0001640334-16-001069.txt : 20160513 0001640334-16-001069.hdr.sgml : 20160513 20160513165109 ACCESSION NUMBER: 0001640334-16-001069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 44 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160513 DATE AS OF CHANGE: 20160513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Nemus Bioscience, Inc. CENTRAL INDEX KEY: 0001516551 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 450692882 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-55136 FILM NUMBER: 161649124 BUSINESS ADDRESS: STREET 1: 650 TOWN CENTER DRIVE, SUITE 1770 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: (949) 396-0330 MAIL ADDRESS: STREET 1: 650 TOWN CENTER DRIVE, SUITE 1770 CITY: COSTA MESA STATE: CA ZIP: 92626 FORMER COMPANY: FORMER CONFORMED NAME: LOAD GUARD LOGISTICS, INC. DATE OF NAME CHANGE: 20121107 FORMER COMPANY: FORMER CONFORMED NAME: LOAD GUARD TRANSPORTATION, INC. DATE OF NAME CHANGE: 20110324 10-Q 1 2016mar31-nmus_10q.htm FORM 10-Q

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 March 31, 2016

[ ]	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.)

650 Town Center Drive, Suite 1770, Costa Mesa, CA 92626

(Address of principal executive offices) (Zip Code)

(949) 396-0330

(Registrant's telephone number, including area code)

________________________________________________

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

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ 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). ☒ Yes ☐ 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. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☒

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

As of May 11, 2016, there were 19,913,163 shares of the issuer's $0.001 par value common stock issued and outstanding.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements:	4
	Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015	4
	Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 ( Unaudited)	6
	Notes to the Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	26

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27

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'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" 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" 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;

●

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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NEMUS BIOSCIENCE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS


ASSETS
	(unaudited)
	March 31,			December 31,
	2016			2015


Current assets
Cash and cash equivalents	$	2,061,622		$	3,221,209
Restricted cash		37,500			37,500
Prepaid expenses		157,096			158,946
Other current assets		28,626			36,126
Total current assets		2,284,844			3,453,781

Property and equipment, net		20,798			13,383

Other assets
Deposits and other assets		43,884			43,884
Total other assets		43,884			43,884

Total assets	$	2,349,526		$	3,511,048

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

		(unaudited)
		March 31,			December 31,
		2016			2015
Current liabilities
Accounts payable	$	137,370		$	125,357
Accrued payroll and related expenses		26,649			46,268
Accrued license and patent reimbursement fees		32,500			97,500
Accrued expenses		156,025			228,645
Provision for conversion of Series B preferred stock		137,074			84,090
Income taxes payable		400			-
Total current liabilities		490,018			581,860

Noncurrent liabilities
Deferred rent		3,244			3,233
Series B warrants		2,866,439			2,454,959

Total noncurrent liabilities		2,869,683			2,458,192

Total liabilities		3,359,701			3,040,052

Commitments and contingencies
(Note 3)

Redeemable Convertible Series B Preferred Stock, $0.001 par value, 20
million shares authorized; 4,492 issued and outstanding as of March 31,
2016 and 4,500 issued and outstanding as of December 31, 2015, net of
$493,770 of issuance costs; $4.5 million liquidation preference as of
March 31, 2016		1,359,899			1,363,200

Stockholders’ deficit
Common stock, $0.001 par value; 236 million shares authorized;
19,913,163 issued and outstanding as of March 31, 2016 and 19,903,163
issued and outstanding as of December 31, 2015		19,913			19,903
Additional paid-in-capital		6,272,129			6,086,987
Warrants		781,811			759,386
Accumulated deficit		(9,443,927	)		(7,758,480	)

Total stockholders’ deficit		(2,370,074	)		(892,204	)

Total liabilities and stockholders’ deficit	$	2,349,526		$	3,511,048

See accompanying notes to the unaudited consolidated financial statements.

NEMUS BIOSCIENCE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2016			2015

Operating expenses
Research and development	$	135,358		$	37,200
General and administrative		1,084,981			872,625

Total operating expenses		1,220,339			909,825

Operating loss		(1,220,339	)		(909,825	)

Other expense
Change in fair value of warrant liability		411,480			-
Change in fair value of conversion rights
of Series B preferred stock		53,228			-

Loss before income taxes		(1,685,047	)		(909,825	)

Provision for income taxes		400			400

Net loss	$	(1,685,447	)	$	(910,225	)

Basic and diluted loss
per common share	$	(0.08	)	$	(0.06	)

Shares used in computing basic
and diluted loss per share		19,904,921			16,233,641

See accompanying notes to the unaudited consolidated financial statements.

NEMUS BIOSCIENCE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2016			2015

Cash flows from operating activities:
Net loss	$	(1,685,447	)	$	(910,225	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		3,701			2,313
Stock-based compensation expense		181,608			136,348
Amortization of warrants and stock issued for services (1)		38,161			50,202
Change in fair value of conversion rights
of Series B preferred stock		53,228			-
Change in fair value of warrant liabilities		411,480			-
Changes in assets and liabilities:
Prepaid expenses (1)		(13,886	)		(39,992	)
Other current assets		7,500			4,470
Accounts payable		12,013			(21,392	)
Accrued payroll and related expenses		(19,619	)		63,344
Accrued license and patent reimbursement fees		(65,000	)		(119,428	)
Stock subscription liability		-			50,000
Accrued expenses and other liabilities		(72,210	)		32,666
Net cash used in operating activities		(1,148,471	)		(751,694	)
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 common stock issuance, net of $3,920 issuance costs		-			721,069
Net cash provided by financing activities		-			721,069

Net decrease in cash and cash equivalents		(1,159,587	)		(30,625	)

Cash and cash equivalents, beginning of period		3,221,209			207,330

Cash and cash equivalents, end of period	$	2,061,622		$	176,705

Supplemental disclosures of cash-flow information:
Cash paid during the period for:
Interest	$	-		$	-

Income taxes	$	-		$	800

Supplemental disclosures of non-cash financing and investing activities:

(1)		During the three months ended March 31, 2015, the Company issued warrants for our common stock for
		consulting services. The warrants were valued at $63,225 and were recorded as a Prepaid expense and are
		being amortized over the service period. The Company also issued shares of common stock for
		consulting services valued at $168,000. Such amounts were recorded as a Prepaid expense and are being
		amortized over the service period.
		During the three months ended March 31, 2016, warrants issued to service providers for consulting
		services were valued at $22,245 and were recorded as a Prepaid expense are being amortized over
		the service period.

See accompanying notes to the unaudited consolidated financial statements.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

1. Nature of Operations, 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 develop and commercialize therapeutics from cannabinoids through a partnership with the University of Mississippi. The University of Mississippi ("UM") is federally permitted and licensed to cultivate cannabis for research and commercial purposes. Unless otherwise specified, references 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.

As of March 31, 2016, the Company has devoted substantially all of its efforts to securing product licenses, raising capital, and building infrastructure, and has not realized revenue from its planned principal operations.

Business Activities

On October 31, 2014, pursuant to an Agreement and Plan of Merger, dated October 17, 2014 (the "Merger Agreement"), LGL, Nemus Acquisition Corp. ("Acquisition Sub"), Nemus Bioscience, Inc. ("Name Change Merger Sub"), and Nemus Acquisition Sub merged with and into Nemus and Nemus survived as a wholly-owned subsidiary of LGL (the "Merger"). Immediately after the Merger, LGL changed its name to "Nemus Bioscience, Inc." by merging with Name Change Merger Sub. At the closing of the Merger and pursuant to the Merger Agreement, Nemus issued an aggregate of 3,120,000 shares of its common stock to the former stockholders of LGL in exchange for all of the outstanding shares of LGL’s capital stock, which when combined with the 12,880,000 shares of Nemus common stock outstanding, amounted to 16,000,000 total shares outstanding upon completion of the merger.

The Merger is being accounted for as a reverse-merger and recapitalization. Nemus is the acquirer for financial reporting purposes and LGL is the acquired company. Consequently, the assets and liabilities and the operations that will be reflected in the historical consolidated financial statements prior to the Merger will be those of Nemus and will be recorded at the historical cost basis of Nemus, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of LGL and Nemus, the historical operations of Nemus and the operations of the Nemus from and after the closing date of the Merger.

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.

Liquidity and Going Concern

The Company has incurred operating losses and negative cash flows from operations since our inception. As of March 31, 2016, we had cash and cash equivalents of $2,061,622. The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues to advance and develop a number of potential drug candidates into preclinical development activities and expands its corporate infrastructure which includes the costs associated with being a public company. Without additional funding, management believes that the Company will not have sufficient funds to meet its obligations within one year after the date the consolidated financial statements are issued. These conditions give rise to substantial doubt as to the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, government grants or other arrangements. However, the Company cannot be sure 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 make a reduction in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs.

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 $37,500 as of March 31, 2016 and December 31, 2015 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's credit cards.

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) 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

	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, 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 Series B warrant liability and the conversion liability for the Series B preferred stock were valued utilizing Level 3 inputs primarily from a third party independent appraisal conducted as of March 31, 2016.

Property and Equipment, Net

As of March 31, 2016, property and equipment, net, was $20,798, consisting primarily of computers and equipment. The Company had $13,383 of property and equipment, net, as of December 31, 2015. 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.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

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.

Income Taxes

The Company accounts for our 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.

Revenue Recognition

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

Research and Development Expenses

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 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.

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 use the Black-Scholes option pricing model for estimating the grant date fair value of stock options and warrants using the following assumptions:

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

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 stock price volatility based on industry peers who are also in the early development stage given the limited market data available in the public arena.

Expected term - The expected term is based on a simplified method which defines the life as the average of the contractual term of the options and warrants and the weighted-average vesting period for all open awards.

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 quarter in which the awards were granted.

Dividends – The dividend yield assumption is based on our history and expectation of paying no dividends.

Stock-Based Compensation for Non-Employees

The Company accounts for warrants and options issued to non-employees under ASC 505-50, Equity – Equity Based Payments to Non-Employees, using the Black-Scholes option-pricing model. The value of such non-employee awards are periodically re-measured over the vesting terms and at each quarter end.

Segment Information

The Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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.

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 loss in the consolidated financial statements in the period in which they are recognized. Net income (loss) and other comprehensive loss, net of their related tax effect, arrived at a comprehensive loss. For the three months ended March 31, 2016, the comprehensive loss was equal to the net loss.

Earnings per share

The Company applies FASB ASC 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 common shares outstanding. Diluted earnings or loss per share would include the dilutive effect of awards granted to employees under stock-based compensation plans, if any. No dilutive effect was calculated for the three months ended March 31, 2016 or 2015, as the Company reported a net loss for each respective period and the effect would have been anti-dilutive.

Recent accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02 “Leases” (Topic 842) intended to improve financial reporting around leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets – referred to as “lessees”- to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. For public companies, the standard is effective for fiscal years beginning after December 15, 2018 and interim periods therein. Earlier adoption is permitted for any annual or interim period for which consolidated financial statements have not yet been issued. The Company is currently evaluating the potential impact that adoption may have on its consolidated financial statements.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

2. University of Mississippi ("UM") Agreements

In July 2013, the Company entered into a Memorandum of Understanding (MOU) with UM to engage in joint research of extracting, manipulating, and studying cannabis in certain forms to develop intellectual property (IP) with the intention to create and commercialize therapeutic medicines. Nemus will own all IP developed solely by its employees and will jointly own all IP developed jointly between Nemus and UM employees. The term of the MOU agreement is five years and the parties agree to negotiate separate research agreements upon the identification of patentable technologies as well as any deemed to be a trade secret. The agreement may be terminated by either party with three months written notice to the other party.

UM 5050 pro-drug agreements:

On September 29, 2014, the Company executed three license agreements with UM pursuant to which UM granted us exclusive, perpetual, worldwide licenses, including the right to sublicense, to intellectual property related to UM 5050, a pro-drug formulation of tetrahydrocannabinol, or THC for products administered through each of ocular, oral or rectal delivery. The license agreement for the field of oral delivery also includes rights to UM 1250, a bio-adhesive hot melt extruded film for topical and mucosal adhesion application and drug delivery. The license agreements contain certain milestone and royalty payments, as defined therein. The aggregate milestone payments under the license agreements if the milestones are achieved is $2.1 million. These licenses also require the Company to reimburse UM for patent costs incurred related to these products under license. The agreements will terminate upon expiration of the patents, breach or default of the license agreements, or upon 60 days written notice by the Company to UM.

On October 15, 2014, we signed a renewable option agreement for the rights to explore other routes of delivery of UM5050 not yet agreed upon and/or in combination with other cannabinoids or other compatible compounds. There was a one-time up-front option payment of $10,000 for a six month option period that has subsequently been renewed under the same financial terms and conditions. The most recent renewal occurred for the six month period beginning April 1, 2016.

In September 2015, the Company entered into a research agreement with UM to advance Nemus' lead proprietary cannabinoid-based therapy (UM5050) developed for the treatment and management of glaucoma into an optimized once-daily treatment formulation. The fee payable to UM is based on the achievement of certain milestones in the project. There was no expense recorded for the three months ending March 31, 2016 related to this agreement.

UM 8930 pro-drug agreements:

On December 14, 2015, the Company executed two license agreements with UM pursuant to which UM granted us exclusive, perpetual, worldwide licenses, including the right to sublicense, to intellectual property related to UM 8930, a pro-drug formulation of cannabidiol, or CBD for products administered through each of ocular or rectal delivery. The license agreements contain certain milestone and royalty payments, as defined therein. There is a one-time upfront payment of $65,000 per license agreement, payable in four equal monthly installments that started on December 15, 2015. There is an annual fee of $25,000 per license agreement, payable on the anniversary of each effective date. The aggregate milestone payments under the license agreements if the milestones are achieved is $1.4 million. These licenses also require the Company to reimburse UM for patent costs incurred related to these products under license. These license agreements will terminate upon expiration of the patents, breach or default of the license agreements, or upon 60 days written notice by the Company to UM.

On December 14, 2015, we signed a renewable option agreement for the rights to explore other routes of delivery of UM8930 not yet agreed upon and/or in combination with other cannabinoids or other compatible compounds. There was a one-time up-front option payment of $10,000 for an option period ending March 31, 2016. This option was subsequently renewed for a six month period ending September 30, 2016, under the same financial terms and conditions.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

Other pro-drugs and potential formulations:

In March 2015, in lieu of a license agreement, the Company entered into a research agreement with UM to begin in vitro studies concerning the medical utility of cannabinoids as anti-infective therapeutics for MRSA. The fee payable to UM under the agreement is based on the achievement of certain milestones in the project. There was no expense recorded for the three months ending March 31, 2016 related to this agreement. The Company has moved into in vivo studies of this compound in 2016. Either party may terminate the agreement with 30 days written notice.

On December 19, 2015, the Company entered into a research agreement with UM to advance specialized cannabinoid derivatives for the treatment of chemo-therapy induced peripheral neuropathy (CIPN). The fee payable to UM is based on the achievement of certain milestones in the project. The Company recognized $18,536 as research and development expense for the three months ended March 31, 2016 for work completed under this contract. The agreement also grants an exclusive option to license the technology from the University within 180 days from the commencement of the agreement. Either party may terminate the agreement with 30 days written notice.

3. Commitments and Contingencies

Lease Commitments

On September 1, 2014, the Company signed an operating lease for laboratory and office space at the Innovation Hub, Insight Park located on the University of Mississippi campus. The lease term commenced on October 1, 2014 and expires on December 31, 2017. There are annual escalating rent provisions and two months of free rent in the agreement. The total cash payments over the life of the lease are divided by the total number of months in the lease period and the average rent will be charged to expense each month during the lease period. The monthly amount charged to rent expense is $9,267.

In October 2014, we signed a lease agreement for our corporate office headquarters that consists of approximately 4,087 square feet located at 650 Town Center Drive, Suite 1770, Costa Mesa, CA 92626. The lease expires on October 31, 2016 and our monthly rent is $5,373, payable in equal monthly installments with annual escalations.

In November 2015, the Company entered into an operating lease for its office and lab furnishings both in Costa Mesa and the Innovation Hub laboratory. The lease expires on November 3, 2017 and the monthly lease payments are $7,559.

Total net rent expense related to our operating leases for the three months ended March 31, 2016 and 2015 was $56,706 and $57,559, respectively.

Future minimum payments under the non-cancelable portion of our operating leases as of March 31, 2016 are as follows:

For the year ending December 31,
2016	$	194,212
2017		149,466
2018		-
2019		-
2020		-
Thereafter		-
Total	$	343,678

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

Legal Matters

General Litigation and Disputes

On December 24, 2015, the Company and its Executive Chairman of the Board were served with a complaint by the Company's former Chief Executive Officer, John B. Hollister. The complaint purports to allege claims arising out of his termination, including a breach of contract claim. The Company believes the facts alleged in the complaint are grossly inaccurate, and the claims are entirely without merit. Hollister was an at-will employee. His employment was terminated for good, lawful reasons at the unanimous recommendation of Company management, other than Hollister, and upon the unanimous vote of the members of the Board, other than Hollister. The Company and its Executive Chairman have filed multiple meritorious claims they intend to vigorously pursue against Hollister.

Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and our view of these matters may change in the future as the litigation and events related thereto unfold. An unfavorable outcome to any legal matter, if material, could have a materially adverse effect on our operations or our financial position, liquidity or results of operations.

Government Proceedings

Like other companies in the pharmaceutical industry, we are subject to extensive regulation by national, state and local government agencies in the United States. As a result, interaction with government agencies occurs in the normal course of our operations. It is possible that criminal charges and substantial fines and/or civil penalties or damages could result from any government investigation or proceeding. As of March 31, 2016, the Company had no current proceedings or inquiries.

Change in Control Severance Plan

In February 2015, we adopted a change in control severance plan, in which our named executive officers participate, that provides for the payment of severance benefits if the executive's service is terminated within twelve months following a change in control, either due to a termination without cause or upon a resignation for good reason (as each term is defined in the plan).

In either such event, and provided the executive timely executes and does not revoke a general release of claims against the Company, he or she will be entitled to receive: (i) a lump sum cash payment equal to at least six months of the executive's monthly compensation, plus an additional month for each full year of service over six years, (ii) Company-paid premiums for continued health insurance for a period equal to length of the cash severance period or, if earlier, when executive becomes covered under a subsequent employer's healthcare plan, and (iii) full vesting of all then-outstanding unvested stock options and restricted stock awards.

Contract Manufacturing Organization (“CMO”) Agreement

On February 5, 2016, the Company entered into a letter agreement (“Agreement”) with a third party contract manufacturing organization (“CMO”) pursuant to which the CMO is to provide services to Nemus for process development and analytical method development and qualification for Nemus’ prodrug of tetrahydrocannabinol, or THC, as well as for sample production and a stability study.

Pursuant to the terms of the Agreement, Nemus will pay an estimated $154,000 to $183,000 in fees and expenses for the initial evaluation and development of a process for the production of Nemus’ pro-drug of THC to ensure reproducibility, quality and safety and an estimated $142,900 for analytical method development and qualification. The Company recognized $36,600 of these fees as research and development expense for the three months ended March 31, 2016.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

Nemus may at any time cancel or delay any project under the Agreement prior to the scheduled start date. Nemus must reimburse the CMO for costs incurred prior to and including the date of cancellation plus any reasonable and foreseeable costs associated with stopping work on any project, including the CMO’s loss of revenue incurred as the result of reserving production facilities for Nemus’ exclusive use. Nemus may terminate the Agreement in whole or in part at any time upon 30 days’ written notice.

4. Stockholders' Deficit and Redeemable Convertible Series B Preferred Stock

Common Stock

In June 2014, the Company sold 1,800,000 shares of common stock with no par value and warrants for a purchase price of $900,000 (the "June 2014 Stock Purchase Agreement") to a group of private investors. See additional discussion on warrants below.

In August 2014, the Company sold 2,200,000 shares of common stock with no par value and warrants for a purchase price of $1,100,000 to a group of private investors. See additional discussion on warrants below.

In October 2014, the Company issued 1,110,000 shares of common stock with no par value to eighteen individual investors that had participated in a prior entity founded by Nemus' then current president. Such entity has been insolvent and not operating since the inception date of Nemus. The issuance of these shares was in exchange for the signing of a release of claims against the Company, its President, and the former entity. The Company recorded a general and administrative expense of $466,200 in the fourth quarter of 2014 to reflect the fair market value of the common stock issued in exchange for the release of claims. The fair market value of the common stock issued was determined via an independent third-party valuation conducted as of October 31, 2014.

In January 2015, the Company sold 241,663 shares of common stock with par value of $0.001 for a purchase price of $724,989 to a group of private investors.

In March 2015, the Company issued 24,000 shares of common stock with par value of $0.001 to a third party in exchange for services to be performed related to raising additional capital. The Company recorded a prepaid expense of $168,000 in the first quarter of 2015 to reflect the fair market value of the common stock issued and is amortizing this expense over the contract service period which is one year. The fair market value was determined utilizing the Company's closing stock price as of the commencement date of the contract service period. For three months ended March 31, 2016, the Company amortized $12,194 to general and administrative expense which represented the completion of this agreement.

In August 2015, in conjunction with the Series B Preferred Stock sale (discussed below), the Company raised $5.0 million at $1,000 per share resulting in the automatic conversion of the Series A Preferred Stock to common stock. This resulted in the conversion of 580,000 shares of Series A Preferred Stock at $2.50 per share to the equivalent of 1,812,500 shares of common stock.

In December 2015, a Series B Preferred Stockholder converted 500 shares of their preferred stock to common stock as allowed under the Series B Stock Agreement (discussed below), resulting in the issuance of 625,000 shares of common stock at an effective price of $0.80 per share.

In March 2016, another Series B Preferred Stockholder converted 8 shares of their preferred stock to common stock, resulting in the issuance of 10,000 shares of common stock at an effective price of $0.80 per share.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

Preferred Stock

The Company has authorized 20,000,000 shares of preferred stock with a par value of $0.001 per share.

Series A Preferred Stock: In April 2015, the Company sold 250,000 shares of Series A preferred stock with par value of $0.001 and 50,000 warrants to purchase the Company's common stock for an aggregate purchase price of $625,000, or $2.50 per share to a group of private investors. The shares of preferred stock automatically convert to shares of common stock either at (i) a subsequent equity financing of at least $1,000,000 or (ii) October 1, 2015, whichever is earlier. The warrants are exercisable at a price of $5.00 per share and expire five years from the issuance date. In May 2015, the Company sold 150,000 shares and 30,000 warrants and in July 2015, the Company sold 180,000 shares and 36,000 warrants under the same terms and conditions.

The Series A preferred stock issued also has a "down-round" protection feature provided to the investors if the Company subsequently issues or sells any shares in a round of equity financing of at least $1,000,000 prior to October 1, 2015 in which the shares of common stock to be acquired are at a price less than $2.50 per share. The Company is required to issue additional shares of common stock to the investors in an amount such that the subscription price paid, when divided by the total number of shares issued will result in an actual price paid per share of common stock equal to such lower price. This conversion occurred as discussed above in conjunction with the Series B Preferred Stock financing totaling $5.0 million and resulted in the conversion of 580,000 shares of Series A Preferred Stock at to 1,812,500 shares of common stock.

Redeemable Convertible Series B Preferred Stock: In August 2015, the Company sold 5,000 shares of Series B Convertible Preferred Stock and warrants to purchase 6,250,000 shares of the Company's common stock for an aggregate purchase price of $1,000 per share resulting in gross proceeds of $5.0 million. Each share of preferred stock is convertible into 1,250 shares of common stock which results in an effective conversion price of $0.80 per common share and can be converted by the holder at any time. The Series B preferred stock issued also has a "down-round" protection feature provided to the investors if the Company subsequently issues or sell any shares of common stock, stock options, or convertible securities at a price less than the conversion price of $0.80 per common share. The conversion price is automatically adjusted down to the price of the instrument being issued. See additional discussion in Note 5 below. The Series B shares have liquidation preference over other preferred shares and common stock and have voting rights equal to the number of common shares into which each holder's preferred stock is convertible as of the record date. The preferred stock has no dividend rights. If dividends are declared on the common stock, the holders of the preferred stock shall be entitled to participate in such dividends on an as-if converted basis. The warrants are exercisable at a price of $1.15 per share and expire five years from the issuance date. See additional discussion regarding these warrants in Note 6 below.

In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, Series B preferred stockholders receive an amount per share equal to the conversion price of $0.80, subject to down-round adjustment, multiplied by the as-if converted share amount of 5,615,000 common shares, totaling $4.5 million. If upon the liquidation, the assets are insufficient to permit payments to the Series B holders, all assets legally available will be distributed in a pro rata basis among the Series B holders in proportion to the full amounts they would otherwise be entitled to receive. Any remaining assets are distributed pro rata among the common stockholders.

Subject to certain trigger events occurring, the Series B preferred stock holders have the right to force the Company to redeem the shares of preferred stock at a price per preferred share equal to the greater of (A) 115% of the conversion amount and (B) the product of (1) the conversion rate in effect at such time and (2) the greatest closing sale price of the Common Stock during the period beginning on the date immediately preceding such triggering event and ending on the date such holder delivers the notice of redemption. Such triggering events include:

Failure of the Series B Registration Statement to be declared effective by the SEC on or prior to the date that is ninety days after the Effectiveness Deadline;

Suspension of the Company’s common stock from trading for a period of (2) consecutive trading days;

Failure of the Company to deliver all the shares of the common stock or make the appropriate cash payments in a timely manner upon conversion of the Series B Preferred;

Any default of indebtedness;

Any filing of voluntary or involuntary bankruptcy by the Company;

A final judgment in excess of $100,000 rendered against the Company;

Breach of representations and warranties in the Stock Purchase Agreement;

Failure to comply with the Series B Certificate of Designation or Rule 144 requirements.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

As certain of these triggering events are considered to be outside the control of the Company, the Series B preferred stock is considered to be contingently redeemable convertible and as a result, has been classified as mezzanine equity in the Company’s balance sheet presentation.

In December 2015, a Series B Preferred Stock holder converted 500 shares of their preferred stock to common stock at the conversion rate of 1,250:1 resulting in the issuance of 625,000 shares of common stock. As a result of this conversion, the liquidation preference for the Series B Preferred Stock has been reduced to $4.5 million. In March 2016, another Series B Preferred Stockholder converted 8 shares of their preferred stock to common stock at the same ratio resulting in the issuance of 10,000 shares of common stock. As a result of these conversions, the liquidation preference for the Series B Preferred Stock has been reduced to $4.5 million at both March 31, 2016 and December 31, 2015.

Warrants

On July 17, 2012, the Company issued warrants to purchase up to 3,000,000 shares of our common stock to its founders and two advisors in consideration for services provided in the start-up of operations. The warrants are exercisable at a price of $1.00 per share and expire on June 20, 2023. The Company valued these warrants utilizing the Black-Scholes valuation model and they were determined to be of nominal value given the start-up nature of the Company's operations at the time of grant.

In conjunction with the June 2014 Stock Purchase Agreement, the Company issued warrants to purchase up to 450,000 shares of common stock to a group of private investors. The warrants are exercisable at a price of $1.00 per share and expire on June 12, 2020. The Company valued these warrants at $85,500. This amount was recorded as warrants and was reclassified from the total consideration received for both the common stock and warrants purchased.

In August 2014 as part of the June 2014 Stock Purchase Agreement, the Company issued warrants to purchase up to 550,000 shares of common stock with an exercise price of $1.00 per share that expire in August 2020. The Company valued these warrants at $104,500. This amount was recorded as warrants and was reclassified from the total consideration received for both the common stock and warrants purchased.

In March 2015, the Company entered into an agreement with a financial advisory and public relations consulting firm which included the issuance of warrants to purchase up to 90,000 shares of common stock with an exercise price of $2.50 per share with a term of five years and vest quarterly over one year. These warrants were in exchange for services performed beginning in the first quarter and were subsequently issued in April 2015. The Company estimated the vested warrant value to be $85,950 utilizing the Black Scholes option pricing model and amortized $4,168 for services provided for the three months ended March 31, 2016.

In April 2015, the Company entered into an agreement with one of its investors to provide advisory services on all matters including financing. In conjunction with this agreement, the Company issued warrants that vest immediately to purchase 100,000 shares of common stock with an exercise price of $5.00 per share with a term of ten years. The Company estimated the warrant value to be $326,000 utilizing the Black Scholes option pricing model and recorded this amount to general and administrative expense for the quarter due to the immediate vesting.

In April 2015, the Company issued to a former service provider in exchange for payment of its outstanding invoice warrants that vest immediately to purchase 6,000 shares of common stock with an exercise price of $2.50 per share. The Company estimated the warrant value to be $10,000 which represented the value of the trade debt extinguished.

In April 2015, the Company issued 50,000 warrants to purchase the Company's common stock in conjunction with its Series A Preferred Stock financing. The warrants are exercisable at a price of $5.00 per share and expire five years from the issuance date. In May 2015, the Company issued 30,000 warrants and in July 2015, 36,000 warrants under the same terms and conditions.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

In June 2015, the Company issued to a service provider in exchange for consulting services warrants that vest immediately to purchase 10,000 shares of common stock with an exercise price of $5.00 per share with a term of five years. The Company estimated the warrant value to be $14,700 utilizing the Black Scholes option pricing model.

In August 2015, the Company issued 6,250,000 warrants to purchase common stock in conjunction with its Series B Preferred Stock financing. See further discussion in Note 6 below.

In August 2015, the Company issued 187,500 warrants to purchase common stock to its investment banker in exchange for services rendered in conjunction with the Series B Preferred Stock financing. The warrants vest immediately and have an exercise price of $1.15 per share. The Company estimated the value of the warrants to be $86,250 utilizing the Black Scholes option pricing model and recorded this amount to offering costs.

In November 2015, the Company entered into an agreement with a financial advisory and public relations consulting firm which included the issuance of warrants to purchase up to 120,000 shares of common stock with an exercise price of $1.15 per share with a term of five years. These warrants are in exchange for services to be performed from November 25, 2015 to May 25, 2016 and 60,000 shares vest immediately with the remainder in one quarter. The Company estimated the warrant value of vested warrants to be $42,000 utilizing the Black Scholes option pricing model and amortized $18,600 for services provided in the three months ended March 31, 2016.

The Company's board of directors considered various objective and subjective factors, along with input from management, to determine the fair value of the warrants, including:

Contemporaneous valuation prepared by an independent third-party valuation specialist effective as of April 1, 2015, August 20, 2015, December 31, 2015, and March 31, 2016

Its results of operations, financial position and the status of research and development efforts and achievement of enterprise milestones,

The composition of, and changes to, the Company's management team and board of directors,

The lack of liquidity of its common stock as a newly public company,

The Company's stage of development, business strategy and the material risks related to its business and industry,

The valuation of publicly-traded companies in the biotechnology sectors,

External market conditions affecting the biotechnology industry sectors,

The likelihood of achieving a liquidity event for the holders of its common stock, such as an initial public offering, or IPO, or a sale of the Company, given prevailing market conditions, and

The state of the IPO market for similarly situated biotechnology companies,

Discussions held with bankers, potential investors, and preliminary term sheets received as part of management's capital raise efforts.

There are significant judgments and estimates inherent in the determination of the fair value of the Company's warrants. These judgments and estimates included the assumptions regarding its future operating performance, the time to completing an IPO or other liquidity event and the determination of the appropriate valuation methods. If the Company had made different assumptions, its warrant valuation could have been significantly different.

Stock Option Plans: 2014 Omnibus Incentive Plan

The 2014 Omnibus Incentive Plan (the "2014 Plan") was adopted to provide a means by which officers, non-employee directors, and employees of and consultants to the Company and its affiliates could be given an opportunity to acquire an equity interest in the Company. All officers, non-employee directors, and employees of and consultants to the Company are eligible to participate in the 2014 Plan.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

On October 31, 2014, after the closing of the Merger, our Board of Directors approved the 2014 Plan. The 2014 Plan reserved 3,200,000 shares for future grants. As of March 31, 2016, options (net of canceled or expired options) covering an aggregate of 1,180,000 shares of the Company's common stock had been granted under the 2014 Plan, and the Company had 1,180,000 options outstanding and 820,000 shares available for future grants under the 2014 Plan.

Options granted under the 2014 Plan expire no later than 10 years from the date of grant. Options granted under the 2014 Plan may be either incentive or non-qualified stock options. For incentive and non-qualified stock option grants, the option price shall be at least 100% of the fair value on the date of grants, as determined by the Company's Board of Directors. If at any time the Company grants an option, and the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, the option price shall be at least 110% of the fair value and shall not be exercisable more than five years after the date of grant.

Options granted under the 2014 Plan may be immediately exercisable if permitted in the specific grant approved by the Board of Directors and, if exercised early may be subject to repurchase provisions. The shares acquired generally vest over a period of five years from the date of grant. The Company granted options to purchase 1,180,000 shares through March 31, 2016, under the 2014 Plan.

The following is a summary of activity under the 2014 Plan as of March 31, 2016:

				Options Outstanding
	Shares Available for Grant of Options & Shares			Number of Shares		Price per Share			Weighted Average Exercise Price


Balance at December 31, 2015		2,020,000			1,180,000		$	$0.42-3.00		$	0.63
Options granted		-			-		$	-		$	-
Options exercised		-			-		$	-		$	-
Options cancelled		-			-		$	-		$	-
Subtotal		2,020,000			1,180,000		$	0.42-$3.00		$	0.63
Shares used for restricted stock awards (see discussion below)		(1,200,000	)
Balance at March 31, 2016		820,000

The weighted average remaining contractual life in years of the options outstanding as of March 31, 2016 was 8.68 years.

Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company's stock exceeded the exercise price of the stock options at March 31, 2016 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options"). As of March 31, 2016, the aggregate intrinsic value of options outstanding was $283,500. As of March 31, 2016, 218,000 options to purchase shares of common stock were exercisable.

Restricted Stock Awards

Restricted stock awards ("RSAs") are granted to our board of directors and members of senior management and are issued pursuant to the Company's 2014 Omnibus Incentive Plan. On October 20, 2015, a total of 1,200,000 RSAs were granted to members of the Company's senior management and board of directors with a fair market value of approximately $900,000. These RSAs vest from one to three years from the grant date as services are rendered to the Company. For the three months ended March 31, 2016, the Company recorded $93,750 in stock-based compensation expense related to these awards. (See discussion below).

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

Stock Based Compensation Expense

The Company recognizes stock-based compensation expense based on the fair value of that portion of stock options that are ultimately expected to vest during the period. Stock-based compensation expense recognized in the consolidated statement of operations includes compensation expense for stock-based awards based on the estimated grant date fair value over the requisite service period. For the three months ended March 31, 2016, the Company recognized stock-based compensation expense of $181,608 (including the $93,750 for RSAs discussed above) which was recorded as a general and administrative expense in the consolidated statement of operations. For the three months ended March 31, 2015, stock-based compensation expense was $136,348.

The total amount of unrecognized compensation cost related to non-vested stock options was $1,301,428 as of March 31, 2016. This amount will be recognized over a weighted average period of 3.64 years.

Valuation Assumptions

The fair value of options was estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of the Company's common stock for similar terms. The expected term was estimated using the simplified method as permitted under SAB No. 110, since the Company has no recent exercise or forfeiture history that is representative of options granted during the year. The expected term represents the estimated period of time that stock options are expected to be outstanding, which is less than the contractual term which is generally ten years. The risk-free interest rate is based on the U.S. Treasury yield. The expected dividend yield is zero, as the Company does not anticipate paying dividends in the near future. The weighted average assumptions for employee options are as follows:

	Three Months Ended March 31,
	2016			2015
Dividend yield		0.00	%		0.00	%
Volatility factor		75.00	%		75.00	%
Risk-free interest rate		1.68-1.85	%		1.68	%
Expected term (years)		6.25-6.50			6.5
Weighted-average fair value of options granted during the periods	$	1.48		$	6.08

5. Provision for Conversion of Preferred Stock

Series A Preferred Stock Conversion Liability

In connection with the Series A preferred stock financing, the Company recorded a liability related to down-round protection provided to the stockholders in the event that the Company does another offering of common stock greater than $1,000,000 at a price below $2.50 per share. The down-round provision expires at the closing of a subsequent financing round or October 1, 2015 whichever is earlier. With the assistance of a third-party valuation specialist, the Company valued the conversion liability pursuant to the accounting guidance of ASC 820-10, Fair Value Measurements, as of the closing date of the first round of financing which was April 1, 2015.

As of June 30, 2015, the Company re-evaluated the likelihood and valuation of a potential down-round given that management has been actively pursuing capital raising efforts. In the absence of any definitive agreement, the Company calculated the fair value of the conversion feature to be $700,000 by determining the highest probability of a per share price in the next anticipated round of financing, after considering all discussions with bankers, potential investors, and preliminary term sheets. This amount was booked as a current liability as of June 30, 2015 and was charged as a non-operating expense for the period.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

In July 2015, the Company increased its down-round provision by $286,000 based on the closing of an additional round of 180,000 Series A shares by determining the highest probability of a per share price in the next anticipated round of financing, after considering all discussions with bankers, potential investors, and preliminary term sheets. This amount was charged to non-operating expense for the three months ended September 30, 2015.

As of August 21, 2015, upon the closing of the Series B Preferred Stock sale with proceeds totaling $5.0 million, the Company issued 1,232,000 additional shares of common stock at $0.80 per share thereby eliminating this liability of $986,000 and offsetting it to Additional Paid-in-Capital. This amount was calculated by determining the difference in per share pricing between the Series A Preferred Stock financing of $2.50 per share and the Series B Preferred Stock Financing of $0.80 per share multiplied by the 580,000 total shares included in the Series A offering.

Series B Preferred Stock Conversion Liability

As of August 20, 2015, in connection with the Series B preferred stock financing, the Company recorded a liability related to down-round protection provided to the stockholders in the event that the Company does another sale or issuance of common stock, stock options or convertible securities where the share price is below $0.80 per share. With the assistance of a third-party valuation specialist, the Company valued the conversion liability pursuant to the accounting guidance of ASC 820-10, Fair Value Measurements, as of the closing date of the financing. The Company also performed a review of the conversion liability in conjunction with ASC 815, Derivatives and Hedging/Contracts in Entity's Own Equity, and determined that the liability requires bifurcation and re-measurement to fair market value at the end of each reporting period. The derivative was valued at $75,488 and was booked as a current liability as of September 30, 2015. The value of this embedded derivative was determined utilizing a with and without method by valuing the preferred stock with and without the down round protection.

As of March 31, 2016, the Company engaged a third-party valuation specialist to re-measure the conversion liability to fair market value as of that date utilizing the same methodology previously performed. The derivative was valued at $137,074 and was recorded as a current liability. The change in fair market value was recorded as a non-operating expense totaling $53,228 for the three months ended March 31, 2016.

6. Series B Warrants

In conjunction with the Series B Preferred Stock financing, the Company issued 6,437,500 common stock warrants that are exercisable at a price of $1.15 per share and expire five years from the issuance date. The warrants were valued at $2,935,800 utilizing the Black-Scholes pricing model and the following assumptions:

	Three Months Ended March 31,
	2016	2015
Dividend yield	0.00%	NA
Volatility factor	70.00%	NA
Risk-free interest rate	1.11%	NA
Expected term (years)	4.39	NA
Weighted-average fair value of warrants granted during the periods	$0.45	NA

The warrants are exercisable in cash or through a cashless exercise provision. The Series B warrants also have a "down-round" protection feature provided to the investors if the Company subsequently issues or sells any shares of common stock, stock options, or convertible securities at a price less than the exercise price of $1.15 per each warrant. The conversion price is automatically adjusted down to the price of the instrument being issued. The Company reviewed the classification of the warrants as liabilities or equity under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the Series B warrants should be classified as a liability. The Company then applied the fair value allocation methodology for allocating the proceeds of $5.0 million received from the Series B financing between the conversion liability and the warrants with the residual amount being allocated to the Preferred Stock. The Company performed the same valuation as of March 31, 2016 utilizing an expected term of 4.39 years as a result of the passage of time, which resulted in the warrant value of $2,866,439. The change in fair market value at the re-measurement date was recorded as non-operating expense totaling $411,480 for the three months ended March 31, 2016.

NEMUS BIOSCIENCE, INC. and SUBSIDIARY

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three month period ended March 31, 2016 and 2015 is unaudited)

7. Income Taxes

The Company records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. 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 March 31, 2016. As a result of this valuation allowance there are no income tax benefits reflected in the accompanying statement of operations to offset pre-tax losses.

The Company has no uncertain tax positions as of March 31, 2016.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our with our financial statements for the three months ended March 31, 2016, the year ended December 31, 2015, and the year ended December 31, 2014 together with notes thereto. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.

Unless otherwise provided in this Quarterly Report, references to "we," "us," "our" and "Nemus" in this discussion and analysis 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 closing of a reverse merger transaction (the “Merger”) pursuant to which a wholly owned subsidiary of LGL formed solely for the purpose of the Merger merged with and into Nemus and LGL changed its name to Nemus Bioscience, Inc.

The Merger is accounted for as a reverse merger and recapitalization, with Nemus as the acquirer and LGL as the acquired company for financial reporting purposes. As a result, the assets and liabilities and the operations that will be reflected in the historical financial statements prior to the Merger will be those of Nemus and will be recorded at the historical cost basis of Nemus, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of LGL and Nemus, the historical operations of Nemus and the operations of the combined enterprise of LGL and Nemus from and after the closing date of the Merger.

Overview

We are a biopharmaceutical company focused on the discovery, development, and the commercialization of cannabis-based therapeutics, or cannabinoids, through our partnership with the University of Mississippi, or UM. UM has held the only contract to cultivate cannabis for research purposes on behalf of the Federal Government since 1968, and it has significant expertise in cannabis cultivation and the extraction, separation, process and manufacture of cannabis extracts. We are currently UM's sole partner for the development and commercialization of drugs derived from cannabis extracts, or cannabinoids, and the realization of this partnership will depend on the successful navigation of the complex regulatory framework for the cultivation and handling of cannabis in the United States.

Recent Events

UM 5050 pro-drug agreements:

UM 8930 pro-drug agreements:

On December 14, 2015, we signed a renewable option agreement for the rights to explore other routes of delivery of UM8930 not yet agreed upon and/or in combination with other cannabinoids or other compatible compounds. There was a one-time up-front option payment of $10,000 for an option period ending March 31, 2016; this option was subsequently renewed for a six month period ending September 30, 2016, under the same financial terms and conditions.

Other pro-drugs and potential formulations:

In March 2015, in lieu of a license agreement, the Company entered into a research agreement with UM to begin in vitro studies concerning the medical utility of cannabinoids as anti-infective therapeutics for MRSA. The fee payable to UM under the agreement is based on the achievement of certain milestones in the project. There was no expense recorded for the three months ended March 31, 2016 related to this agreement. The Company plans to move into in vivo studies of this compound in 2016. Either party may terminate the agreement with 30 days written notice.

Critical Accounting Policy and Estimates

Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 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.

During the quarter ended March 31, 2016, there were no significant changes to the items that were disclosed as our critical accounting policies and estimates in Note 1 to our financial statements for the year ended December 31, 2015 contained in our Form 10-K as filed with the SEC on March 18, 2016.

Results of Operations

For the three months ended March 31, 2016 and 2015

Revenues. To date, we have not generated any revenues, and do not expect to generate any revenue from the sale of products in the near future.

Operating expenses. For the three months ended March 31, 2016, our total operating expenses were $1,220,339 as compared to $909,825 for the three months ended March 31, 2015. The increase in operating expenses was due primarily to an increase in general and administrative costs consisting of salaries, stock compensation expense, consulting and professional fees in the three months ended March 31, 2016, as discussed below.

Research and development. Research and development expenses for the three months ended March 31, 2016 were $135,358 which consisted of contract R&D fees incurred by the University of Mississippi for the CIPN research project, process development fees incurred by the Company’s contract manufacturer, and consulting and professional services fees.

Research and development expenses for the three months ended March 31, 2015, were $37,200 which consisted of option fees and contract research and development fees incurred by UM to begin studies concerning the medical utility of cannabinoids as anti-infective therapeutics for MRSA.

General and administrative. General and administrative expenses for the three months ended March 31, 2016 were $1,084,981 which primarily consisted of salaries, stock compensation expense, consulting fees and professional fees. By comparison, general and administrative expenses for the three months ended March 31, 2015 were $872,625 which primarily consisted of consulting fees and professional fees associated with our costs of becoming a public company.

Other income and expenses. For the three months ended March 30, 2016, the Company had non-operating expenses of $464,708 which consisted of the following components:

$411,480 represented a change in the fair value of the Series B warrant liability as determined by a third party independent appraisal conducted as of March 31, 2016.

$53,228 represented a change in the fair value of the conversion right related to the Series B preferred stock issuance as estimated from the same valuation referenced above.

For the three months ended March 31, 2015, other income and expenses were $0.

Net Loss. For the three months ended March 31, 2016, we had a net loss of $1,685,447, as compared to a net loss of $910,225 for the three months ended March 31, 2015. We expect to incur net losses for the foreseeable future.

Liquidity and Capital Resources

We had cash and cash equivalents of $2,061,622 as of March 31, 2016, as compared to $3,221,209 as of December 31, 2015. This decrease is primarily attributable to the funding of operating expenses as previously discussed. We anticipate that we will continue to incur net losses into the foreseeable future as we continue to advance and develop a number of potential drug candidates into preclinical development activities and expand our corporate infrastructure which includes the costs associated with being a public company. Without additional funding, management believes that we will not have sufficient funds to meet its obligations beyond one year after the date the consolidated financial statements are issued. These conditions give rise to substantial doubt as to our ability to continue as a going concern.

We have been, and intend to continue, working toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining additional financing in the future. Any future financing that we may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a negative impact on our business, prospects, financial condition, results of operations and cash flows.

If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect our ability to fund our continued operations and our expansion efforts.

During the next twelve months, we expect to incur significant research and development expenses with respect to our products. The majority of our research and development activity is focused on development of potential drug candidates and preclinical trials.

We also expect to incur significant legal and accounting costs in connection with being a public company. We expect those fees will be significant and will continue to impact our liquidity. Those fees will be higher as our business volume and activity increases.

We anticipate that we will need to hire additional employees or independent contractors for our new laboratory at UM. We also anticipate that we will need to purchase or lease additional equipment for the Company's headquarters and laboratory facilities.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any control and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We conducted an evaluation, under the supervision and with the participation of our principal executive and financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon their evaluation and subject to the foregoing, the principal executive and financial officers have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures were effective at a reasonable assurance level.

Changes in internal controls. Management determined there were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

As of the date of this report, we are not currently involved in any legal proceedings, except as specified below:

On December 24, 2015, our former Chief Executive Officer, John B. Hollister, filed a complaint against the Company and the Company’s Executive Chairman of the Board in the Superior Court of Los Angeles County, California. The complaint purports to allege claims against the Company and its Executive Chairman arising out of his termination, including a breach of contract claim. The complaint seeks unspecified monetary damages and attorney fees and expenses against the Company and its Executive Chairman. The Company believes the facts alleged in the complaint are grossly inaccurate, and the claims are entirely without merit.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. Our Annual Report on Form 10-K for the year ended December 31, 2015 includes a detailed discussion of our risk factors under the heading “Part I, Item 1A-Risk Factors.” There are no changes from the risk factors previously disclosed in our Annual Report on Form 10-K. You should carefully consider the risk factors discussed in our Annual Report on Form 10-K as well as the other information in this report before deciding whether to invest in shares of our common stock. The occurrence of any of the risks discussed in the Annual Report on Form 10-K could harm our business, financial condition, results of operations or growth prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1	Certification of Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
31.2	Certification of Principal Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
32.1+	Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2+	Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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+ Furnished herewith and not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Nemus Bioscience, Inc., a Nevada corporation

May 13, 2016	By:	/s/ Brian Murphy
	Its:	Brian Murphy Chief Executive Officer (Principal Executive Officer)

May 13, 2016	By:	/s/ Elizabeth Berecz
	Its:	Elizabeth Berecz Chief Financial Officer (Principal Financial and Accounting Officer)

EX-31.1 2 ex-31_1.htm EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer,

Required By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended,

As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002

I, Brian Murphy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Nemus Bioscience, Inc.;

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

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

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

(a)

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

(b)

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

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

(d)

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

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

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

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

Date: May 13, 2016


/s/ Brian Murphy
Brian Murphy Chief Executive Officer

EX-31.2 3 ex-31_2.htm EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer,

Required By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended,

As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002

I, Elizabeth Berecz, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Nemus Bioscience, Inc.;

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

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

(a)

(b)

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

(d)

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

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

(b)

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

Date: May 13, 2016

/s/ Elizabeth Berecz
Elizabeth Berecz Chief Financial Officer

EX-32.1 4 ex-32_1.htm EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Nemus Bioscience, Inc. a Nevada corporation (the “Company”) on Form 10-Q for the period ending March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Brian Murphy, Chief Executive Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Brian Murphy
Brian Murphy Chief Executive Officer May 13, 2016

EX-32.2 5 ex-32_2.htm EX-32.2

Exhibit 32.2

Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Nemus Bioscience, Inc. a Nevada corporation (the “Company”) on Form 10-Q for the period ending March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Elizabeth Berecz, Chief Financial Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Elizabeth Berecz
Elizabeth Berecz Chief Financial Officer May 13, 2016

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<div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">1. Nature of Operations, Business Activities and Summary of Significant Accounting Policies</div> <div> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Nature of Operations and Basis of Presentation</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">Nemus Bioscience, Inc. is a biopharmaceutical company that plans to develop and commercialize therapeutics from cannabinoids through a partnership with the University of Mississippi. The University of Mississippi ("UM") is federally permitted and licensed to cultivate cannabis for research and commercial purposes. Unless otherwise specified, references 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).</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">As of March 31, 2016, the Company has devoted substantially all of its efforts to securing product licenses, raising capital, and building infrastructure, and has not realized revenue from its planned principal operations.</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Business Activities</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> On October 31, 2014, pursuant to an Agreement and Plan of Merger, dated October 17, 2014 (the "Merger Agreement"), LGL,  Nemus Acquisition Corp. ("Acquisition Sub"), Nemus Bioscience, Inc. ("Name Change Merger Sub"), and Nemus Acquisition Sub merged with and into Nemus and Nemus survived as a wholly-owned subsidiary of LGL (the "Merger"). Immediately after the Merger, LGL changed its name to "Nemus Bioscience, Inc." by merging with Name Change Merger Sub.  At the closing of the Merger and pursuant to the Merger Agreement, Nemus issued an aggregate of 3,120,000 shares of its common stock to the former stockholders of LGL in exchange for all of the outstanding shares of LGL’s capital stock, which when combined with the 12,880,000 shares of Nemus common stock outstanding, amounted to 16,000,000 total shares outstanding upon completion of the merger.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Merger is being accounted for as a reverse-merger and recapitalization. Nemus is the acquirer for financial reporting purposes and LGL is the acquired company. Consequently, the assets and liabilities and the operations that will be reflected in the historical consolidated financial statements prior to the Merger will be those of Nemus and will be recorded at the historical cost basis of Nemus, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of LGL and Nemus, the historical operations of Nemus and the operations of the Nemus from and after the closing date of the Merger.</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Use of Estimates</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; margin-top: 3pt; text-indent: 36pt; font-family: 'times new roman', times, serif; margin-bottom: 3pt; font-size: 10pt;">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.</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Liquidity and Going Concern</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Company has incurred operating losses and negative cash flows from operations since our inception. As of March 31, 2016, we had cash and cash equivalents of $2,061,622.  The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues to advance and develop a number of potential drug candidates into preclinical development activities and expands its corporate infrastructure which includes the costs associated with being a public company. Without additional funding, management believes that the Company will not have sufficient funds to meet its obligations within one year after the date the consolidated financial statements are issued. These conditions give rise to substantial doubt as to the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.</div> </div> <div><br /> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, government grants or other arrangements. However, the Company cannot be sure 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 make a reduction in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Cash and Cash Equivalents</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Restricted Cash</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">            <font style="font-family: 'times new roman', times, serif; font-size: 10pt;">       </font>A deposit of $37,500 as of March 31, 2016 and December 31, 2015 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's credit cards.</div> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Fair Value Measurements</div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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) 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:</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <table style="border-collapse: collapse; font-family: 'times new roman', times, serif; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">Level 1:</div> </td> <td style="width: 1418px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> </td> </tr> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> </td> <td style="width: 1418px; vertical-align: top;"> </td> </tr> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">Level 2:</div> </td> <td style="width: 1418px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">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</div> </td> </tr> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> </td> <td style="width: 1418px; vertical-align: top;"> </td> </tr> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">Level 3:</div> </td> <td style="width: 1418px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> </td> </tr> </table> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The carrying values of our financial instruments, 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 Series B warrant liability and the conversion liability for the Series B preferred stock were valued utilizing Level 3 inputs primarily from a third party independent appraisal conducted as of March 31, 2016.</div> <div> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Property and Equipment, Net</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">As of March 31, 2016, property and equipment, net, was $20,798, consisting primarily of computers and equipment. The Company had $13,383 of property and equipment, net, as of December 31, 2015. 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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </div> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Income Taxes</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Company accounts for our 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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Revenue Recognition</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Company has not begun planned principal operations and has not generated any revenue since inception.</div> <div> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Research and Development Expenses</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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 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.</div> <div> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Stock-Based Compensation Expenses</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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 use the Black-Scholes option pricing model for estimating the grant date fair value of stock options and warrants using the following assumptions:</div> </div> <div style="text-align: center; widows: 1; text-transform: none; margin-top: 3pt; text-indent: 0px; font: bold 10pt 'times new roman', times, serif; white-space: normal; margin-bottom: 3pt; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div style="text-align: justify;"> <table style="font-family: 'times new roman', times, serif; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Exercise price - We determined the exercise price based on valuations using the best information available to management at the time of the valuations.</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="font-family: 'times new roman', times, serif; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Volatility – We estimate the stock price volatility based on industry peers who are also in the early development stage given the limited market data available in the public arena.</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="font-family: 'times new roman', times, serif; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Expected term - The expected term is based on a simplified method which defines the life as the average of the contractual term of the options and warrants and the weighted-average vesting period for all open awards.</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="font-family: 'times new roman', times, serif; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">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 quarter in which the awards were granted.</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="font-family: 'times new roman', times, serif; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Dividends – The dividend yield assumption is based on our history and expectation of paying no dividends.</td> </tr> </table> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Stock-Based Compensation for Non-Employees</div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: left; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Company accounts for warrants and options issued to non-employees under ASC 505-50, <font style="font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt;">Equity – Equity Based Payments to Non-Employees,</font> using the Black-Scholes option-pricing model. The value of such non-employee awards are periodically re-measured over the vesting terms and at each quarter end.</div> <div style="text-align: left; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Segment Information</div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Comprehensive Income (Loss)</div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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 loss in the consolidated financial statements in the period in which they are recognized. Net income (loss) and other comprehensive loss, net of their related tax effect, arrived at a comprehensive loss. For the three months ended March 31, 2016, the comprehensive loss was equal to the net loss.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Earnings per share</div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: left; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Company applies FASB ASC 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 common shares outstanding. Diluted earnings or loss per share would include the dilutive effect of awards granted to employees under stock-based compensation plans, if any. No dilutive effect was calculated for the three months ended March 31, 2016 or 2015, as the Company reported a net loss for each respective period and the effect would have been anti-dilutive.</div> <div> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Recent accounting pronouncements</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In February 2016, the FASB issued ASU No. 2016-02 “Leases” (Topic 842) intended to improve financial reporting around leasing transactions.  The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment.  The ASU will require organizations that lease assets – referred to as “lessees”- to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. For public companies, the standard is effective for fiscal years beginning after December 15, 2018 and interim periods therein. Earlier adoption is permitted for any annual or interim period for which consolidated financial statements have not yet been issued. The Company is currently evaluating the potential impact that adoption may have on its consolidated financial statements.</div> </div>

<div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">4. Stockholders' Deficit and Redeemable Convertible Series B Preferred Stock</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Common Stock</div> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;"><font style="font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </font> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In June 2014, the Company sold 1,800,000 shares of common stock with no par value and warrants for a purchase price of $900,000 (the "June 2014 Stock Purchase Agreement") to a group of private investors. See additional discussion on warrants below.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In August 2014, the Company sold 2,200,000 shares of common stock with no par value and warrants for a purchase price of $1,100,000 to a group of private investors. See additional discussion on warrants below.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In October 2014, the Company issued 1,110,000 shares of common stock with no par value to eighteen individual investors that had participated in a prior entity founded by Nemus' then current president. Such entity has been insolvent and not operating since the inception date of Nemus. The issuance of these shares was in exchange for the signing of a release of claims against the Company, its President, and the former entity. The Company recorded a general and administrative expense of $466,200 in the fourth quarter of 2014 to reflect the fair market value of the common stock issued in exchange for the release of claims. The fair market value of the common stock issued was determined via an independent third-party valuation conducted as of October 31, 2014.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In January 2015, the Company sold 241,663 shares of common stock with par value of $0.001 for a purchase price of $724,989 to a group of private investors.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In March 2015, the Company issued 24,000 shares of common stock with par value of $0.001 to a third party in exchange for services to be performed related to raising additional capital. The Company recorded a prepaid expense of $168,000 in the first quarter of 2015 to reflect the fair market value of the common stock issued and is amortizing this expense over the contract service period which is one year. The fair market value was determined utilizing the Company's closing stock price as of the commencement date of the contract service period. For three months ended March 31, 2016, the Company amortized $12,194 to general and administrative expense which represented the completion of this agreement.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In August 2015, in conjunction with the Series B Preferred Stock sale (discussed below), the Company raised $5.0 million at $1,000 per share resulting in the automatic conversion of the Series A Preferred Stock to common stock. This resulted in the conversion of 580,000 shares of Series A Preferred Stock at $2.50 per share to the equivalent of 1,812,500 shares of common stock.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In December 2015,  a Series B Preferred Stockholder converted 500 shares of their preferred stock to common stock as allowed under the Series B Stock Agreement (discussed below), resulting in the issuance of 625,000 shares of common stock at an effective price of $0.80 per share.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In March 2016, another Series B Preferred Stockholder converted 8 shares of their preferred stock to common stock, resulting in the issuance of 10,000 shares of common stock at an effective price of $0.80 per share.</div> </div> <div style="text-align: center; widows: 1; text-transform: none; margin-top: 3pt; text-indent: 0px; font: bold 10pt 'times new roman', times, serif; white-space: normal; margin-bottom: 3pt; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; margin-top: 3pt; text-indent: 0px; font: bold italic 10pt 'times new roman', times, serif; white-space: normal; margin-bottom: 3pt; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">Preferred Stock</div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Company has authorized 20,000,000 shares of preferred stock with a par value of $0.001 per share.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;"><u>Series A Preferred Stock:</u></font>  In April 2015, the Company sold 250,000 shares of Series A preferred stock with par value of $0.001 and 50,000 warrants to purchase the Company's common stock for an aggregate purchase price of $625,000, or $2.50 per share to a group of private investors. The shares of preferred stock automatically convert to shares of common stock either at (i) a subsequent equity financing of at least $1,000,000 or (ii) October 1, 2015, whichever is earlier. The warrants are exercisable at a price of $5.00 per share and expire five years from the issuance date. In May 2015, the Company sold 150,000 shares and 30,000 warrants and in July 2015, the Company sold 180,000 shares and 36,000 warrants under the same terms and conditions.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Series A preferred stock issued also has a "down-round" protection feature provided to the investors if the Company subsequently issues or sells any shares in a round of equity financing of at least $1,000,000 prior to October 1, 2015 in which the shares of common stock to be acquired are at a price less than $2.50 per share. The Company is required to issue additional shares of common stock to the investors in an amount such that the subscription price paid, when divided by the total number of shares issued will result in an actual price paid per share of common stock equal to such lower price. This conversion occurred as discussed above in conjunction with the Series B Preferred Stock financing totaling $5.0 million and resulted in the conversion of 580,000 shares of Series A Preferred Stock at to 1,812,500 shares of common stock.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;"><u>Redeemable Convertible Series B Preferred Stock:</u></font> In August 2015, the Company sold 5,000 shares of Series B Convertible Preferred Stock and warrants to purchase 6,250,000 shares of the Company's common stock for an aggregate purchase price of $1,000 per share resulting in gross proceeds of $5.0 million.  Each share of preferred stock is convertible into 1,250 shares of common stock which results in an effective conversion price of $0.80 per common share and can be converted by the holder at any time. The Series B preferred stock issued also has a "down-round" protection feature provided to the investors if the Company subsequently issues or sell any shares of common stock, stock options, or convertible securities at a price less than the conversion price of $0.80 per common share. The conversion price is automatically adjusted down to the price of the instrument being issued. See additional discussion in Note 5 below. The Series B shares have liquidation preference over other preferred shares and common stock and have voting rights equal to the number of common shares into which each holder's preferred stock is convertible as of the record date. The preferred stock has no dividend rights. If dividends are declared on the common stock, the holders of the preferred stock shall be entitled to participate in such dividends on an as-if converted basis. The warrants are exercisable at a price of $1.15 per share and expire five years from the issuance date. See additional discussion regarding these warrants in Note 6 below.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, Series B preferred stockholders receive an amount per share equal to the conversion price of $0.80, subject to down-round adjustment, multiplied by the as-if converted share amount of 5,615,000 common shares, totaling $4.5 million.  If upon the liquidation, the assets are insufficient to permit payments to the Series B holders, all assets legally available will be distributed in a pro rata basis among the Series B holders in proportion to the full amounts they would otherwise be entitled to receive. Any remaining assets are distributed pro rata among the common stockholders.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">Subject to certain trigger events occurring, the Series B preferred stock holders have the right to force the Company to redeem the shares of preferred stock at a price per preferred share equal to the greater of (A) 115% of the conversion amount and (B) the product of (1) the conversion rate in effect at such time and (2) the greatest closing sale price of the Common Stock during the period beginning on the date immediately preceding such triggering event and ending on the date such holder delivers the notice of redemption. Such triggering events include:</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" id="aafe20c1166b45b38c420f7a1c45c982" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 20.25pt;"></td> <td style="width: 27pt; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">-</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Failure of the Series B Registration Statement to be declared effective by the SEC on or prior to the date that is ninety days after the Effectiveness Deadline;</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 20.25pt;"></td> <td style="width: 27pt; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">-</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Suspension of the Company’s common stock from trading for a period of (2) consecutive trading days;</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 20.25pt;"></td> <td style="width: 27pt; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">-</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Failure of the Company to deliver all the shares of the common stock or make the appropriate cash payments in a timely manner upon conversion of the Series B Preferred;</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 20.25pt;"></td> <td style="width: 27pt; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">-</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Any default of indebtedness;</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 20.25pt;"></td> <td style="width: 27pt; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">-</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Any filing of voluntary or involuntary bankruptcy by the Company;</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" id="c642a51c98324f7995189a5e32ad54d9" class="dspflisttable" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 20.25pt;"></td> <td style="width: 27pt; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">-</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">A final judgment in excess of $100,000 rendered against the Company;</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" id="d3faa59a7ea44589aeec5f8cdc3de7c5" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 20.25pt;"></td> <td style="width: 27pt; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">-</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Breach of representations and warranties in the Stock Purchase Agreement;</td> </tr> </table> </div> <div style="text-align: justify;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" id="bb949f5e95b24affb886a4256f6dc890" class="dspflisttable" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 20.25pt;"></td> <td style="width: 27pt; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">-</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Failure to comply with the Series B Certificate of Designation or Rule 144 requirements.</td> </tr> </table> </div> </div> <div style="text-align: center; widows: 1; text-transform: none; margin-top: 3pt; text-indent: 0px; font: bold 10pt 'times new roman', times, serif; white-space: normal; margin-bottom: 3pt; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">As certain of these triggering events are considered to be outside the control of the Company, the Series B preferred stock is considered to be contingently redeemable convertible and as a result, has been classified as mezzanine equity in the Company’s balance sheet presentation.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In December 2015, a Series B Preferred Stock holder converted 500 shares of their preferred stock to common stock at the conversion rate of 1,250:1 resulting in the issuance of 625,000 shares of common stock. As a result of this conversion, the liquidation preference for the Series B Preferred Stock has been reduced to $4.5 million. In March 2016, another Series B Preferred Stockholder converted 8 shares of their preferred stock to common stock at the same ratio resulting in the issuance of 10,000 shares of common stock. As a result of these conversions, the liquidation preference for the Series B Preferred Stock has been reduced to $4.5 million at both March 31, 2016 and December 31, 2015.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> <font style="font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </font></div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Warrants</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">On July 17, 2012, the Company issued warrants to purchase up to 3,000,000 shares of our common stock to its founders and two advisors in consideration for services provided in the start-up of operations. The warrants are exercisable at a price of $1.00 per share and expire on June 20, 2023. The Company valued these warrants utilizing the Black-Scholes valuation model and they were determined to be of nominal value given the start-up nature of the Company's operations at the time of grant.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In conjunction with the June 2014 Stock Purchase Agreement, the Company issued warrants to purchase up to 450,000 shares of common stock to a group of private investors. The warrants are exercisable at a price of $1.00 per share and expire on June 12, 2020. The Company valued these warrants at $85,500. This amount was recorded as warrants and was reclassified from the total consideration received for both the common stock and warrants purchased.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In August 2014 as part of the June 2014 Stock Purchase Agreement, the Company issued warrants to purchase up to 550,000 shares of common stock with an exercise price of $1.00 per share that expire in August 2020. The Company valued these warrants at $104,500. This amount was recorded as warrants and was reclassified from the total consideration received for both the common stock and warrants purchased.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In March 2015, the Company entered into an agreement with a financial advisory and public relations consulting firm which included the issuance of warrants to purchase up to 90,000 shares of common stock with an exercise price of $2.50 per share with a term of five years and vest quarterly over one year. These warrants were in exchange for services performed beginning in the first quarter and were subsequently issued in April 2015. The Company estimated the vested warrant value to be $85,950 utilizing the Black Scholes option pricing model and amortized $4,168 for services provided for the three months ended March 31, 2016.</div> <div> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In April 2015, the Company entered into an agreement with one of its investors to provide advisory services on all matters including financing. In conjunction with this agreement, the Company issued warrants that vest immediately to purchase 100,000 shares of common stock with an exercise price of $5.00 per share with a term of ten years. The Company estimated the warrant value to be $326,000 utilizing the Black Scholes option pricing model and recorded this amount to general and administrative expense for the quarter due to the immediate vesting.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: left; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In April 2015, the Company issued to a former service provider in exchange for payment of its outstanding invoice warrants that vest immediately to purchase 6,000 shares of common stock with an exercise price of $2.50 per share. The Company estimated the warrant value to be $10,000 which represented the value of the trade debt extinguished. </div> <div style="text-align: left; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">In April 2015, the Company issued 50,000 warrants to purchase the Company's common stock in conjunction with its Series A Preferred Stock financing. The warrants are exercisable at a price of $5.00 per share and expire five years from the issuance date. In May 2015, the Company issued 30,000 warrants and in July 2015, 36,000 warrants under the same terms and conditions.</div> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">In June 2015, the Company issued to a service provider in exchange for consulting services warrants that vest immediately to purchase 10,000 shares of common stock with an exercise price of $5.00 per share with a term of five years. The Company estimated the warrant value to be $14,700 utilizing the Black Scholes option pricing model. </div> <div style="widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">In August 2015, the Company issued 6,250,000 warrants to purchase common stock in conjunction with its Series B Preferred Stock financing. See further discussion in Note 6 below.</div> <div style="widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">In August 2015, the Company issued 187,500 warrants to purchase common stock to its investment banker in exchange for services rendered in conjunction with the Series B Preferred Stock financing. The warrants vest immediately and have an exercise price of $1.15 per share. The Company estimated the value of the warrants to be $86,250 utilizing the Black Scholes option pricing model and recorded this amount to offering costs.</div> <div style="widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">In November 2015, the Company entered into an agreement with a financial advisory and public relations consulting firm which included the issuance of warrants to purchase up to 120,000 shares of common stock with an exercise price of $1.15 per share with a term of five years. These warrants are in exchange for services to be performed from November 25, 2015 to May 25, 2016 and 60,000 shares vest immediately with the remainder in one quarter. The Company estimated the warrant value of vested warrants to be $42,000 utilizing the Black Scholes option pricing model and amortized $18,600 for services provided in the three months ended March 31, 2016.</div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">The Company's board of directors considered various objective and subjective factors, along with input from management, to determine the fair value of the warrants, including:</div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" id="b2c6f9c16c044fec815ad7417f223c1d" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Contemporaneous valuation prepared by an independent third-party valuation specialist effective as of April 1, 2015, August 20, 2015, December 31, 2015, and March 31, 2016</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Its results of operations, financial position and the status of research and development efforts and achievement of enterprise milestones,</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">The composition of, and changes to, the Company's management team and board of directors,</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">The lack of liquidity of its common stock as a newly public company,</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">The Company's stage of development, business strategy and the material risks related to its business and industry,</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" id="d0d0a732f5f34c2ca2a2f3338fc9c3ce" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">The valuation of publicly-traded companies in the biotechnology sectors,</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">External market conditions affecting the biotechnology industry sectors,</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" id="c7d4d9f45fb8477a8ffd903c42beafc3" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">The likelihood of achieving a liquidity event for the holders of its common stock, such as an initial public offering, or IPO, or a sale of the Company, given prevailing market conditions, and</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" id="f510da4f8825428ba220d39501edfd67" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">The state of the IPO market for similarly situated biotechnology companies,</td> </tr> </table> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: medium 'times new roman'; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" class="dspflisttable" cellspacing="0" cellpadding="0"> <tr> <td style="width: 38.25pt;"></td> <td style="width: 18pt; font-family: symbol, serif; font-size: 10pt; vertical-align: top;">·</td> <td style="text-align: justify; width: auto; font-family: 'times new roman', times, serif; font-size: 10pt; vertical-align: top;">Discussions held with bankers, potential investors, and preliminary term sheets received as part of management's capital raise efforts.</td> </tr> </table> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">There are significant judgments and estimates inherent in the determination of the fair value of the Company's warrants. These judgments and estimates included the assumptions regarding its future operating performance, the time to completing an IPO or other liquidity event and the determination of the appropriate valuation methods. If the Company had made different assumptions, its warrant valuation could have been significantly different.</div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: bold italic 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">Stock Option Plans: 2014 Omnibus Incentive Plan</div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: bold italic 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">The 2014 Omnibus Incentive Plan (the "2014 Plan") was adopted to provide a means by which officers, non-employee directors, and employees of and consultants to the Company and its affiliates could be given an opportunity to acquire an equity interest in the Company. All officers, non-employee directors, and employees of and consultants to the Company are eligible to participate in the 2014 Plan.</div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div style="text-align: center; margin-top: 3pt; font-family: 'times new roman', times, serif; margin-bottom: 3pt; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: normal;"> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">On October 31, 2014, after the closing of the Merger, our Board of Directors approved the 2014 Plan. The 2014 Plan reserved 3,200,000 shares for future grants. As of March 31, 2016, options (net of canceled or expired options) covering an aggregate of 1,180,000 shares of the Company's common stock had been granted under the 2014 Plan, and the Company had 1,180,000 options outstanding and 820,000 shares available for future grants under the 2014 Plan.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">Options granted under the 2014 Plan expire no later than 10 years from the date of grant. Options granted under the 2014 Plan may be either incentive or non-qualified stock options. For incentive and non-qualified stock option grants, the option price shall be at least 100% of the fair value on the date of grants, as determined by the Company's Board of Directors. If at any time the Company grants an option, and the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, the option price shall be at least 110% of the fair value and shall not be exercisable more than five years after the date of grant.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">Options granted under the 2014 Plan may be immediately exercisable if permitted in the specific grant approved by the Board of Directors and, if exercised early may be subject to repurchase provisions. The shares acquired generally vest over a period of five years from the date of grant. The Company granted options to purchase 1,180,000 shares through March 31, 2016, under the 2014 Plan.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">The following is a summary of activity under the 2014 Plan as of March 31, 2016:</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0"> <tr style="height: 20px;"> <td style="padding-bottom: 2px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="vertical-align: top;" valign="bottom" colspan="3"> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: top;" valign="bottom" colspan="11"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Options Outstanding</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="border-bottom: #000000 2px solid; vertical-align: top;" valign="bottom" rowspan="3" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Shares Available</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">for Grant of</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Options & Shares</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" rowspan="3" nowrap="nowrap"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: bottom;" valign="bottom" rowspan="3" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Number of</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Shares</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" rowspan="3" nowrap="nowrap"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: bottom;" valign="bottom" rowspan="3" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Price per</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Share</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" rowspan="3" nowrap="nowrap"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: top;" valign="bottom" rowspan="3" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Weighted</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Average</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Exercise</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Price</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" rowspan="3" nowrap="nowrap"> </td> </tr> <tr> <td style="vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> </tr> <tr> <td style="vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> </tr> <tr> <td style="background-color: #cceeff; width: 790px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Balance at December 31, 2015</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 137px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">2,020,000</div> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1,180,000</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$0.42-3.00</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.63</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #ffffff; width: 790px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Options granted</div> </td> <td style="background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 137px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 790px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Options exercised</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 137px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; background-color: #ffffff; width: 790px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Options cancelled</div> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: right; background-color: #ffffff; width: 137px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: right; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 790px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Subtotal</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 137px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">2,020,000</div> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1,180,000</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.42-$3.00</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.63</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; background-color: #ffffff; width: 790px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Shares used for restricted stock awards (see discussion below)</div> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: right; background-color: #ffffff; width: 137px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">(1,200,000</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">)</div> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 4px; background-color: #cceeff; width: 790px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Balance at March 31, 2016</div> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 4px double; text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 4px double; text-align: right; background-color: #cceeff; width: 137px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">820,000</div> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 4px; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 4px; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 4px; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> </table> <div> </div> <div> </div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">The weighted average remaining contractual life in years of the options outstanding as of March 31, 2016 was 8.68 years.</div> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company's stock exceeded the exercise price of the stock options at March 31, 2016 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options"). As of March 31, 2016, the aggregate intrinsic value of options outstanding was $283,500. As of March 31, 2016, 218,000 options to purchase shares of common stock were exercisable.</div> <div> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Restricted Stock Awards</div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: left; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">Restricted stock awards ("RSAs") are granted to our board of directors and members of senior management and are issued pursuant to the Company's 2014 Omnibus Incentive Plan. On October 20, 2015, a total of 1,200,000 RSAs were granted to members of the Company's senior management and board of directors with a fair market value of approximately $900,000. These RSAs vest from one to three years from the grant date as services are rendered to the Company. For the three months ended March 31, 2016, the Company recorded $93,750 in stock-based compensation expense related to these awards. (See discussion below).</div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> <div style="text-align: center; margin-top: 3pt; font-family: 'times new roman', times, serif; margin-bottom: 3pt; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: normal;"> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Stock Based Compensation Expense</div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The Company recognizes stock-based compensation expense based on the fair value of that portion of stock options that are ultimately expected to vest during the period. Stock-based compensation expense recognized in the consolidated statement of operations includes compensation expense for stock-based awards based on the estimated grant date fair value over the requisite service period. For the three months ended March 31, 2016, the Company recognized stock-based compensation expense of $181,608 (including the $93,750 for RSAs discussed above) which was recorded as a general and administrative expense in the consolidated statement of operations. For the three months ended March 31, 2015, stock-based compensation expense was $136,348.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: left; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The total amount of unrecognized compensation cost related to non-vested stock options was $1,301,428 as of March 31, 2016. This amount will be recognized over a weighted average period of 3.64 years.</div> <div> </div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Valuation Assumptions</div> <div style="text-align: left; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">The fair value of options was estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of the Company's common stock for similar terms. The expected term was estimated using the simplified method as permitted under SAB No. 110, since the Company has no recent exercise or forfeiture history that is representative of options granted during the year. The expected term represents the estimated period of time that stock options are expected to be outstanding, which is less than the contractual term which is generally ten years. The risk-free interest rate is based on the U.S. Treasury yield. The expected dividend yield is zero, as the Company does not anticipate paying dividends in the near future. The weighted average assumptions for employee options are as follows:</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <table style="width: 98%; font-family: 'times new roman', times, serif; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="padding-bottom: 2px; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="padding-bottom: 2px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: middle;" valign="bottom" colspan="6"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Three Months Ended March 31,</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="padding-bottom: 2px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: middle;" valign="bottom" colspan="2"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">2016</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: middle;" valign="bottom" colspan="2"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">2015</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1155px; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Dividend yield</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.00</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.00</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> </tr> <tr> <td style="background-color: #ffffff; width: 1155px; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Volatility factor</div> </td> <td style="background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">75.00</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> <td style="background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">75.00</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1155px; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Risk-free interest rate</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1.68-1.85</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1.68</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> </tr> <tr> <td style="background-color: #ffffff; width: 1155px; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Expected term (years)</div> </td> <td style="background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">6.25-6.50</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">6.5</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1155px; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Weighted-average fair value of options granted during the periods</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1.48</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 136px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">6.08</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> </table> </div> </div> </div> </div>

<div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: bold 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">7. Income Taxes</div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </font> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">The Company records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. 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 March 31, 2016. As a result of this valuation allowance there are no income tax benefits reflected in the accompanying statement of operations to offset pre-tax losses.</div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">The Company has no uncertain tax positions as of March 31, 2016.</div> </div>

<div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: bold italic 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">Fair Value Measurements</div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: bold italic 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">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) 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:</div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <table style="widows: 1; text-transform: none; text-indent: 0px; border-collapse: collapse; font-family: 'times new roman', times, serif; letter-spacing: normal; font-size: 10pt; word-spacing: 0px; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">Level 1:</div> </td> <td style="width: 1418px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> </td> </tr> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> </td> <td style="width: 1418px; vertical-align: top;"> </td> </tr> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">Level 2:</div> </td> <td style="width: 1418px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">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</div> </td> </tr> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> </td> <td style="width: 1418px; vertical-align: top;"> </td> </tr> <tr> <td style="width: 49px; vertical-align: top;"> </td> <td style="width: 100px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">Level 3:</div> </td> <td style="width: 1418px; vertical-align: top;"> <div style="text-align: justify; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> </td> </tr> </table> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">The carrying values of our financial instruments, 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 Series B warrant liability and the conversion liability for the Series B preferred stock were valued utilizing Level 3 inputs primarily from a third party independent appraisal conducted as of March 31, 2016.</div> </div>

<div> <div style="widows: 1; text-transform: none; text-indent: 0px; font: 13px 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Property and Equipment, Net</div> <div style="text-align: justify; font-style: italic; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">As of March 31, 2016, property and equipment, net, was $20,798, consisting primarily of computers and equipment. The Company had $13,383 of property and equipment, net, as of December 31, 2015. 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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </div> </div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 0px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: justify; text-indent: 36pt; font-family: 'times new roman', times, serif; font-size: 10pt;">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.</div> </div> </div>

<div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: bold italic 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">Income Taxes</div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: bold italic 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">The Company accounts for our 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.</div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">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.</div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;">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.</div> </div>

<div> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 36pt; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> <table style="widows: 1; text-transform: none; text-indent: 0px; width: 99%; font-family: 'times new roman', times, serif; letter-spacing: normal; font-size: 10pt; word-spacing: 0px; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="vertical-align: bottom;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">For the year ending December 31,</div> </td> <td style="vertical-align: bottom;" valign="bottom"> </td> <td style="vertical-align: bottom;" valign="bottom" colspan="2"> </td> <td style="text-align: left; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1379px; vertical-align: bottom;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">2016</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 141px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">194,212</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #ffffff; width: 1379px; vertical-align: bottom;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">2017</div> </td> <td style="background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 141px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">149,466</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1379px; vertical-align: bottom;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">2018</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 141px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #ffffff; width: 1379px; vertical-align: bottom;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">2019</div> </td> <td style="background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 141px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1379px; vertical-align: bottom;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">2020</div> </td> <td style="background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 141px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1379px; vertical-align: bottom;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Thereafter</div> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: left; background-color: #ffffff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: right; background-color: #ffffff; width: 141px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 4px; background-color: #cceeff; width: 1379px; vertical-align: bottom;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Total</div> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 4px double; text-align: left; background-color: #cceeff; width: 16px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="border-bottom: #000000 4px double; text-align: right; background-color: #cceeff; width: 141px; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">343,678</div> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 15px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> </table> <div style="text-align: justify; widows: 1; text-transform: none; text-indent: 0px; font: bold italic 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> </div>

<table style="width: 100%; font-family: 'times new roman', times, serif; font-size: 10pt;" cellspacing="0" cellpadding="0"> <tr> <td style="padding-bottom: 2px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="vertical-align: top;" valign="bottom" colspan="3"> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: top;" valign="bottom" colspan="11"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Options Outstanding</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="border-bottom: #000000 2px solid; vertical-align: top;" valign="bottom" rowspan="3" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Shares Available</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">for Grant of</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Options & Shares</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" rowspan="3" nowrap="nowrap"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: bottom;" valign="bottom" rowspan="3" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Number of</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Shares</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" rowspan="3" nowrap="nowrap"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: bottom;" valign="bottom" rowspan="3" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Price per</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Share</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" rowspan="3" nowrap="nowrap"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: top;" valign="bottom" rowspan="3" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Weighted Average</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Exercise</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Price</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" rowspan="3" nowrap="nowrap"> </td> </tr> <tr> <td style="vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> </tr> <tr> <td style="vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> </tr> <tr> <td style="background-color: #cceeff; width: 52%; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Balance at December 31, 2015</div> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">2,020,000</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1,180,000</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$0.42-3.00</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.63</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #ffffff; width: 52%; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Options granted</div> </td> <td style="background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 52%; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Options exercised</div> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; background-color: #ffffff; width: 52%; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Options cancelled</div> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">-</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 52%; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Subtotal</div> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">2,020,000</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1,180,000</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.42-$3.00</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.63</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; background-color: #ffffff; width: 52%; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Shares used for restricted stock awards (see discussion below)</div> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">(1,200,000</div> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">)</div> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 2px; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 2px; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 4px; background-color: #cceeff; width: 52%; vertical-align: top;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Balance at March 31, 2016</div> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 4px double; text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 4px double; text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">820,000</div> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 4px; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 4px; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; padding-bottom: 4px; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; padding-bottom: 4px; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> </table>

<table style="width: 100%; font-family: 'times new roman', times, serif; font-size: 10pt;" cellspacing="0" cellpadding="0"> <tr> <td style="padding-bottom: 2px; vertical-align: middle;" valign="bottom"></td> <td style="padding-bottom: 2px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: middle;" valign="bottom" colspan="6"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Three Months Ended March 31,</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="padding-bottom: 2px; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="padding-bottom: 2px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: middle;" valign="bottom" colspan="2"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">2016</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="padding-bottom: 2px; vertical-align: bottom;" valign="bottom"> </td> <td style="border-bottom: #000000 2px solid; vertical-align: middle;" valign="bottom" colspan="2"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">2015</div> </td> <td style="text-align: left; padding-bottom: 2px; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 76%; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Dividend yield</div> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.00</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">0.00</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> </tr> <tr> <td style="background-color: #ffffff; width: 76%; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Volatility factor</div> </td> <td style="background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">75.00</div> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> <td style="background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">75.00</div> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> </tr> <tr> <td style="background-color: #cceeff; width: 76%; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Risk-free interest rate</div> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1.68-1.85</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1.68</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">%</div> </td> </tr> <tr> <td style="background-color: #ffffff; width: 76%; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Expected term (years)</div> </td> <td style="background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">6.25-6.50</div> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: right; background-color: #ffffff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">6.5</div> </td> <td style="text-align: left; background-color: #ffffff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> <tr> <td style="background-color: #cceeff; width: 76%; vertical-align: middle;" valign="bottom"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Weighted-average fair value of options granted during the periods</div> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">1.48</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> <td style="background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">$</div> </td> <td style="text-align: right; background-color: #cceeff; width: 9%; vertical-align: bottom;" valign="bottom"> <div style="font-family: 'times new roman', times, serif; font-size: 10pt;">6.08</div> </td> <td style="text-align: left; background-color: #cceeff; width: 1%; vertical-align: bottom;" valign="bottom" nowrap="nowrap"> </td> </tr> </table>

<div> <table style="widows: 1; text-transform: none; text-indent: 48px; width: 99%; border-collapse: collapse; font-family: 'times new roman', times, serif; letter-spacing: normal; font-size: 10pt; word-spacing: 0px; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr> <td style="width: 1159px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="border-bottom: #000000 2px solid; width: 408px; vertical-align: middle;" colspan="3"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">Three Months</div> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;"> Ended March 31,</div> </td> </tr> <tr> <td style="width: 1159px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="border-bottom: #000000 2px solid; width: 202px; vertical-align: middle;"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">2016</div> </td> <td style="width: 51px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="border-bottom: #000000 2px solid; width: 155px; vertical-align: middle;"> <div style="text-align: center; font-family: 'times new roman', times, serif; font-size: 10pt; font-weight: bold;">2015</div> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1159px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Dividend yield</div> </td> <td style="background-color: #cceeff; width: 202px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">0.00%</div> </td> <td style="background-color: #cceeff; width: 51px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="background-color: #cceeff; width: 155px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">NA</div> </td> </tr> <tr> <td style="background-color: #ffffff; width: 1159px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Volatility factor</div> </td> <td style="background-color: #ffffff; width: 202px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">70.00%</div> </td> <td style="background-color: #ffffff; width: 51px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="background-color: #ffffff; width: 155px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">NA</div> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1159px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Risk-free interest rate</div> </td> <td style="background-color: #cceeff; width: 202px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">1.11%</div> </td> <td style="background-color: #cceeff; width: 51px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="background-color: #cceeff; width: 155px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">NA</div> </td> </tr> <tr> <td style="background-color: #ffffff; width: 1159px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Expected term (years)</div> </td> <td style="background-color: #ffffff; width: 202px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">4.39</div> </td> <td style="background-color: #ffffff; width: 51px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="background-color: #ffffff; width: 155px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">NA</div> </td> </tr> <tr> <td style="background-color: #cceeff; width: 1159px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;">Weighted-average fair value of warrants granted during the periods</div> </td> <td style="background-color: #cceeff; width: 202px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">$0.45</div> </td> <td style="background-color: #cceeff; width: 51px; vertical-align: middle;"> <div style="text-align: left; font-family: 'times new roman', times, serif; font-size: 10pt;"> </div> </td> <td style="background-color: #cceeff; width: 155px; vertical-align: middle;"> <div style="text-align: right; font-family: 'times new roman', times, serif; font-size: 10pt;">NA</div> </td> </tr> </table> <div style="text-align: left; widows: 1; text-transform: none; text-indent: 48px; font: 10pt 'times new roman', times, serif; white-space: normal; letter-spacing: normal; color: #000000; word-spacing: 0px; -webkit-text-stroke-width: 0px;"> </div> </div>

12880000

Straight-line method

Two to three years

P5Y 3 2 P3M P60D P60D P30D 10000 65000 10000 25000 2100000 1400000

194212

149466

343678

4087

9267

5373

57559

7559

56706

820000 2020000

1180000

1200000

0.42 0.42 3.00 3.00

0.63

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0.0168

P6Y6M0D

P6Y3M0D

6.08

1.48

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1800000

2200000

450000

100000

6000

90000

10000

6250000

120000

550000

P5Y P5Y P5Y P5Y P4Y4M21D 2 900000 1100000 10000 326000 14700 86250 42000 85950 18600 4168

1110000

168000

5000 85500 625000 1000 104500 18 286000 1000000 1000000 2.50 0.80 2.50 2.50 0.80 0.80 0.80 0.80

580000

500

1812500

625000

10000

5000000

4500000

5000000

(A) 115% of the conversion amount and (B) the product of (1) the conversion rate in effect at such time and (2) the greatest closing sale price of the Common Stock during the period beginning on the date immediately preceding such triggering event and ending on the date such holder delivers the notice of redemption.

1,250:1

12194

3200000

820000

P10Y

1.00 0.10 1.10 P5Y

P1Y

P3Y

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P8Y8M5D

93750

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218000

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1232000

2.50

0.80

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0.7000

0.0111

P4Y4M21D

0.45

6437500 P5Y 154000 183000 142900 During the three months ended March 31, 2015, the Company issued warrants for our common stock for consulting services. The warrants were valued at $63,225 and were recorded as a Prepaid expense and are being amortized over the service period. The Company also issued shares of common stock for consulting services valued at $168,000. Such amounts were recorded as a Prepaid expense and are being amortized over the service period.During the three months ended March 31, 2016, warrants issued to service providers for consulting services were valued at $22,245 and were recorded as a Prepaid expense are being amortized over the service period. 0001516551nmus:ContractManufacturingOrganizationMembernmus:LetterAgreementMember2016-01-012016-03-31 2020000 0001516551us-gaap:CommonStockMember2015-08-012015-08-31

1250

0.80

5615000

60000

0001516551us-gaap:WarrantMember2016-01-012016-03-31

1180000

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Disclosure - Stockholders'Deficit and Preferred Stock Subject to Redemption - Summary of weighted average assumptions for employee option (Details 1) link:presentationLink link:definitionLink link:calculationLink 024 - Disclosure - Stockholders'Deficit and Preferred Stock Subject to Redemption (Detail Textuals) link:presentationLink link:definitionLink link:calculationLink 025 - Disclosure - Stockholders'Deficit and Preferred Stock Subject to Redemption (Detail Textuals 1) link:presentationLink link:definitionLink link:calculationLink 026 - Disclosure - Provision for Conversion of Preferred Stock (Detail Textuals) link:presentationLink link:definitionLink link:calculationLink 027 - Disclosure - Series B Warrants (Details) link:presentationLink link:definitionLink link:calculationLink 028 - Disclosure - Series B Warrants (Detail Textuals) link:presentationLink link:definitionLink link:calculationLink EX-101.CAL 8 nmus-20160331_cal.xml XBRL TAXONOMY EXTENSION CALCULATION LINKBASE EX-101.DEF 9 nmus-20160331_def.xml XBRL TAXONOMY EXTENSION DEFINITION LINKBASE EX-101.LAB 10 nmus-20160331_lab.xml XBRL TAXONOMY EXTENSION LABEL LINKBASE Document and Entity Information [Abstract] Document and Entity Information [Abstract] Entity Registrant Name Entity Registrant Name Entity Central Index Key Entity Central Index Key Trading Symbol Trading Symbol Current Fiscal Year End Date Current Fiscal Year End Date Entity Filer Category Entity Filer Category Entity Common Stock, Shares Outstanding Entity Common Stock, Shares Outstanding Document Type Document Type Document Period End Date Document Period End Date Amendment Flag Amendment Flag Document Fiscal Year Focus Document Fiscal Year Focus Document Fiscal Period Focus Document Fiscal Period Focus Statement Of Financial Position [Abstract] Statement of Financial Position [Abstract] Assets [Abstract] ASSETS Assets, Current [Abstract] Current assets Cash and Cash Equivalents, At Carrying Value Cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Restricted Cash and Cash Equivalents, Current Restricted cash Prepaid Expense, Current Prepaid expenses Other Assets, Current Other current assets Assets, Current Total current assets Total current assets Property, Plant and Equipment, Net Net equipment Property and equipment, net Net equipment Other Assets [Abstract] Other assets Deposits And Other Assets Deposits and other assets Represents aggregate carrying amount, as of the balance sheet date, of deposits and other assets. Other Assets, Noncurrent Total other assets Assets Total Assets Total assets Liabilities and Equity [Abstract] LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Liabilities, Current [Abstract] Current liabilities Accounts Payable, Current Accounts payable Accrued Salaries, Current Accrued payroll and related expenses Accrued License And Patent Reimbursement Fees Accrued license and patent reimbursement fees Represents carrying value as of the balance sheet date of obligations incurred through that date and payable for accrued license and patent reimbursement fees. Accrued Liabilities, Current Accrued expenses Provision For Conversion Of Preferred Stock Fair value of the conversion feature Provision for conversion of Series B preferred stock Represents the amount related to provision for conversion of preferred stock as of balance sheet date. Accrued Income Taxes, Current Income taxes payable Liabilities, Current Total current liabilities Liabilities, Noncurrent [Abstract] Noncurrent liabilities Deferred Rent Credit, Noncurrent Deferred rent Derivative Liability, Noncurrent Series B warrants Liabilities, Noncurrent Total noncurrent liabilities Total noncurrent liabilities Liabilities Total liabilities Commitments and Contingencies Commitments and contingencies (Note 3) Stockholders' Equity Attributable to Parent [Abstract] Stockholders' deficit Common Stock, Value, Issued Common stock, $0.001 par value; 236 million shares authorized; 19,913,163 issued and outstanding as of March 31, 2016 and 19,903,163 issued and outstanding as of December 31, 2015 Additional Paid in Capital, Common Stock Additional paid-in-capital Warrants and Rights Outstanding Warrants Retained Earnings (Accumulated Deficit) Accumulated deficit Retained earnings during the development stage Accumulated deficit Stockholders' Equity Attributable to Parent Total shareholders' equity Total stockholders' deficit Balance Balance Liabilities and Equity Total Liabilities and Shareholders' Equity Total liabilities and stockholders' deficit Preferred Stock, Par or Stated Value Per Share Preferred stock, par value (in dollars per share) Preferred Stock, Shares Authorized Preferred stock, shares authorized Stock Issuance Costs Redeemable Convertible Series B Preferred Stock, issuance costs Represents amount of stock issuance costs. Preferred Stock, Liquidation Preference, Value Liquidation preference value Common Stock, Par or Stated Value Per Share Par value of common stock issued (in dollars per share) Common stock, par value (in dollars per share) Common Stock, Shares Authorized Common stock, shares authorized Common Stock, Shares, Issued Common stock, shares issued Common Stock, Shares, Outstanding Common stock outstanding Common stock, shares outstanding Balance (in shares) Balance (in shares) Income Statement [Abstract] Income Statement [Abstract] Class of Stock [Axis] Class of Stock [Domain] Series A Preferred Stock [Member] Convertible Series A Preferred Stock Series A preferred stock Series B Preferred Stock [Member] Redeemable Convertible Series B Preferred Stock Series B Preferred Stock Operating Expenses [Abstract] Operating expenses Research and Development Expense Research and development expense Research and development General and Administrative Expense General and administrative expense General and administrative Operating Expenses Total operating expenses Total operating expenses Operating Income (Loss) Loss from operations Loss from operations Operating loss Nonoperating Income (Expense) [Abstract] Other expense Change In Fair Value Of Warrant Liability Change in fair market value at the re-measurement date recorded as non-operating expense Change in fair value of warrant liabilities Represents the amount related to change in fair value of warrant liability. Change in fair value of warrant liability Gain Loss On Conversion Right Preferred Stock Change in fair value of conversion rights Loss on conversion right of Series A preferred stock Represents the amount related to gain or loss on conversion right of preferred stock during the period. Change in fair value of conversion rights of Series B preferred stock Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest Net loss before income taxes Loss before income taxes Income Tax Expense (Benefit) Provision for income taxes Income tax expense per books Provision for income taxes Net Income (Loss) Attributable to Parent Net loss for the year Net loss Loss from operations Net loss Net income (loss) Earnings Per Share, Basic and Diluted Net income (loss) per share (Basic) (in dollars per share) Basic and diluted loss per common share (in dollars per share) Basic and diluted loss per common share (in dollars per share) Weighted Average Number Of Shares Outstanding, Basic and Diluted Weighted average common shares outstanding (Basic) Shares used in computing basic and diluted loss per share (in dollars per share) Statement of Cash Flows [Abstract] Statement of Cash Flows [Abstract] Net Cash Provided By (Used In) Operating Activities, Continuing Operations [Abstract] Cash flows from operating activities: Adjustments To Reconcile Net Income (Loss) To Cash Provided By (Used In) Operating Activities [Abstract] Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Depreciation Share-based Compensation Stock-based compensation expense Stock-based compensation expense Amortization of Financing Costs Amortization of warrants and stock issued for services Increase (Decrease) In Operating Assets [Abstract] Changes in assets and liabilities: Increase (Decrease) in Prepaid Expense Prepaid expenses Increase (Decrease) in Other Current Assets Other current assets Increase (Decrease) in Accounts Payable Accounts payable Increase (Decrease) in Employee Related Liabilities Accrued payroll and related expenses Increase Decrease In Accrued License And Patent Reimbursement Fees Accrued license and patent reimbursement fees Represents amount of increase (decrease) in accrued license and patent reimbursement fees. Accrued license and patent reimbursement fees Increase Decrease In Stock Subscription Liability Stock subscription liability Represents amount of increase (decrease) in Increase Decrease in stock subscription liability. Stock subscription liability Increase (Decrease) in Accrued Liabilities and Other Operating Liabilities Accrued expenses and other liabilities Net Cash Provided By (Used In) Operating Activities, Continuing Operations Cash flows provided from operations Net cash used in operating activities Net Cash Provided By (Used In) Investing Activities, Continuing Operations [Abstract] Cash flows from investing activities: Payments To Acquire Property, Plant, and Equipment Purchases of equipment Purchases of property and equipment Net Cash Provided By (Used In) Investing Activities, Continuing Operations Net cash provided by (used in) financing activities Net cash used in investing activities Net Cash Provided By (Used In) Financing Activities, Continuing Operations [Abstract] Cash flows from financing activities: Additional raise of funds for operations and development of lead products Additional fund raised Proceeds from common stock issuance, net of $3,920 issuance costs Net Cash Provided By (Used In) Financing Activities, Continuing Operations Net cash provided by financing activities Net cash provided by financing activities Cash and Cash Equivalents, Period Increase (Decrease) Net increase (decrease) in cash and cash equivalents Net decrease in cash and cash equivalents Supplemental Cash Flow Elements [Abstract] Supplemental disclosures of cash-flow information: Cash Paid During Period For Abstract Cash paid during the period for: Interest Paid Interest Income Taxes Paid Income taxes Payments of Stock Issuance Costs Proceeds from common stock issuance, net of $3,920 issuance costs Common stock issuance costs Noncash Value Of Warrants Issued Value of warrants issued to purchase shares of common stock for consulting services Represents noncash value of warrants issued to purchase shares of common stock for consulting services. Stock Issued Value of common stock issued for consulting services Accounting Policies [Abstract] Accounting Policies [Abstract] Basis of Presentation and Significant Accounting Policies [Text Block] Nature of Operations, Business Activities and Summary of Significant Accounting Policies University Of Mississippi Agreements [Abstract] University Of Mississippi Agreements [Text Block] University of Mississippi ("UM") Agreements Represents entire disclosure for University of Mississippi ("UM") Agreements. Commitments and Contingencies Disclosure [Abstract] Commitments and Contingencies Disclosure [Text Block] Commitments and Contingencies Equity [Abstract] Equity [Abstract] Stockholders' Equity Note Disclosure [Text Block] Stockholders' Deficit and Redeemable Convertible Series B Preferred Stock Provision For Conversion Of Preferred Stock [Abstract] Preferred Stock [Text Block] Provision for Conversion of Preferred Stock Series B Warrants [Abstract] Series B Warrants [Text Block] Series B Warrants The entire disclosure for series B warrants. Income Tax Disclosure [Abstract] Income Tax Disclosure [Abstract] Income Tax Disclosure [Text Block] Income taxes Use Of Estimates, Policy [Policy Text Block] Use of Estimates Liquidity And Going Concern [Policy Text Block] Liquidity and Going Concern Entire disclosure of policy for liquidity and going concern. Cash and Cash Equivalents, Policy [Policy Text Block] Cash and Cash Equivalents Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block] Restricted Cash Fair Value Measurement, Policy [Policy Text Block] Fair Value Measurements Property, Plant and Equipment, Policy [Policy Text Block] Property and Equipment, Net Income Tax, Policy [Policy Text Block] Income taxes Revenue Recognition, Policy [Policy Text Block] Revenue Recognition Research and Development Expense, Policy [Policy Text Block] Research and Development Expenses Compensation Related Costs, Policy [Policy Text Block] Stock-Based Compensation Expenses Stock Based Compensation For Non Employees [Policy Text Block] Stock-Based Compensation for Non-Employees Represents policy for stock based compensation for Non Employees. Segment Reporting, Policy [Policy Text Block] Segment Information Comprehensive Income, Policy [Policy Text Block] Comprehensive Income (Loss) Earnings Per Share, Policy [Policy Text Block] Earnings per share New Accounting Pronouncements, Policy [Policy Text Block] Recent Accounting Pronouncements Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block] Schedule of future minimum payments under non-cancelable operating leases Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block] Schedule of summary of stock option activity Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block] Schedule of weighted average assumptions for employee options Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block] Schedule of Series B Warrants Nature Of Operations Business Activities And Summary Of Significant Accounting Policies [Table] Represents Tabular disclosure of nature of operations, business activities and Summary of significant accounting policies. Business Acquisition [Axis] Business Acquisition, Acquiree [Domain] Nemus Acquisition Corp [Member] Nemus Acquisition Corp Represents information of Nemus Acquisition Corp. Legal Entity [Axis] Entity [Domain] Nature Of Operations Business Activities And Summary Of Significant Accounting Policies [Line Items] Nature of Operations, Business Activities and Summary of Significant Accounting Policies [Line Items] Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table. Number Of Shares Exchanged Number of shares exchanged This element represents number of shares exchanged. Property, Plant and Equipment, Depreciation Methods Property, plant and equipment, depreciation methods Property, Plant and Equipment, Estimated Useful Lives Property plant and equipment estimated useful life Number of Reportable Segments Number of reportable segment Stock Issued During Period, Shares, Reverse Merger Reverse merger common stock issuance with par value (in shares) Represents number of shares issued during the period for reverse merger. University Of Mississippi Agreements [Table] Tabular disclosure of information regarding University of Mississippi agreements. Agreement [Axis] Represents information regarding agreements of an entity. Agreement [Domain] Represents information regarding agreement of an entity. University Of Mississippi Agreements [Member] University of Mississippi ("UM") Agreements Represents information regarding University of Mississippi ("UM") Agreements. Option Agreement [Member] UM 5050 pro-drug agreements Represents information regarding option agreement. Research Agreement [Member] Other pro-drugs and potential formulations Represents information about research agreement with UM. License Agreement [Member] UM 8930 pro-drug agreements Represents license agreement. University Of Mississippi [Member] University of Mississippi Represents information regarding university of mississippi. Finite-Lived Intangible Assets by Major Class [Axis] Finite-Lived Intangible Assets, Major Class Name [Domain] Intellectual Property [Member] Intellectual Property Balance Sheet Location [Domain] Month And Year Of Agreement [Axis] Information regarding month and year of agreement. Month And Year Of Agreement [Domain] Represents month and year of agreement in which company entered into. December 2015 [Member] December 2015 Represents december 2015 as agreement month and year. October Two Thousand Fifteen [Member] October 2014 Represents agreement date of the agreement. University Of Mississippi Agreements [Line Items] Line item represents information regarding University of Mississippi agreements. Term Of Memorandum Of Understanding Agreement Term of memorandum of understanding agreement This element represents duration of an agreement, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. Includes, but not limited to, weeks in a year or quarter. Number Of License Agreements Number of license agreements Represents number of license agreements. Notice Period For Termination Notice period for termination This element represents written notice period for termination under agreement by either party. One Time Upfront Payment One-time up-front option payment under University of Mississippi option agreement One time up front payment This element represents amount of one-time upfront payment. Annual Fees For License Agreement Annual fees for license agreement Represents annual fees for license agreement. Aggregate Milestone Payments If Milestones Achieved Aggregate milestone payments if milestones achieved This element represents amount of aggregate milestone payments under the license agreements if the milestones are achieved. Operating Leases, Future Minimum Payments Due, Next Twelve Months 2016 Operating Leases, Future Minimum Payments, Due in Two Years 2017 Operating Leases, Future Minimum Payments, Due in Three Years 2018 Operating Leases, Future Minimum Payments, Due in Four Years 2019 Operating Leases, Future Minimum Payments, Due in Five Years 2020 Operating Leases, Future Minimum Payments, Due Thereafter Thereafter Operating Leases, Future Minimum Payments Due Total Schedule of Operating Leased Assets [Table] Letter Agreement [Member] Letter agreement ("Agreement") Represents letter agreement. Contract Manufacturing Organization [Member] Contract manufacturing organization ("CMO") Represents third party, contract manufacturing organization. Range [Axis] Range [Domain] Minimum [Member] Minimum Maximum [Member] Maximum Operating Leased Assets [Line Items] Area of Land Area of corporate office headquarters Area of land Operating Leases, Rent Expense, Net Rent expense Fees And Expenses For Services Provided Fees and expenses for the initial evaluation and development Represents amount of fees and expenses for services provided. Analytical Method Development And Qualification Expense Estimated analytical method development and qualification Represents analytical method development and qualification expense. Schedule of Share-based Compensation Arrangements by Share-based Payment Award [Table] Award Type [Axis] EX-101.PRE 11 nmus-20160331_pre.xml XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE XML 12 R1.htm IDEA: XBRL DOCUMENT

Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2016	May. 11, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	Nemus Bioscience, Inc.
Entity Central Index Key	0001516551
Trading Symbol	nmus
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		19,913,163
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1

XML 13 R2.htm IDEA: XBRL DOCUMENT

CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Current assets
Cash and cash equivalents	$ 2,061,622	$ 3,221,209
Restricted cash	37,500	37,500
Prepaid expenses	157,096	158,946
Other current assets	28,626	36,126
Total current assets	2,284,844	3,453,781
Property and equipment, net	20,798	13,383
Other assets
Deposits and other assets	43,884	43,884
Total other assets	43,884	43,884
Total assets	2,349,526	3,511,048
Current liabilities
Accounts payable	137,370	125,357
Accrued payroll and related expenses	26,649	46,268
Accrued license and patent reimbursement fees	32,500	97,500
Accrued expenses	156,025	228,645
Provision for conversion of Series B preferred stock	137,074	84,090
Income taxes payable	400
Total current liabilities	490,018	581,860
Noncurrent liabilities
Deferred rent	3,244	3,233
Series B warrants	2,866,439	2,454,959
Total noncurrent liabilities	2,869,683	2,458,192
Total liabilities	$ 3,359,701	$ 3,040,052
Commitments and contingencies (Note 3)
Redeemable Convertible Series B Preferred Stock, $0.001 par value, 20 million shares authorized; 4,492 issued and outstanding as of March 31, 2016 and 4,500 issued and outstanding as of December 31, 2015, net of $493,770 of issuance costs; $4.5 million liquidation preference as of March 31, 2016	$ 1,359,899	$ 1,363,200
Stockholders' deficit
Common stock, $0.001 par value; 236 million shares authorized; 19,913,163 issued and outstanding as of March 31, 2016 and 19,903,163 issued and outstanding as of December 31, 2015	19,913	19,903
Additional paid-in-capital	6,272,129	6,086,987
Warrants	781,811	759,386
Accumulated deficit	(9,443,927)	(7,758,480)
Total stockholders' deficit	(2,370,074)	(892,204)
Total liabilities and stockholders' deficit	$ 2,349,526	$ 3,511,048

XML 14 R3.htm IDEA: XBRL DOCUMENT

CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Redeemable Convertible Series B Preferred Stock, par value (in dollars per share)	$ 0.001	$ 0.001
Redeemable Convertible Series B Preferred Stock, shares authorized	20,000,000	20,000,000
Redeemable Convertible Series B Preferred Stock, shares issued	4,492	4,500
Redeemable Convertible Series B Preferred Stock, shares outstanding	4,492	4,500
Redeemable Convertible Series B Preferred Stock, issuance costs	$ 493,770
Redeemable Convertible Series B Preferred Stock, liquidation preference value	$ 4,500,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	236,000,000	236,000,000
Common stock, shares issued	19,913,163	19,903,163
Common stock, shares outstanding	19,913,163	19,903,163

XML 15 R4.htm IDEA: XBRL DOCUMENT

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Operating expenses
Research and development	$ 135,358	$ 37,200
General and administrative	1,084,981	872,625
Total operating expenses	1,220,339	909,825
Operating loss	(1,220,339)	(909,825)
Other expense
Change in fair value of warrant liability	411,480
Change in fair value of conversion rights of Series B preferred stock	53,228
Loss before income taxes	(1,685,047)	(909,825)
Provision for income taxes	400	400
Net loss	$ (1,685,447)	$ (910,225)
Basic and diluted loss per common share (in dollars per share)	$ (0.08)	$ (0.06)
Shares used in computing basic and diluted loss per share (in dollars per share)	19,904,921	16,233,641

XML 16 R5.htm IDEA: XBRL DOCUMENT

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($)

3 Months Ended

Mar. 31, 2016

Mar. 31, 2015

Cash flows from operating activities:

Net loss

$ (1,685,447)

$ (910,225)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

3,701

2,313

Stock-based compensation expense

181,608

136,348

Amortization of warrants and stock issued for services

^[1]

38,161

50,202

Change in fair value of conversion rights of Series B preferred stock

53,228

Change in fair value of warrant liabilities

411,480

Changes in assets and liabilities:

Prepaid expenses

^[1]

(13,886)

(39,992)

Other current assets

7,500

4,470

Accounts payable

12,013

(21,392)

Accrued payroll and related expenses

(19,619)

63,344

Accrued license and patent reimbursement fees

(65,000)

(119,428)

Stock subscription liability

50,000

Accrued expenses and other liabilities

(72,210)

32,666

Net cash used in operating activities

(1,148,471)

(751,694)

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 common stock issuance, net of $3,920 issuance costs

721,069

Net cash provided by financing activities

721,069

Net decrease in cash and cash equivalents

(1,159,587)

(30,625)

Cash and cash equivalents, beginning of period

3,221,209

207,330

Cash and cash equivalents, end of period

$ 2,061,622

$ 176,705

Cash paid during the period for:

Interest

Income taxes

$ 800

[1]

During the three months ended March 31, 2015, the Company issued warrants for our common stock for consulting services. The warrants were valued at $63,225 and were recorded as a Prepaid expense and are being amortized over the service period. The Company also issued shares of common stock for consulting services valued at $168,000. Such amounts were recorded as a Prepaid expense and are being amortized over the service period.During the three months ended March 31, 2016, warrants issued to service providers for consulting services were valued at $22,245 and were recorded as a Prepaid expense are being amortized over the service period.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Parentheticals) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Statement of Cash Flows [Abstract]
Common stock issuance costs		$ 3,920
Value of warrants issued to purchase shares of common stock for consulting services	$ 22,245	63,225
Value of common stock issued for consulting services		$ 168,000

XML 18 R7.htm IDEA: XBRL DOCUMENT

Nature of Operations, Business Activities and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Nature of Operations, Business Activities and Summary of Significant Accounting Policies

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

Nature of Operations and Basis of Presentation

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.

Business Activities

Use of Estimates

Liquidity and Going Concern

Cash and Cash Equivalents

Restricted Cash

Fair Value Measurements

	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

	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.

Property and Equipment, Net

Income Taxes

Revenue Recognition

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

Research and Development Expenses

Stock-Based Compensation Expenses

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 stock price volatility based on industry peers who are also in the early development stage given the limited market data available in the public arena.

Dividends – The dividend yield assumption is based on our history and expectation of paying no dividends.

Stock-Based Compensation for Non-Employees

Segment Information

Comprehensive Income (Loss)

Earnings per share

Recent accounting pronouncements

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University of Mississippi ("UM") Agreements	3 Months Ended
University of Mississippi ("UM") Agreements	Mar. 31, 2016
University Of Mississippi Agreements [Abstract]
University of Mississippi ("UM") Agreements	2. University of Mississippi ("UM") Agreements In July 2013, the Company entered into a Memorandum of Understanding (MOU) with UM to engage in joint research of extracting, manipulating, and studying cannabis in certain forms to develop intellectual property (IP) with the intention to create and commercialize therapeutic medicines. Nemus will own all IP developed solely by its employees and will jointly own all IP developed jointly between Nemus and UM employees. The term of the MOU agreement is five years and the parties agree to negotiate separate research agreements upon the identification of patentable technologies as well as any deemed to be a trade secret. The agreement may be terminated by either party with three months written notice to the other party. UM 5050 pro-drug agreements: On September 29, 2014, the Company executed three license agreements with UM pursuant to which UM granted us exclusive, perpetual, worldwide licenses, including the right to sublicense, to intellectual property related to UM 5050, a pro-drug formulation of tetrahydrocannabinol, or THC for products administered through each of ocular, oral or rectal delivery. The license agreement for the field of oral delivery also includes rights to UM 1250, a bio-adhesive hot melt extruded film for topical and mucosal adhesion application and drug delivery. The license agreements contain certain milestone and royalty payments, as defined therein. The aggregate milestone payments under the license agreements if the milestones are achieved is $2.1 million. These licenses also require the Company to reimburse UM for patent costs incurred related to these products under license. The agreements will terminate upon expiration of the patents, breach or default of the license agreements, or upon 60 days written notice by the Company to UM. On October 15, 2014, we signed a renewable option agreement for the rights to explore other routes of delivery of UM5050 not yet agreed upon and/or in combination with other cannabinoids or other compatible compounds. There was a one-time up-front option payment of $10,000 for a six month option period that has subsequently been renewed under the same financial terms and conditions. The most recent renewal occurred for the six month period beginning April 1, 2016. In September 2015, the Company entered into a research agreement with UM to advance Nemus' lead proprietary cannabinoid-based therapy (UM5050) developed for the treatment and management of glaucoma into an optimized once-daily treatment formulation. The fee payable to UM is based on the achievement of certain milestones in the project. There was no expense recorded for the three months ending March 31, 2016 related to this agreement. UM 8930 pro-drug agreements: On December 14, 2015, the Company executed two license agreements with UM pursuant to which UM granted us exclusive, perpetual, worldwide licenses, including the right to sublicense, to intellectual property related to UM 8930, a pro-drug formulation of cannabidiol, or CBD for products administered through each of ocular or rectal delivery. The license agreements contain certain milestone and royalty payments, as defined therein. There is a one-time upfront payment of $65,000 per license agreement, payable in four equal monthly installments that started on December 15, 2015. There is an annual fee of $25,000 per license agreement, payable on the anniversary of each effective date. The aggregate milestone payments under the license agreements if the milestones are achieved is $1.4 million. These licenses also require the Company to reimburse UM for patent costs incurred related to these products under license. These license agreements will terminate upon expiration of the patents, breach or default of the license agreements, or upon 60 days written notice by the Company to UM. On December 14, 2015, we signed a renewable option agreement for the rights to explore other routes of delivery of UM8930 not yet agreed upon and/or in combination with other cannabinoids or other compatible compounds. There was a one-time up-front option payment of $10,000 for an option period ending March 31, 2016. This option was subsequently renewed for a six month period ending September 30, 2016, under the same financial terms and conditions. Other pro-drugs and potential formulations: In March 2015, in lieu of a license agreement, the Company entered into a research agreement with UM to begin in vitro studies concerning the medical utility of cannabinoids as anti-infective therapeutics for MRSA. The fee payable to UM under the agreement is based on the achievement of certain milestones in the project. There was no expense recorded for the three months ending March 31, 2016 related to this agreement. The Company has moved into in vivo studies of this compound in 2016. Either party may terminate the agreement with 30 days written notice. On December 19, 2015, the Company entered into a research agreement with UM to advance specialized cannabinoid derivatives for the treatment of chemo-therapy induced peripheral neuropathy (CIPN). The fee payable to UM is based on the achievement of certain milestones in the project. The Company recognized $18,536 as research and development expense for the three months ended March 31, 2016 for work completed under this contract. The agreement also grants an exclusive option to license the technology from the University within 180 days from the commencement of the agreement. Either party may terminate the agreement with 30 days written notice.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

3. Commitments and Contingencies

Lease Commitments

Total net rent expense related to our operating leases for the three months ended March 31, 2016 and 2015 was $56,706 and $57,559, respectively.

Future minimum payments under the non-cancelable portion of our operating leases as of March 31, 2016 are as follows:

For the year ending December 31,
2016	$	194,212
2017		149,466
2018		-
2019		-
2020		-
Thereafter		-
Total	$	343,678

Legal Matters

General Litigation and Disputes

Government Proceedings

Change in Control Severance Plan

Contract Manufacturing Organization (“CMO”) Agreement

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Stockholders' Deficit and Redeemable Convertible Series B Preferred Stock

3 Months Ended

Mar. 31, 2016

Equity [Abstract]

Stockholders' Deficit and Redeemable Convertible Series B Preferred Stock