Business context and reporting period
Entity note: The supplied filing is Nemus Bioscience, Inc.’s Form 10-Q for the quarter ended June 30, 2018; it does not identify Skye Bioscience, Inc. as the registrant. The company describes itself as an early-stage cannabinoid therapeutics developer focused on ophthalmology, working with the University of Mississippi. It had not generated revenue.
Financial performance and position
- Revenue and margins: No revenue in the three or six months ended June 30, 2018 or the comparable 2017 periods; gross margins are not applicable.
- Second quarter: Operating expenses were $1.08 million, up from $731,000 a year earlier, primarily reflecting higher compensation, severance, professional fees, and Emerald-related consulting. Net loss was $2.66 million, versus $703,000. The 2018 loss included $1.58 million of expense from changes in warrant-liability fair value.
- First half: Operating expenses were $2.33 million, versus $2.11 million. Net loss was $10.88 million, versus $1.99 million. The 2018 result included $7.17 million of expense because the Emerald warrants’ initial fair value exceeded financing proceeds, as well as warrant revaluation, financing costs, and convertible-debt extinguishment and discount charges.
- Cash flow: First-half operating cash use was $2.11 million, versus $1.09 million in 2017. Financing provided $3.73 million; cash and restricted cash increased by $1.61 million to $1.88 million at June 30.
- Liquidity and liabilities: Cash and cash equivalents were $1.87 million. Current assets were $2.04 million and current liabilities $10.29 million, including $10.09 million of short-term warrant liabilities; the company reported an $8.25 million working-capital deficit. Total liabilities were $10.29 million, against total assets of $2.04 million. The $900,000 Emerald bridge loan was converted to common stock in January; no convertible debt remained on the June 30 balance sheet.
- Equity and dilution: Common shares outstanding were 132.7 million at June 30, versus 33.6 million at year-end 2017. The company reported 51.2 million outstanding warrants, including 44.2 million Emerald financing warrants.
Material changes versus prior period
- Emerald’s January and February financings provided $3.25 million gross proceeds and resulted in a change of control, new board appointments, and issuance of 44.2 million warrants exercisable at $0.10 per share.
- All remaining Series B, D, and F preferred stock converted to common stock during the first half. Warrant exercises issued 4.69 million shares and generated $98,700.
- Research and development expense fell to $25,000 for the first half from $153,000; second-quarter R&D expense was zero. Management said this reflected its shift toward an ophthalmology-focused strategy.
- The company corrected the prior-quarter classification of warrant liabilities from long-term to short-term, describing the error as immaterial and stating it did not affect total liabilities or reported results.
Outlook, risks, contingencies, and unusual items
- Going concern: Management said available funds would not meet obligations for one year from issuance of the financial statements without additional funding, and disclosed substantial doubt about the company’s ability to continue as a going concern. Further equity, debt, collaboration, licensing, asset-sale, or grant funding was uncertain; equity financing could substantially dilute shareholders. Failure to raise funds could force cuts, program suspensions, or cessation of operations.
- Development outlook: Management intends to advance NB1111, a THC prodrug, toward human studies for glaucoma and reported animal-model IOP reductions exceeding 40%. These are company-reported preclinical results, not evidence of clinical efficacy. NB2222, a CBD analog, remained in early development; management planned further formulation and synthesis work in 2018. The filing provides no assured clinical-trial timetable or revenue guidance.
- Costs and dependencies: Management expected significant R&D, public-company, legal and accounting costs, and possible hiring as it prepared for clinical studies. Development depends on regulatory progress, University of Mississippi licenses, third parties, and access to capital. Ocular licenses renewed in July 2018 carry annual fees, royalties, patent-cost reimbursement, and potential milestone payments.
- Contingency: The company was pursuing arbitration over a failed $20 million Series E financing and an unpaid guarantee. The proceeding was ongoing; the filing does not report a recovery or recognized asset.
- Subsequent event: A July 31, 2018 AMRI agreement covered process and analytical-method development for the THC prodrug, with an estimated initial cost of $64,200 and additional potential project costs.
- Reporting controls: Management concluded disclosure controls were effective at a reasonable-assurance level as of June 30, 2018. It reported no material change in internal control over financial reporting other than hiring a new CFO.
Important facts for investors to verify
- Confirm the issuer and ticker: the supplied filing names Nemus Bioscience, Inc., not Skye Bioscience, Inc.
- Assess the company’s ability to obtain sufficient financing and the implications of the disclosed going-concern uncertainty and working-capital deficit.
- Review the accounting assumptions and potential volatility underlying the $10.09 million warrant liability, including its anti-dilution and contingent put provisions.
- Verify the status, funding needs, and regulatory milestones for NB1111 and NB2222; distinguish reported animal findings from human clinical evidence.
- Check the potential dilution and control effects of the 44.2 million Emerald warrants, other outstanding warrants, and the expanded common-share count.
- Track the arbitration claim and any developments in the University of Mississippi and AMRI arrangements, including costs, milestones, royalties, and license status.