Response: ASC 805-40-45, paragraph 4 states that the weighted average number of common shares outstanding during the period in which the reverse merger occurs is calculated by:
This calculation results in weighted average shares outstanding of 10,291,836 as of 12/31/14. The net loss for this period was ($2,734,166) which resulted in a loss per share of ($0.27) for the twelve months ended December 31, 2014.
ASC 805-40-45, paragraph 5 states that the basic EPS for comparative periods before the acquisition date (in this case 12/31/2013) shall be calculated by dividing (a) by (b):
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(a) |
The income of the legal acquiree (Nemus) attributable to common shareholders – this is a loss of ($120,403) for Nemus. |
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(b) |
The legal acquiree’s historical weighted average number of common shares outstanding (7,770,000 at 12/31/2013) multiplied by the exchange ratio established in the acquisition agreement (1:1). |
In conclusion, we believe our calculations are consistent with the requirements of ASC 805-40-45.
Consolidated Statements of Stockholders’ Equity, page 73
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7. |
Your presentation does not appear to reflect the equity structure of the legal parent and does not appear to have been restated using the exchange rate established in the acquisition agreement. Please demonstrate your compliance with guidance in ASC 805-40-45. In addition, explain your statement on page 75 that “each share of Nemus was exchanged for 12,800,000 shares of LGL,” when LGL had only 3,623,500 common shares outstanding at July 31, 2014. |
Response: We respectfully note to the Staff that LGL had 3,623,500 shares outstanding as of 7/31/2015, but prior to consummation of the merger, had a forward stock split of 2.36 to 1 which resulted in 8,551,460 shares followed by the cancellation of 5,431,460 shares. This resulted in 3,120,000 shares outstanding as of 10/31/14. (Please reference the Form 8-K filed by LGL on 10/17/14.)
ASC 805-40-45, paragraph 1 provides that the “consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (in this case LGL which changed its name to Nemus Bioscience) but described in the notes as a continuation of the financial statements of the legal subsidiary (Nemus) with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital (Nemus) to reflect the legal capital of the accounting acquirer”(LGL). In the case of this reverse merger, because the conversion ratio is 1:1, the capital structure of the accounting acquirer remains the same as it was pre-merger and the Company believes that its compliance is in accordance with ASC 805-40-45.
Also, the Company has revised the disclosure on page 75 to reflect more clearly the nature of the transaction as follows: “Each share of Nemus common stock outstanding totaling 12,880,000 shares was exchanged at a 1:1 conversion rate to LGL shares and when combined with the 3,120,000 shares of LGL common stock outstanding, amounted to 16,000,000 total shares outstanding upon completion of the merger.”