SEC Filing Summary: Nemus Bioscience, Inc. Form 10-Q
Period: Quarter ended September 30, 2018; filed November 13, 2018. Entity discrepancy: The request identifies Skye Bioscience, Inc., but the supplied filing is for Nemus Bioscience, Inc. Investors should confirm the intended issuer.
Business context
Nemus is a pre-revenue biopharmaceutical company developing cannabinoid-based therapeutics under licenses and agreements with the University of Mississippi. It reported focusing on ocular programs, including NB1111 for glaucoma. The company says it has not begun planned principal operations and is years from potential revenue.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $1.05 million | $0.76 million | $3.38 million | $2.87 million |
| Net loss | $2.10 million | $0.48 million | $12.97 million | $2.47 million |
| Loss per common share | $0.02 | $0.02 | $0.11 | $0.12 |
| Cash used in operations | Not separately provided for the quarter | $2.93 million | $1.19 million |
At September 30, cash and cash equivalents were $1.06 million, total current assets $1.16 million, and total current liabilities $11.32 million. The company reported a $10.16 million working-capital deficit, $27.00 million accumulated deficit, and $10.16 million stockholders’ deficit. Current liabilities included $11.11 million of short-term warrant liabilities; no convertible debt remained outstanding at quarter-end. No gross margin was reported because there was no revenue.
Material changes and unusual items
- Q3 operating expenses increased $284,000 year over year, chiefly from higher general and administrative costs; R&D was $67,000 versus $89,000.
- Nine-month net loss rose $10.51 million year over year. The 2018 result included $9.59 million of other expense, largely from warrant accounting: $7.17 million for the Emerald warrants’ initial fair value exceeding financing proceeds and $1.47 million from subsequent fair-value changes.
- Emerald’s January–February financing generated $3.25 million in gross proceeds and included 44.2 million warrants with a $0.10 exercise price. The related warrants were recorded as liabilities, making reported earnings highly sensitive to valuation assumptions.
- All remaining Series B, D, and F preferred stock converted to common stock during the first nine months. Common shares outstanding were 133.45 million at September 30 and 133.87 million as of November 13.
Outlook, risks and contingencies
Management stated that, without additional funding, the company would not have sufficient resources to meet obligations within one year after issuance of the statements; the filing identifies substantial doubt about its ability to continue as a going concern. It expects continued losses and significant R&D, public-company, and potential staffing costs. Funding may require equity issuance, debt, licensing, or other arrangements, with possible dilution or loss of asset rights.
After quarter-end, Nemus entered a related-party, unsecured credit facility with Emerald for up to $20 million. Advances bear 7% interest, mature October 5, 2022, and may be converted by Emerald at $0.40 per share; warrants are also issued with advances. The filing reports an initial $2 million draw on November 1, 2018, with a warrant for 2.5 million shares. Draws require board approval, and Emerald-affiliated directors and executives control the board.
A dispute over a proposed $20 million Series E financing remained in arbitration; the purchaser and guarantor allegedly failed to fund or honor a guarantee. The filing does not report a recovery. The company also disclosed license milestones, royalties, patent-cost reimbursements, and research/manufacturing commitments. It reported no other material pending or threatened lawsuits and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether the intended filing is Nemus Bioscience rather than Skye Bioscience, and whether any subsequent corporate or ticker changes affect the issuer identity.
- Availability and terms of Emerald credit-facility advances, including the reported $2 million draw, board approval, conversion rights, and warrant dilution.
- Cash runway and the company’s ability to meet obligations given the going-concern warning and working-capital deficit.
- Valuation assumptions and potential earnings volatility associated with the $11.11 million warrant-liability balance.
- Status and potential financial impact of the $20 million arbitration claim, and progress, costs, and milestones for the company’s licensed drug programs.