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, 2017March 31, 2020

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

NemusEmerald 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) 396-0330336-3443

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

_____________________________________________

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

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,filer, 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	¨ (Do not check if a smaller reporting company)x	Smaller reporting company	x
			Emerging growth company	xo

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. xo

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,May 7, 2020, there were 30,970,663183,207,747 shares of the issuer'sissuer’s $0.001 par value common stock issued and outstanding.

TABLE OF CONTENTS

PART I—FINANCIALI-FINANCIAL INFORMATION
Item 1.	Financial Statements:		4
	Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2020 (Unaudited) and December 31, 20162019		4
	Condensed Consolidated Statements of OperationsComprehensive Loss for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019 (Unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019 (Unaudited)		6
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2020 and 2019 (Unaudited)		7
	Notes to the Unaudited Condensed Consolidated Financial Statements		8	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		30	28
Item 4.	Controls and Procedures		30	28
PART II - OTHER INFORMATION
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		31	29
Item 1A.	Risk Factors		31	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		31	29
Item 3.	Defaults Upon Senior Securities		31	29
Item 4.	Mine Safety Disclosures		31	29
Item 5.	Other Information		31	29
Item 6.	Exhibits		32	30

2

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:

	·	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 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;
	·	competition in our industry; the duration and impact of the novel coronavirus (“COVID-19”) pandemic; 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, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, 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

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NEMUSEMERALD BIOSCIENCE, INC. AND SUBSIDIARYSUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

EMERALD BIOSCIENCE, INC. AND SUBSIDIARIES

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

EMERALD BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to the unauditedcondensed consolidated financial statements.

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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

See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents

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			$	-

Supplemental disclosures of non-cash financing and investing activities:

(1)	During the nine months ended September 30, 2016, warrants issued to service providers for consulting services were valued at $22,245 and were recorded as Prepaid expenses 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 was recognized on Series D Preferred Stock and $175,000 on Series C Preferred Stock.

See accompanying notes to the unaudited consolidated financial statements.

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NEMUSEMERALD BIOSCIENCE, INC. AND SUBSIDIARYSUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

Nature of Operations and Basis of Presentation

Emerald Bioscience, Inc. (the “Company”) was initially incorporated in Nevada on March 16, 2011 as Load Guard Logistics, Inc. On October 31, 2014, the Company closed a reverse merger transaction (the “Merger”) pursuant to which Nemus, a California corporation (“Nemus Sub”), became the Company’s wholly-owned subsidiary, and the Company assumed the operations of Nemus Sub. Nemus Sub was incorporated in the State of California on July 17, 2012. On November 3, 2014, the Company changed its name to Nemus Bioscience, Inc. by merging with Nemus Sub.

In January 2018, the Company entered into a securities purchase agreement with Emerald Health Sciences, Inc. (“Emerald Health Sciences”), pursuant to which Emerald Health Sciences purchased a majority of the equity interest in the Company, resulting in a change in control (the “Emerald Financing”). 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 Health Sciences appointed two new nominees to the Board. Later, in October 2018, the Board appointed Dr. Avtar Dhillon, the Chairman, Chief Executive Officer and President of Emerald Health Sciences, as the Executive Chairman of the Company’s Board.

On February 11, 2019, the Company’s Board of Directors (the “Board”) and majority stockholder unanimously approved an amendment to the Company’s articles of incorporation to change the name of the Company to Emerald Bioscience, Inc. Effective March 25, 2019, the Company filed a Certificate of Amendment with the Nevada Secretary of State changing the Company’s name to Emerald Bioscience, Inc.

In August 2019, the Company formed a new subsidiary in Australia, EMBI Australia Pty Ltd., an Australian proprietary limited company (“EMBI Australia”), in order to qualify for the Australian government’s research and development tax credit for research and development dollars spent in Australia. The primary purpose of EMBI Australia is to conduct clinical trials for the Company’s product candidates.

On December 17, 2019, Dr. Avtar Dhillon resigned as the Chairman of the Company’s Board and the Company entered into a Board Observer Agreement with Emerald Health Sciences. Refer to Note 7 - Related Party Matters for additional information.

The Company is a biopharmaceutical company located in Long Beach, California that plans to research, develop and commercialize therapeutics derived from cannabinoids through a partnershipseveral 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. Unless otherwise specified, referencespurposes in these Notes to the Unaudited Consolidated Financial Statements to the "Company," "we" or "our" refer to Nemus Bioscience, Inc., a Nevada corporation formerly known as Load Guard Logistics, Inc. ("LGL"), together with its wholly-owned subsidiary, Nemus, a California corporation ("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. Nemus was incorporated in California on July 17, 2012. Our headquarters are located in Costa Mesa, California.United States.

As of September 30, 2017,March 31, 2020, 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.operations and is a number of years from potentially being able to do so.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. 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 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.

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, weMarch 31, 2020, had cashan accumulated deficit of $34,514,942, a stockholders’ deficit of $1,702,897 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.$995,853. The Company anticipates that it will continue to incur netoperating losses and negative cash flows from operations 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 March 31, 2020, the Company had unrestricted cash in the amount of $563,864 as compared to $1,829,977 as of December 31, 2019. As of the date of this filing the Company’s unrestricted cash position has decreased further to $228,000 plus an additional $87,000 of restricted cash including $82,000 of remaining funds from a recently funded Paycheck Protection Program Promissory Note (the “PPP Note”) as discussed below.

As the Company approaches its first clinical trial, it expects to ramp up research and development spending and projects to increase cash used in operating activities. However, based on the Company’s current cash position and expected cash requirements, without obtaining additional funding during the second quarter of 2020, management believes that the Company will not have sufficientenough funds to meet its current obligations within one year after the date the consolidated financial statements were issued.or commence clinical studies. 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 sufficient additional sufficient funding to cover operating expenses and to invest in operationsresearch and development activities. On October 5, 2018, the Company entered into a Multi-Draw Credit Agreement (the “Credit Agreement”) with Emerald Health Sciences (See Note 4).

On April 29, 2020, the Company entered into an Amended and Restated Multi-Draw Credit Agreement (the “Amended Credit Agreement”) with Emerald Health Sciences, which amends and restates the Credit Agreement. The Amended Credit Agreement provides for a credit facility in the principal amount of up to $20,000,000, which includes, without limitation, the advances totaling $6,000,000 that were granted prior to the amendment and advances of at least $150,000 for each of May, June and July 2020.

Prior to the date of the Amended Credit Agreement, the Company had made three drawdowns in an aggregate principal amount of $6,000,000, and had issued to Emerald Health Sciences warrants to purchase an aggregate of 7,500,000 shares of common stock of the Company at an exercise price of $0.50 per share of Common Stock, in accordance with the terms of the Credit Agreement.

Immediately upon entering into the Amended Credit Agreement, the Company effected a fourth advance in the amount of $150,000. The advance bears an interest at 7% per annum and matures on October 5, 2022. The Company intends to use the net proceeds of the advance for general corporate and working capital purposes. The Lender has elected that the fourth advance will not be convertible into shares of Common Stock and gave notice to the Company that no warrant will be issued in connection with the advance at this time.

On April 22, 2020, the Company entered into a Paycheck Protection Program Promissory Note (the “PPP Note”) in the principal amount of $116,700 (the “PPP Loan”) from City National Bank (the “PPP Loan Lender”). The PPP Loan was obtained pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). Funds from the PPP Loan may only be used by the Company for payroll costs, costs for continuing group healthcare benefits, mortgage interest payments, rent, utility and interest on any other debt obligations that were incurred before February 15, 2020. All or a portion of principal of the PPP Loan may be forgiven by the SBA and the PPP Loan Lender upon application by the Company within 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements.

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.

Effective March 23, 2020, the Company approved a plan to defer up to 50% of the members of senior management’s compensation indefinitely. Certain members of senior management have accepted the plan and the aggregate deferred compensation, together with a retention bonus of 10% of the amount being deferred will be payable to senior management when decided by the Board. Effective March 30, 2020, the Directors of the Company entered into agreements to defer payment of 100% of their Board of Director and committee fees indefinitely. The accrued fees, plus a 10% bonus of such accrued fees will be payable to the members of the Board within 30 days of the Board of Directors determining that the Company has been sufficiently financed to make such payments. These measures, in conjunction with management’s plan to negotiate extended payment terms with its vendors and service providers and delay development work in conjunction with pushing back the initiation of its first-in-human studies of the lead drug candidate, NB1111, to the 2021 timeframe, is intended to slow cash burn. The Company’s Board plans on further assessing the financial condition of the Company to determine what additional measures, if any, will be implemented. If the Company is unable to secure adequate additional funding, the Company may be forced to reduce spending extend payment terms with suppliers,further, liquidate assets where possible, suspend or curtail planned programs or cease operations.

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CashIn December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, China. Since then, it has spread to the United States and Cash Equivalentsinfections have been reported around the world. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States, Australia and around the world, where the Company has operations and conducts laboratory research and clinical studies. In response to the outbreak, federal and state authorities in the United States have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, nonessential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and significant economic disruptions to the global financial markets. These disruptions are likely to impact the Company’s ability to raise additional capital and obtain the necessary funds.

Notably, the Company relies on third-party manufacturers to produce its product candidates. The manufacturing of the active pharmaceutical ingredient of NB1111 is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but can rely on regulatory-accepted excipients that can be sourced from countries outside the United States, such as China. In lieu of the recent pandemic of a COVID-19, there could possibly be an impact on sourcing materials that are part of the eye drop formulation, as well as impacting volunteer and/or patient recruitment in Australia for clinical studies. Therefore, the Company has shifted its first-in-human studies of NB1111 from the second half of 2020, to the 2021 timeframe.

After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

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, 2019, 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 Company considers all highly liquid investments purchased with an original maturityresults of operations for the three months or lessended March 31, 2020 are not necessarily indicative of the results to be cash equivalents.expected for the year ending December 31, 2020 or any future periods. 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 $4,428 as of September 30, 2017 and $37,500Condensed Consolidated Balance Sheet as of December 31, 20162019 was restrictedderived from withdrawal and held by a bankthe Company’s audited financial statements as of December 31, 2019, which are included in the form ofCompany’s Annual Report on Form 10-K filed with the SEC on March 20, 2020. The unaudited financial statements included in this Quarterly Report on Form 10-Q 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, 2019, which includes a certificate of deposit. This certificate serves as collateral for paymentbroader discussion of the Company's credit cards.Company’s business and the risks inherent therein.

Certain reclassifications have been made to prior year amounts to conform to the current period’s presentation. Such reclassifications had no net effect on total assets, total liabilities, total stockholders’ equity, net losses and cash flows.

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 income and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s 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, equity securities, derivative liabilities, and 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 United States and Australia, and the Company’s ability to attract new funding.

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 ourthe Company’s financial instruments, with the exception of the Credit Agreement and derivative liabilities, including, cash, and cash equivalents, prepaid expenses, accounts payable, and accrued expensesother current liabilities approximate their fair value due to the short maturities of these financial instruments. The Series B warrant liabilityderivative liabilities are valued on a recurring basis utilizing Level 3 inputs.

Advances under the Credit Agreement are not recorded at fair value. However, fair value can be approximated and the conversion liability for the Series B Preferred Stock were valueddisclosed utilizing Level 3 inputs primarily from a recent third partyand independent appraisal.

Property and Equipment, Net

third-party valuation techniques (See Note 3). As of September 30, 2017, propertyMarch 31, 2020 and equipment, net, was $2,645, consisting primarily of computers and equipment. Expenditures for additions, renewals and improvements will be capitalized at cost. Depreciation will generally be computed on a straight-line method based on the estimated useful life of the related assets 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 exceedsDecember 31, 2019, the fair value of the asset.advances under the Credit Agreement was $1,639,245 and $1,877,938, respectively. The carrying amount of the liability at March 31, 2020 and December 31, 2019, was $517,780 and $387,070, respectively, and is included in Convertible multi-draw credit agreement - related party, net of discount in the Company’s Condensed Consolidated Balance Sheets.

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 TaxesConvertible Instruments

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") 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's statement of operations in the period incurred.

The Company records a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to 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. As a result, there are no income tax benefits reflected in the statement of operations to offset pre-tax losses.

The Company recognizes a tax benefit from uncertain tax positions when it is more likely than not 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.

Convertible Instruments

We account 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 standingfree-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 options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

We accountThe Company accounts for convertible debt instruments when we havewith embedded conversion features in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) if it is determined that the embedded conversion optionsfeature should not be bifurcated from their host instruments, in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”).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 embedded effective conversion price embedded inprice. When the note. We account for convertible instruments (when we have determinedCompany determines that the embedded conversion optionsoption should be bifurcated from theirits host instruments)instrument, the embedded feature is accounted for in accordance with ASC 815. 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 the 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.instruments. 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 expense (income) in the accompanying Condensed Consolidated Statements of Operations.Comprehensive Loss.

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When determining the 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 may impact the accounting for derivative instruments, the Company carefully evaluates all factors that could potentially restrict the instrument from being exercised or create a situation where exercise would be considered remote. The Company re-evaluates its derivative liabilities at each reporting period end and makes updates for any changes in facts and circumstances that may impact classification.

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 expense (income) expense in the Condensed Consolidated Statements of Operations.Comprehensive Loss.

Revenue RecognitionDebt Issuance Costs and Interest

Discounts related to bifurcated derivatives, freestanding instruments issued in bundled transactions, and issuance costs are recorded as a reduction to the carrying value of the debt and amortized over the life of the debt using the effective interest method. The Company has not begun planned principal operationsmakes changes to the effective interest rate, as necessary, on a prospective basis. For debt facilities that provide for multiple advances, the Company initially defers any issuance costs until the first advance is made and has not generated any revenue since inception.then amortizes the costs over the life of the facility.

Research and Development Expenses and Licensed Technology

Research and development ("R&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 compensationbenefits for the personnel involved in ourthe Company’s 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 ExpensesExpense

Stock-based compensation costexpense 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 over the expected term based on a blended rate of industry peers who are alsoand the Company’s actual stock volatility adjusted for periods in the early development stage given the limited market data available in the public arena.which significant financial variability was identified.
	·	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. treasuryTreasury securities in effect during the period in which the awards were granted.
	·	Dividends - The dividend yield assumption is based on ourthe Company’s history and expectation of paying no dividends.dividends in the foreseeable future.

Stock-Based Compensation for Non-Employees

The Company accounts for warrants and options issued to non-employees under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 505-50, Equity - Equity Based Payments to Non-Employees, using the Black-Scholes option-pricing model. The valueNet Income (Loss) Per Share of such non-employee awards is periodically re-measured over the vesting terms and at each quarter end.

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"), 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 record all components of comprehensive income (loss) in the consolidated 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, 2017 and 2016, the comprehensive income (loss) was equal to the net income (loss).

Earnings per shareCommon Stock

The Company applies FASB ASC No. 260, Earnings per Share. Basic earnings in calculating its basic and diluted net income (loss) per share. Basic net income (loss) per share of common stock is computed by dividing earningsnet income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding. Diluted earnings oroutstanding for the period. The diluted net loss per share would includeof common stock is computed by giving effect to all potential common stock equivalents outstanding for the dilutive effectperiod determined using the treasury stock method. For purposes of outstandingthis calculation, options to purchase common stock, restricted stock subject to vesting, warrants to purchase common stock and awards grantedcommon shares underlying convertible debt instruments are considered to employees under stock-based compensation plans. Potentially dilutivebe common stock equivalents. The following outstanding shares of the Company's common stock areequivalents were excluded from the calculationcomputation of diluted net loss per share of common share because their effect would be anti-dilutivestock 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 13,165,500 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 are excluded from the calculation of diluted loss per common share. 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:

Recent accounting pronouncementsAccounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Adoption is permitted as early as the first quarter of 2017 and is required by the first quarter of 2018. Given that the Company has no revenues to date, we plan to adopt this pronouncement when initial revenue recognition occurs.

In February 2016,December 2019, the FASB issued ASU No. 2016-02 Leases (Topic 842) intended2019-12 Income Taxes (Topic 740) simplifying the Accounting for Income Taxes. The Board issued this update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness of the financial reporting around leasing transactions.statements. The ASU affects all companies and other organizations that lease assetsmain provisions remove certain exceptions, including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the amendments simplify income tax accounting in the areas such as real estate, airplanes,income-based franchise taxes, eliminating the requirements to allocate consolidated current and manufacturing equipment. The ASU will require organizationsdeferred tax expense in certain instances and a requirement that lease assets - referred to as "lessees"- to recognize onan entity reflects the balance sheeteffect of enacted changes in tax laws or rates in the assets and liabilities forannual effective tax rate computation in the rights and obligations created by those leases.interim period that includes the enactment date. For public companies, the standard is effective for fiscal years beginning after December 15, 20182020, and interim periods therein. Earliertherein, with early adoption is permitted for any annualpermitted. The Company plans to adopt this ASU on the effective date of January 1, 2021. However, it may adopt the update earlier if circumstances arise making early adoption favorable to the Company. The amendments in the update related to foreign subsidiaries will be applied on a modified retrospective basis, the amendments to franchise taxes will be applied on either a retrospective or interim period for which consolidated financial statements have not yet been issued.modified retrospective basis and all other amendments will be applied on a prospective basis. The Company is currentlystill evaluating the potential impact thatfrom adopting this standard. However, because the Company’s deferred tax assets and liabilities are fully reserved, it does not expect a material impact from the adoption of this standard.

Recently Adopted Accounting Standards

In November 2018, the FASB issued ASU No. 2016-02 may have on its consolidated2018-08 Collaborative Arrangements (Topic 808) intended to improve financial statements.reporting around collaborative arrangements and align the current guidance under ASC 808 with ASC 606 Revenue from Contracts with Customers. The ASU affects all companies that enter into collaborative arrangements. The ASU clarifies when certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 and changes certain presentation requirements for transactions with collaborative arrangement participants that are not directly related to sales to third parties. The Company will adopthas adopted this ASU beginning on the effective date of January 1, 2019 and will utilize2020. Upon adoption, the modifiedCompany utilized the retrospective transition approach, as prescribed within this ASU.ASU, however, the Company does not currently have any collaborative arrangements as such, there was no impact to its Condensed Consolidated Financial Statements from adoption.

3. Warrants and Derivative Liabilities

Warrants

There are significant judgments and estimates inherent in the determination of the fair value of the Company’s warrants. These judgments and estimates include assumptions regarding the Company’s future operating performance, the time to completing a liquidity event and the determination of the appropriate valuation methods. If the Company had made different assumptions, the fair value of the warrants could have been significantly different (See Note 2).

Warrants vested and outstanding as of March 31, 2020 are summarized as follows: