Filing and business context
Issuer identification: The supplied filing is Emerald Bioscience, Inc.’s Form 10-Q for the quarter ended September 30, 2020, not a filing identified as Skye Bioscience, Inc. Investors should verify the issuer and ticker before relying on this summary. The company reported as a pre-revenue biopharmaceutical business developing cannabinoid-derived therapeutics under licenses from the University of Mississippi.
Financial results and liquidity
| Metric | Q3 2020 / September 30, 2020 | Comparable period / prior balance |
|---|---|---|
| Revenue | None to date | None reported |
| Operating expenses | $1.54 million | $1.50 million in Q3 2019 |
| Research and development | $346,217 | $513,004 in Q3 2019 |
| General and administrative | $1.19 million | $990,110 in Q3 2019 |
| Net loss | $1.30 million; $0.01 per basic and diluted share | $4.93 million in Q3 2019 |
| Nine-month net loss | $5.06 million | $3.80 million for the first nine months of 2019 |
| Cash from operations | $(4.27) million for the first nine months | $(4.52) million in the first nine months of 2019 |
| Cash and restricted cash | $4.23 million | $1.83 million at December 31, 2019 |
| Working capital | $3.14 million | Prior comparable value not stated here |
| Total liabilities | $2.50 million | $1.45 million at December 31, 2019 |
Margins are not meaningful because the company had no revenue. At September 30, accumulated deficit was $37.23 million and stockholders’ equity was $1.85 million. The company reported related-party credit-agreement debt with $2.01 million principal on convertible advances and $450,000 on non-convertible advances; carrying value for all advances was $1.24 million after discounts. It also had a $116,700 PPP loan. The related-party advances bear 7% interest and mature October 5, 2022.
Material changes versus prior periods
- Q3 net loss narrowed from $4.93 million to $1.30 million, mainly because the prior-year quarter included a $3.13 million expense from derivative-liability remeasurement. In Q3 2020, derivative remeasurement instead produced $424,138 of income.
- For the first nine months, net loss increased to $5.06 million from $3.80 million. Operating expenses rose modestly, while other income declined substantially as derivative-related gains were lower than in 2019.
- Cash increased primarily following the August 2020 registered offering, which generated $6.09 million net proceeds. The company issued 56.3 million common shares and 60.3 million pre-funded warrants, alongside common warrants; outstanding common shares were 250.1 million at September 30.
- Q3 R&D expense decreased year over year, while G&A increased, including costs related to former-CEO severance, insurance and audit fees.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. It expected ongoing losses and said available funds would not be sufficient to commence clinical studies without additional funding. Further financing is uncertain and equity financing could dilute shareholders.
- Clinical outlook: The company delayed first-in-human THCVHS studies in Australia from the second half of 2020 to 2021; the MD&A identifies the third quarter of 2021 as the expected timing. COVID-19 disruptions, including Melbourne lockdowns, potential supply-chain constraints and recruitment challenges, were cited.
- Funding availability: The amended related-party credit facility provides for up to $20 million, but advances require board approval; the filing says the remaining facility is not considered available until approved, drawn and funded, and continued funding is not guaranteed.
- Development-stage risks: The company relies on third-party manufacturers, research providers and the University of Mississippi; regulatory approval, clinical results, intellectual property, capital access and market acceptance remain uncertain. No product revenue is expected in the near term.
- Other items: The company paid deferred management and board compensation, plus a 10% retention bonus, after the August financing. The former CEO resigned in August; the Chief Medical Officer’s resignation was effective November 6, 2020. Management said disclosure controls were effective at a reasonable assurance level and reported no material change in internal controls.
Most important facts to verify
- Confirm that Emerald Bioscience, Inc.—rather than Skye Bioscience, Inc.—is the intended issuer, and verify the applicable security and ticker.
- Assess the going-concern disclosure, expected cash needs and realistic access to additional funding, including whether related-party facility advances will be approved.
- Verify the current THCVHS clinical-trial schedule and the operational impact of COVID-19 on Australian trials and manufacturing.
- Review the offering’s dilution and potential warrant exercises, including the large number of warrants disclosed and the increase in common shares outstanding.
- Check the PPP loan forgiveness status and confirm the terms and balances of related-party debt and accrued interest.