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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 000-55136
Skye Bioscience, Inc.
_____________________________________________________________
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Nevada | | 45-0692882 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
11250 El Camino Real, Suite 100, San Diego, CA 92130
(Address of principal executive offices) (Zip Code)
(858) 410-0266
(Registrant’s telephone number, including area code)
__________________________N/A_______________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.001 | | SKYE | | Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of November 6, 2024, there were 30,338,290 shares of the issuer’s $0.001 par value common stock issued and outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| (Unaudited) | | |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 67,412,614 | | | $ | 1,256,453 | |
Restricted cash | 9,080,202 | | | 9,080,202 | |
Prepaid expenses | 664,604 | | | 194,259 | |
Other current assets | 2,650,809 | | | 1,119,929 | |
Total current assets | 79,808,229 | | | 11,650,843 | |
| | | |
Property and equipment, net | 1,516,612 | | | 43,276 | |
Operating lease right-of-use asset | 184,509 | | | 237,983 | |
Other assets | 26,310 | | | 8,309 | |
Total assets | $ | 81,535,660 | | | $ | 11,940,411 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | |
Current liabilities | | | |
Accounts payable | $ | 780,025 | | | $ | 1,155,785 | |
Accrued interest - related party | — | | | 126,027 | |
Accrued payroll liabilities | 903,271 | | | 888,381 | |
Accrued interest - legal contingency | — | | | 234,750 | |
Other current liabilities | 2,065,658 | | | 998,552 | |
Estimate for accrued legal contingencies and related expenses | 1,792,337 | | | 6,053,468 | |
Convertible note - related party, net of discount | — | | | 4,371,998 | |
Operating lease liability, current portion | 82,932 | | | 72,038 | |
Total current liabilities | 5,624,223 | | | 13,900,999 | |
| | | |
Non-current liabilities | | | |
Operating lease liability, net of current portion | 108,062 | | | 171,230 | |
Total liabilities | 5,732,285 | | | 14,072,229 | |
| | | |
Commitments and contingencies (Note 9) | | | |
| | | |
Stockholders’ equity (deficit) | | | |
Preferred stock, $0.001 par value; 200,000 shares authorized at September 30, 2024 and December 31, 2023; no shares issued and outstanding at September 30, 2024 and December 31, 2023 | — | | | — | |
Common stock, $0.001 par value; 100,000,000 shares authorized at September 30, 2024 and December 31, 2023; 30,338,290 and 12,349,243 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | 30,338 | | | 12,349 | |
Additional paid-in-capital | 196,976,230 | | | 102,238,382 | |
Accumulated deficit | (121,203,193) | | | (104,382,549) | |
Total stockholders’ equity (deficit) | 75,803,375 | | | (2,131,818) | |
Total liabilities and stockholders’ equity (deficit) | $ | 81,535,660 | | | $ | 11,940,411 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | For the | For the Nine Months Ended September 30, | | |
| 2024 | | 2023 | | 2024 | | 2023 | | | | |
Operating expenses | | | | | | | | | | | |
Research and development | $ | 4,883,337 | | | $ | 1,254,653 | | | $ | 10,908,538 | | | $ | 4,227,967 | | | | | |
Cost to acquire IPR&D asset | — | | | 21,215,214 | | | — | | | 21,215,214 | | | | | |
General and administrative | 4,638,927 | | | 2,235,899 | | | 13,171,547 | | | 5,357,577 | | | | | |
| | | | | | | | | | | |
Change in estimate for legal contingencies | (4,553,468) | | | — | | | (4,553,468) | | | (151,842) | | | | | |
Total operating expenses | 4,968,796 | | | 24,705,766 | | | 19,526,617 | | | 30,648,916 | | | | | |
| | | | | | | | | | | |
Operating loss | (4,968,796) | | | (24,705,766) | | | (19,526,617) | | | (30,648,916) | | | | | |
| | | | | | | | | | | |
Other (income) expense | | | | | | | | | | | |
Interest (income) expense | (90,766) | | | 271,307 | | | 796,222 | | | 476,135 | | | | | |
Interest income | (907,697) | | | (16,562) | | | (2,296,488) | | | (49,669) | | | | | |
(Gain) loss from asset sales | (72,837) | | | — | | | (1,217,978) | | | 307,086 | | | | | |
Debt conversion inducement expense | — | | | — | | | — | | | 1,383,285 | | | | | |
Wind-down costs | — | | | (14,677) | | | — | | | 455,504 | | | | | |
Other expense (income) | 801 | | | — | | | 2,200 | | | (3) | | | | | |
Total other (income) expense, net | (1,070,499) | | | 240,068 | | | (2,716,044) | | | 2,572,338 | | | | | |
| | | | | | | | | | | |
Loss before income taxes | (3,898,297) | | | (24,945,834) | | | (16,810,573) | | | (33,221,254) | | | | | |
Provision for income taxes | — | | | — | | | 10,071 | | | 3,600 | | | | | |
| | | | | | | | | | | |
Net loss | $ | (3,898,297) | | | $ | (24,945,834) | | | $ | (16,820,644) | | | $ | (33,224,854) | | | | | |
| | | | | | | | | | | |
Loss per common share: | | | | | | | | | | | |
Basic | $ | (0.10) | | | $ | (3.17) | | | $ | (0.48) | | | $ | (6.38) | | | | | |
Diluted | $ | (0.10) | | | $ | (3.17) | | | $ | (0.48) | | | $ | (6.38) | | | | | |
| | | | | | | | | | | |
Weighted average shares of common stock outstanding used to compute earnings per share: | | | | | | | | | | | |
Basic | 38,819,387 | | | 7,880,546 | | | 35,317,352 | | | 5,207,411 | | | | | |
Diluted | 38,819,387 | | | 7,880,546 | | | 35,317,352 | | | 5,207,411 | | | | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2024 | | 2023 |
Cash flows from operating activities: | | | |
Net loss | $ | (16,820,644) | | | $ | (33,224,854) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 123,347 | | | 95,880 | |
Stock-based compensation expense | 6,228,270 | | | 394,657 | |
Change in fair value of derivative liabilities | — | | | (3) | |
Amortization of debt discount | 599,006 | | | 102,400 | |
Write-down of vendor deposits | 325,610 | | | — | |
Change in estimate for legal contingencies | (4,553,468) | | | 7,009 | |
(Gain) loss from divestiture of assets | (1,217,978) | | | 307,086 | |
Loss from disposal of assets | 10,794 | | | — | |
Debt conversion inducement expense | — | | | 1,383,285 | |
Accrued interest conversion expense | — | | | 15,952 | |
Cost to acquire IPR&D asset | — | | | 21,215,214 | |
Foreign currency remeasurement gain | — | | | (45,350) | |
Changes in assets and liabilities: | | | |
Prepaid expenses | (470,345) | | | 782,265 | |
Other current assets | (1,606,490) | | | (236,779) | |
Other assets | (18,000) | | | — | |
Accounts payable | (375,760) | | | (112,021) | |
Accounts payable - related parties | — | | | (113,601) | |
Accrued interest - related party | (126,027) | | | 60,274 | |
Accrued interest - legal contingency | (234,750) | | | — | |
Accrued payroll liabilities | 14,889 | | | (11,904) | |
Operating lease liability | (52,274) | | | (60,647) | |
Other current liabilities | 1,109,443 | | | (570,473) | |
Other current liabilities - related parties | — | | | (95,850) | |
Net cash used in operating activities | (17,064,377) | | | (10,107,460) | |
| | | |
Cash flows from investing activities: | | | |
Proceeds from the sale of assets, net of sales costs | 1,217,978 | | | 5,532,266 | |
Purchase of property and equipment | (1,554,003) | | | (5,533) | |
Cash from asset acquisition, net of transaction costs | — | | | 1,076,740 | |
Net cash (used in) provided by investing activities | (336,025) | | | 6,603,473 | |
| | | |
Cash flows from financing activities: | | | |
Proceeds from convertible note - related party | — | | | 4,973,684 | |
Proceeds from the issuance of common stock and warrants, net of equity issuance costs of $6,434,447 and $265,053, respectively | 83,556,563 | | | 11,734,947 | |
Financing costs allocated to warrants issued with convertible debt | — | | | (6,026) | |
Repayment of insurance premium loan payable | — | | | (236,681) | |
Net cash provided by financing activities | 83,556,563 | | | 16,465,924 | |
| | | |
Net increase in cash and restricted cash | 66,156,161 | | | 12,961,937 | |
| | | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 10,336,655 | | | $ | 1,249,107 | |
| | | |
Cash, cash equivalents and restricted cash, end of period | $ | 76,492,816 | | | $ | 14,211,044 | |
| | | |
Supplemental disclosures of cash-flow information: | | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | |
| | | | | | | | | | | |
Cash, and cash equivalents | $ | 67,412,614 | | | $ | 5,126,245 | |
Restricted cash | 9,080,202 | | | 9,084,799 | |
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | 76,492,816 | | | $ | 14,211,044 | |
| | | |
Supplemental disclosures of non-cash financing activities: | | | |
| | | |
Common stock warrant exercises | $ | — | | | $ | 282,905 | |
Conversion of multi-draw credit agreement | — | | | 1,565,470 | |
Conversion of accrued interest due to related party | — | | | 31,766 | |
| | | |
| | | |
Financing of insurance premium | — | | | 203,884 | |
Right of use asset obtained in exchange for operating lease liabilities | — | | | 241,134 | |
| | | |
Stock issued for assets | — | | | 20,532,846 | |
Conversion of convertible note - related party to common stock | 4,971,004 | | | — | |
| | | |
| | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity/ (Deficit) |
| Shares | | Amounts | | | |
Balance, January 1, 2024 | 12,349,243 | | | $ | 12,349 | | | $ | 102,238,382 | | | $ | (104,382,549) | | | $ | (2,131,818) | |
| | | | | | | | | |
Stock-based compensation expense | — | | | — | | | 2,478,179 | | | — | | | 2,478,179 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Issuance of common stock and warrants, net of issuance costs of $6,434,447 | 15,713,664 | | | 15,714 | | | 83,540,849 | | | — | | | 83,556,563 | |
| | | | | | | | | |
Net loss | — | | | — | | | — | | | (5,019,531) | | | (5,019,531) | |
| | | | | | | | | |
Balance, March 31, 2024 | 28,062,907 | | | $ | 28,063 | | | $ | 188,257,410 | | | $ | (109,402,080) | | | $ | 78,883,393 | |
| | | | | | | | | |
Stock-based compensation expense | 5,000 | | | 5 | | | 1,828,469 | | | — | | | 1,828,474 | |
| | | | | | | | | |
Net loss | — | | | — | | | — | | | (7,902,816) | | | (7,902,816) | |
| | | | | | | | | |
Balance, June 30, 2024 | 28,067,907 | | | $ | 28,068 | | | $ | 190,085,879 | | | $ | (117,304,896) | | | $ | 72,809,051 | |
| | | | | | | | | |
Stock-based compensation expense | — | | | — | | | 1,921,617 | | | — | | | 1,921,617 | |
| | | | | | | | | |
Conversion of convertible note - related party | 968,973 | | | 969 | | | 4,970,035 | | | — | | | 4,971,004 | |
| | | | | | | | | |
Exercise of pre-funded warrants | 1,301,410 | | | 1,301 | | | (1,301) | | | — | | | — | |
| | | | | | | | | |
Net loss | — | | | — | | | — | | | (3,898,297) | | | (3,898,297) | |
| | | | | | | | | |
Balance, September 30, 2024 | 30,338,290 | | | $ | 30,338 | | | $ | 196,976,230 | | | $ | (121,203,193) | | | $ | 75,803,375 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ (Deficit) |
| Shares | | Amounts | | | |
Balance, January 1, 2023 | 3,654,119 | | | $ | 3,654 | | | $ | 63,726,057 | | | $ | (66,737,765) | | | $ | (3,008,054) | |
| | | | | | | | | |
Stock-based compensation expense | — | | | — | | | 131,579 | | | — | | | 131,579 | |
| | | | | | | | | |
Exercise of common stock warrants | 66,566 | | | 66 | | | 282,839 | | | — | | | 282,905 | |
| | | | | | | | | |
Conversion of multi-draw credit agreement - related party and accrued interest | 165,517 | | | 166 | | | 2,980,355 | | | — | | | 2,980,521 | |
| | | | | | | | | |
Net loss | — | | | — | | | — | | | (5,167,520) | | | (5,167,520) | |
| | | | | | | | | |
Balance, March 31, 2023 | 3,886,202 | | | $ | 3,886 | | | $ | 67,120,830 | | | $ | (71,905,285) | | | $ | (4,780,569) | |
| | | | | | | | | |
Stock-based compensation expense | — | | | — | | | 102,871 | | | — | | | 102,871 | |
| | | | | | | | | |
Net loss | — | | | — | | | — | | | (3,111,500) | | | (3,111,500) | |
| | | | | | | | | |
Balance, June 30, 2023 | 3,886,202 | | | $ | 3,886 | | | $ | 67,223,701 | | | $ | (75,016,785) | | | $ | (7,789,198) | |
| | | | | | | | | |
Stock-based compensation expense | — | | | — | | | 160,207 | | | — | | | 160,207 | |
| | | | | | | | | |
PIPE financing, net of equity issuance costs of 265,053 | 2,989,981 | | | 2,990 | | | 11,731,957 | | | — | | | 11,734,947 | |
| | | | | | | | | |
Common stock issued in acquisition of IPR&D asset | 5,436,378 | | | 5,436 | | | 21,604,150 | | | — | | | 21,609,586 | |
| | | | | | | | | |
Warrants issued with convertible note | — | | | — | | | 925,550 | | | — | | | 925,550 | |
| | | | | | | | | |
Common stock issued for fractional share adjustment in reverse stock split | 26,349 | | | 26 | | | (26) | | | — | | | — | |
| | | | | | | | | |
Net loss | — | | | — | | | — | | | (24,945,834) | | | (24,945,834) | |
| | | | | | | | | |
Balance, September 30, 2023 | 12,338,910 | | | $ | 12,338 | | | $ | 101,645,539 | | | $ | (99,962,619) | | | $ | 1,695,258 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
SKYE BIOSCIENCE, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization, Basis of Presentation and Significant Accounting Policies
Nature of Operations
Skye Bioscience, Inc. (the “Company” or “Skye”) was incorporated in Nevada on March 16, 2011. The Company is a clinical stage biopharmaceutical company developing next-generation molecules that modulate G protein-coupled receptors to treat obesity and metabolic diseases.
As of September 30, 2024, the Company has devoted substantially all its efforts to securing its product pipeline, carrying out its own research and development, preparing for and conducting clinical trials, building infrastructure and raising capital. The Company has not yet realized revenue from its planned principal operations and is a number of years away from potentially being able to do so.
Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year, or any future periods.
The Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, from which the prior year balance sheet information herein was derived.
Certain reclassifications have been made to the amounts in prior periods to conform to the current period’s presentation, primarily the separate classification of prepaid expenses and other current assets on the Company's condensed balance sheet, and condensed statement of cash flows and change in fair value of derivative liability and interest expense on the condensed statement of operations. Such reclassifications did not have a material impact on the Unaudited Condensed Consolidated Financial Statements.
During the nine months ended September 30, 2024, there were no changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Pronouncements Implemented
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The new standard reduces the number of accounting models for convertible debt instruments, amends the accounting for certain contracts in an entity’s own equity, and modifies how certain convertible instruments and contracts that may be settled in cash or shares impact the calculation of diluted earnings per share. Specifically, the guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments and requires the use of the if-converted method to calculate diluted earnings per share. This standard was effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. The Company adopted this standard as of January 1, 2024 and the adoption of this standard did not have an impact on the Company's Unaudited Condensed Consolidated Financial Statements or related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires greater disaggregation of information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. This ASU applies to all entities subject to income taxes and is intended to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. This ASU should be applied on a prospective basis although retrospective application is permitted. The Company does not expect the impact of adopting ASU 2023-09 to be material on its consolidated financial statements.
In November 2023, the Financial Account Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. This ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is to be applied retrospectively to all prior periods presented in the financial statements with an effective date for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect the impact of adopting ASU 2023-07 to be material on its consolidated financial statements.
2. Asset Acquisitions and Dispositions
Sale of real estate
The wind down of Emerald Health Therapeutics, Inc. ("EHT's") operations included the disposition of real estate held by Avalite Sciences, Inc. ("AVI") (the "AVI building"). At the time of the Company’s acquisition of EHT on November 10, 2022 (the “EHT Acquisition”), none of the purchase consideration was allocated to the fair value of the AVI building. As a result of the sale of the AVI building, for the nine months ended September 30, 2024, the Company recorded a gain of $1,145,141 recorded as a (Gain) Loss from Asset Sales within the Other Income and Expense section of the Company's Unaudited Condensed Consolidated Statements of Operations.
Divestiture of VDL, Release and Discharge Agreement
On February 9, 2023, the Company sold Verdélite Sciences, Inc. ("VDL"). For the nine months ended September 30, 2023, the Company has recorded a loss on sale of asset of $307,086 in other (income) expense based on the difference between the carrying amount of the assets sold and the net cash proceeds.
On July 17, 2024, the Company reached a transaction, release and discharge agreement with the purchaser of VDL. Under the transaction, release and discharge agreement, the purchase price of VDL was adjusted in exchange for a full release of any future claims by VDL against the Company. As part of the agreement, the parties agreed to an installment payment schedule for the remaining aggregate balance of the purchase price of $2,047,080 through December 2027. The remainder of the purchase price receivable bears interest at 8%. Upon signing the transaction, release and discharge agreement, the Company received the first installment payment of $72,837 recorded as a (Gain) Loss from Asset Sales within the Other Income and Expense section of the Company's Unaudited Condensed Consolidated Statements of Operations.
BRB Acquisition
On August 18, 2023, the Company acquired 100% of the equity interests in Bird Rock Bio Sub, Inc. ("BRB") pursuant to an Agreement and Plan of Merger and Reorganization, dated August 15, 2023 (the "BRB Acquisition"). The purpose of the acquisition was to acquire BRB's clinical asset, nimacimab, an antibody targeting the CB1 receptor, for development to treat metabolic conditions. Pursuant to the BRB Acquisition, the Company issued 3,872,184 shares of Company common stock to the former preferred stockholders of BRB equal to $20,000,000 in base merger consideration priced at $5.16.
In addition, the former preferred stockholders of BRB were entitled to additional merger consideration for each dollar invested in a concurrent private investment in public equity transaction (the "2023 PIPE Financing"). Because the 2023 PIPE Financing and BRB Acquisition occurred contemporaneously and in contemplation of each other, in accounting for the transaction, the Company allocated the shares issued as additional merger consideration between the BRB Acquisition and 2023 PIPE Financing using a residual allocation method, whereby the fair value of the consideration transferred was first allocated to the monetary assets and 2023 PIPE Financing proceeds with the remainder allocated to the in-process research and development (" IPR&D") asset, nimacimab. As a result, 1,564,194 additional shares of common stock were allocated to the BRB Acquisition.
Below is a summary of the total consideration, assets acquired and the liabilities assumed in connection with the BRB Acquisition:
| | | | | | | | | | | |
| | August 18, 2023 | |
| | | |
Purchase consideration | | | |
Common stock | | $ | 21,609,586 | | (a) |
Total consideration | | $ | 21,609,586 | | |
| | | |
Assets acquired and liabilities assumed: | | | |
IPR&D asset | | $ | 21,215,214 | | |
Cash and cash equivalents | | 1,076,740 | | |
Prepaid expenses | | 4,800 | | |
Accounts payable | | (73,473) | | |
Other current liabilities | | (613,695) | | |
Total net assets acquired | | $ | 21,609,586 | | |
(a) Equal to the aggregate of 5,436,378 shares of common stock issued, multiplied by the Company's closing stock price of $3.98 as of August 18, 2023.
The cost to acquire the IPR&D asset, nimacimab, was expensed on the date of the BRB Acquisition as it was determined to have no future alternative use. Accordingly, costs associated with the BRB Acquisition to acquire the asset were expensed as incurred.
3. Property and Equipment, Prepaid Expenses, Other Current Assets and Liabilities
Property and equipment, net consists of the following:
| | | | | | | | | | | |
| As of September 30, 2024 | | As of December 31, 2023 |
Machinery and equipment | $ | 1,527,419 | | | $ | 78,024 | |
Computer equipment | 74,868 | | | 46,732 | |
Leasehold improvements | 13,954 | | | 13,954 | |
Total property and equipment, gross | 1,616,241 | | | 138,710 | |
Less: accumulated depreciation | (99,629) | | | (95,434) | |
Total property and equipment, net | $ | 1,516,612 | | | $ | 43,276 | |
Depreciation expense for the three and nine months ended September 30, 2024 was $47,519 and $69,873, respectively. Depreciation expense for the three and nine months ended Sepember 30, 2023 was $12,788 and $38,107, respectively.
Prepaid expenses consist of the following:
| | | | | | | | | | | |
| As of September 30, 2024 | | As of December 31, 2023 |
Clinical expenses | $ | 64,878 | | | $ | 61,352 | |
Financial advisory service agreement | 284,170 | | | — | |
Other prepaid expenses | 315,556 | | | 132,907 | |
| $ | 664,604 | | | $ | 194,259 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Other current assets consist of the following:
| | | | | | | | | | | |
| As of September 30, 2024 | | As of December 31, 2023 |
AusIndustry incentive | $ | 9,033 | | | $ | 540,604 | |
Vendor deposits | 2,216,427 | | | 403,439 | |
Other tax receivables | 3,678 | | | 158,242 | |
Other current assets | 421,671 | | | 17,644 | |
| $ | 2,650,809 | | | $ | 1,119,929 | |
Other current liabilities consist of the following:
| | | | | | | | | | | |
| As of September 30, 2024 | | As of December 31, 2023 |
Research and development costs | $ | 1,220,041 | | | $ | 467,784 | |
Legal fees | 370,359 | | | 258,213 | |
EHT Acquisition related liabilities | — | | | 180,897 | |
Professional and consulting fees | 410,512 | | | 69,468 | |
Other accrued liabilities | 64,746 | | | 22,190 | |
| $ | 2,065,658 | | | $ | 998,552 | |
4. Warrants
There are significant judgements and estimates inherent in the determination of the fair value of the Company’s warrants. These judgements and estimates include assumptions regarding the Company’s future operating performance and the determination of the appropriate valuation methods.
Warrants
Warrants vested and outstanding as of September 30, 2024 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
Source | | Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Number of Warrants Outstanding |
2015 Common Stock Warrants | | $ | 1,250.00 | | | 0.56 | | 400 | |
2016 Common Stock Warrants to Service Providers | | 287.50 | | | 2.08 | | 160 | |
2019 Common Stock Warrants | | 87.50 | | | 0.14 | | 32,000 | |
2020 Common Stock Warrants to Placement Agent | | 20.00 | | | 0.83 | | 32,668 | |
2021 Inducement Warrants | | 37.50 | | | 1.81 | | 84,667 | |
2021 Inducement Warrants to Placement Agent | | 47.00 | | | 1.81 | | 5,927 | |
2021 Common Stock Warrants | | 22.50 | | | 1.99 | | 311,113 | |
2021 Common Stock Warrants to Placement Agent | | 27.50 | | | 1.99 | | 21,778 | |
November 2019 EHT Common Stock Warrants | | 72.25 | | | 0.16 | | 34,213 | |
December 2019 EHT Common Stock Warrants | | 37.25 | | | 0.24 | | 3,783 | |
February 2020 EHT Common Stock Warrants | | 37.25 | | | 0.35 | | 80,694 | |
August 2023 Convertible Note Common Stock Warrants | | 5.16 | | | 8.88 | | 340,000 | |
August 2023 PIPE Financing Common Stock Warrants | | 5.16 | | | 8.88 | | 2,325,537 | |
January 2024 Pre-Funded Warrants Common Stock | | 0.001 | | | Indefinite | | 8,677,166 | |
Total warrants outstanding as of September 30, 2024 | | | | | | 11,950,106 | |
| | | | | | |
As of September 30, 2024, all of the Company's warrants are fully vested.
January 2024 Pre-Funded Warrants
In connection with the January 2024 PIPE Financing (as defined below), the Company issued the Pre-Funded Warrants (as defined below) (See Note 6). The Pre-Funded Warrants have an exercise price of $0.001 per share, and were exercisable immediately upon issuance until exercised in full. The gross proceeds from the issuance of these Pre-Funded Warrants was $22,991,015. The Company determined that the Pre-Funded Warrants are freestanding instruments that do not meet the definition of a liability or derivative. The Pre-Funded Warrants are indexed to the Company’s common stock and meets all other conditions for equity classification. Accordingly, the Pre-Funded Warrants are classified as equity and are accounted for as a component of additional paid-in capital at the time issued. The Company also determined that the Pre-Funded Warrants should be included in the determination of basic and diluted earnings per share. ` 5. Debt
The Company’s convertible debt consists of the following:
| | | | | | | | | | |
| | | |
| | | | As of December 31, 2023 |
Total principal value of convertible note - related party, net of discount | | | | $ | 5,000,000 | |
| | | | |
Unamortized debt discount | | | | (610,749) | |
Unamortized debt issuance costs | | | | (17,253) | |
Carrying value of total convertible debt - related party | | | | $ | 4,371,998 | |
Convertible Note - Related Party
On August 15, 2023, the Company entered into a secured note and warrant purchase agreement (the "Secured Note and Warrant Purchase Agreement") with MFDI, LLC (“MFDI”), pursuant to which the Company issued to MFDI a $5,000,000 secured convertible promissory note (the "Convertible Note") and a warrant to purchase 340,000 shares of common stock on August 18, 2023 (the "Convertible Note Financing") (See Note 4). The Convertible Note had an interest rate of 10% per annum and had a fixed conversion rate of $5.16.
On August 8, 2024, MFDI exercised the conversion option under the Convertible Note and converted the full principal balance of $5,000,000 under the Convertible Note. This conversion resulted in the issuance of 968,973 shares of the Company's common stock and the payment of accrued interest in cash, thereby fully satisfying the Company's debt obligations to MFDI.
Accrued interest was payable quarterly within 30 days of the last day of each calendar quarter. The debt discounts related to the warrants, and debt issuance costs, were amortized over the term of the Convertible Note using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense in Other (income) expense within the Consolidated Statements of Operations. Through the date of conversion, the Convertible Note is classified as Level 2 of the fair value hierarchy model based on market prices that can be corroborated with observable market data for the Company's common stock.
For the three and nine months ended September 30, 2024, the effective interest rate on the Convertible Note was 31.39%.
Interest Expense (Income)
The Company’s interest expense consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Related party interest expense – stated rate | $ | 53,425 | | | $ | 60,274 | | | $ | 302,741 | | | $ | 76,227 | |
Insurance premium loan payable – stated rate | — | | | 2,162 | | | — | | | 5,764 | |
Legal judgment interest (income) expense | (384,897) | | | (23,320) | | | (234,751) | | | 158,851 | |
Bond premium | 59,929 | | | 59,930 | | | 59,929 | | | 59,930 | |
Premium on irrevocable letter of credit | 69,297 | | | 69,861 | | | 69,297 | | | 69,861 | |
Other interest expense | — | | | — | | | — | | | 3,102 | |
Non-cash interest expense: | | | | | | | |
Amortization of debt discount | 108,417 | | | 99,587 | | | 582,550 | | | 99,587 | |
Amortization of transaction costs | 3,063 | | | 2,813 | | | 16,456 | | | 2,813 | |
| $ | (90,766) | | | $ | 271,307 | | | $ | 796,222 | | | $ | 476,135 | |
6. Stockholders’ Equity and Capitalization
PIPE Financings
January 2024 PIPE Financing
On January 29, 2024, the Company entered into a Securities Purchase Agreement with certain institutional investors, pursuant to which on January 31, 2024, the Company issued an aggregate of 11,713,664 shares of common stock and 9,978,739 pre-funded warrants (the "Pre-Funded Warrants") to purchase up to 9,978,739 shares of common stock (the "January 2024 PIPE Financing") for an aggregate purchase price of $49,991,010. The January 2024 PIPE Financing was priced at $2.31 per common share and $2.30 per Pre-Funded Warrant based on the 5-day average share price preceding January 29, 2024. The Pre-Funded Warrants are exercisable at any time for an exercise price of $0.001.
In connection with the January 2024 PIPE Financing, the Company incurred $3,823,752 in direct equity issuance costs for net proceeds of $46,167,258.
March 2024 PIPE Financing
On March 11, 2024, the Company entered into a Securities Purchase Agreement with certain institutional investors, pursuant to which on March 13, 2024, the Company issued an aggregate of 4,000,000 shares of common stock (the "March 2024 PIPE Financing") for an aggregate purchase price of $40,000,000. The March 2024 PIPE Financing was priced at $10.00 per common share.
In connection with the March 2024 PIPE Financing, the Company incurred $2,610,695 in direct equity issuance costs for net proceeds of approximately $37,389,305.
Prefunded Warrant Exercise
On July 1, 2024, 1,301,573 pre-funded warrants issued in the January 2024 PIPE Financing with an intrinsic value of $10,424,294 were exercised on a cashless basis, resulting in the issuance of 1,301,410 shares of Company's common stock.
Conversion of Debt
On August 8, 2024, the Company issued 968,973 shares of common stock to MFDI upon conversion in full of the Convertible Note (see Note 5).
7. Stock-Based Compensation
Stock Incentive Plan
On October 31, 2014, the Board of Directors of the Company ("Board") approved the Company’s 2014 Omnibus Incentive Plan. On June 14, 2022, the Board approved the 2014 Amended and Restated Omnibus Incentive Plan (as amended, the “2014 Amended and Restated Plan”) which replaced the 2014 Omnibus Incentive Plan in its entirety.
On September 29, 2023, the Board and holders of the voting power of the outstanding capital stock of the Company adopted and approved Amendment No. 1 to the 2014 Amended and Restated Plan. Amendment No. 1 to the 2014 Amended and the Restated Plan became effective on November 6, 2023. As of September 30, 2024, 2,464,345 shares were authorized for the issuance under the 2014 Amended and Restated Plan.
As of September 30, 2024, the Company had 27,578 shares available for future grant under the 2014 Amended and Restated Plan.
2024 Inducement Equity Incentive Plan
On July 2, 2024, the Board adopted the Skye Bioscience, Inc. 2024 Inducement Equity Incentive Plan (the "Inducement Plan"). The Inducement Plan was adopted in order to grant share-based awards to newly hired employees as an inducement to join the Company. The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2014 Amended and Restated Plan with the exception that awards may only be made to an employee who has not previously been an employee or member of the Board of Directors of the Company if the award is in connection with commencement of employment. The Company has reserved 600,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan. As of September 30, 2024, the Company had 246,500 shares available for future grant under the Inducement Plan.
Stock Options
The following is a summary of option activity under the Company’s 2014 Amended and Restated Plan and the Inducement Plan, for the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value* |
Outstanding, December 31, 2023 | 498,298 | | | $ | 8.96 | | | 7.24 | | $ | 20,441 | |
| | | | | | | |
Granted | 1,259,600 | | | 11.35 | | | | | |
| | | | | | | |
Cancelled | (10,048) | | | 126.76 | | | | | |
Forfeited | (108,496) | | | 9.22 | | | | | |
Outstanding, September 30, 2024 | 1,639,354 | | | $ | 10.05 | | | 8.33 | | $ | 158,794 | |
Exercisable, September 30, 2024 | 519,839 | | | $ | 11.36 | | | 5.76 | | $ | 71,783 | |
| | | | | | | |
| | | | | | | |
*The aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the stock options at September 30, 2024 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options").
The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2024, was $8.82.
The fair value of the Company's stock option grants were estimated on the date of grant using the Black-Scholes option-pricing model under the following assumptions:
| | | | | |
| Nine Months Ended September 30, 2024 |
Dividend yield | 0.00% |
Volatility factor | 81.73% - 99.96% |
Risk-free interest rate | 3.69% - 4.48% |
Expected term (years) | 5.27 - 6.08 |
Restricted Stock Units
On February 29, 2024, the Company granted restricted stock units ("RSUs") to its executive management team and to certain members of the Board with market-based vesting conditions. The RSUs are eligible to vest subject to the achievement and attainment of certain market capitalization target goals and share price targets (market-based vesting conditions). The Company used the Monte Carlo Simulation model to evaluate the derived service period and fair value of awards with market and performance conditions, including assumptions of historical volatility and risk-free interest rate commensurate with the vesting term.
The fair value of the Company's market-based RSUs were estimated on the date of grant under the following assumptions:
| | | | | | | |
| Nine Months Ended September 30, 2024 | | |
Dividend yield | 0.00% | | |
Volatility factor | 93.71% | | |
Risk-free interest rate | 4.16% | | |
Derived service periods (years) | 1.27 - 2.48 | | |
On August 22, 2024, the Board approved a modification to the terms of the RSUs issued on August 25, 2023, and September 29, 2023 to its executive management team and to a member of the Board. The vesting condition was modified from a performance-based condition to a market-based condition. Since the performance condition under the original award was improbable of being met at the time of the modification, no expense was previously recognized. Therefore, on the modification date, the Company established a new fair value and will recognize the expense over the derived service period. The Company used the Monte Carlo Simulation model to evaluate the derived service period and fair value of the awards.
The fair value of the Company's market-based RSUs were estimated on the modification date under the following assumptions:
| | | | | | | |
| Nine Months Ended September 30, 2024 | | |
Dividend yield | 0.00% | | |
Volatility factor | 94.3% | | |
Risk-free interest rate | 3.76% | | |
Derived service periods (years) | 2.11 | | |
The following is a summary of RSU activity during the period ended September 30, 2024:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Unvested, December 31, 2023 | 847,777 | | | $ | 3.66 | |
| | | |
Granted | 290,000 | | | 13.87 | |
| | | |
Unvested, September 30, 2024 | 1,137,777 | | | $ | 6.26 | |
Common Stock Issued for Services
Additionally, during the nine months ended September 30, 2024, the Company issued 5,000 shares of common stock to a service provider as compensation for services provided. Such shares were issued in a private placement outside of the Company's equity incentive plans.
Stock-Based Compensation Expense
The Company recognizes stock-based compensation expense using the straight-line method over the requisite service period or derived service period. The Company recognized stock-based compensation expense for the stock options and the RSUs discussed above, in its Unaudited Condensed Consolidated Statements of Operations as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Research and development | $ | 360,845 | | | $ | 33,724 | | | $ | 1,056,564 | | | $ | 90,725 | |
General and administrative | 1,560,772 | | | 126,483 | | | 5,171,706 | | | 303,932 | |
| $ | 1,921,617 | | | $ | 160,207 | | | $ | 6,228,270 | | | $ | 394,657 | |
During the nine months ended September 30, 2024, the first three market-based vesting conditions of the RSUs granted in August and September 2023 were met.
Stock Compensation Adjustments Related to Board Member Resignations
On July 2, 2024, the Board accepted the resignations of several Board members effective August 1, 2024. Concurrently, the Board approved a modification to the option awards granted such Board members, which modification accelerated the vesting of all unvested options as of the resignation date and extended the post-termination exercise period to December 31, 2025. As a result of the modification, the Company recognized $274,019 in incremental stock compensation expense during the three and nine months ended September 30, 2024.
The total amount of unrecognized compensation cost was $11,758,346 as of September 30, 2024. This amount will be recognized over a weighted average period of 2.61 years.
8. Loss Per Share of Common Stock
The following tables are a reconciliation of the numerators and denominators used in the calculation of basic and diluted net loss per share computations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, (Unaudited) | | Nine Months Ended September 30, (Unaudited) |
| 2024 | | 2023 | | 2024 | | 2023 |
Basic EPS and diluted EPS: | | | | | | | |
| | | | | | | |
Loss (Numerator) | | | | | | | |
Net loss | $ | (3,898,297) | | | $ | (24,945,834) | | | $ | (16,820,644) | | | $ | (33,224,854) | |
| | | | | | | |
Shares (Denominator) | | | | | | | |
Weighted average common shares outstanding, including shares issuable upon the exercise of pre-funded warrants | 38,819,387 | | | 7,880,546 | | | 35,317,352 | | | 5,207,411 | |
Per-Share Amount | $ | (0.10) | | | $ | (3.17) | | | $ | (0.48) | | | $ | (6.38) | |
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, (Unaudited) | | Nine Months Ended September 30, (Unaudited) |
| 2024 | | 2023 | | 2024 | | 2023 |
Stock options | 1,639,354 | | | 442,803 | | | 1,639,354 | | | 442,803 | |
Warrants | 3,272,940 | | | 3,280,940 | | | 3,272,940 | | | 3,280,940 | |
Unvested restricted stock units | 513,446 | | | 843,110 | | | 513,446 | | | 843,110 | |
Common shares underlying convertible debt | — | | | 980,673 | | | — | | | 980,673 | |
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General Litigation and Disputes
From time to time, in the normal course of operations, the Company may be a party to litigation and other dispute matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable outcome to any legal matter, if material, could have a materially adverse effect on the Company’s operations or financial position, liquidity or results of operations.
Wendy Cunning vs Skye Bioscience, Inc.
The Company is a party to a legal proceeding with a former employee alleging, among other things, wrongful termination, violation of whistleblower protections under the Sarbanes-Oxley Act of 2002, and retaliation under California law against the Company relating to certain actions and events that occurred with the Company's former management during the employee's employment term from March 2018 to July 2019. The case, entitled Wendy Cunning vs Skye Bioscience, Inc., was filed in U.S. District Court (the "District Court") for the Central District of California (the “Cunning Lawsuit”). On January 18, 2023, a jury rendered a verdict in favor of Ms. Cunning and awarded her $512,500 in economic damages (e.g., lost earnings, future earnings and interest), $840,960 in non-economic damages (e.g., emotional distress) and $3,500,000 in punitive damages. On August 2, 2023, the District Court ruled on the plaintiff's motion for attorney fees and awarded the plaintiff $1,200,008. Based on this order, the Company reduced the aggregate estimate for the legal contingency by $151,842, the difference between the attorney fees awarded by the District Court and the Company's previous estimate. On August 17, 2023, the Company obtained a stay on enforcement of the judgment in the Cunning Lawsuit by posting an appeal bond in the amount of $9,080,202.
In March of 2023, the Company appealed the judgment in the Cunning Lawsuit to the United States Court of Appeals for the Ninth District (the "Ninth Circuit"). Subsequent to quarter end, on October 22, 2024, the Ninth Circuit issued its decision in the Company's favor which vacated the judgment and remanded the case back to the District Court for a new trial. As a result, the Company will be able to recover the $9,080,202 restriction on its cash related to the bond.
Skye Bioscience, Inc. vs Partner Re Ireland Insurance
In February 2023, the Company brought a suit against the Company's D&O insurance carrier, Partner Re Ireland Insurance DAC ("Partner Re"), bringing claims for (a) breach of contract, (2) tortious breach of the implied covenant of good faith and fair dealing and (3) declaratory relief that Partner Re is obligated to reimburse the Company for the defense fees and costs incurred in defense of the Cunning Lawsuit and must indemnify the Company for any settlement or judgment in the Cunning Lawsuit (the "Partner Re Lawsuit"). The Company's allegations arise out of Partner Re's refusal to reimburse the Company for costs incurred by the Company in defending the Cunning Lawsuit. The case, entitled Skye Bioscience, Inc., v. Partner Re Ireland Insurance DAC, was filed in the United Stated District Court for the Central District of California.
On April 17, 2023, Partner Re filed a motion to dismiss the Company's complaint. On June 20, 2023, the court issued a ruling in favor of the Company and denied Partner Re's motion to dismiss the Company's lawsuit. In April 2024, the Company filed a motion for judgment on the pleadings. In June of 2024, the court granted in part and denied in part the Company's motion for judgment on the pleadings. The court granted the Company's motion for judgment on the pleadings with respect to Partner Re's affirmative defense related to whether the Cunning Lawsuit constituted a “Securities Claim” as defined in the Partner Re policy, rejecting what had been Partner Re's primary basis for denying coverage.
The Company is pursuing up to $5,000,000 in coverage less the deductible to cover legal expenses incurred and any potential loss incurred from the Cunning Lawsuit.
Estimate for accrued legal contingencies and related expenses
Following the Ninth Circuit's favorable decision and the Company's mediation efforts with PartnerRe, a change in estimate for legal contingencies was recorded. As of September 30, 2024, the Company has reversed the accrued interest on the original judgment and adjusted its potential loss for accrued legal contingencies and related expenses, which includes legal accruals and all other costs related to its ongoing litigation matters.
Management uses significant judgment in developing its estimates related to legal contingencies and loss recoveries. These adjustments are based on the evaluation of case history, mediation efforts, the facts of the cases and take into consideration both future potential judgment amounts, damages and potential attorney fee awards if the cases were to be retried.
The final amount of the loss and loss recoveries remain uncertain. The ultimate amount of the potential loss may be significantly less than the amount of the revised legal contingency and there is no guarantee that the Company will be successful in its efforts to recover additional losses. The Company believes that it is at least reasonably possible that the estimated amount of the potential loss may change in the near term.
10. Subsequent Events
Approval of Amended and Restated Omnibus Incentive Plan
On October 22, 2024, the Company's stockholders voted to approve the second amendment and restatement of the Company's Amended and Restated 2014 Omnibus Incentive Plan to increase the number of shares of the Company's common stock issuable thereunder by 1,535,655 to increase the number of incentive stock options that may be granted thereunder to 4,000,000, extend the expiration date of the plan to September 10, 2034, update the name of the plan to the “Skye Bioscience, Inc. Amended and Restated Omnibus Incentive Plan” and make certain administrative amendments (as so amended and restated, the "Amended and Restated Plan").
Stock Option Grants
Subsequent to September 30, 2024, the Company granted an aggregate of 1,456,400 common stock options to members of management, employees and directors under the Amended and Restated Plan.
San Francisco Office Lease
On September 25, 2024, the Company entered into a new lease agreement for approximately 2,077 square feet of office space located at 632 Commercial Street, 5th Floor, San Francisco, California 94111. The lease has a term of three years and two months, beginning on October 1, 2024, with a monthly rent of $9,000 and annual increases of 3%. This office space will support our continued growth and operational needs as we expand our development activities. No material changes to our financial position are anticipated as a result of this lease.
Legal Contingencies
See Note 9 for disclosure of the recognized subsequent event related to our estimate for legal contingencies.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements (unaudited) for the three and nine months ended September 30, 2024 and 2023, together with the notes thereto and the consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q contain forward-looking statements that are based on management’s current expectations and assumptions and information currently available to management and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially and negatively affected. In some cases, you can identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth in the section below titled “Risk Factors,” including, without limitation, risks relating to:
•the results of our research and development activities, including uncertainties relating to the discovery of potential product candidates and the preclinical and clinical testing of our current product candidate, nimacimab;
•the translation of our preclinical results and data and early clinical trial results in particular relating to safety, efficacy and durability into future clinical trials in humans;
•the timing, progress and results of our clinical trial for nimacimab and our estimates regarding the market opportunity for nimacimab if approved;
•the early stage of our product candidate presently under development;
•our ability to obtain and, if obtained, maintain regulatory approval of our current product candidate, and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate;
•our ability to retain or hire key scientific or management personnel;
•our ability to protect our intellectual property rights that are valuable to our business, including patent and other intellectual property rights;
•our dependence on third party manufacturers, suppliers, research organizations, testing laboratories and other potential collaborators, including global supply chain disruptions;
•our ability to develop successful sales and marketing capabilities in the future as needed;
•the size and growth of the potential markets for our current product candidate, nimacimab, and any of our future product candidates, and the rate and degree of market acceptance of our current product candidate and any of our future product candidates;
•our competitive position and the development of competing therapies that are or may become available;
•regulatory developments in the United States and foreign countries; and
•current pending litigation matters, including the Cunning Lawsuit.
We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, including the current global economic environment, the impacts of the high inflationary environment, and associated business disruptions such as delayed clinical trials, laboratory resources and supply chain limitations, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.
Unless otherwise provided in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” and “Skye” in this discussion and analysis refer to Skye Bioscience, Inc., a Nevada corporation, together with its wholly owned subsidiaries, Nemus, a California corporation, SKYE Bioscience Pty Ltd ("SKYE Bioscience Australia"), an Australian proprietary limited company, Emerald Health Therapeutics, Inc. ("EHT") a corporation governed by the Business Corporations Act (British Columbia), Bird Rock Bio Sub, Inc. ("BRB"), a Delaware corporation and Ruiyi Acquisition Corp, a Delaware corporation.
Overview
We are a clinical-stage biopharmaceutical company focused on unlocking new therapeutic pathways for metabolic health through the development of next-generation molecules that modulate G-protein-coupled receptors ("GPCRs"). GPCRs regulate diverse physiological and pathological processes, particularly those that maintain metabolic homeostasis. Therapeutics that target these GPCR-associated pathways may represent novel approaches to address metabolic disorders.
Our product candidate, nimacimab, is a peripherally-restricted negative allosteric modulating antibody specific for the human CB1 receptor (CB1), administered as a subcutaneous injectable initially for the treatment of obesity.
During the three months ended September 30, 2024, we commenced our Phase 2 clinical trial, CBeyondTM, for nimacimab. The CBeyondTM clinical trial includes 120 patients, 18 clinical trial sites and an exploratory combination arm with a GLP-1 agonist to assess differences in weight loss, body composition, and other attributes. The CBeyondTM clinical trial continues to enroll patients and we expect to meet our goal of 50% enrollment by the end of 2024. We expect to provide interim and topline data in the second and fourth quarters of 2025, respectively.
This CBeyondTM clinical trial's primary endpoint is to evaluate weight loss using nimacimab compared to placebo. Secondary endpoints include evaluations of safety and tolerability, neuropsychiatric and cognitive evaluation, change in body composition by Dual-Energy X-ray Absorptiometry (DEXA), and changes in key metabolic biomarkers such as triglycerides, and insulin and leptin sensitivity.
We believe that nimacimab has competitive advantages that differentiate it within the CB1 inhibitor class. First, as a monoclonal antibody, it is a large molecule that has great difficulty crossing the blood-brain barrier and restricts its engagement to CB1 receptors present in tissue/organs within the periphery of the body (i.e., outside the brain). Second, it is a negative allosteric modulator, a unique binding mechanism compared to small-molecule CB1 inhibitors, which may confer advantages in terms of its therapeutic index. Our antibody-based CB1 inhibitor shares many of the characteristics of small molecule inverse agonists by targeting CB1 receptors in adipose tissue to directly increase fat metabolism and indirectly impact hunger hormones. However, we believe its virtually complete restriction to the periphery eliminates problematic central engagement in the brain. In the case of small-molecule CB1 inhibitors, CB1 inhibition in the brain has been associated with dose-dependent neuropsychiatric adverse events.
We do not believe that central targeting of CB1 inhibition is required for meaningful efficacy. To demonstrate this, we have developed a diet-induced obesity (DIO) model using humanized mice with knock-in CB1 receptors to interrogate the in vivo efficacy of nimacimab, a humanized IgG4 anti-CB1 antibody. During November 2024, we shared initial data from our DIO study with nimacimab showing dose-dependent weight loss as well as positive changes in body composition and glycemic control upon treatment. Further analysis and repeat studies are underway but we believe that true peripheral CB1 inhibition can positively impact metabolic disorders including obesity.
Given the distinct mechanism and beneficial attributes of nimacimab as a peripheral CB1 inhibitor, within the large and heterogeneous obesity landscape we believe there is significant opportunity for nimacimab to potentially complement GLP-1 agonists and other anti-obesity drug mechanisms of action as well as to have a potential role as a monotherapy.
In January 2024 and March 2024, we completed two private placement equity transactions (the "January and March PIPE Financings") with institutional accredited investors, in which we raised combined net aggregate proceeds of $83,556,563. The net capital raised from the January and March PIPE Financings along with the reallocation of funds from the elimination of our glaucoma program will allow us to fund our clinical trial for obesity through top-line Phase 2 data and provide us with the ability to expand upon our metabolic program.
In April 2024, Skye uplisted to the NASDAQ Global Market® stock exchange from the OTCQB.
On May 10, 2024, we entered into an Equity Distribution Agreement (the “ATM Agreement”) with Piper Sandler & Co, as the sales agent (the “Sales Agent”), under which we may, from time to time, sell up to $100,000,000 of shares of our common stock through the Sales Agent (the “ATM Offering”). We are not obligated to, and we cannot provide any assurances that we will make any sales of the shares under the ATM Agreement. We will pay the Sales Agent a commission for their services in acting as agent in the sale of common stock in an amount up to 3% of the gross sales price per share sold. During the three and nine months ended September 30, 2024, we did not issue any shares under the ATM Offering.
In June 2024, we completed our Phase 2a double-masked randomized, placebo-controlled trial of SBI-100 Ophthalmic Emulsion (“SBI-100 OE”) in 56 patients with elevated intraocular pressure ("IOP") diagnosed with primary open-angle glaucoma or ocular hypertension. The primary endpoint evaluated the change in diurnal IOP in the treated arm vs. placebo over 2 weeks. The study did not achieve a statistically significant improvement in IOP over placebo. As a result, we eliminated our ocular program and strategically redirected our efforts and capital resources to our metabolic program. We have also terminated our license agreement with the University of Mississippi and other vendor contracts related to the manufacture, development, and sublicense of SBI-100.
In August of 2024, the Convertible Note (as defined in Note 5 to the accompanying Unaudited Condensed Consolidated
Financial Statements). with a principal value of $5,000,000 was converted into 968,973 shares of our common stock.
In March of 2023, we appealed the judgment in the Cunning Lawsuit (as defined in Note 9 to the accompanying Unaudited Condensed Consolidated Financial Statements) with the Ninth Circuit Court of Appeals (the "Ninth Circuit"). On October 22, 2024, the Ninth Circuit issued its decision on the appeal and vacated the judgment and remanded the case back to the District Court for a new trial. By the end of 2024, we expect to exonerate the bond and remove the restriction on our cash balance to extend our cash runway and reallocate the funds to further our clinical pipeline.
We were incorporated under the laws of the State of Nevada on March 16, 2011, and our headquarters are based in San Diego, CA. We also maintain office space in San Francisco, CA. Since our incorporation, we have devoted substantially all of our efforts to building our product portfolio through the acquisition of clinical assets and licensing agreements, carrying out research and development, building infrastructure and raising capital.
Financial Overview
Revenues
To date, we have not generated any revenue. We do not expect to receive any revenue from our lead drug candidate, nimacimab, or any future drug candidates that we develop unless and until we obtain regulatory approval for, and commercialize, nimacimab or future drug candidates or generate revenue from collaborative agreements with third parties.
Research and Development Expenses
During the three months ended September 30, 2024, we incurred $4,883,337 in research and development expenses primarily related to our Phase 2 clinical trial of nimacimab for obesity, manufacturing and residual costs from our legacy Phase 2a SBI-100 OE clinical trial. During the three months ended September 30, 2023, we incurred $1,254,653 in research and development expense primarily related to our efforts in conducting the Phase 1 SBI-100 OE clinical trial.
During the nine months ended September 30, 2024, we incurred $10,908,538 in research and development expenses primarily related to our Phase 2 clinical trial of nimacimab for obesity, manufacturing and residual costs from our legacy Phase 2a SBI-100 OE clinical trial. During the nine months ended September 30, 2023, we incurred $4,227,967 in research and development expense primarily related to our efforts in conducting the Phase 1 SBI-100 OE clinical trial.
We expect that our ongoing research and development expenses will consist of costs incurred for the development of our lead drug candidate, nimacimab, or our future drug candidates, including, but not limited to:
| | | | | | | | |
| • | employee-related expenses, which include salaries, benefits and stock-based compensation; |
| | | | | | | | |
| • | payments to third party contract research organizations and investigative sites; and |
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| • | payments to third party manufacturing organizations and consultants. |
We expect to incur future research and development expenditures to support our preclinical, nonclinical, and clinical studies. Preclinical and nonclinical activities include early discovery efforts with novel molecules, laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess safety and efficacy.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our lead drug candidate, nimacimab, and any future drug candidate is highly uncertain. Our future research and development expenses will depend on the clinical success of nimacimab and any future drug candidates as well as ongoing assessments of the commercial potential of such drug candidates. In addition, we cannot forecast with any degree of certainty which drug candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect to incur increased research and development expenses in the future as we continue our efforts towards advancing our lead program for nimacimab.
General and Administrative Expenses
Our general and administrative expenses have fluctuated year-over-year as we have entered into various strategic acquisitions to restructure and reposition our company. Additionally, as a business in the early stages of drug development we are in the process of scaling our operations by hiring additional employees and building the infrastructure necessary to increase efficiencies. These initiatives have resulted in additional costs related to the implementation of certain systems, insurance, facilities, legal, tax and accounting costs. As a public company, we expect to incur additional expenses related to insurance, investor relations activities, legal and other administration and professional services to comply with the rules and regulations of the SEC, FINRA and Nasdaq. Other significant costs are expected to include legal fees relating to patent and corporate matters, business development costs and fees for consulting services. To incentivize our employees and be competitive to retain strong talent we issued additional equity awards in 2023 and 2024, which have resulted in increased stock-based compensation expense. We also expect that certain general and administrative expenses which are commensurate with headcount, will continue to increase in the future in order to support our expected increase in research and development activities, including increased salaries, technology, facilities and other related costs.
Other (Income) Expense
Other (income) expense primarily includes a gain from the sale of the AVI building (see Note 2 to the accompanying Unaudited Condensed Consolidated Financial Statements), interest income and interest expense incurred from the Convertible Note which was converted during the three months ended September 30, 2024.
Critical Accounting Estimates
There have been no material changes in our Critical Accounting Estimates from the information provided in the "Critical Accounting Estimates" section of "Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, except, for the addition of our critical accounting estimate related to the estimate for accrued legal contingencies and related expenses and loss recoveries.
We follow ASC 450, subtopic 450-20 to report accounting for loss contingencies and recoveries. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur.
We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies and recoveries related to legal proceedings that are pending or un-asserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency or loss recovery indicates that it is probable that a material loss has been incurred or a loss recovery is realizable and the amount of the asset or liability can be estimated, then the estimated asset or liability would be recorded in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Recently Issued and Adopted Accounting Pronouncements
See Note 1 to the accompanying Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on recently issued accounting pronouncements and recently adopted accounting pronouncements. While we expect certain recently adopted accounting pronouncements to impact our estimates in future periods, the impact upon adoption was not significant to our current estimates and operations.
Results of Operations
For the three months ended September 30, 2024 and 2023
Research and Development Expenses
Below is a summary of our research and development expenses during the three months ended September 30, 2024 and for the same period in 2023:
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| | Three Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
Research and development expenses | | $ | 4,883,337 | | | $ | 1,254,653 | | | $ | 3,628,684 | | | 289 | % |
Research and development expenses for the three months ended September 30, 2024, increased by $3,628,684 as compared to the same period in 2023. The net increase in research and development expenses was primarily due to an increase of $693,556 in research and development salaries and equity based compensation, a net increase of $2,735,109 in contracted clinical and manufacturing costs from our Phase 2 clinical trial of nimacimab for obesity, an increase of $74,758 in consulting expense, and an increase of $122,174 in travel and other business expenses.
Cost to acquire IPR&D asset
Below is a summary of our cost to acquire the IPR&D asset, nimacimab, pursuant to the BRB Acquisition (as defined in Note 2 of to the accompanying Unaudited Condensed Consolidated Financial Statements) during the three months ended September 30, 2024, and for the same period in 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
Cost to acquire IPR&D asset | | $ | — | | | $ | 21,215,214 | | | $ | (21,215,214) | | | (100) | % |
Cost to acquire the IPR&D asset for the three months ended September 30, 2024, decreased by $21,215,214 as compared to the same period in 2023. The decrease is due to the cost of the acquired IPR&D in the BRB Acquisition during the three months ended September 30, 2023 and no acquisition of IPR&D in the same period during 2024.
General and Administrative Expenses
Below is a summary of our general and administrative expenses during the three months ended September 30, 2024, and for the same period in 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
General and administrative expenses | | $ | 4,638,927 | | | $ | 2,235,899 | | | $ | 2,403,028 | | | 107 | % |
General and administrative expenses for the three months ended September 30, 2024, increased by $2,403,028 as compared to the same period in 2023. The increase in general and administrative expenses was primarily due to an increase in salaries and benefits of $1,826,208 driven by stock-based compensation expense from the achievement of certain performance based milestones related to RSUs granted to members of management and a member of the board of directors of the Company and increased headcount. During the three months ended September 30, 2024, professional fees increased by $214,192 due to services provided under a financial advisory agreement, increased corporate tax fees and corporate legal fees related to patent prosecution for nimacimab. The net increase included an offset of $164,000 from the reduction in general corporate legal expenses related to the Cunning Lawsuit and Partner Re case as compared to the prior period.
Change in Estimate for Legal Contingencies
Total change in estimate for legal contingencies for the three months ended September 30, 2024 and 2023, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
Change in estimate for legal contingencies | | $ | (4,553,468) | | | $ | — | | | $ | (4,553,468) | | | 100 | % |
For the three months ended September 30, 2024, we recorded a change in estimate for legal contingencies (as defined in Note 9 to the accompanying Unaudited Condensed Consolidated Financial Statements) based on changes after September 30, 2024 to the facts and circumstances related to our legal proceedings that existed as of the balance sheet date.
Other (Income) Expense
Below is a summary of our other (income) expense for the three months ended September 30, 2024 and for the same period in 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
Interest (income) expense | | $ | (90,766) | | | $ | 271,307 | | | $ | (362,073) | | | (133) | % |
Interest income | | (907,697) | | | (16,562) | | | (891,135) | | | 5381 | % |
(Gain) loss from asset sales | | (72,837) | | | — | | | (72,837) | | | 100 | % |
| | | | | | | | |
Wind-down costs | | — | | | (14,677) | | | 14,677 | | | (100) | % |
Other expense | | $ | 801 | | | $ | — | | | 801 | | | 100 | % |
Total other (income) expense | | $ | (1,070,499) | | | $ | 240,068 | | | $ | (1,310,567) | | | (546) | % |
For the three months ended September 30, 2024, we had net other income of $1,070,499 related primarily to the increase in interest income of $891,135 resulting from interest earned on our cash and cash equivalents and the restricted cash on deposit with financial institutions, offset by a decrease in interest expense primarily from the reversal of accrued interest on our legal contingency, which was vacated. The interest income was offset by an increase in interest expense from the Convertible Note (as defined in Note 5 to the accompanying Unaudited Condensed Consolidated Financial Statements).
For the three months ended September 30, 2023, we had net other expense of $240,068 related primarily to interest expense from the premiums on the irrevocable letter of credit and appeal bond for the Cunning Lawsuit (as defined in Note 9 to the accompanying Unaudited Condensed Consolidated Financial Statements), and interest expense from the Convertible Note.
For the nine months ended September 30, 2024 and 2023
Research and Development Expenses
Below is a summary of our research and development expenses during the nine months ended September 30, 2024 and for the same period in 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
Research and development expenses | | $ | 10,908,538 | | | $ | 4,227,967 | | | $ | 6,680,571 | | | 158 | % |
Research and development expenses for the nine months ended September 30, 2024, increased by $6,680,571 as compared to the same period in 2023. The net increase in research and development expenses was primarily due to an increase of $1,494,336 in research and development salaries from increased headcount and equity based compensation, a net increase of $4,570,417 in contracted clinical costs and manufacturing associated with our clinical trial for nimacimab in obesity and the completion of our Phase 2a clinical trial for SBI-100 OE in glaucoma. In addition, we had increased travel expenses of $95,275 due to our increased presence at conferences and events during the nine months ended September 30, 2024.
In connection with the discontinuation of our clinical trials for SBI-100 OE, we incurred contract cancellation fees and other general expenses of $335,022. In addition, there was an increase in consulting fees of $265,853 related to our Phase 2 clinical trial for nimacimab in obesity, which was offset by a decrease in license fees of $70,248 from the elimination of the SBI-200 license agreement with the University of Mississippi in the prior year.
Cost to acquire IPR&D asset
Below is a summary of our cost to acquire the IPR&D in connection with the BRB Acquisition asset during the nine months ended September 30, 2024, and for the same period in 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
Cost to acquire IPR&D asset | | $ | — | | | $ | 21,215,214 | | | $ | (21,215,214) | | | (100) | % |
Cost to acquire the IPR&D asset for the nine months ended September 30, 2024, decreased by $21,215,214 as compared to the same period in 2023 .The decrease is due to the cost of the acquired IPR&D in the BRB Acquisition during the nine months ended September 30, 2024 and no acquisition of IPR&D in the same period during 2024.
General and Administrative Expenses
Below is a summary of our general and administrative expenses during the nine months ended September 30, 2024, and for the same period in 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
General and administrative expenses | | $ | 13,171,547 | | | $ | 5,357,577 | | | $ | 7,813,970 | | | 146 | % |
General and administrative expenses for the nine months ended September 30, 2024, increased by $7,813,970 as compared to the same period in 2023. The increase in general and administrative expenses was primarily due to an increase in salaries and benefits of $5,389,259 from increased headcount and the recognition of stock based compensation expense due to the achievement of certain performance based milestones related to RSUs granted to members of management and a members of the board of directors of the Company.
During the nine months ended September 30, 2024, professional fees increased by $1,035,567 due to services provided under a financial advisory agreement, professional services related to the registration of the resale of shares issued in the January and March PIPE Financings and general corporate legal fees associated with our uplisting to Nasdaq, the filing of our shelf registration statement, legal fees related to nimacimab patent prosecution, increased tax fees due to increased tax complexity and the entry into the ATM Agreement. In addition, our general business expenses increased by $875,842 due to regulatory agency filing fees, the Nasdaq initial listing fee, recruiting fees, investor relations fees and corporate events. Other increases included consulting, insurance, marketing, software and travel of $127,188, $177,458, $130,907, $73,704 and $122,630, respectively.
Change in Estimate for Legal Contingencies
Total change in estimate for legal contingencies for the nine months ended September 30, 2024 and 2023, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
Change in estimate for legal contingencies | | $ | (4,553,468) | | | $ | (151,842) | | | $ | (4,401,626) | | | 2899 | % |
For the nine months ended September 30, 2024, we recorded a change in estimate for legal contingencies (as defined in Note 9 to the accompanying Unaudited Condensed Consolidated Financial Statements) based on changes after September 30, 2024 to the facts and circumstances related to our legal proceedings that existed as of the balance sheet date.
Other (Income) Expense
Below is a summary of our other (income) expense for the nine months ended September 30, 2024, and for the same period in 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2024 | | 2023 | | $ Change 2024 vs. 2023 | | % Change 2024 vs. 2023 |
Interest (income) expense | | $ | 796,222 | | | $ | 476,135 | | | $ | 320,087 | | | 67 | % |
Interest income | | (2,296,488) | | | (49,669) | | | (2,246,819) | | | 4524 | % |
(Gain) loss from asset sales | | (1,217,978) | | | 307,086 | | | (1,525,064) | | | (497) | % |
Debt conversion inducement expense | | — | | | 1,383,285 | | | (1,383,285) | | | (100) | % |
Wind-down costs | | — | | | 455,504 | | | (455,504) | | | (100) | % |
Other expense (income) | | 2,200 | | | (3) | | | 2,203 | | | 100 | % |
Total other (income) expense | | $ | (2,716,044) | | | $ | 2,572,338 | | | $ | (5,288,382) | | | (206) | % |
For the nine months ended September 30, 2024, we had net other income of $2,716,044 related primarily to the gain on the sale of the AVI building and collections from the sale of VDL of $1,217,978, an increase in interest income of $2,246,819, offset by a net increase of $320,087 in interest expense from an increase in interest on our Convertible Note offset by the reversal of interest from the judgment related to the Cunning Lawsuit. In addition, during 2023, we incurred a one-time debt conversion inducement expense of $1,383,285 and recognized wind down costs of $455,504 from the EHT Acquisition.
Liquidity and Capital Resources
Liquidity
We have incurred operating losses and negative cash flows from operations since our inception, and as of September 30, 2024, we had working capital of $74,184,006, an accumulated deficit of $121,203,193, and stockholders’ equity of $75,803,375. We had unrestricted cash and cash equivalents in the amount of $67,412,614 as of September 30, 2024, as compared to $1,256,453 as of December 31, 2023. For the nine months ended September 30, 2024 and 2023, the Company incurred losses from operations of $19,526,617 and $30,648,916, respectively. For the nine months ended September 30, 2024 and 2023, the Company incurred net losses of $16,820,644 and $33,224,854, respectively.
In January 2024 and March 2024, we completed the January and March PIPE Financings (as such terms are defined in Note 6 to the accompanying Unaudited Condensed Consolidated Financial Statements), in which we raised combined net aggregate proceeds of $83,556,563. We expect the capital from the January and March PIPE Financings to fund our Phase 2 clinical trial for obesity through top line Phase 2 data in late 2025 and the potential expansion of our metabolic program.
In May 2024, we entered into the ATM Agreement under which the Company may, sell up to $100,000,000 of shares of common stock through the Sales Agent. The Company has not sold any shares under the ATM Agreement as of the date hereof and is not obligated to, and cannot provide any assurances that the Company will continue to, make any sales of the shares under the ATM Agreement.
In July 2024, 1,301,573 pre-funded warrants, with an intrinsic value of $10,424,294, were exercised on a cashless basis, resulting in the issuance 1,301,410 shares of our common stock (see Note 6 to the accompanying Unaudited Condensed Consolidated Financial Statements).
In August 2024, the holder of the Convertible Note exercised their conversion option and converted the principal balance of $5,000,000 into 968,973 shares of our common stock.
In March of 2023, we appealed the judgment in the Cunning Lawsuit to the Ninth District Court of Appeals (the "Ninth Circuit"). In October of 2024, the Ninth Circuit issued its decision and vacated the $6,053,468 judgment and remanded the case back to the District Court for the Central District of California for a new trial. By the end of 2024, we expect to exonerate the bond and recover the $9,080,202 restriction on our cash balance to extend our cash runway and reallocate the funds to further our clinical pipeline.
The Company’s Unaudited Condensed Consolidated Financial Statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. Based on its current operational requirements, the Company believes that its current cash will be sufficient to fund its projected operations for at least 12 months from the date of the issuance of these consolidated financial statements. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
•the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related activities;
•our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;
•the timing of, and the costs involved in, obtaining regulatory approvals for any of nimacimab or any future drug candidates;
•the number and characteristics of the drug candidates we seek to develop or commercialize;
•the cost of manufacturing clinical supplies, and establishing commercial supplies, of our drug candidates;
•the cost of commercialization activities if our current or future drug candidates are approved for sale, including marketing, sales and distribution costs;
•the expenses needed to attract and retain skilled personnel;
•the costs associated with being a public company;
•the amount of revenue, if any, received from commercial sales of our drug candidates, should any of our drug candidates receive marketing approval; and
•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.
Cash Flows
The following is a summary of our cash flows for the periods indicated and has been derived from our Unaudited Condensed Consolidated Financial Statements which are included elsewhere in this Quarterly Report on Form 10-Q:
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2024 | | 2023 |
Net cash used in operating activities | | $ | (17,064,377) | | | $ | (10,107,460) | |
Net cash (used in) provided by investing activities | | (336,025) | | | 6,603,473 | |
Net cash provided by financing activities | | 83,556,563 | | | 16,465,924 | |
Cash Flows from Operating Activities
The primary use of cash for our operating activities during the period was to fund research development activities for our clinical product candidates and general and administrative activities. Our cash used in operating activities also reflected changes in our working capital, net of adjustments for non-cash charges, such as stock-based compensation, depreciation and amortization, amortization of debt discount and the (gain) loss from divestiture of assets.
Cash used in operating activities of $17,064,377 during the nine months ended September 30, 2024, reflected a net loss of $16,820,644, partially offset by aggregate non-cash charges of $1,515,581 and included a $1,759,314 net change in our operating assets and liabilities.
Non-cash charges included $6,228,270 for stock-based compensation expense primarily attributable to the vesting of RSUs related to the achievement of certain market based performance milestones, $599,006 in non-cash interest expense debt
amortization expense, $1,217,978 gain from the sale of a real estate asset, $123,347 in depreciation and amortization and $325,610 from the write-off of vendor deposits. The net change in our operating assets and liabilities included a $2,076,835 cash outflow from changes in our prepaid expenses and other current assets, a $711,281 net cash outflow from changes in our accrued expenses and other current liabilities and a $375,760 cash outflow from the repayment of our accounts payable.
Cash used in operating activities of $10,107,460 during the nine months ended September 30, 2023, reflected a net loss of $33,224,854, partially offset by aggregate non-cash charges of $23,476,130 and included a $358,736 net change in our operating assets and liabilities.
Cash Flows from Investing Activities
During the nine months ended September 30, 2024, the Company purchased $1,554,003 in machinery and office equipment and recognized $1,217,978 in net proceeds from the sale of the AVI building and the collection of receivables from the sale of VDL (see Note 2 to the accompanying Unaudited Condensed Consolidated Financial Statements).
During the nine months ended September 30, 2023, the Company purchased $5,533 in machinery office equipment, received $5,532,266 in proceeds related to the divestiture of VDL and received $1,076,740 in cash from the acquisition of BRB.
Cash Flows from Financing Activities
Cash flows from financing activities primarily reflect proceeds from the sale of our securities and loan repayments.
During the nine months ended September 30, 2024, cash provided by financing activities included $83,556,563 in proceeds received in connection with the January and March PIPE Financings, net of issuance costs.
During the nine months ended September 30, 2023, cash provided by financing activities included $4,973,684 in proceeds received in connection with the Convertible Note net of issuance costs, and $11,734,947 in proceeds received in connection with the 2023 PIPE Financing, net of issuance costs, offset by a $236,681 repayment on our insurance premium loan payable.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any control and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily is required to apply its judgement in evaluating the cost-benefit relationship of possible controls and procedures.
We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures were effective at a reasonable assurance level.
Changes in internal controls. Management determined there were no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a description of material legal proceedings, see Note 9, "General Litigation and Disputes" to the accompanying Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors.
There have been no material changes in or additions to the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2023 and our quarterly report on Form 10-Q for the three months ended March 31, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2024, neither the Company or any of its officers (as that term is defined by the SEC in Rule 16a-1(f) under the Exchange Act) or directors adopted or terminated a Rule 10b5-1 trading arrangement or a non Rule 10b5-1 trading arrangement for the sale of the Company’s common stock.
Item 6. Exhibits.
| | | | | |
3.1 | |
3.2 | |
10.1* | |
10.2 | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
101 | The following materials from the Skye Biosciences, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets (Unaudited), (ii) Condensed Consolidated Statements of Operations (Unaudited), (iii) Condensed Consolidated Statements of Cash Flows (Unaudited), (iv) Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited), and (v) related Notes to the Unaudited Condensed Consolidated Financial Statements. |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
________
(*)Filed herewith.
+ Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| Skye Bioscience, Inc., a Nevada corporation |
| | |
November 7, 2024 | By: | /s/ Punit Dhillon |
| | Punit Dhillon |
| Its: | Chief Executive Officer, Secretary and Director (Principal Executive Officer) |
| | |
November 7, 2024 | By: | /s/ Kaitlyn Arsenault |
| | Kaitlyn Arsenault |
| Its: | Chief Financial Officer (Principal Financial and Accounting Officer) |