Business context and reporting period
This Form 10-Q covers the three months ended March 31, 2020, for Emerald Bioscience, Inc. (Nevada), a pre-revenue biopharmaceutical company developing cannabinoid-based therapeutics under licenses from the University of Mississippi. The supplied filing is for Emerald Bioscience, not Skye Bioscience; investors should verify the issuer and filing identity.
Key financial metrics
- Revenue: None; the company reported no revenue and does not expect near-term product revenue.
- Net loss: $2.34 million, compared with $14.77 million in Q1 2019. Loss per share was $0.01 versus $0.11.
- Operating expenses: $2.21 million, up from $1.52 million. R&D was $0.80 million, up from $0.32 million; G&A was $1.41 million, up from $1.19 million. With no revenue, operating margin is not meaningful.
- Cash flow: $1.27 million used in operations, versus $1.43 million used in Q1 2019. No financing cash was received in Q1 2020; Q1 2019 included $3.99 million of net credit-facility proceeds.
- Cash and liquidity: Cash was $0.56 million at March 31, down from $1.83 million at December 31, 2019; restricted cash was $4,538. Working-capital deficit was $0.996 million. The filing reports unrestricted cash of $228,000 and restricted cash of $87,000 as of the filing date.
- Debt and liabilities: Related-party convertible debt had $2.01 million principal and $0.52 million carrying value, net of discounts, at March 31; stated interest is 7% and maturity is October 2022. Total liabilities were $2.38 million, exceeding total assets of $0.67 million; stockholders’ deficit was $1.70 million.
Material changes versus the prior comparable period
Net loss improved largely because Q1 2019 included a $12.82 million derivative-liability fair-value charge and a $0.32 million charge for derivative value in excess of proceeds. In Q1 2020, derivative fair-value changes instead reduced expense by $35,903. Operating expenses increased $696,141, primarily from higher R&D licensing, manufacturing and formulation costs, and higher legal, accounting and investor-relations costs. Cash declined substantially during Q1, with no financing proceeds in the quarter.
Outlook, risks and unusual items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern. It expected that, without additional funding in Q2 2020, it could not meet obligations or commence clinical studies; the financial statements include no adjustments for a possible inability to continue.
- Financing after quarter-end: On April 29, 2020, the company amended its related-party credit facility, retaining a stated ceiling of $20 million and providing for advances of at least $150,000 in each of May, June and July 2020. A $150,000 advance was funded upon signing. The facility remains subject to lender/board approval and is not treated as available until funded. The company also received a $116,700 PPP loan in April, potentially forgivable subject to program requirements.
- Clinical outlook: First-in-human studies of lead candidate NB1111, previously expected in the second half of 2020, were delayed to 2021. COVID-19 may disrupt sourcing, laboratory work, clinical-trial recruitment and access to capital. Management also cited rising expected R&D spending as development advances.
- Cash conservation and dilution: Management deferred some senior-management compensation and all director fees, planned to negotiate extended vendor terms and delay development work. Further financing may dilute shareholders; failure to obtain funds could force cuts, program suspensions, asset sales or cessation of operations.
- Other subsequent event: The CFO’s separation was scheduled for May 15, 2020; the agreement provides a $125,000 gross payment for restrictive covenants and six months of continued health benefits.
- Research status: Management described preclinical findings for NB1111 and other candidates, but these are not clinical efficacy evidence. No revenue or product approvals were reported.
Important facts for investors to verify
- Confirm the filing belongs to the intended company: this document names Emerald Bioscience, Inc., not Skye Bioscience, Inc.
- Verify the company’s cash position after March 31, 2020, and whether the promised facility advances were approved and received.
- Review the related-party credit facility’s draw conditions, conversion and warrant terms, and the company’s ability to meet near-term obligations.
- Track whether NB1111’s clinical start remained targeted for 2021 and how COVID-19 affected manufacturing, trial readiness and costs.
- Assess potential dilution, derivative-liability valuation effects, and the terms and forgiveness status of the PPP loan.