Business Context and Reporting Period
This is Nemus Bioscience, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015, filed November 12, 2015. The request metadata identifies Skye Bioscience, but the filing itself names Nemus Bioscience; investors should verify the issuer and filing match.
Nemus is a pre-revenue biopharmaceutical company developing cannabinoid-based therapeutics through a partnership with the University of Mississippi. It reported no revenue and had not begun planned principal operations. Its lead program, UM5050, is being developed for glaucoma; other research includes CBD formulations and potential MRSA treatments.
Financial Results and Liquidity
| Metric | Q3 2015 / September 30, 2015 | Comparable period / prior balance |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $896,292 for the quarter; $3,162,661 for nine months | $857,613 and $1,030,634, respectively, in 2014 |
| Net loss | $1,182,792 for the quarter; $4,149,977 for nine months | $858,518 and $1,031,539, respectively, in 2014 |
| Operating cash flow | $(2,614,336) for nine months | $(952,568) in 2014 |
| Cash and cash equivalents | $4,342,722 | $207,330 at December 31, 2014 |
| Total current assets / current liabilities | $4,506,880 / $619,742 | $308,399 / $801,090 at December 31, 2014 |
| Total liabilities | $3,515,355 | $801,895 at December 31, 2014 |
There were no product sales or gross profit, so operating margins are not meaningful. The filing reports no interest paid and does not identify conventional borrowings; significant reported liabilities include $2,892,392 for Series B warrants. Restricted cash was $37,500, held as credit-card collateral.
Material Changes Versus Prior Period
- Nine-month net loss increased to $4.15 million from $1.03 million, primarily reflecting higher general and administrative expenses and a $986,000 noncash expense from revaluing Series A conversion rights.
- Nine-month general and administrative expense rose to $2.93 million from $835,634, largely due to consulting, professional, and public-company costs. Research and development expense was $232,862 versus $195,000.
- Operating cash use increased to $2.61 million from $952,568. Financing provided $6.75 million, including $5.0 million gross proceeds from Series B preferred stock and $1.44 million net proceeds from Series A preferred stock.
- Series B financing included 5,000 preferred shares convertible into 6.25 million common shares and warrants; the filing reports 6,437,500 Series B-related warrants in total, including warrants issued to the investment banker. The preferred stock has down-round protection and conditional redemption features.
Outlook, Risks, and Unusual Items
Management expects continued losses and significant R&D, public-company, staffing, and laboratory costs. It states that, without additional funding, available funds will not be sufficient to meet obligations beyond one year after issuance of the financial statements, creating substantial doubt about the company’s ability to continue as a going concern. Potential funding sources include equity or debt, collaborations, licensing, asset sales, and grants; availability is not assured. Additional equity may dilute shareholders, while failure to obtain funding could force spending cuts, program delays, or curtailment.
The Series B preferred stock is classified as mezzanine equity because specified events outside the company’s control may trigger redemption. Its warrants are classified as liabilities and remeasured at fair value. The Series B preferred stock also includes a redemption provision tied to specified trigger events. The company reported no material litigation, government proceedings, or off-balance-sheet arrangements. It renewed an option to explore additional UM5050 delivery routes for six months in September 2015. Subsequent to quarter-end, 1.2 million restricted stock awards were granted to senior management and directors on October 20, 2015.
Key risks include early-stage development and regulatory uncertainty, dependence on the University of Mississippi and other third parties, intellectual-property protection, competition, and the need for substantial additional capital. The filing says disclosure controls were effective at a reasonable assurance level and reports no material changes in internal controls.
Important Facts for Investors to Verify
- Confirm the issuer: the supplied filing is for Nemus Bioscience, Inc., not Skye Bioscience.
- Assess funding needs and cash runway against management’s going-concern warning and stated expectation of insufficient funds beyond one year without additional financing.
- Review the potential dilution, down-round adjustments, redemption triggers, and accounting treatment of Series B preferred shares and warrants.
- Track development progress, regulatory requirements, and the terms, milestones, royalties, and termination provisions of the University of Mississippi agreements.
- Reconcile the share count: 18,078,163 common shares were outstanding at September 30, while the cover reports 19,278,163 as of November 12, 2015.
- Note that the MD&A gives nine-month operating expenses as $3,162,161, while the financial statements report $3,162,661; the filing text does not explain this discrepancy.