UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 20172018

or

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 Number: 000-55136

Nemus Bioscience, Inc.

(Exact name of registrant as specified in its charter)

Nevada		45-0692882
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

600 Anton Blvd., Suite 1100, Costa Mesa,130 North Marina Drive, Long Beach, CA 9262690803

(Address of principal executive offices) (Zip Code)

(949) 396-0330

(Registrant'sRegistrant’s telephone number, including area code)

(Former name, or former address and former fiscal year, if changed since last report)

Indicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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. x Yes     o No

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). x Yes     o No

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)		Smaller reporting company	x
		Emerging growth company	x

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

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

As of November 14, 2017,13, 2018, there were 30,970,663133,870,080 shares of the issuer'sissuer’s $0.001 par value common stock issued and outstanding.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements:		4
	Condensed Consolidated Balance Sheets as of September 30, 20172018 (Unaudited) and December 31, 20162017		4
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 20172018 and 20162017 (Unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 20172018 and 20162017 (Unaudited)		6
	Notes to the Unaudited Condensed Consolidated Financial Statements		77-25
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2426
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		2832
Item 4.	Controls and Procedures		2832
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		2933
Item 1A.	Risk Factors		2933
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2933
Item 3.	Defaults Upon Senior Securities		2933
Item 4.	Mine Safety Disclosures		2933
Item 5.	Other Information		2933
Item 6.	Exhibits		3034

2

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FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q that are not descriptions of historical facts are forward-looking statements that are based on management'smanagement’s current expectations and assumptions and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially negatively affected. In some cases, you can identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should," "will," "would"“anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth in the section titled "Risk Factors"“Risk Factors” including, without limitation, risks relating to:

	·	our need for substantial additional funds in order to continue our operations, and the uncertainty of whether we will be able to obtain the funding we need;
	·	the results of our research and development activities, including uncertainties relating to the discovery of potential product candidates and the preclinical and clinical testing of our product candidates;
	·	the early stage of our product candidates presently under development;
	·	our ability to obtain and, if obtained, maintain regulatory approval of our current product candidates, and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate;
	·	our ability to retain or hire key scientific or management personnel;
	·	our ability to protect our intellectual property rights that are valuable to our business, including patent and other intellectual property rights;
	·	our dependence on the University of Mississippi, third-party manufacturers, suppliers, research organizations, testing laboratories and other potential collaborators;
	·	our ability to develop successful sales and marketing capabilities in the future as needed;
	·	the size and growth of the potential markets for any of our approved product candidates, and the rate and degree of market acceptance of any of our approved product candidates;
	·	competition in our industry; and
	·	regulatory developments in the United States and foreign countries.

We operate in a rapidly-changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

3

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NEMUS BIOSCIENCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
		(Unaudited)
		September 30,				December 31,
		2017				2016
Current assets
Cash and cash equivalents		$	41,978			$	64,820
Restricted cash			4,428				37,500
Prepaid expenses			253,481				170,155
Other current assets			6,183				7,014
Total current assets			306,070				279,489
Property and equipment, net			2,645				9,584
Other assets
Deposits and other assets			34,290				34,290
Total other assets			34,290				34,290
Total assets		$	343,005			$	323,363
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
		(Unaudited)
		September 30,				December 31,
		2017				2016
Current liabilities
Accounts payable		$	990,123			$	274,650
Accrued payroll and related expenses			445,498				167,337
Accrued license and patent reimbursement fees			80,893				-
Accrued expenses			115,492				98,700
Provision for conversion of Series B preferred stock			24,428				118,821
Deferred rent			-				2,450
Total current liabilities			1,656,434				661,958
Noncurrent liabilities
Series B warrants			791,813				1,112,308
Total noncurrent liabilities			791,813				1,112,308
Total liabilities			2,448,247				1,774,266
Commitments and contingencies
(Note 3)
Redeemable Convertible Series B Preferred Stock, $0.001 par value, 20
million shares authorized; 3,291.375 issued and outstanding as of September 30,
2017 and 4,031 issued and outstanding as of December 31, 2016, net of
$403,171 of issuance costs; $3.3 million liquidation preference as of
September 30, 2017			955,045				1,169,663
Convertible Series C Preferred Stock, $0.001 par value, 20 million
shares authorized; none issued and outstanding as of September 30, 2017,
386 issued and outstanding as of December 31, 2016			-				293,669
Convertible Series D Preferred Stock, $0.001 par value, 20 million
shares authorized; 200 issued and outstanding as of September 30, 2017,
net of $30,557 of issuance costs; $0.2 million liquidation preference
as of September 30, 2017			169,446				-
Stockholders’ deficit
Common stock, $0.001 par value; 236 million shares authorized;
30,670,663 issued and outstanding as of September 30, 2017
and 21,563,163 issued and outstanding as of December 31, 2016			30,671				21,563
Additional paid-in-capital			9,159,372				7,163,064
Warrants			982,911				837,711
Accumulated deficit			(13,402,687	)			(10,936,573	)
Total stockholders’ deficit			(3,229,733	)			(2,914,235	)
Total liabilities and stockholders’ deficit		$	343,005			$	323,363

		September 30,				December 31,
		2018				2017
ASSETS		(Unaudited)				(Note 1)
Current assets
Cash and cash equivalents		$	1,058,438			$	259,955
Restricted cash			4,502				4,428
Prepaid expenses			96,522				291,428
Other current assets			2,609				-
Total current assets			1,162,071				555,811
Property and equipment, net			3,810				1,407
Total assets		$	1,165,881			$	557,218
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable		$	45,503			$	100,921
Accounts payable - related party			15,000				-
Accrued payroll and related expenses			48,438				54,512
Accrued expenses			101,493				143,826
Warrant liabilities, short-term			11,110,567				-
Provision for conversion of Series B preferred stock			-				6,715
Convertible debt			-				235,000
Provision for conversion of convertible debt			-				265,000
Total current liabilities			11,321,001				805,974
Noncurrent liabilities
Series B warrant liability, long-term			-				551,322
Total liabilities			11,321,001				1,357,296
Commitments and contingencies
(Note 7)
Preferred stock, $0.001 par value; 20,000,000 shares authorized Redeemable Convertible Series B Preferred Stock net of $347,091 issuance costs (0 and 2,833.55 issued and outstanding as of September 30, 2018 and December 31, 2017)			-				822,201
Convertible Series D Preferred Stock, net of $30,557 issuance costs (0 and 200 issued and outstanding as of September 30, 2018 and December 31, 2017)			-				169,446
Convertible Series F Preferred Stock, net of $118,855 issuance costs (0 and 2,000 issued and outstanding as of September 30, 2018 and December 31, 2017)			-				1,777,781
Stockholders’ deficit
Common stock, $0.001 par value; 236 million shares authorized; 133,445,080 issued and outstanding as of September 30, 2018 and 33,622,829 issued and outstanding as of December 31, 2017			133,445				33,623
Additional paid-in-capital			15,731,537				9,444,831
Warrants			982,911				982,911
Accumulated deficit			(27,003,013	)			(14,030,871	)
Total stockholders’ deficit			(10,155,120	)			(3,569,506	)
Total liabilities and stockholders’ deficit		$	1,165,881			$	557,218

See accompanying notes to the unaudited condensed consolidated financial statements.

4

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NEMUS BIOSCIENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2017				2016				2017				2016
Operating expenses
Research and development		$	88,550			$	80,525			$	241,302			$	675,840
General and administrative			673,080				775,623				2,631,408				2,882,682
Total operating expenses			761,630				856,148				2,872,710				3,558,522
Operating loss			(761,630	)			(856,148	)			(2,872,710	)			(3,558,522	)
Other expense (income)
Change in fair value of warrant liability			(281,497	)			27,665				(320,495	)			(1,584,969	)
Change in fair value of conversion rights
of Series B preferred stock			-				61,058				(88,532	)			82,872
Net Loss before income taxes			(480,133	)			(944,871	)			(2,463,683	)			(2,056,425	)
Provision for income taxes			-				400				2,431				1,200
Net loss		$	(480,133	)		$	(945,271	)		$	(2,466,114	)		$	(2,057,625	)
Less: Preferred deemed dividend			-				-				711,000				-
Net loss applicable to common shareholders		$	(480,133	)		$	(945,271	)		$	(3,177,114	)		$	(2,057,625	)
Basic earnings per common share		$	(0.02	)		$	(0.05	)		$	(0.12	)		$	(0.10	)
Diluted earnings per common share		$	(0.02	)		$	(0.05	)		$	(0.12	)		$	(0.10	)
Weighted average shares of common stock outstanding
Basic			30,191,744				19,913,163				27,068,308				19,910,426
Diluted			30,191,744				19,913,163				27,068,308				19,910,426

NEMUS BIOSCIENCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2018				2017				2018				2017
Operating expenses
Research and development		$	67,291			$	88,550			$	92,291			$	241,302
General and administrative			978,329				673,080				3,284,880				2,631,408
Total operating expenses			1,045,620				761,630				3,377,171				2,872,710
Operating loss			(1,045,620	)			(761,630	)			(3,377,171	)			(2,872,710	)
Other expense (income)
Change in fair value of warrant liabilities			1,050,729				(281,497	)			1,468,477				(320,495	)
Fair value of warrant liability in excess of proceeds			-				-				7,174,634				-
Change in fair value of conversion rights of Series B preferred stock			-				-				-				(88,532	)
Change in fair value of conversion rights of convertible debt			-				-				185,000				-
Financing transaction costs			-				-				137,192				-
Loss on extinguishment of convertible debt			-				-				590,392				-
Amortization of convertible debt discount			-				-				34,608				-
Interest expense			-				-				3,100				-
Interest income			-				-				(74	)			-
Loss before income taxes			(2,096,349	)			(480,133	)			(12,970,500	)			(2,463,683	)
Provision for income taxes			-				-				1,642				2,431
Net loss and comprehensive loss		$	(2,096,349	)		$	(480,133	)		$	(12,972,142	)		$	(2,466,114	)
Less: Preferred deemed dividend			-				-				-				711,000
Net loss applicable to common shareholders		$	(2,096,349	)		$	(480,133	)		$	(12,972,142	)		$	(3,177,114	)
Basic earnings per common share		$	(0.02	)		$	(0.02	)		$	(0.11	)		$	(0.12	)
Diluted earnings per common share		$	(0.02	)		$	(0.02	)		$	(0.11	)		$	(0.12	)
Weighted average shares of common stock outstanding
Basic			131,445,057				30,191,744				117,434,563				27,068,308
Diluted			131,445,057				30,191,744				117,434,563				27,068,308

See accompanying notes to the unaudited condensed consolidated financial statements.

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NEMUS BIOSCIENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
		Nine Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2017				2016
Cash flows from operating activities:
Net loss		$	(2,466,114	)		$	(2,057,625	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation			6,801				11,505
Loss on disposal of fixed assets			138				-
Stock-based compensation expense			456,507				544,823
Amortization of warrants and stock issued for services (1)			20,000				51,539
Change in fair value of conversion rights of Series B preferred stock			(88,532	)			82,872
Change in fair value of warrant liabilities			(320,495	)			(1,584,969	)
Common stock issued for services			187,550				-
Changes in assets and liabilities:
Restricted cash			33,072				-
Prepaid expenses (1)			(73,326	)			(119,361	)
Other current assets			831				7,500
Accounts payable			715,473				262,016
Accrued payroll and related expenses			278,161				25,534
Accrued license and patent reimbursement fees			80,893				(17,500	)
Accrued expenses and other liabilities			14,342				(96,497	)
Net cash used in operating activities			(1,154,699	)			(2,890,163	)
Cash flows from investing activities:
Purchases of property and equipment			-				(11,116	)
Net cash used in investing activities			-				(11,116	)
Cash flows from financing activities:
Proceeds from Series D preferred stock issuance, net of $183,343 issuance costs			1,131,857				-
Net cash provided by financing activities			1,131,857				-
Net (decrease) in cash and cash equivalents			(22,842	)			(2,901,279	)
Cash and cash equivalents, beginning of period			64,820				3,221,209
Cash and cash equivalents, end of period		$	41,978			$	319,930
Supplemental disclosures of cash-flow information:
Cash paid during the period for:
Interest		$	-			$	-
Income taxes		$	1,631			$	-

NEMUS BIOSCIENCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Nine Months Ended September 30,
		2018				2017
Cash flows from operating activities:
Net loss		$	(12,972,142	)		$	(2,466,114	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			1,178				6,801
Loss on disposal of assets			804				138
Stock-based compensation expense			484,720				456,507
Amortization of warrants and stock issued for services (1)			-				20,000
Change in fair value of conversion rights of Series B preferred stock			-				(88,532	)
Change in fair value of conversion rights of convertible debt			185,000				-
Change in fair value of warrant liabilities			1,468,477				(320,495	)
Fair value of warrant liability in excess of proceeds			7,174,634				-
Loss on extinguishment of convertible debt			590,392				-
Amortization of convertible debt discount			34,608				-
Common stock issued for services			-				187,550
Changes in assets and liabilities:
Prepaid expenses (1)			194,906				(73,326	)
Other current assets			(2,609	)			831
Accounts payable			(55,418	)			715,473
Accounts payable to related party			15,000				-
Accrued payroll and related expenses			(6,074	)			278,161
Accrued license and patent reimbursement fees			-				80,893
Accrued expenses and other liabilities			(42,333	)			14,342
Net cash used in operating activities			(2,928,857	)			(1,187,771	)
Cash flows from investing activities:
Purchases of property and equipment			(4,385	)			-
Net cash used in investing activities			(4,385	)			-
Cash flows from financing activities:
Proceeds from Series D preferred stock issuance, net of $183,343 issuance costs (2)			-				1,131,857
Proceeds from common stock issuance, net of $16,901 issuance costs			3,233,099				-
Proceeds from warrant exercises			98,700				-
Proceeds from convertible debt issuance			400,000				-
Net cash provided by financing activities			3,731,799				1,131,857
Net increase (decrease) in cash, cash equivalents and restricted cash			798,557				(55,914	)
Cash, cash equivalents and restricted cash, beginning of period			264,383				102,320
Cash, cash equivalents and restricted cash, end of period		$	1,062,940			$	46,406
Supplemental disclosures of cash-flow information:
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents			1,058,438				41,978
Restricted cash			4,502				4,428
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows		$	1,062,940			$	46,406
Cash paid during the period for:
Interest		$	-			$	-
Income taxes		$	1,642			$	1,631
Supplemental disclosures of non-cash financing activities:
Conversion of outstanding preferred stock into common stock		$	1,947,227			$	-
Conversion of outstanding preferred stock subject to redemption into common stock			828,916				-
Fair value of common stock issued in extinguishment of convertible debt			1,710,000				-
Fair value of warrants issued in connection with Emerald financing			10,424,634				-
Reclassification of warrant liabilities due to exercise of warrants			1,333,866				-

Supplemental disclosures of non-cash financing and investing activities:

(1)	During the nine months ended September 30, 2016,2017, warrants issued to service providers for consulting services were valued at $22,245 and were recorded as a Prepaid expensesexpense and are being amortized over the service period.
	During the nine months ended September 30, 2017, warrants issued to service providers for consulting services were valued at $30,000 and were recorded as Prepaid expenses and are being amortized over the service period.
(2)	During the nine months ended September 30, 2017 preferred deemed dividends of $536,000 waswere recognized on Series D Preferred Stock and $175,000 on Series C Preferred Stock.

See accompanying notes to the unaudited condensed consolidated financial statements.

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NEMUS BIOSCIENCE, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three and nine month periods ended September 30, 2017 and 2016 is unaudited)(UNAUDITED)

1. Nature of Operations and Business Activities and Summary of Significant Accounting Policies

Nature of Operations and Basis of Presentation

Nemus Bioscience, Inc. is a biopharmaceutical company that plans to research, develop and commercialize therapeutics derived from cannabinoids through a partnershipnumber of license agreements with the University of Mississippi. The University of Mississippi ("UM"(“UM”). UM is the only entity federally permitted and licensed to cultivate cannabis for research purposes.purposes in the United States. Unless otherwise specified, references in these Notes to the Unaudited Condensed Consolidated Financial Statements to the "Company," "we"“Company,” “we” or "our"“our” refer to Nemus Bioscience, Inc., a Nevada corporation formerly known as Load Guard Logistics, Inc. ("LGL"(“LGL”), together with its wholly-owned subsidiary, Nemus, a California corporation ("Nemus"(“Nemus”). Nemus became the wholly owned subsidiary of Nemus Bioscience, Inc. through the Merger (as defined below).

Nemus Bioscience, Inc. (formerly LGL) was incorporated in Nevada on March 16, 2011. The wholly-owned subsidiary of Nemus Bioscience, Inc., Nemus, was incorporated in California on July 17, 2012. Our headquarters are located in Costa Mesa,Long Beach, California.

In January 2018, the Company entered into a securities purchase agreement with Emerald Health Sciences, Inc. (“Emerald”) discussed in Note 4 below, pursuant to which Emerald purchased a majority of the equity interest in Nemus resulting in a change in control. As part of the transaction, the Company’s Board members, with the exception of Dr. Brian Murphy, the Company’s CEO/CMO, tendered their resignation and Emerald appointed two nominees to the new Board. Later, in October 2018 the Board appointed Dr. Avtar Dhillon, the Chairman, Chief Executive Officer and President of Emerald, as the Executive Chairman of the Company’s Board of Directors (Note 8).

As of September 30, 2017,2018, the Company has devoted substantially all of its efforts to securing product licenses, raising capital,carrying out research and development, building infrastructure and raising capital. The Company has not yet realized revenue from its planned principal operations.

Useoperations and is a number of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires managementyears from potentially being able to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. Such estimates and judgments are utilized for stock-based compensation expense and equity securities with embedded features as discussed below.do so.

Liquidity and Going Concern

The Company has incurred operating losses and negative cash flows from operations since our inception. Asinception and as of September 30, 2017, we2018, had cashan accumulated deficit of $27,003,013, a stockholders’ deficit of $10,155,120 and cash equivalentsa working capital deficit of $41,978. In November 2017, the Company entered into a Series F Preferred Stock Financing (see Note 8) for gross proceeds totaling $2,000,000.$10,158,930. The Company anticipates that it will continue to incur net losses into the foreseeable future in order to advance and develop a number of potential drug candidates into preclinical and clinical development activities and support its corporate infrastructure which includes the costs associated with being a public company. WithoutAs of September 30, 2018, the Company had cash and cash equivalents of $1,058,438, as compared to $259,955 of cash and cash equivalents as of December 31, 2017. This increase is primarily attributable to the proceeds of $3,250,000 from the Emerald Financing (defined below) along with $400,000 of the $900,000 convertible bridge loan from Emerald. However, without additional funding management believes that the Company will not have sufficient funds to meet its obligations within one year afterfrom the date the consolidated financial statements wereCondensed Consolidated Financial Statements are issued. These conditions give rise to substantial doubt as to the Company'sCompany’s ability to continue as a going concern. The accompanying consolidated financial statementsCondensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company’s continued existence is dependent on its ability to raise additional sufficient funding to cover operating expenses and to invest in operations and development activities. On October 5, 2018, the Company entered into a Multi-Draw Credit Agreement (the “Credit Agreement”) with Emerald (Note 9). Under the Credit Agreement the Company is able to draw down up to $20 million from time to time in principal amounts of at least $250,000. The drawdowns are subject to approval by the Company’s Board of Directors, which is controlled by the directors and principal executive officer of Emerald.

The Company plans to continue to pursue funding through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, government grants or other arrangements. However, the Company cannot provide any assurances that such additional funds will be available on reasonable terms, or at all. If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If the Company is unable to secure adequate additional funding, the Company may be forced to reduce spending, extend payment terms with suppliers, liquidate assets where possible, suspend or curtail planned programs or cease operations.

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2. Summary of Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements have been prepared on a consistent basis with the Company’s Audited Consolidated Financial Statements for the fiscal year ended December 31, 2017, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and therefore, omit certain information and footnote disclosure necessary to present the financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).

The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ended December 31, 2018 or any future periods. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on March 19, 2018, which includes a broader discussion of the Company’s business and the risks inherent therein.

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. Such estimates and judgments are utilized for stock-based compensation expense and equity securities or debt with embedded features.

Risks and Uncertainties

The Company’s operations are subject to a number of risks and uncertainties, including but not limited to, changes in the general economy, the size and growth of the potential markets for any of the Company’s product candidates, results of research and development activities, uncertainties surrounding regulatory developments in the Unites States and the Company’s ability to attract new funding. (see Note 7)

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and does not believe it is exposed to any significant credit risk.

Restricted Cash

A deposit of $4,502 and $4,428 as of September 30, 20172018 and $37,500 as of December 31, 20162017, respectively, was restricted from withdrawal and held by a bank in the form of a certificate of deposit. This certificate serves as collateral for payment of the Company'sCompany’s credit cards.

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Fair Value Measurements

Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)(the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, is used to measure fair value:

	Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities.
	Level 2:	Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
	Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of our financial instruments, with the exception of the warrant liabilities, including, cash and cash equivalents, prepaid expenses, accounts payable, and accrued expenses approximate their fair value due to the short maturities of these financial instruments. The derivative liabilities related to the warrants and Series B warrant liability and thepreferred conversion liability for the Series B Preferred Stock were valued utilizing Level 3 inputs primarily from a recent third party independent appraisal.inputs.

Property and Equipment, Net

As of September 30, 2017, propertyProperty and equipment, net, was $2,645, consistingconsists primarily of computers and equipment. Expenditures for additions, renewals and improvements will beare capitalized at cost. Depreciation will generally beis computed on a straight-line method based on the estimated useful life of the related assetsasset currently ranging from two to three years. Maintenance and repairs that do not extend the life of assets are charged to expense when incurred. When properties are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reported in the period the transaction takes place.

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount exceeds its estimated future undiscounted cash flows, an impairment charge is recognized by the amount by which the carrying amount exceeds the fair value of the asset.

The costs incurred for the rights to use licensed technologies in the research and development process, including licensing fees and milestone payments, will be charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where there is an identified alternative future use. No cost associated with the use of licensed technologies has been capitalized to date.

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Income Taxes

The Company accounts for deferred income tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities, and net operating loss carry forwards (the "NOLs"“NOLs”) and other tax credit carry forwards. These items are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. Any interest or penalties would be recorded in the Company'sCompany’s statement of operations in the period incurred.

The Company records a valuation allowance to reduce theagainst deferred income tax assets to the amountextent that it is more likely than not tothat some portion, or all of, the deferred tax assets will not be realized. In making such determinations, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. Due to the substantial doubt related to the Company’s ability to utilize its deferred tax assets, a valuation allowance for the full amount of the deferred tax assets has been established at September 30, 2018. As a result of this valuation allowance there are no income tax benefits reflected in the statementaccompanying Condensed Consolidated Statements of operationsOperations and Comprehensive Loss to offset pre-tax losses.

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The Company recognizes a tax benefit from uncertain tax positions when it is more likely than not (50%) that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. The Company has no material uncertain tax positions as of September 30, 2018.

Convertible Instruments

We accountThe Company accounts for hybrid contracts that featurewith embedded conversion optionsfeatures in accordance with generally accepted accounting principles in the United States.GAAP. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

Conversion optionsWhen determining short-term vs. long-term classification of derivative liabilities, the Company first evaluates the instruments’ exercise provisions. Generally, if a derivative is a liability and exercisable within one year, it will be classified as short-term. However, because of the unique provisions and circumstances that contain variable settlement features such as provisions to adjustmay impact the conversion price upon subsequent issuances of equityaccounting for derivative instruments, the Company carefully evaluates all factors that could potentially restrict the instrument from being exercised or equity linked securitiescreate a situation where exercise would be considered remote. The Company re-evaluates its derivative liabilities at exercise prices more favorable thaneach reporting period end and makes updates for any changes in facts and circumstances that featured in the hybrid contract generally result in their bifurcation from the host instrument.may impact classification.

We accountThe Company accounts for convertible instruments when we have determined that thewith embedded conversion options should not be bifurcated from their host instruments,features in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”). if it’s determined that the conversion feature should not be bifurcated from their host instruments. Under ASC 470-20, we record,the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differencesdifference between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. We accountThe Company accounts for convertible instruments (when we havein accordance with ASC 815, when it has determined that the embedded conversion optionsoption should be bifurcated from theirits host instruments) in accordance with ASC 815.instrument. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract is allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

WeThe Company also followfollows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation ofwhen evaluating the accounting for aits hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception (for example, a payable settled with a variable number of the issuer’s equity shares); (b) variations in something other than the fair value of the issuer’s equity shares (for example, a financial instrument indexed to the Standard and Poor'sPoor’s S&P 500 Index and settled with a variable number of the issuer’s equity shares); or (c) variations inversely related to changes in the fair value of the issuer’s equity shares (for example, a written put option that could be net share settled). Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with a re-measurement reported in interestother (income) expense in the accompanying Condensed Consolidated Statements of Operations.

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Operations and Comprehensive Loss.

Warrants Issued in Connection with Financings

WeThe Company generally accountaccounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that wethe Company may need to settle the warrants in cash. For warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement, we recordthe Company records the fair value of the warrants as a liability at each balance sheet date and recordrecords changes in fair value in other (income) expense in the Condensed Consolidated Statements of Operations.Operations and Comprehensive Loss.

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Revenue Recognition

The Company has not begun planned principal operations and has not generated any revenue since inception.

Research and Development Expenses and Licensed Technology

Research and development ("(“R&D"&D”) costs are expensed when incurred. These costs may consist of external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites, third-party manufacturing organizations and consultants; license fees; employee-related expenses, which include salaries, benefits and stock-based compensation for the personnel involved in our preclinical and clinical drug development activities; and facilities expense, depreciation and other allocated expenses; and equipment and laboratory supplies.

Costs incurred for the rights to use licensed technologies in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where there is an identified alternative future use. No cost associated with the use of licensed technologies has been capitalized to date.

Stock-Based Compensation Expenses

Stock-based compensation cost is estimated at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the vesting period. We useperiod with forfeitures accounted for as they occur. The Company uses the Black-Scholes Merton option pricing model for estimating the grant date fair value of stock options and warrants using the following assumptions:

	·	Exercise price - We determined the exercise price based on valuations using the best information available to management at the time of the valuations.
	·	Volatility - We estimate the stockStock price volatility is estimated based on industry peers who are also in the early development stage given the limited market data availablehistorical trading information in the public arena.marketplace for the Company’s own stock.
	·	Expected term - The expected term is based on a simplified method which defines the life as the weighted average of the contractual term of the options and warrants and the weighted-average vesting period for all open awards.each award.
	·	Risk-free rate - The risk-free interest rate for the expected term of the option or warrant is based on the average market rate on U.S. treasury securities in effect during the period in which the awards were granted.
	·	Dividends - The dividend yield assumption is based on our history and expectation of paying no dividends.dividends in the foreseeable future.

Stock-Based Compensation for Non-Employees

TheUpon the adoption of ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, during the quarter ended June 30, 2018, the Company also accounts for warrants and optionsstock-based compensation awards issued to non-employees under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 505-50,718-10, Equity - Equity Based Payments to Non-Employees,Compensation – Stock Compensation – Overall, usingand uses the Black-Scholes Merton option-pricing model. Themodel to determine the fair value of such awards. The Company values awards issued to non-employees on the grant date and has elected to estimate forfeitures as they occur and uses the simplified method to estimate the term of such awards. The Company recognizes stock-based compensation expense related to non-employee awards is periodically re-measuredon a straight-line basis over the vesting terms and at each quarter end.service period.

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Segment Information

FASB ASC No. 280, Segment Reporting, establishes standards for reporting information about reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group ("CODM"(“CODM”), in deciding how to allocate resources and in assessing performance. The CODM evaluates revenues and gross profits based on product lines and routes to market. Based on the early development stage of our operation, we operate in a single reportable segment.

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Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company is required to recordASC 220 requires that an entity records all components of comprehensive income (loss), net of their related tax effects, in the consolidatedits financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income (loss), net of their related tax effect, arrived at a comprehensive income (loss). For the three and nine months ended September 30, 20172018 and 2016,2017, the comprehensive income (loss) was equal to the net income (loss).loss.

Earnings per sharePer Share

The Company applies FASB ASC No. 260, Earnings per Share. Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding. Diluted earnings or loss per share would include the dilutive effect of outstanding warrants and awards granted to employees under stock-based compensation plans. Potentially dilutive shares of the Company'sCompany’s common stock are excluded from the calculation of diluted loss per common share because their effect would be anti-dilutive for the periods presented. For the three and nine month periods ended September 30, 2017, 3,291.375 shares of Series B Preferred Stock convertible into 13,165,500The following common shares at $0.25 per share, 200 shares of Series D Preferred Stock convertible into 800,000 common shares at $0.25 per share, warrants to purchase 11,649,500 common shares and stock options exercisable for 1,130,000 common shares outstanding at the end of the period areequivalents were excluded from the calculationcomputation of diluted net loss per share of common share. Forstock for the three and nine month periods ended September 30, 2016, 4,492 shares of Series B Preferred Stock convertible into 5,615,000 common shares at $0.80 per share, warrants to purchase 10,879,500 common shares and stock options exercisable for 1,142,500 common shares outstanding at the end of the period are excluded from the calculation of diluted loss per common share.presented because including them would have been anti-dilutive: