Filing identity and reporting period
This is Nemus Bioscience, Inc.’s Form 10-Q for the quarter ended June 30, 2015, filed August 14, 2015. It does not identify Skye Bioscience, Inc. as the registrant; investors should verify that this is the intended filing. Nemus describes itself as a development-stage biopharmaceutical company pursuing cannabinoid-based therapeutics with the University of Mississippi (UM). It reported no revenue from planned operations.
Financial results and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $43,374; prior year $0 | $80,574; prior year $0 |
| General and administrative expense | $1,313,170; prior year $142,920 | $2,185,795; prior year $173,021 |
| Total operating expenses / operating loss | $1,356,544 / $(1,356,544) | $2,266,369 / $(2,266,369) |
| Net loss | $(2,056,960); prior year $(142,920) | $(2,967,185); prior year $(173,021) |
| Loss per common share, basic and diluted | $(0.13); prior year $(0.02) | $(0.18); prior year $(0.02) |
At June 30, 2015, cash and cash equivalents were $601,266 (versus $207,330 at December 31, 2014); current assets were $785,471 and current liabilities were $1,679,391. Total liabilities were $1,681,807, including a $700,000 current liability for Series A preferred-stock conversion rights. The balance sheet reports no material borrowing balance; long-term liabilities were $2,416. Stockholders’ deficit was $861,015.
For the first six months, operating cash outflow was $1,319,433, financing cash inflow was $1,713,369, and cash increased by $393,936. Financing included $713,369 net proceeds from common-stock issuance and $1,000,000 from Series A preferred stock. No investing cash flow was reported. Gross margin and other operating margin measures are not meaningful because the company had no revenue.
Changes versus prior comparable periods
Six-month net loss increased from $173,021 in 2014 to $2,967,185 in 2015, primarily reflecting sharply higher general and administrative costs, including consulting and professional fees associated with becoming a public company, and the start of UM-related R&D. A $700,000 non-operating fair-value expense for the preferred-stock conversion feature also contributed. Cash rose from year-end, supported by equity financing, while operating cash use increased substantially year over year.
Outlook, risks and unusual items
- Management expects continued losses and significant R&D, public-company, staffing and laboratory costs. It expects no near-term product revenue.
- Management stated that, without additional funding, available funds would not 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. Funding could require equity or debt issuance, collaborations, licensing, asset sales or grants, with possible dilution, restrictions, or curtailment of programs.
- In July 2015, after quarter-end, the company sold another $450,000 of Series A preferred stock and warrants; $388,000 had been received before June 30 and was recorded as a stock subscription liability. The filing also reports a July UM research agreement for cannabidiol formulations.
- The April–May Series A financing carried a down-round protection feature tied to a subsequent equity financing of at least $1 million below $2.50 per share, or October 1, 2015, whichever came first. The $700,000 fair-value estimate depended on financing-price assumptions and management’s assessment of investor and banker discussions.
- Key business risks include early-stage drug development, regulatory approval and cannabis-related regulatory requirements, dependence on UM and third parties, intellectual-property protection, and the ability to secure additional capital. The company reported no material litigation, government proceedings or off-balance-sheet arrangements.
Important facts to verify
- Confirm the issuer: the supplied filing is for Nemus Bioscience, Inc., not Skye Bioscience, Inc.
- Review the going-concern disclosure and the timing and availability of post-quarter financing, including the amount received before quarter-end.
- Assess the $700,000 preferred-stock conversion liability, its valuation assumptions and the down-round provision’s terms and expiration.
- Verify the status, costs, milestones and licensing rights for UM programs and the company’s ability to fund planned preclinical work.
- Reconcile the substantial year-over-year increase in G&A expense and monitor cash use against the company’s limited liquidity.