2. Investment Amount/Condition/Milestones

가 . 투자 방식

‘Party A’ 와 ‘Party B’ 는 ‘Party C’ 가 발행하는 신주를 인수키로 하고 , 양사가 본 협약서에서 합의한 일정에 따라 단계적으로 투자하기로 한다 .

A. Way of Investment

‘Party A’ and ‘Party B’ shall purchase the newly issued common stocks of ‘Party C’, and ‘Parties’ agree that ‘Party A’ and ‘Party B’ will execute the investment to ‘Party C’ according to agreed milestone in the ‘Agreement’.

나 . 투자 규모

‘Party A’ 는 ‘Party C’ 에 다음과 같이 투자하기로 한다 .

· 투자금액 : USD 1,700 만달러

‘Pary A’ 는 ‘ 라 ’ 의 일정에 따라 , 총 투자금액 1,700 만달러 中 500 만달러를 에스크로한다 .

‘Party B’ 는 ‘Party C’ 에 다음과 같이 투자하기로 한다 .

· 투자금액 : USD 300 만달러

‘Party A’, ‘Party B’ 그리고 ‘Party C’ 간 미팅 및 합의에 따라 2 차 투자금액을 결정하기로 한다 .

B. Investment Amount

‘Party A’ shall invest the following amount to ‘Party C’.

- Investing Amount : USD 17 million

‘Party A’ shall escrow USD 5 million among above USD 17 million according to investment schedule specified at ‘D’ of this Article.

‘Party B’ shall invest the following amount to ‘Party C’.

- Investing Amount : USD 3 million

‘Party A’, ‘Party B’ and ‘Party C’ agree to determine 2 nd round investment through mutual meeting and agreement among the ‘Parties’.

다 . 투자 조건

1) 신주 인수가격 : USD 4.5 / 1 주

2) 예상 신주 발행 수

‘Party A’ 와 ‘Party B’ 가 투자대비 보유할 지분율은 2016.09.06 기준 ‘Party C’ 의 총 발행주식 (2,900 만주 ) 와 ‘Party A’ 와 ‘Party B’ 의 신주 주식수를 합한 총 주식수 대비 보유비율로 한다 .

· ‘Party A’: 3,777,778 주 (USD 1,700 만달러 기준 / 예상 지분율 : 11.29%)

· ‘Party B’: 666,667 주 (USD 300 만달러 기준 / 예상 지분율 : 1.99%)

C. Investment Condition

1) Purchase price of newly issued common stock of ‘Party C’ : USD 4.5 / 1 common stock

2) Expected newly issued common stocks

Based on the date of September 06, 2016, Stock ratio owned by ‘Party A’ and ‘Party B’ shall be calculated in the comparison of sum of total stock amount of ‘Party C’(29 million stocks) and newly issued stocks to ‘Party A’ and ‘Party B’.

· ‘Party A’: 3,777,778 stocks (USD 17 million / Expected stock ratio : 11.29%)

· ‘Party B’: 666,667 stocks (USD 3 million / Expected stock ratio : 1.99%)

라 . 추진 방식 및 일정

‘Party A’, ‘Party B’ 는 다음의 일정으로 ‘Party C’ 에 투자를 진행하기로 한다 . 단 , 당사자간의 서면합의에 따라 투자 방식 및 추진 일정을 변경할 수 있다 .

D. Procedures and Milestones

‘Party A’ and ‘Party B’ shall invest to ‘Party C’ according to following milestone, however the way of investment and its milestone can be changed through written agreement among the ‘Parties’.

2016 년 9 월 12 일까지 ( 확정 기일 )

‘Party A’ 는 USD 500 만 달러를 각 당사자들이 상호합의 한 국내 법무법인의 은행계좌에 에스크로 하기로 한다 .

till 12 th day of September (Due Date)

‘Party A’ shall transfer USD 5 million to bank account of law firm in Korea which shall be mutually agreed and designated by the ‘Parties’ and this bank account shall be escrowed.

2016 년 9 월 30 일까지 ( 잠정적 기일 . 각국 인허가 및 계약조건이 완료된다는 가정 )

Till 30 th day of September (Provisional Date)

This date is specified in the condition that the approval by related Authorities in each nation and terms of Agreement are fulfilled.)

1) ‘Party C’ 는 주식청약신청서를 ‘Party A’ 와 ‘Party B’ 에게 각 발송한다 .

‘Party C’ shall provide the stock offer sheet(stock subscription statement) for ‘Party A’ and ‘Party B’.

2) ‘Party A’ 와 ‘Party B’ 는 주식청약신청서를 수령 후 해외증권취득계약을 위한 ‘ 증권취득신고서 ’ 를 한국은행에 제출한다 .

‘Party A’ and ‘Party B’ shall submit ‘Stock Acquisition Registration Statement ‘ to Bank of Korea to establish the agreement of foreign stock purchase and acquisition after receiving the stock offer sheet (stock subscription statement).

3) ‘Party A’ 는 한국은행으로부터 외환거래에 대한 승인을 받는 즉시 에스크로를 해제하고 ‘Party C’ 의 지정계좌로 투자금액의 송금을 완료한다 . ( 한국은행 경유 )

‘Party A’ shall immediately clear the escrowed account of above law firm as soon as ‘Party A’ receives the approval of foreign currency transaction by Bank of Korea, and ‘Party A’ shall complete the transfer of investing money to bank account designated by ‘Party C’.(via the Bank of Korea)

4) ‘Party B’ 는 한국은행으로부터 외환거래에 대한 승인을 받는 즉시 ‘Party C’ 의 지정계좌로 투자금액의 송금을 완료한다 . ( 한국은행 경유 )

‘Party B’ shall complete the transfer of investing money to bank account designated by ‘Party C’ as soon as ‘Party B’ receives the approval of foreign currency transaction by Bank of Korea.(via

the Bank of Korea)

5) ‘Party C’ 는 ‘Party A’ 와 ‘Party B’ 로부터 투자금액을 수령한 후 2016 년 10 월 11 일까지

A. ‘Party A’ 의 ‘1,300 만 달러 ’ 규모의 제 3 자 배정 유상증자에 참여하여 ‘Party A’ 의 2 대 주주가 되도록 한다 .

B. ‘Party B’ 의 ‘100 만 달러 ’ 규모의 제 3 자 배정 유상증자에 참여하기로 한다 .

Till 11 th day of October, ‘Party C’ shall commit the investment like the followings after ‘Party C’ receives the investment from ‘Party A’ and ‘Party B’;

a) ‘Party C’ shall participate in ‘Party A’’s capital increase with allotment to 3 rd party with the amount of USD 13 million, and ‘Party C’ shall be 2 nd major shareholder of ‘Party A’.

b) ‘Party C’ shall participate in ‘Party B’’s capital increase with allotment to 3 rd party with the amount of USD 1 million .

6) ‘Party A’ 및 ‘Party B’ 의 임원 및 실무자는 ‘Party C’ 를 방문하여 구체적인 조건을 협의하기로 한다 . 단 , ‘Party C’ 가 ‘Party A’, ‘Party B’ 를 대상으로 하는 배정신주발행 , 주주배정 , SEC 등록 완료 ’ 등 세부일정은 별도 서면으로 통보하기로 한다 .

Directors and personnel of ‘Party A’ and ‘Party B’ shall visit ‘Party C’ and shall discuss the specific terms and conditions of investment. However, ‘Party C’ shall notice to ‘Party A’ and ‘Party B’ regarding the specific timeline of ‘new common stock issuance’, ‘shareholder allotment’, ‘completion date of registration to SEC of USA’ with written document.

7) ‘Party A’ 및 ‘Party B’ 의 임원 및 실무자가 ‘Party C’ 를 방문할 경우 , 해당 기간 중 2 차 투자금액 및 상호협력분야 등을 확정하기로 한다 .

In case Directors and personnel of ‘Party A’ and ‘Party B’ visit ‘Party C’, the ‘Parties’ agree that they shall determine the amount of 2 nd round investment and mutual cooperative business area.

2016 년 11 월 말까지 (‘Party C’ 가 ‘Party A’ 에 대한 투자일로부터 45 일 이후 )

‘Party C’ 가 투자한 ‘Party A’ 의 주주총회 개최

‘Emmaus’ 임원의 ‘Party A’ 의 등기임원 등기 / 사업목적추가 등

Till late of November in 2016(after 45 days from the date of ‘Party C’’s investment to ‘Party A’)

‘Party A’ shall hold the general shareholder meeting for ‘Party C’’s investment

Director of ‘Party C’ shall participate in the Board of Directors of ‘Party A’ and its registration shall be completed, and the business purpose shall be added to Corporate Article and Certified Copy of the Register of ‘Party A’.

2016 년 12 월 말까지

유상증자 등 2 차 투자금 준비 및 집행

Till late of December in 2016

Preparation of 2 nd round investing money for new capital increase with consideration and its completion.

제 3 조 [ 기 간 ]

본 협약은 참여자간 서명한 날로부터 효력이 발생하며 기간은 1 년으로 한다 .

Article 3. Duration

This ‘Agreement’ shall be effective and executed from the date of signature among the ‘Parties’ and the term of this ‘Agreement’ shall be for a fixed period of 1 year.

제 4 조 [ 양도 금지 ]

본 협약서는 참여자간의 서면동의 없이 계약 , 계약상 권한 및 의무들을 타인에게 양도할 수 없다 .

Article 4. No Assignment

This ‘Agreement’ cannot be assigned to any 3 rd party, and any rights and obligations of this ‘Agreement’ cannot be transferred to any 3 rd party without written agreement among the Parties.

제 5 조 [ 우선 조항 ]

본 협약서는 참여자들이 ‘ 제 2 조 라 . 추진방식 및 일정 ’ 에서 규정한 바 ,

1) ‘Party A’ 는 2016 년 9 월 12 일까지 투자금액 500 만달러를 각사가 모두 동의한 법무법인의 계좌로 입금을 완료하고 , 2016 년 9 월 30 일까지 투자금액 1,200 만달러를 ‘Party C’ 가 지정한 계좌로 입금을 완료한다 .

2) ‘Party B’ 는 2016 년 9 월 30 일까지 투자금액 300 만달러를 ‘Party C’ 가 지정한 계좌로 입금을 완료 한다 .

3) ( 본 협약서 참여자들은 ) or ‘Party C’ 는 미국 OTC 시장 상장 전일까지 ‘Party C’ 가 지정한 계좌로 입금된 투자금에 대해서만 1 주당 4.5 달러의 조건으로 워런트 (Warrant) 가 유효하다고 합의한다 .

Article 5. Special Conditions

The ‘Parties’ agree to follow the terms specified at ‘D. Procedures and Milestones in Article 2’ like the followings;

1) ‘Party A’ shall complete the transfer USD 5 million to bank account of law firm designated by the ‘Parties’ till September 12, 2016, and ‘Party A’ shall complete the transfer USD 12 million to the bank account designated by ‘Party C’ till September 30, 2016.

2) ‘Party B’ shall complete the transfer USD 3 million to the bank account designated by ‘Party C’ till September 30, 2016.

3) The ‘Parties’ or ‘Party C’ agree that the transferred money to the bank account designated by ‘Party C’ shall have the ‘Warrant( USD 4.5 / 1 common stock of ‘Party C’)’ till the previous day of ‘Party C’’s IPO to OTC market.

제 6 조 [ 손해 배상 ]

본 계약을 위반한 당사자는 상대방에게 발생한 모든 손해를 배상하여야 한다 .

Article 6. Compensation for Damages

Any party who disobey this ‘Agreement’ shall compensate the other party for all damages due to the breach of ‘this Agreement’.

제 7 조 [ 분쟁 해결 ]

본 협약서는 한글본과 영문본으로 작성되며 , 한글본을 기준으로 한다 .

본 협약과 관련하여 발생하는 당사자간 분쟁 , 주장 , 이견 , 차이들은 우선 당사자간의 회의를 통해 조정키로 한다 .

Article 7. Disputes and Arbitration

This Agreement has been written in the Korean and English language, however in case of error or disagreement the Korean language version shall have priority over English language version.

본 협약서는 3 부로 작성하며 , 본 협약의 체결을 증명하기 위하여 대표자들이 각 회사의 법인인감도장을 날인하고 인감증명을 첨부키로 한다 .

In the witness of the above, this Agreement shall be prepared in 3 original copies, and with the evidences above the Parties are to effectuate ‘Agreement’ with the incorporation seal by the authorized representatives in the name of each Party’s Corporate and representative’s name, and attaching the Certificate of Incorporation Seal.

2016 년 9 월 12 일 (September 12, 2016)

‘Party A’

회사명 : 주식회사 케이피엠테크 (Company Name : KPM Tech Co., Ltd)

주 소 : 경기도 안산시 단원구 산단로 163 번길 122( 원시동 )

(Address : 122 Sandan-ro163beon-gil, Danwon-gu, Ansan-si, Gyeonggi-do, South Korea

대표이사 :

이 청 균 ( 인 )

(CEO : Mr. Chung Kyoon Lee)

‘Party B’

회사명 : 주식회사 한일진공 (Company Name : Hanil Vacuum Co., Ltd)

주 소 : 인천광역시 남동구 남동동로 183 번길 30( 고잔동 643-11)

(Address : 30 Namdongdong-ro 183beon-gil, Namdong-gu, Incheon-si, South Korea)

대표이사 :

이 청 균 ( 인 )

(CEO : Mr. Chung Kyoon Lee)

‘Party C’

회사명 : Emmaus Life Sciences Inc. USA

주 소 : 21250 Hawthorne Blvd. Suite 800 Torrance, CA 90503

대표이사 :

/s/ Yutaka Niihara ( 인 )

(CEO: Dr. Yutaka Niihara)

부회장 :

/s/ Willis C. Lee ( 인 )

(Vice Chairman: Mr. Willis Lee)

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: November 14, 2016

/s/ Yutaka Niihara
Yutaka Niihara, M.D., M.P.H.
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, Willis C. Lee, 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: November 14, 2016

/s/ Willis C. Lee
Willis C. Lee
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 September 30, 2016, 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., M.P.H.
Chief Executive Officer
(Principal Executive Officer)
November 14, 2016


/s/ Willis C. Lee
Willis C. Lee
Chief Financial Officer
(Principal Financial and Accounting Officer)
November 14, 2016