Filing summary
Company identity: The supplied filing is for Nemus Bioscience, Inc., not Skye Bioscience, Inc. Investors should verify that this is the intended filing.
Business context and reporting period
This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016. Nemus was an early-stage biopharmaceutical company developing cannabinoid-based therapeutics through licenses and research arrangements with the University of Mississippi. It had not begun planned principal operations or generated revenue.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $80,525 | $152,288 | $675,840 | $232,862 |
| General and administrative | $775,623 | $744,004 | $2,882,682 | $2,929,799 |
| Operating loss | $(856,148) | $(896,292) | $(3,558,522) | $(3,162,661) |
| Net loss | $(945,271) | $(1,182,792) | $(2,057,625) | $(4,149,977) |
| Loss per share | $(0.05) | $(0.07) | $(0.10) | $(0.25) |
At September 30, cash and cash equivalents were $319,930, down from $3.22 million at December 31, 2015; restricted cash was $37,500. Current assets were $635,249 versus current liabilities of $841,274, a working-capital deficit of about $206,000. Total liabilities were $1.71 million, including an $869,990 Series B warrant liability. The filing reports no interest expense or cash interest paid; it does not identify conventional borrowings as a material source of financing.
Operating cash use was $2.89 million for the first nine months, compared with $2.61 million in the prior-year period. There was no financing cash inflow during the 2016 period, versus $6.75 million in 2015. Gross margin is not applicable because the company had no revenue.
Material changes versus prior periods
- Quarterly operating expenses declined about 4%; nine-month operating expenses rose about 13%, mainly because R&D spending increased to $675,840 from $232,862.
- Nine-month net loss improved, but primarily because of a $1.50 million net non-operating gain, including a $1.58 million gain from remeasuring Series B warrant liabilities. Operating loss increased year over year.
- Quarterly R&D expense fell year over year, while general and administrative expense increased slightly. Stock-based compensation was $181,608 for Q3 2016 versus $4,286 for Q3 2015.
Outlook, risks and unusual items
- Management expects continued losses and significant R&D and public-company costs. It stated that, without additional funding, available funds would not meet obligations for one year after issuance of the financial statements; the filing identifies substantial doubt about the company’s ability to continue as a going concern.
- In October 2016, the company raised $500,000 through Series C preferred stock. The financing was convertible at an effective $0.40 per common share and reduced the Series B conversion price and Series B warrant exercise price to $0.40. Further equity financing could materially dilute existing shareholders.
- Key risks include uncertain research and clinical development outcomes, regulatory hurdles surrounding cannabis, dependence on the University of Mississippi and third parties, intellectual-property protection, and the need for additional capital. Management gave no quantified revenue or earnings guidance.
- The October 2016 technology license for biosynthetic cannabinoid manufacturing required an initial $50,000 payment and a common-stock issuance valued at $50,000. The former CEO-related litigation was dismissed with prejudice; the company reported no payment to settle it. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: the filing names Nemus Bioscience, Inc., although the request identifies Skye Bioscience, Inc.
- Assess near-term liquidity and financing needs in light of the $319,930 quarter-end cash balance, operating cash use, and going-concern disclosure; review the terms and availability of subsequent financing.
- Review the Series C financing’s conversion and repricing effects, including dilution and the revised Series B terms.
- Separate underlying operating performance from noncash fair-value changes when evaluating the reported improvement in nine-month net loss.
- Check the share count: the filing reports 19,913,163 common shares outstanding at September 30, 2016 and 20,798,163 as of November 8, 2016.