Business context and reporting period
The provided filing is Nemus Bioscience, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017—not a filing identified as Skye Bioscience, Inc. Verify the issuer before relying on this summary. Nemus is an early-stage biopharmaceutical company developing cannabinoid-based therapeutics with the University of Mississippi. It had generated no revenue and had not begun planned principal operations.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $730,927 | $2,111,080 | $1,482,035; $2,702,374 |
| Net income (loss) | $(702,764) | $(1,985,981) | $573,093; $(1,112,354) |
| Net loss applicable to common shareholders | $(702,764) | $(2,696,981) | $573,093; $(1,112,354) |
| Cash used in operating activities | $(1,087,818) for six months | $(2,378,435) for six months |
At June 30, 2017, cash and cash equivalents were $108,859, with a further $37,500 of restricted cash pledged for credit cards. Current assets were $445,027 and current liabilities were $1,188,638. Total liabilities were $2,261,948; the filing reports no conventional borrowings. The balance sheet also included a $1,073,310 Series B warrant liability. Stockholders’ deficit was $2,926,768. Margins are not meaningful because there was no revenue.
Six-month net loss attributable to common shareholders includes $711,000 in preferred deemed dividends ($536,000 Series D and $175,000 Series C). The filing’s statements of operations report R&D expense of $60,651 for the quarter and $152,751 for six months; MD&A gives different figures ($60,561 and $152,171), so the text does not provide a consistent value.
Changes versus comparable periods
- Quarterly operating expenses fell to $730,927 from $1,482,035; six-month expenses fell to $2,111,080 from $2,702,374. Management attributed the reduction mainly to lower R&D activity and cash-conservation cuts to areas including investor relations, travel, rent, and office costs.
- The 2016 second-quarter net income reflected $2.055 million of non-operating gains from remeasurement of Series B warrants and conversion rights. In 2017, comparable non-operating income was $29,763. For the six-month periods, non-operating income was $127,530 in 2017 versus $1,590,820 in 2016.
- Six-month net loss widened from $1,112,354 to $1,985,981, despite lower operating expenses, and cash used in operations decreased from $2,378,435 to $1,087,818.
- Cash rose from $64,820 at December 31, 2016 to $108,859 at June 30, 2017. The company received $1,131,857 net from Series D preferred stock financing, while issuing substantial common shares through preferred-stock conversions and advisory compensation.
Outlook, risks, and unusual items
- Management expects continuing losses and significant R&D, public-company, and potential hiring costs. It stated that available funds without additional financing would not meet obligations for one year after issuance of the financial statements; the filing therefore identifies substantial doubt about the company’s ability to continue as a going concern.
- A proposed $20 million Series E preferred-stock financing had not closed. The purchaser failed to fund by July 10, 2017 and requested an extension. An affiliate had guaranteed payment, and the company exercised that guarantee on July 12; the filing does not establish that the financing proceeds were received.
- Funding is uncertain. Additional equity could materially dilute shareholders; debt or senior securities could impose restrictive covenants. Without sufficient funds, the company may reduce or suspend programs, delay payments, liquidate assets, or surrender rights to partners.
- Key business risks include early-stage development and regulatory uncertainty, dependence on the University of Mississippi and third parties, intellectual-property protection, and the need for future financing. The company reported no litigation or government proceedings and no off-balance-sheet arrangements.
- Series B, C, and D preferred securities and related warrants include conversion, anti-dilution, and redemption provisions. Series C was fully converted by June 30, 2017; Series B and D preferred shares remained outstanding.
Important facts for investors to verify
- Confirm the issuer: this source names Nemus Bioscience, Inc., whereas the request metadata names Skye Bioscience, Inc.
- Determine whether the Series E purchase price or guarantee was ultimately collected, and review any subsequent filings on the transaction.
- Reconcile the R&D expense discrepancies between the financial statements and MD&A.
- Assess cash runway, obligations, and financing needs in light of the going-concern warning and low cash balance.
- Review the conversion, dilution, and potential redemption implications of preferred stock and warrants, along with the status and costs of the University of Mississippi licenses and development programs.