Business context and reporting period
The supplied filing is Nemus Bioscience, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017, not a filing identified as Skye Bioscience, Inc. The company is an early-stage biopharmaceutical business developing cannabinoid-based therapeutics under licenses and a research partnership with the University of Mississippi. It reported no revenue and had not begun planned principal operations.
Key financial metrics
| Metric | Q1 2017 / March 31, 2017 | Comparable period / prior date |
|---|---|---|
| Revenue | None | None in Q1 2016 |
| Research and development expense | $92,100 | $135,358 in Q1 2016 |
| General and administrative expense | $1,288,053 | $1,084,981 in Q1 2016 |
| Total operating expenses / operating loss | $1,380,153 | $1,220,339 in Q1 2016 |
| Net loss | $1,283,218 | $1,685,447 in Q1 2016 |
| Net loss attributable to common shareholders | $1,994,218, including $711,000 in preferred deemed dividends | $1,685,447 in Q1 2016 |
| Basic and diluted loss per share | $0.09 | $0.08 in Q1 2016 |
| Operating cash flow | $(816,405) | $(1,148,471) in Q1 2016 |
| Cash and cash equivalents | $380,272 | $64,820 at December 31, 2016 |
| Total assets | $617,393 | $323,363 at December 31, 2016 |
| Total liabilities | $1,846,555 | $1,774,266 at December 31, 2016 |
Gross margin is not applicable because the company had no revenue. The filing reports no interest paid and no conventional interest-bearing debt balance; liabilities include a $1,099,747 Series B warrant liability. Restricted cash was $37,500. Cash provided by financing was $1,131,857, primarily from Series D preferred stock issuance; investing cash flow was zero.
Material changes versus the prior comparable period
- Operating expenses rose $159,814 year over year: G&A increased $203,072, mainly due to professional fees for capital-raising efforts, while R&D declined $43,258.
- Net loss narrowed by $402,229, primarily because Q1 2017 had $97,766 of non-operating income from changes in the fair values of Series B warrants and conversion rights, versus $464,708 of non-operating expense in Q1 2016.
- Cash increased from year-end following the Series D financing, but remained low relative to operating needs. Common shares outstanding increased from 21,563,163 at December 31, 2016 to 27,310,663 at March 31, 2017, largely reflecting preferred-stock conversions and shares issued for services.
Outlook, risks, contingencies and unusual items
- Management expects continued losses and negative operating cash flows, significant R&D and public-company costs, and additional hiring needs. It states that existing funds are insufficient to meet obligations for one year after issuance of the financial statements without additional funding; the filing identifies substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, the company agreed to sell 1,000,000 Series E preferred shares to Schneider Finance LLC for gross proceeds of $20 million. The transaction was expected to close in Q2 2017 and had not closed as of the filing; an affiliate provided a payment guarantee. The financing is not included in March 31 cash.
- The January 2017 Series D financing generated $1.2 million gross proceeds. Preferred securities have conversion and anti-dilution provisions; the Series B stock and warrants carry redemption-related features and are subject to fair-value remeasurement. Preferred deemed dividends totaled $711,000 in Q1, including $536,000 on Series D and $175,000 on Series C.
- Key business risks include early-stage development and regulatory uncertainty, dependence on the University of Mississippi and outside service providers, need for further capital and potential dilution, and the possibility that financing is unavailable on acceptable terms. The company reported no current litigation or government proceedings and no changes to previously disclosed risk factors.
- The company licensed UM 5070, a cannabinoid-based research platform targeting infectious diseases, in January 2017. The license includes milestone, royalty, and patent-cost obligations. Existing UM 5050 and UM 8930 licenses also entail annual fees, potential milestone payments, royalties, and patent reimbursements.
- Management reported disclosure controls were effective as of March 31, 2017, and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Nemus Bioscience, Inc., despite the request metadata naming Skye Bioscience, Inc.
- Verify whether the $20 million Series E financing closed, its net proceeds and final terms, and whether the guarantee was enforceable and funded.
- Assess near-term cash runway, obligations, and financing needs against the going-concern warning and quarterly operating cash burn.
- Review preferred-stock conversion, redemption, anti-dilution and liquidation terms, including resulting dilution and the Series B warrant liability.
- Track progress and costs for the licensed programs, regulatory path, and obligations to the University of Mississippi and contract manufacturers.