Business context and reporting period
The supplied filing is Nemus Bioscience, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2017—not a filing under the requested company name, Skye Bioscience, Inc. Verify the issuer and filing before relying on this summary. Nemus is an early-stage cannabinoid therapeutics developer partnered with the University of Mississippi. It reported no revenue and had not begun planned principal operations.
Financial results and liquidity
| Metric | Three months ended September 30, 2017 | Three months ended September 30, 2016 | Nine months ended September 30, 2017 | Nine months ended September 30, 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $88,550 | $80,525 | $241,302 | $675,840 |
| General and administrative | $673,080 | $775,623 | $2,631,408 | $2,882,682 |
| Total operating expenses / operating loss | $761,630 | $856,148 | $2,872,710 | $3,558,522 |
| Net loss | $480,133 | $945,271 | $2,466,114 | $2,057,625 |
| Net loss applicable to common shareholders | $480,133 | $945,271 | $3,177,114 | $2,057,625 |
| Loss per common share, basic and diluted | $0.02 | $0.05 | $0.12 | $0.10 |
At September 30, 2017, cash and cash equivalents were $41,978, restricted cash was $4,428, and current assets were $306,070. Current liabilities were $1,656,434, a working-capital deficit of about $1.35 million; total liabilities were $2,448,247. The balance sheet reports no conventional debt balance, and the cash-flow statement reports no interest paid. No meaningful gross margin or operating margin was reported because there was no revenue.
For the first nine months, operating cash use was $1,154,699, versus $2,890,163 in 2016. Financing provided $1,131,857, primarily from Series D preferred stock; cash declined by $22,842 to $41,978. Stock-based compensation was $456,507. The company also reported substantial accrued and unpaid expenses.
Material changes versus prior periods
- Quarterly operating expenses fell about 11% year over year, and quarterly net loss narrowed, aided by $281,497 of non-operating income from a decrease in the fair value of Series B warrant liabilities.
- Nine-month operating expenses fell about 19%, principally because research and development spending was lower amid limited cash and delays in the proposed Series E financing. Nine-month net loss nevertheless increased; the prior-year period included substantially greater non-operating income from warrant remeasurement.
- The nine-month 2017 common-shareholder loss includes a $711,000 preferred deemed dividend, including $536,000 for Series D and $175,000 for Series C, even though the reported net loss was $2,466,114.
- Common shares outstanding increased from 21,563,163 at December 31, 2016 to 30,670,663 at September 30, 2017, primarily through preferred-stock conversions and other issuances.
Outlook, risks, contingencies, and unusual items
- Management stated that losses are expected to continue and that, without additional funding, the company would not have sufficient funds to meet obligations within one year after issuance of the financial statements. The filing identifies substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, on November 1, 2017, the company issued Series F preferred stock for gross proceeds of $2 million. The shares convert at $0.15 per common share and include anti-dilution and other preferred rights; proceeds were intended for general corporate purposes, including past-due obligations and working capital. The filing does not establish that this financing resolves the going-concern uncertainty.
- A proposed $20 million Series E financing did not close by its July 10, 2017 deadline, and the guarantor failed to honor its payment guarantee. Nemus filed for arbitration on November 8, 2017. Any recovery is uncertain and is not treated as completed financing in the reported quarter.
- Development depends on research outcomes, regulatory approvals and the company’s partnership with the University of Mississippi, as well as access to additional capital. Management warned that inability to raise funds could force reduced spending, delayed or curtailed programs, asset-rights concessions, or cessation of operations. Additional equity financing could dilute shareholders.
- R&D spending was constrained by limited cash; quarterly R&D included license, option-renewal and patent reimbursement costs, with no contract R&D expense reported for the quarter. The company also reported $80,893 accrued for license and patent reimbursement fees at quarter-end.
- Related-party expense under an agreement with an entity wholly owned by the executive chairman was $150,000 for the first nine months of 2017; $150,000 remained payable at September 30, 2017.
- Management said disclosure controls were effective at a reasonable assurance level and reported no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: the provided text is Nemus Bioscience, Inc., although the request identifies Skye Bioscience, Inc.
- Confirm the status, terms, and proceeds available from the November 2017 Series F financing, and whether subsequent funding materially changed the going-concern assessment.
- Check the status and potential value of the Series E arbitration; the claimed $20 million is disputed and not assured cash.
- Review cash needs, past-due obligations, accrued liabilities, and the timing of planned research and development, given quarter-end cash of only $41,978.
- Assess the potential dilution and senior rights associated with preferred stock, warrants, conversion-price resets, and the increase in common shares outstanding.