Business Context and Reporting Period
This Form 8-K, dated October 31, 2014, reports the completion of a reverse merger between Load Guard Logistics, Inc. ("LGL") and Nemus Bioscience, Inc. ("Nemus"). Following the transaction, LGL became the 100% parent of Nemus, changed its name to Nemus Bioscience, Inc., and assumed Nemus's operations as a biopharmaceutical company focused on cannabis-based therapeutics. The transaction is accounted for as a reverse merger, with Nemus treated as the accounting acquirer. The company's fiscal year end was changed from October 31 to December 31.
Key Financial Metrics
- Revenue: $0. The company has not generated any revenue since inception and does not expect revenue from product sales in the near future.
- Net Loss: $173,021 for the six months ended June 30, 2014 (compared to $60,202 for the same period in 2013).
- Cash and Cash Equivalents: $528,494 as of June 30, 2014. The company raised an additional $1,100,000 in August 2014.
- Capital Structure (Post-Merger): 16,000,000 shares of common stock issued and outstanding; 4,000,000 warrants outstanding; 1,080,000 options granted under the 2014 Omnibus Incentive Plan.
- Debt: No long-term debt is explicitly detailed in the text, though the company anticipates needing substantial additional funding.
- Liquidity: Management believes current funds are insufficient to meet obligations beyond June 2015 without additional financing.
Material Changes vs. Prior Period
- Corporate Identity: The company transitioned from a transportation and logistics business (LGL) to a biopharmaceutical developer (Nemus) via a reverse merger.
- Management: Former LGL officers (Yosbani Mendez and Francisco Mendez) resigned. New leadership was appointed, including John B. Hollister (CEO), Dr. Brian S. Murphy (CMO), and Elizabeth M. Berecz (CFO).
- Accounting: Historical financial statements now reflect Nemus's operations. The fiscal year end changed to align with Nemus (December 31).
- Accounting Firm: Messineo & Co, CPAs LLC was dismissed and Mayer Hoffman McCann P.C. was engaged as the new independent auditor.
- Expenses: Operating expenses increased significantly to $173,021 for the six months ended June 30, 2014, primarily due to professional fees associated with becoming a public company.
Guidance, Outlook, and Risks
Outlook and Strategy: The company plans to develop early-stage cannabinoid product candidates for indications including glaucoma, MS spasticity, MRSA, epilepsy, and anxiety. It relies heavily on a strategic partnership with the University of Mississippi (UM) for research, cultivation, and intellectual property. The company expects to incur net losses for the foreseeable future.
Material Risks:
- Going Concern: Substantial doubt exists regarding the company's ability to continue as a going concern without additional funding.
- Regulatory: Cannabis is a Schedule I controlled substance. The company must navigate complex DEA and FDA regulations, including obtaining necessary registrations and quotas, which could delay or prevent commercialization.
- Dependency: The business is heavily dependent on the University of Mississippi for research, IP, and supply of cannabis extracts.
- Market Liquidity: The stock trades on the OTCBB under symbol "NMUS" (previously "LGLR"). There is currently no active public market, and trading is expected to be thin and volatile.
- Intellectual Property: Success depends on obtaining and maintaining patents and licenses, some of which are jointly owned with UM.
Investor Verification Checklist
- Verify the status of the $1,100,000 raised in August 2014 and the timeline for the next anticipated capital raise.
- Confirm the specific terms of the license agreements with the University of Mississippi, including milestone payments and royalty obligations.
- Review the progress of DEA registration applications required to handle controlled substances for clinical trials.
- Assess the liquidity and trading volume of the stock on the OTCBB under the new symbol "NMUS."
- Examine the pro forma financial information (Exhibit 99.2) to understand the combined entity's financial position post-merger.