Business context and reporting period
This is Nemus Bioscience, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2014—not a filing identified in the request as Skye Bioscience, Inc. Nemus was a development-stage biopharmaceutical company pursuing cannabinoid-based therapeutics with the University of Mississippi (UM); it had generated no revenue and its candidates were in preclinical development.
On October 31, 2014, after quarter-end, the company completed a reverse merger in which Nemus became a wholly owned subsidiary of the former Load Guard Logistics, Inc., which changed its name to Nemus Bioscience, Inc. The filing’s historical financial statements reflect Nemus as the accounting acquirer.
Financial performance and position
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Revenue | $0 in 2014 and 2013 | $0 in 2014 and 2013 |
| Research and development | $195,000 in 2014; $0 in 2013 | $195,000 in 2014; $0 in 2013 |
| General and administrative | $662,613 in 2014; $30,101 in 2013 | $835,634 in 2014; $90,303 in 2013 |
| Total operating expenses | $857,613 in 2014; $30,101 in 2013 | $1,030,634 in 2014; $90,303 in 2013 |
| Net loss | $858,518 in 2014; $30,101 in 2013 | $1,031,539 in 2014; $90,303 in 2013 |
| Basic and diluted loss per share | $0.08 in 2014; $0.00 in 2013 | $0.12 in 2014; $0.01 in 2013 |
Gross margin is not applicable because the company reported no revenue. Management attributed higher expenses mainly to UM license-related R&D costs and consulting and professional fees, including costs of becoming a public company.
At September 30, 2014, cash and cash equivalents were $1,025,023; total assets were $1,125,796; current liabilities were $349,508, consisting of accrued expenses; and stockholders’ equity was $776,288. The filing reports no debt. Nine-month operating cash use was $952,568, investing cash use was $12,389, and financing provided $1,989,980 from stock issuance, net of offering costs. Cash at period-end was $1,025,023.
Material changes versus the prior comparable period
- Nine-month net loss increased to $1.03 million from $90,303, while operating expenses rose to $1.03 million from $90,303.
- G&A increased to $835,634 from $90,303; R&D began at $195,000, versus none in 2013.
- The company raised $2.0 million net through 2014 stock sales and reported $1.03 million in cash, compared with no cash at December 31, 2013.
- At September 30, 2014, 11.77 million shares were issued and outstanding, compared with 7.77 million at December 31, 2013. The filing reports 16 million shares outstanding after the subsequent merger as of November 13, 2014.
Outlook, risks, contingencies and unusual items
Management expects continued losses and significant R&D and public-company costs. It stated that, without additional funding, cash would not be sufficient to meet obligations beyond September 2015 and disclosed substantial doubt about the company’s ability to continue as a going concern. It plans to seek equity or debt financing, collaborations, licensing arrangements, grants, asset sales or other funding, but gives no assurance that funds will be available. Equity financing could dilute shareholders; inadequate funding could force spending cuts, delays or curtailment of programs.
The filing also contains a potentially inconsistent liquidity statement: a risk-factor passage says existing cash may not fund capital requirements for at least the next two months, while the financial-statement note and MD&A state that funds may be insufficient beyond September 2015. Investors should reconcile these statements and their differing assumptions.
- On September 29, 2014, Nemus signed UM licenses for UM 1490 (transmucosal cannabinoid delivery), UM 5070 (MRSA treatment) and UM 8790 (ocular cannabinoid delivery). Each has a $65,000 upfront fee payable in installments, annual fees of $25,000, and milestone and royalty provisions; patent-cost reimbursement obligations also apply. The filing specifies approximately $70,000 in sunk patent expenses for UM 8790.
- A UM laboratory and office lease began October 1, 2014 and runs through December 31, 2017; the stated average monthly rent expense is approximately $9,000. A separate Costa Mesa headquarters lease was signed in October 2014, with annual rent of $64,470 through October 2016.
- In October 2014, the company issued 1.11 million shares to individual investors in exchange for releases of claims; it said settlement expense would be recorded in the fourth quarter.
- The company depends significantly on UM and faces early-stage development, clinical and FDA approval, intellectual-property, controlled-substance/DEA, funding, third-party manufacturing and regulatory risks. The filing reports no material litigation or current government proceedings as of September 30.
- Management concluded disclosure controls and procedures were effective at a reasonable assurance level and reported no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Confirm the issuer and filing identity: the supplied filing is for Nemus Bioscience, Inc., not Skye Bioscience, Inc.
- Reconcile the differing statements about how long cash would support operations, and assess the going-concern warning against the company’s funding needs and financing prospects.
- Review the UM license economics, payment schedule, patent-cost reimbursements, milestones, royalties and termination provisions, and verify funding for these commitments.
- Assess the development status of the three licensed candidates, required preclinical work, and the regulatory and controlled-substance approvals still needed.
- Verify the post-merger share count, warrants, later-issued shares and options, and the potential dilution and trading-liquidity risks.