Emerald Bioscience, Inc. — Form 10-Q Summary
Period: Quarter and six months ended June 30, 2020; filed August 13, 2020. The filing identifies the issuer as Emerald Bioscience, Inc. (ticker EMBI), not Skye Bioscience, Inc. It describes a pre-revenue biopharmaceutical company developing cannabinoid-based therapeutics under University of Mississippi licenses.
Financial performance and position
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | None | None | None |
| Research and development | $428,529 | $1,228,141 | $688,041 and $1,009,026 |
| General and administrative | $792,129 | $2,203,725 | $1,082,846 and $2,276,928 |
| Total operating expenses / operating loss | $1,220,658 | $3,431,866 | $1,770,887 and $3,285,954 |
| Net income (loss) | $(1,420,236) | $(3,761,896) | $15,905,290 and $1,130,898 |
| Net cash used in operations | Not reported by quarter | $(2,294,153) | $(3,036,246) for six months |
The 2019 comparison was materially affected by non-cash gains from falling fair values of derivative liabilities: $17.97 million in the second quarter and $5.15 million for the first half. The 2020 periods instead recorded $26,353 of derivative-liability expense in Q2 and a $9,550 fair-value gain for the half year. Interest expense was $171,625 for Q2 and $337,980 for the first half. Operating margins are not meaningful because the company reported no revenue.
At June 30, cash was $102,524, versus $1.83 million at December 31, 2019; total assets were $227,207 and total liabilities $3.32 million. Working capital deficit was $1,929,168 and stockholders’ deficit was $3,094,424. Current liabilities were $2.16 million, including $1.10 million accounts payable and $465,287 current derivative liabilities. Debt included $2.01 million principal of related-party convertible advances (carrying value $651,461 after discounts), $450,000 of related-party non-convertible advances, and a $116,700 PPP loan. The company reported $107,062 of cash and restricted cash at period end.
Changes and financing
- Q2 operating expenses declined 31% year over year, mainly because of lower manufacturing, regulatory consulting, license, travel, legal and stock-compensation costs. First-half operating expenses rose about 4%, with R&D up $219,115, primarily from license fees and salaries.
- The company amended its related-party multi-draw facility in April 2020. It received $450,000 in two advances during Q2; advances bear 7% interest and mature October 5, 2022. The agreement defers quarterly interest payments until a capital raise of at least $5 million. Although the stated facility is up to $20 million, remaining capacity was not assured: draws require board approval, and the board is controlled by Emerald Health Sciences.
- After quarter-end, a public offering closed August 4, 2020, producing approximately $6.1 million net proceeds through common stock and warrant units. The filing also reports deferred compensation and board fees of $293,078 authorized for payment after the financing. These subsequent events do not change the June 30 cash balance.
- Common shares outstanding were 183,207,747 at June 30 and 239,541,081 as of August 12, 2020. The filing’s subsequent offering included substantial warrant coverage, creating potential further dilution.
Outlook, risks and unusual items
- Management expects continued operating losses and negative operating cash flow. It concluded that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the statements, absent additional funding. The statements contain no adjustments for a possible failure to continue as a going concern.
- The lead candidate NB1111 is being developed for ocular conditions. First-in-human studies in Australia, originally expected in the second half of 2020, were shifted to 2021 because of COVID-19 lockdowns and possible effects on trial recruitment and supply sourcing. The filing provides no quantified revenue or earnings guidance.
- Management cited early-stage research and regulatory uncertainty, reliance on the University of Mississippi and third parties, need for additional capital, potential dilution, and COVID-19-related disruption to research, manufacturing, trials and fundraising. Potential supply impacts include excipients sourced outside the United States.
- The company reported promising preclinical findings for NB1111 and NB2222, but these are not clinical efficacy results. It has no product revenue and is years from potential commercialization.
- Related-party financing and services, derivative valuations using Level 3 inputs, and contingent license payments are notable. University of Mississippi licenses carry maintenance fees, milestone payments, royalties and termination provisions; a $200,000 fee was incurred in 2020 following a patent notice of allowance for CBDVHS.
- CEO Brian Murphy resigned effective August 7, 2020, and Punit Dhillon became CEO while remaining board chair. The filing also discloses a $195,000 payment and six months of health benefits for the former CEO.
Key investor verification points
- Confirm issuer identity and corporate/ticker history: this filing is for Emerald Bioscience, Inc., not Skye Bioscience, Inc.
- Verify post-quarter financing proceeds, outstanding shares, warrant terms and potential dilution against subsequent filings.
- Assess whether related-party credit advances are actually available, given board approval requirements and the company’s going-concern warning.
- Track cash burn, accounts payable and deferred compensation after the August financing, and the timing and funding needed to begin NB1111 human studies.
- Verify trial progress, regulatory status, manufacturing and supply readiness, and whether preclinical findings translate into clinical results.