Business Context and Reporting Period
This Form 8-K Current Report was filed by Nemus Bioscience, Inc. (not Skye Bioscience, Inc.) on December 29, 2016. The company is a Nevada corporation focused on proprietary cannabinoid-based therapeutics. The report details a material definitive agreement and unregistered sales of equity securities entered into on the filing date.
Key Financial Metrics and Transaction Details
- Financing Amount: Aggregate proceeds of $1,500,000.
- Instrument: Sale of up to 1,500 shares of Series D Convertible Preferred Stock.
- Purchase Price: $1,000 per Preferred Share.
- Conversion Terms: Convertible into common stock at a price of $0.25 per share.
- Ownership Limitation: Conversion is limited to prevent beneficial ownership exceeding 4.99% of outstanding common stock (increasable to 9.99% in certain circumstances).
- Use of Proceeds: Funding advancement of proprietary cannabinoid-based therapeutics and general corporate purposes.
The filing text does not provide clear values for revenue, profit, cash flow, margins, debt, or liquidity metrics as this is a transaction-specific report rather than a periodic financial statement.
Material Changes and Provisions
The primary material change is the entry into a Securities Purchase Agreement with accredited investors. Key provisions include:
- Anti-Dilution and MFN: The stock includes anti-dilution protection and a "most favored nation" provision allowing investors to exchange shares for securities issued in subsequent financings on the same terms.
- Lock-Up Agreements: Officers and directors, including Brian S. Murphy, are required to enter into lock-up agreements effective upon closing.
- Registration Rights: The company agreed to file a registration statement for resale of underlying common stock within 30 days of closing. Failure to do so within specified periods triggers a penalty of 2.0% of the aggregate purchase price per month.
- Placement Agent: Roth Capital Partners LLC served as the placement agent.
Outlook, Risks, and Contingencies
The financing is expected to close in part on December 30, 2016, and in part on or before January 6, 2017, subject to customary closing conditions. The transaction is exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D. A press release was issued on December 29, 2016, to comply with Regulation FD.
Investor Verification Checklist
- Verify the actual closing date and total amount of proceeds received, as the filing states the closing is expected to occur in two tranches.
- Confirm the execution of lock-up agreements by the named officers and directors.
- Monitor the filing of the registration statement for resale of common stock within the 30-day post-closing window to avoid the 2.0% monthly penalty.
- Review the Certificate of Designation for the Series D Convertible Preferred Stock for full details on rights and preferences.
- Clarify the discrepancy between the requested company name (Skye Bioscience) and the registrant in the filing (Nemus Bioscience).