Skye Bioscience, Inc. 10-K

Item 9A. 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 Exchange Act 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 principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon their evaluation of those controls and procedures performed as of the end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of the company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, with the supervision and participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, based on criteria for effective internal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework - 2013 (COSO 2013 Framework). Based on their assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective. As we are a smaller reporting company, our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting. Changes in internal control over financial reporting There was no change in our internal control over financial reporting during the fourth quarter ended December 31, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 46 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance . The following table sets forth certain information as of the date of this Annual Report, with respect to our directors, executive officers and significant employees. Name Age Position Punit Dhillon 41 Chief Executive Officer, Chairman, Director Kaitlyn Arsenault 35 Chief Financial Officer Margaret Dalesandro 75 Director Jim Heppell 66 Director Praveen Tyle 62 Director Keith Ward 52 Director Biographies of Directors, Executive Officers and Significant Employees Punit Dhillon. Mr. Dhillon currently serves as the Chair of the Board and as the Company’s Chief Executive Officer. Mr. Dhillon was appointed as a member of our Board in 2018. On December 17, 2019, Mr. Dhillon was appointed as our board Chair. On August 10, 2020, Mr. Dhillon was appointed as our Chief Executive Officer. Mr. Dhillon is currently a board member of Emerald Health Pharmaceuticals, Inc., Emerald Health Therapeutics, Inc. (CSE: EMH), a Canadian Securities Exchange listed company, and Arch Therapeutics Inc. (OTCQB: ARTH). Mr. Dhillon was previously a Co-founder and Director of OncoSec Medical Incorporated (NASDAQ: ONCS) and was formerly the CEO of OncoSec through March 2018. Prior to OncoSec, Mr. Dhillon was the Vice President of Finance and Operations at Inovio Pharmaceuticals, Inc. (NASDAQ: INO) from September 2003 until March 2011. Mr. Dhillon has previously been a consultant and board member for several TSX Venture Exchange-listed early-stage life science companies, which matured through advances in their development pipelines and subsequent M&A transactions. Prior to joining Inovio, Mr. Dhillon worked for a corporate finance law firm as a law clerk and worked with MDS Capital Corp. (now Lumira Capital Corp.). Mr. Dhillon is an active member of his community and places great value on helping future leaders overcome challenges through mentorship and education. He is a co-founder and board member of Young Entrepreneurship Leadership Launchpad (YELL), a not-for-profit and charity organization in Canada. Mr. Dhillon has a Bachelor of Arts with honors in Political Science and a minor in Business Administration from Simon Fraser University. We believe Mr. Dhillon’s experience in the biotechnology and pharmaceutical industry and his experience with publicly traded companies give him the qualifications necessary to serve as an officer and director of the Company. Kaitlyn Arsenault, CPA. Ms. Arsenault currently serves as the Company’s Chief Financial Officer. Ms. Arsenault previously served as an independent financial consultant for emerging public and private companies in the life sciences, technology, and FinTech industries from 2014 to 2021. Prior to her appointment as Chief Financial Officer, she served as the Company's Manager of Financial Reporting and Technical Accounting for the past six years. Ms. Arsenault's experience includes addressing complex technical accounting issues related to equity financings, derivatives, debt instruments, stock-based compensation, revenue recognition, and M&A, among other subjects. Prior to becoming an independent financial consultant, Ms. Arsenault spent seven years in public accounting as an assurance manager in Friedman LLP's SEC practice, gaining public and private audit engagement experience across multiple industries. Ms. Arsenault received her Bachelor of Science degree in accounting from Ramapo College of New Jersey and is a Certified Public Accountant in California (active) and New Jersey (inactive). We believe that Ms. Arsenault's prior track record with the Company, experience with life science and technology companies, and vast exposure to different accounting and financial issues in the public markets gives her the qualifications and skills necessary to serve as an officer of the Company. 47 Table of Contents Jim Heppell. Mr. Heppell is a member of the Board and has served as a member of the Board since January 2018. Mr. Heppell currently serves as the Chief Executive Officer and Chair of the Board of Directors of Emerald Health Sciences, Inc.; Chair of Emerald Health Therapeutics, Inc. (CSE: EMH) and Emerald Health Pharmaceuticals, Inc.; and President of Emerald Health Research Inc. Formerly, Mr. Heppell served as a director of Sophiris Bio, Inc. (NASDAQ: SPHS). Mr. Heppell was the founder, CEO, and director of the B.C. Advantage Life Sciences I Fund, which was awarded the Canadian Venture Capital Deal of the Year Award in 2006 for having the highest realized return (23.4x its investment in Aspreva Pharmaceuticals) of any venture capital fund in Canada. Mr. Heppell graduated with a Bachelor of Science degree in Microbiology and a law degree from the University of British Columbia. After being called to the Bar, he worked for six years with Fasken Martineau DuMoulin, during which he was seconded to the B.C. Securities Commission for six months. Mr. Heppell then became President and Chief Executive Officer of Catalyst Corporate Finance Lawyers, a boutique corporate finance law firm focused on building life science and technology companies. He is a past member of the Securities Policy Advisory Committee to the BCSC and is Past-Chairman of the Securities Section of the Canadian Bar Association (B.C. Branch). For numerous years, Mr. Heppell taught corporate finance and corporate governance courses at the University of British Columbia, Simon Fraser University, and several biotechnology conferences. He is currently a director of several public and private life science companies. We believe Mr. Heppell’s significant experience with life science and technology companies and the public markets give him the qualifications and skills necessary to serve as a director of the Company. Dr. Margaret Dalesandro, PhD. Dr. Margaret Dalesandro is currently a member of the Board and has served as a member of the Board since August 2020. Dr. Dalesandro served from 2019 through 2021 on the Board of OncoSec Medical Incorporated (NASDAQ: ONCS), a late-stage biotechnology company focused on designing, developing, and commercializing innovative therapies and proprietary medical approaches to stimulate and guide an anti-tumor immune response for the treatment of cancer. She served as Chair of the OncoSec Medical Board from early 2020 through 2021. Dr Dalesandro also serves on the Board of Seelos Therapeutics (NASDAQ: SEEL). In addition, Dr. Dalesandro is the President of Brecon Pharma Consulting LLC. Dr. Dalesandro has over thirty-five years of experience leading strategic product development in the pharmaceutical, biotechnology, and diagnostics industries. She has previously served as the Business Director of Integrative Pharmacology at Corning, Incorporated; Vice President of Project, Portfolio and Alliance Management at ImClone Systems Inc.; Executive Director of Project and Portfolio Management at GlaxoSmithKline; and Senior Consultant at Cambridge Pharma Consultancy. During her tenure at Centocor, Inc, Dr. Dalesandro developed and holds the patents on a diagnostic test for acute coronary syndrome based on the detection of platelet surface integrins. Dr. Dalesandro received her Ph.D. in Biochemistry from Bryn Mawr College and completed an NIH Post-Doctoral Fellowship in Molecular Immunology at Wake Forest University School of Medicine. We believe Dr. Dalesandro’s significant experience with life science and technology companies give her the qualifications and skills necessary to serve as a director of the Company. Dr. Praveen Tyle, PhD. Dr. Praveen Tyle is currently a member of the Board and has served as a member of the Board since July 2021. Dr. Tyle also serves as a member of the Board of Directors of Kiora Pharmaceuticals (NASDAW: KPRX) and Orient Europharma Co., Ltd. Dr. Tyle is currently President & Chief Executive Officer and Director of Invectys, Inc., an immuno-oncology company born from the world-renowned Pasteur Institute. Previously, he was Executive Vice President of Lexicon Pharmaceuticals, Inc. and prior to that he serve as President & Chief Executive Officer and director of Osmotica Pharmaceutical Corp, a company focusing on central nervous system drug development. In past roles, Dr. Tyle served at Novartis OTC as Senior Vice President and Global Head of Business Development and Licensing and Senior Vice President & Global Head of Research and Development. Earlier in his career, he was Corporate Senior Vice President and Chief Scientific Officer of Bausch & Lomb. Dr. Tyle was also an Adjunct Associate Professor of Ophthalmology at the University of Rochester Eye Institute Medical Center, among other current and past academic roles. He has co-authored over 100 peer-reviewed academic papers and presentations and is named on multiple patents, including patents related to ophthalmic innovations, drug delivery, and glaucoma. We believe Dr. Tyles’s significant contributions in the field of ophthalmology and experience with life science companies give him the qualifications and skills necessary to serve as a director of the Company. Dr. Keith Ward, PhD . Dr. Keith Ward is currently a member of the Board and has served as a member of the Board since December 2021. Dr. Ward is a life sciences executive with over 25 years of experience in the biotech and pharmaceutical industry. Dr. Ward currently serves as President and Chief Executive Officer of InterveXion Therapeutics, a private clinical-stage biotech company developing immunotherapies for substance use disorders. Prior to joining InterveXion, Dr. Ward served as Executive Vice President and Chief Development Officer for Reata Pharmaceuticals, where he led research and development, clinical operations, regulatory affairs, manufacturing, and project management. Before that, Dr. Ward developed ophthalmic pharmaceuticals and medical devices as Global Vice President of Pharmaceutical R&D for Bausch & Lomb. Dr. Ward has also held positions of increasing responsibility within GlaxoSmithKline and SmithKline Beecham Pharmaceuticals. Dr. Ward earned a BSc in toxicology with a minor in chemistry from Northeast Louisiana University and a Ph.D. in toxicology from the University of North Carolina at Chapel Hill. We believe Dr. Ward’s significant experience in biotech and pharmaceutical companies give him the qualifications and skills necessary to serve as a director of the Company. 48 Table of Contents Section 16(a) Beneficial Ownership Reporting Compliance S ection 16(a) of the Exchange Act requires our directors, executive officers, and any persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. SEC regulation requires executive officers, directors and greater than 10% stockholders to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the year ended December 31, 2021, our executive officers, directors, and greater than 10% stockholders complied with all applicable filing requirements on a timely basis. Family Relationships There are no family relationships among our directors or executive officers. Term of Office of Directors Our directors serve until the next annual meeting of stockholders or until their successor has been duly elected and qualified, or until their earlier death, resignation or removal. Directors and Officers Involvement in Certain Legal Proceedings During the past ten years, our current directors and executive officers have not been involved in any of the legal proceedings set forth in Item 401(f) of Regulation S-K promulgated by the SEC. Board and Committee Meetings During 2021, our Board met eleven times (including telephonic meetings) and took action by written consent 18 times. Each director attended at least 75% of the meetings held by the Board and by each committee on which she or he served while she or he was a director, either in person or by teleconference, during the year. Director Attendance at Annual Meetings Although we do not have a formal policy regarding attendance by members of our Board at each annual meeting of stockholders, we encourage all of our directors to attend. All our directors other than Dr. Tyle and Dr. Ward, each of which were elected as directors during 2021, attended our most recent annual general meeting of stockholders. Audit Committee and Financial Expert On February 23, 2015, our Board established an audit committee that operates under a written charter that has been approved by our Board. The members of our audit committee are Mr. Jim Heppell, Dr. Margaret Dalesandro and Dr. Praveen Tyle. Mr. Jim Heppell serves as chairman of the audit committee and our Board has determined that he is an “audit committee financial expert” as defined by applicable SEC rules. The Board has determined that Dr. Margaret Dalesandro and Dr. Praveen Tyle are independent directors as that term is defined in Rule 5605(a)(2) of the Nasdaq Listing Rules, and we have determined that both Dr. Margaret Dalesandro and Dr. Praveen Tyle as audit committee members meet the more stringent requirements under Rule 5605(c)(2) of the Nasdaq Listing Rules. Our audit committee met four times (including telephonic meetings) and acted by written consent one time in 2021. Our audit committee is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) approving fees for the independent auditor and any outside advisors engaged by the audit committee. The Audit Committee Charter is filed as Exhibit 99.1 to our Report on Form 8-K filed on February 27, 2015. 49 Table of Contents Compensation Committee On May 31, 2015, our Board established a compensation and compliance committee which operated under a written charter that was approved by the Board. In 2018, the Board dissolved the former compensation and compliance committee and established a new compensation committee which operates under a written charter approved by the Board. The members of our compensation committee are Dr. Praveen Tyle, Mr. Jim Heppell and Dr. Margaret Dalesandro. Dr. Praveen Tyle serves as chairman of the compensation committee. The Board has determined that Dr. Margaret Dalesandro, Jim Heppell and Dr. Praveen Tyle are independent directors as that term is defined in Rule 5605(a)(2) of the Nasdaq Listing Rules. Our compensation committee met four times (including telephonic meetings) during 2021 and took action by written consent two times during 2021. Our compensation committee is responsible for the oversight of, and the annual and ongoing review of, the Chief Executive Officer, the compensation of the senior management team, and the bonus programs in place for employees, which includes: (1) reviewing the performance of the Chief Executive Officer and such other senior officers as the Board may request, and determining the bonus entitlement for such officer or officers on an annual basis and recommending the same to the Board for approval; (2) determining the proposed annual compensation of our executive officers for each fiscal year and recommending the same to the Board for approval; (3) reviewing and discussing the bonus plan proposed for our senior management team with the Chief Executive Officer; (4) reviewing and discussing the terms and conditions of proposed grants of stock options to directors, employees, consultants and advisors with the Chief Executive Officer; (5) reviewing and recommending to the Board the compensation of the Board and committee members; (6) reviewing and discussing with the Chief Executive Officer the standard forms of employment and consulting contracts used by us; (7) reviewing and discussing with the Chief Executive Officer the general benefit plans in place for employees; (8) engaging and setting the compensation for independent counsel and other advisors and consultants; and (9) reviewing and assessing the adequacy of its Charter and submitting any recommended changes to our Board for its consideration and approval. Nomination and Corporate Governance Committee In 2018, our Board established a nomination and corporate governance committee that operates under a written charter approved by the Board. The members of our nomination and corporate governance committee are Mr. Jim Heppell and Dr. Margaret Dalesandro, Dr. Praveen Tyle and Dr. Keith Ward. Dr. Margaret Dalesandro serves as chairman of the nomination and corporate governance committee. The Board has determined that Dr. Margaret Dalesandro, Dr. Praveen Tyle, Jim Heppell and Dr. Keith Ward are independent directors as that term is defined in Rule 5605(a)(2) of the Nasdaq Listing Rules. Our nomination and corporate governance committee met four times during 2021 (including telephonic meetings) and took action by written consent one time. Our nominating and corporate governance committee is responsible for assisting the Board in (1) identifying qualified individuals to become Board members, consistent with criteria approved by the Board, (2) determining the composition of the Board and its committees, (3) selecting the director nominees for the next annual meeting of shareholders, (4) monitoring a process to assess Board, committee and management effectiveness, (5) aiding and monitoring management succession planning and (6) developing, recommending to the Board, implementing and monitoring policies and processes related to our corporate governance guidelines. Nominations to the Board of Directors We do not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. Our Board believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the election of nominees to the Board. The Board, with the help of its nomination and corporate governance committee, will assess all candidates and make recommendations for election or appointment. Stockholder Communications We do not have a formal policy regarding stockholder communications with our Board. A shareholder who wishes to communicate with our Board may do so by directing a written request addressed to our Chief Executive Officer, at the address appearing on the first page of this filing. 50 Table of Contents Code of Ethics On October 31, 2014, we adopted a formal code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as well as our other officers, directors and employees. A copy of our code of ethics is available on our website at http://www.skyebioscience.com . We intend to disclose any future amendments to provisions of our code of ethics, or waivers of provisions required to be disclosed under the rules of the SEC, on a current report on Form 8-K or at the same location on our website identified in the preceding sentence. Any amendment or waiver disclosed on our website will remain available on our website for at least 12 months after the initial disclosure. Item 11. Executive Compensation . Summary Compensation Table The following table sets forth information concerning the compensation earned for services rendered to us for the fiscal years ended December 31, 2021 and 2020 of our named executive officers as determined in accordance with SEC rules. SUMMARY COMPENSATION TABLE Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) (1) Option Awards ($) (1) Non-Equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Kaitlyn Arsenault 2021 75,000 19,031 58,000 269,240 — — 181,473 602,744 Chief Financial Officer (2) 2020 — — — — — — — — Richard Janney 2021 — — — — — — 124,350 124,350 Former Interim PAO (3) 2020 — — — — — — 52,425 52,425 Punit Dhillon 2021 400,000 220,521 116,000 160,680 — — 2,500 899,701 CEO 2020 160,000 — — 387,000 — — — 547,000 ___________ (1) Amounts reflect the full grant date fair value of stock options and awards, computed in accordance with ASC Topic 718 - Stock based compensation , rather than the amounts paid to or realized by the named individual. (2) For the years ended December 31, 2021 and 2020, other compensation consists of consulting fees charged to the Company by KA Consulting, Inc. and RoseRyan, Inc. for Ms. Arsenault's services. (3) For the years ended December 31, 2021 and 2020, other compensation consists of consulting fees charged to the Company by RoseRyan, Inc. for Mr. Richard Janney’s services. Employment and Severance Arrangements Employment Agreement and Equity Awards On August 7, 2020, we entered into an employment agreement with Mr. Punit Dhillon, our Chief Executive Officer. The agreement provides for an annual base salary of $400,000 per year and an annual discretionary bonus up to fifty percent (50%) of his base salary based on Mr. Punit Dhillon’s achievement of annual corporate milestones agreed to by the Board. Mr. Punit Dhillon will also receive the normal benefits available to other similarly situated executives and will be entitled to severance pay under the circumstances described below. 51 Table of Contents Mr. Punit Dhillon’s employment with the Company is at-will. Except for termination of Mr. Punit Dhillon’s employment for “Cause,” “By Death” or “By Disability” (as such terms are defined in his employment agreement), Mr. Punit Dhillon will be entitled to a minimum six months’ severance if he is terminated by the Company without cause. Under his employment agreement, Mr. Punit Dhillon will be eligible to receive a 12-months’ severance if he is employed by the Company for at least 12 months commencing on August 10, 2020, or a 24 months’ severance if he is employed by the Company for at least 24 months commencing on August 10, 2020. In connection with his appointment, the Company granted Mr. Punit Dhillon options to purchase 9,000,000 shares of the Company’s common stock at an exercise price of $0.045 per share (the then market price of the Company’s shares), with 10% of such options vested immediately upon grant and the remaining 90% vesting equally on each six-month anniversary of the grant date over four and a half years. During the year ended December 31, 2021, Mr. Dhillon was granted 2,000,000 restricted stock units and 3,090,000 stock options. The restricted stock units vest 33% on the anniversary of the grant date over a three year period and the stock options vest 25% on the one year anniversary of the grant date and monthly thereafter over a four year period. On October 4, 2021, we entered into an employment agreement with Ms. Kaitlyn Arsenault, our Chief Financial Officer. The agreement provides for an annual base salary of $300,000 per year and an annual discretionary bonus of up to thirty five percent (35%) of her base salary based in part on Ms. Arsenault’s achievement of milestones agreed to by the Board or the Compensation Committee of the Board. Ms. Arsenault will also receive the normal benefits available to other similarly situated executives and will be entitled to severance pay under the circumstances described below. Ms. Arsenault’s employment with the Company is at-will. Except for termination of Mr. Arsenault’s employment for “Cause,” “By Death” or “By Disability” (as such terms are defined in her employment agreement), Ms. Arsenault will be entitled to a minimum six months’ severance if she is terminated by the Company. In connection with her appointment, the Company granted Ms. Arsenault options to purchase 1,600,000 shares of the Company’s common stock at an exercise price of $0.09 per share (the then market price of the Company’s shares), with 10% of such options vested immediately upon grant and the remaining 90% vesting equally in semi-annual installments over four years from issuance. During the year ended December 31, 2021, Ms. Arsenault was granted 1,000,000 restricted stock units and 1,770,000 stock options. The restricted stock units vest 33% on the anniversary of the grant date over a three year period and the stock options vest 25% on the one year anniversary of the grant date and monthly thereafter over a four year period. On September 15, 2021, prior to Ms. Arsenault's appointment as CFO, Ms. Arsenault was granted 400,000 stock options in connection with her consulting arrangement with us. The stock options vest 10% on the grant date and 90% in equal annual installments thereafter over a period of four years. The foregoing description of the employment agreements above does not purport to be complete and is qualified in its entirety by reference to the full text of the employment agreements attached hereto as an exhibit and incorporated by reference herein. Severance Arrangements In February 2015, we adopted a change in control severance plan, in which our named executive officers participate, that provides for the payment of severance benefits if the executive’s service is terminated within twelve months following a change in control, either due to a termination without cause or upon resignation for a good reason (as each term is defined in the plan). In either such event, and provided the executive timely executes and does not revoke a general release of claims against us, he or she will be entitled to receive: (i) a lump sum cash payment equal to at least six months’ of the executive’s monthly compensation, plus an additional month for each full year of service over six years, (ii) Company-paid premiums for continued health insurance for a period equal to the length of the cash severance period or, if earlier, when executive becomes covered under a subsequent employer’s healthcare plan, and (iii) full vesting of all then-outstanding unvested stock options and restricted stock awards. The foregoing descriptions of the change of control severance plan does not purport to be complete and is qualified in its entirety by reference to the full text of such change of control severance plan attached hereto as an exhibit and incorporated by reference herein. 52 Table of Contents Outstanding Equity Awards at Fiscal Year-end As of December 31, 2021, our named executive officers held the following outstanding Company equity awards. Option Awards Stock Awards Name Grant Date Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Un- exercisable Option Exercise Price ($) Option Expiration Date Number of Shares of Stock Not Vested (#) Market Value of Shares Not Vested ($) (1) Punit Dhillon, (2) 10/10/2018 200,000 — 0.305 10/10/2028 CEO/Chairman (3) 8/7/2020 2,700,000 6,300,000 0.045 8/7/2030 (4) 12/14/2021 — 3,090,000 0.058 12/14/2031 (5) 12/14/2021 2,000,000 104,000 Kaitlyn Arsenault (6) 9/15/2021 40,000 360,000 0.120 9/15/2031 CFO (7) 10/4/2021 160,000 1,440,000 0.090 10/4/2031 (4) 12/14/2021 — 1,770,000 0.058 12/14/2031 (5) 12/14/2021 1,000,000 52,000 ___________ (1) The market value of shares that have not vested is calculated based on the per share closing price of our common stock on December 31, 2021. (2) The options specified above vest as follows: 1/12th each month on the anniversary of the grant date. (3) The options specified above vest as follows: 10% vests on the grant date and 90% vests in equal semi-annually installments thereafter over four years. (4) The options specified above vest as follows: 25% vests on the one year anniversary of the grant date and 1/48th vests monthly thereafter over three years following the one year anniversary of the grant date. (5) The restricted stock units specified above vest as follows: 33% on each grant date anniversary over three years. (6) The options specified above vest as follows: 10% vests on the grant date and 90% vests in equal annual installments thereafter over four years. (7) The options specified above vest as follows: 10% vests on the grant date and 90% vests in equal semi-annually installments thereafter over four years. Exercises of Options There were no exercises of stock options by our named executive officers during the year ended December 31, 2021. Director Compensation As of December 31, 2021, our policy for the compensation of our non-employee directors is as follows: Each non-employee director receives a cash retainer of $40,000 on an annual basis, and an executive chair of the Board, if one is appointed as such and is a non-employee director, receives an additional $40,000 retainer annually. Upon election to the Board, non-employee directors receive a one-time award of 250,000 stock options which vest in twelve equal monthly installments. In subsequent annual periods, each non-employee director receives a grant of 150,000 common stock options which vest in twelve equal monthly installments. 53 Table of Contents Non-employee directors who serve as members of special committees of the Board receive additional compensation as follows: • Audit Committee: $5,000 per year ($20,000 for the chair) • Compensation Committee: $2,500 per year ($10,000 for the chair) • Nominating and Corporate Governance Committee: $1,000 per year ($5,000 for the chair) The table below summarizes the compensation paid by us to our non-employee directors for the year ended December 31, 2021. Mr. Dhillon, our employee director, does not receive additional compensation for his services as a member of our Board : DIRECTOR COMPENSATION Name Fees Earned or Paid in Cash ($) Stock Awards ($) Option Awards ($) (1) All Other Compensation ($) Total ($) Jim Heppell (2) 96,179 — 18,300 — 114,479 Margaret Dalesandro (3) 52,500 — 18,300 — 70,800 Praveen Tyle (4) 23,595 — 37,800 — 61,395 Keith Ward (5) 1,984 — 12,750 — 14,734 ___________ (1) As of December 31, 2021, each non-employee director is entitled to an annual grant of 150,000 common stock options, all of which vest in twelve equal monthly installments. The amounts reported under “Option Awards” in the above table reflect the grant date fair value of these awards as determined in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation - Stock Compensation . The value of stock option awards was estimated using the Black-Scholes option pricing model. The valuation assumptions used in the valuation of options granted may be found in Note 6 to our financial statements included in this annual report on Form 10-K for the year ended December 31, 2021. (2) On September 14, 2021, Mr. Heppell was granted options to purchase 150,000 shares of common stock. These options have an exercise price of $0.12, vest monthly over one year and have a term of 10 years from the grant date. The value of the stock option award was estimated using the Black-Scholes option pricing model and totaled $18,300. In addition, on August 7, 2020, Mr. Heppell was granted options to purchase 1,000,000 shares of common stock. These options have an exercise price of $0.05, vest 10% on the date of grant with the remaining 90% vesting semi-annually over two years and have a term of 10 years from the grant date. The value of the stock option award was estimated using the Black-Scholes option pricing model and totaled $40,000. On October 10, 2018, Mr. Heppell was granted options to purchase 200,000 shares of common stock. These options have an exercise price of $0.0.03, are fully vested and have a term of 10 years from the grant date. The value of the stock option award was estimated using the Black-Scholes option pricing model and totaled $45,000. The aggregate number of shares issuable upon exercise of option awards outstanding at December 31, 2021 for Mr. Heppell was 1,350,000, of which 787,500 were fully vested. (3) On September 14, 2021, Dr. Dalesandro was granted options to purchase 150,000 shares of common stock. These options have an exercise price of $0.12, vest monthly over one year and have a term of 10 years from the grant date. The value of the stock option award was estimated using the Black-Scholes option pricing model and totaled $18,300. In addition, on August 7, 2020, Dr. Dalesandro was granted options to purchase 250,000 shares of common stock. These options have an exercise price of $0.05 and vest 10% on the date of grant with the remaining 90% vesting semi-annually over two years and have a term of 10 years from the grant date. The value of the stock option award was estimated using the Black-Scholes option pricing model and totaled $10,000. The aggregate number of shares issuable upon exercise of option awards outstanding at December 31, 2021 for Dr. Dalesandro was 400,000, of which 175,000 were fully vested. 54 Table of Contents (4) On September 14, 2021, Dr. Tyle was granted options to purchase 25,000 shares of common stock. These options have an exercise price of $0.12, vest monthly over one year and have a term of 10 years from the grant date. The value of the stock option award was estimated using the Black-Scholes option pricing model and totaled $3,050. In addition, on July 22, 2021, Dr. Tyle was granted options to purchase 250,000 shares of common stock. These options have an exercise price of $0.14 and vest 10% on the date of grant with the remaining 90% vesting semi-annually over two years and have a term of 10 years from the grant date. The value of the stock option award was estimated using the Black-Scholes option pricing model and totaled $34,750. The aggregate number of shares issuable upon exercise of option awards outstanding at December 31, 2021 for Dr. Tyle was 275,000, of which 31,250 were fully vested. (5) On December 14, 2021, Dr. Ward was granted options to purchase 250,000 shares of common stock. These options have an exercise price of $0.06, vest monthly over one year and have a term of 10 years from the grant date. The value of the stock option award was estimated using the Black-Scholes option pricing model and totaled $12,750. The aggregate number of shares issuable upon exercise of option awards outstanding at December 31, 2021 for Dr. Ward was 250,000, of which none have vested. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Securities Authorized for Issuance under Equity Compensation Plans The table below includes the following information as of December 31, 2021 for the Company’s 2014 Omnibus Incentive Plan. Shares available for issuance under the 2014 Omnibus Incentive Plan can be granted pursuant to stock options, stock appreciation rights, restricted stock, restricted stock unit awards, performance awards and other stock-based or cash-based awards, as selected by the plan administrator. For additional information about the 2014 Omnibus Incentive Plan, refer to Note 6 in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Equity Compensation Plan Information Plan category Number of shares of common stock to be issued upon exercise of outstanding options, warrants and rights (a) Weighted- average exercise price of outstanding options, warrants and rights (b) Number of shares of common stock remaining available for future issuance under equity compensation plans (excluding shares of common stock reflected in column (a)) (c) Equity compensation plans approved by security holders 39,405,000 $ 0.07 14,132,929 Total 39,405,000 $ 0.07 14,132,929 Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information with respect to beneficial ownership of our common stock as of March 24, 2022, by: • each person known to be the beneficial owner of 5% or more of our outstanding common stock; • each executive officer; • each director; and • all of the executive officers and directors as a group. 55 Table of Contents Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date. The information set forth in the table below is based on 495,925,112 shares of our common stock issued and outstanding on March 24, 2022. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Unless otherwise indicated, the address of each beneficial owner listed below is 11250 El Camino Real, Suite 100, San Diego, CA 92130. Name and Address of Beneficial Owner Beneficial Ownership Percent of Class Emerald Health Sciences, Inc. (1) 124,362,213 (2) 24.4 % Punit Dhillon 4,800,000 (3) *% Kaitlyn Arsenault 420,000 (4) *% Richard Janney — *% James Heppell 1,200,000 (5) *% Dr. Margaret Dalesandro 200,000 (6) *% Dr. Praveen Tyle 66,667 (7) *% Dr. Keith Ward 104,167 (8) *% All executive officers and directors as a group (7 persons) 6,790,834 1.4 % _________ *Denotes less than 1% of our outstanding shares of common stock. (1) The address of Sciences is 8262, The Landing, 408 - 55 Water St., Vancouver, British Columbia, Canada V6B 1A1. (2) Includes (i) 111,387,251 shares of common stock, (ii) 7,500,000 shares issuable on exercise of warrants and (iii) 5,474,962 shares issuable upon the conversion of outstanding principal and accrued interest associated with the Amended Credit Agreement. (3) Includes 3,800,000 shares of common stock underlying options that may be exercised within 60 days of March 24, 2022. (4) Includes 420,000 shares of common stock underlying options that may be exercised within 60 days of March 24, 2022. (5) Includes 700,000 shares of common stock underlying options that may be exercised within 60 days of March 24, 2022. (6) Includes 200,000 shares of common stock underlying options that may be exercised within 60 days of March 24, 2022. (7) Includes 66,667 shares of common stock underlying options that may be exercised within 60 days of March 24, 2022. (8) Includes 104,167 shares of common stock underlying options that may be exercised within 60 days of March 24, 2022. Changes in Control Our management is not aware of any arrangements which may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K. Item 13. Certain Relationships and Related Transactions, and Director Independence . Transactions with Related Persons Except as specified below, there have been no other transactions with related persons in the last two fiscal years, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets as of December 31, 2021 and 2020, and in which any related person had or will have a direct or indirect material interest. 56 Table of Contents Emerald Health Sciences In January 2018, we entered into a securities purchase agreement with Emerald Health Sciences, Inc. ("Sciences") pursuant to which Sciences purchased a majority of the equity interest us, resulting in a change in control transaction. Sciences holds a significant interest in our equity as of December 31, 2021 and has provided us with financing under the Amended Credit Agreement. On October 5, 2018, we entered into the Credit Agreement with Sciences. The Credit Agreement originally provided for a credit facility to us of up to $20,000,000, and is unsecured. Advances under the Credit Agreement bear interest at an annual rate of 7% and mature on October 5, 2022. At Sciences’ election, advances and unpaid interest may be converted into Common Stock at a fixed conversion price of $0.40, subject to customary adjustments for stock splits, stock dividends, recapitalizations, etc. In connection with the advances under the Credit Agreement, we issued Sciences 7,500,000 warrants to purchase shares of common stock. The warrants have an exercise price of $0.50 per share, a term of five years and are fully vested. The exercise price is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events or upon any distributions of assets, including cash, stock or other property to our shareholders. On November 1, 2018, we affected an initial draw under the Credit Agreement in the amount of $2,000,000 and issued Sciences a warrant to purchase 2,500,000 shares of common stock at an exercise price of $0.50 per share, in accordance with the terms of the Credit Agreement. On February 1, 2019, we affected the second draw under the Credit Agreement in the amount of $2,000,000 and issued Sciences a warrant to purchase 2,500,000 shares of common stock at an exercise price of $0.50 per share, in accordance with the terms of the Credit Agreement. On March 29, 2019, we affected the third draw under the Credit Agreement in the amount of $2,000,000 and issued Sciences a warrant to purchase 2,500,000 shares of common stock at an exercise price of $0.50 per share, in accordance with the terms of the Credit Agreement. On December 20, 2019, we entered into a Warrant Exchange Agreement, pursuant to which Sciences exercised 40.8 million of such warrants and paid the aggregate exercise price of approximately $4.08 million for the related warrant shares in the form of a reduction of the corresponding amount of obligations outstanding under the Credit Agreement. Upon consummation of the transaction under the Warrant Exchange Agreement, the total outstanding principal amount excluding discounts under the Credit Agreement was $2,014,500. On April 29, 2020, we entered into an Amended and Restated Multi-Draw Credit Agreement with Sciences, which amended and restated the Credit Agreement, as reported in the current report on the Form 8-K filed with the SEC on April 29, 2020. The Amended Credit Agreement provided for a credit facility to us in the principal amount of up to $20,000,000, which includes, without limitation, the advances totaling $6,000,000 that were granted prior to the amendment. During the year ended December 31, 2020, we received the fourth and fifth advances of $150,000 and $300,000 pursuant to the Amended Credit Agreement. The advances bear interest at 7% per annum and mature on October 5, 2022. The net proceeds of each advance were used for general corporate purposes. On March 29, 2021, we entered into amendment two to the Amended Credit Agreement to defer interest payments through the earlier of maturity or prepayment of the principal balance. On September 15, 2021, we further amended the Amended Credit Agreement to close our access to any further disbursements. On December 19, 2019, the Company entered into an Independent Contractor Services Agreement with Dr. Avtar Dhillon, at the time, a member of Sciences Board of Directors and its CEO, pursuant to which Dr. Dhillon provided ongoing corporate finance and strategic business advisory services to the Company. In exchange for his services, Dr. Dhillon received a monthly fee of $10,000, per month for his services. Under the Independent Contractor Services Agreement, for the years ended December 31, 2021 and 2020, the Company incurred fees of $94,516 and $127,387, respectively. On September 14, 2021, Dr. Dhillon provided his notice to terminate the Independent Contractor Services Agreement, with an effective termination date of October 14, 2021. In connection with the termination of Dr. Dhillon’s Independent Contractor Services Agreement, the Company modified Dr. Dhillon's option awards to accelerate the vesting of 1,650,000 unvested stock options and, extend the post-termination exercise period from 30 days to five years for all of his outstanding awards. As of October 14, 2021, the Company no longer had any obligations or business relationship with Dr. Dhillon On August 10, 2020, Sciences transferred to Dr. Avtar Dhillon 500,000 shares of the Company’s common stock at a deemed price of $0.10 in exchange for the cancellation of $50,000 of debt. 57 Table of Contents On August 10, 2020, Sciences, extinguished debt of $186,667 by transferring 1,566,666 shares of the Company’s common stock at a deemed price of $0.10 per share to certain officers, employees and directors of the Company. In addition, the Board Observer Agreement in place with Sciences was amended in September 2021 to allow any board member or officer of Sciences to act as a representative of Sciences on a non-voting observer basis in meetings of the Board. On December 14, 2021, the Board Observer Agreement was terminated. As of December 31, 2021, Jim Heppell and Punit Dhillon are board members of the Company and Emerald Health Pharmaceuticals, a subsidiary of Sciences. As of December 31, 2021, Jim Heppell is also the CEO and Chairman of Sciences and a director of VivaCell Biotechnology España, S.L.U ("VivaCell"), a wholly owned subsidiary of Sciences. The Company’s CEO, Punit Dhillon also served as a board member of Sciences and VivaCell until he tendered his resignation from such boards on August 10, 2020 and September 22, 2021, respectively. VivaCell Biotechnology España, S.L.U (formerly known as Emerald Health Biotechnology España, S.L.U.) In January 2021 and April 2021, we entered into two separate Collaborative Research Agreements with VivaCell, a research and development entity with substantial expertise in cannabinoid science and a subsidiary of Emerald Health Research, Inc. which is 100% owned by Sciences. Under the agreements, VivaCell will provide research and development services pursuant to agreed upon project plans for the research and development of SBI-200 and the preclinical development services for novel derivatives. The term of each agreement is initially for a one-year period. The agreements will terminate upon delivery and acceptance of the final deliverables under the project plans or if either party is in breach of the terms of the contract and such breach remains uncured for 45 days. Payment for services are based on the negotiated amounts for the completion of agreed upon objectives as provided in the Collaborative Research Agreements. For the year ended December 31, 2021, we incurred $220,418 in expenses under the Collaborative Research Agreements. The foregoing summary of the Collaborative Research Agreements do not purport to be complete and are qualified in their entirety by the full text of such agreement, a copy of which is attached as an exhibit hereto and incorporated by reference herein. On October 11, 2021, we entered into an Exclusive Sponsored Research Agreement (the “ESRA”) with VivaCell to fund certain research and development programs which are of mutual interest to both the Company and VivaCell. We will have the right to use all data, products, and information, including intellectual property which are generated in the performance of the research under each and all projects funded by the Company pursuant to the ESRA, and VivaCell assigns and agrees to assign, to us all rights to any intellectual property created or reduced-to-practice under, or as a part of, a project funded by us pursuant to the ESRA. The foregoing summary of the ESRA does not purport to be complete and is qualified in its entirety by the full text of such agreement, a copy of which is attached as an exhibit hereto and incorporated by reference herein. We have agreed to pay to VivaCell a royalty based on any and all licensing revenue or other consideration paid to us by a third-party licensee, assignee or purchaser of intellectual property rights created under the ESRA. In addition, upon a change of control transaction we have agreed to pay an amount equal to the royalty percentage multiplied by the fair value of the intellectual property created under the ESRA. Pursuant to the ESRA, VivaCell will provide a budget to be approved by us for each project, and we will make payments in accordance with the approved budget and pay an annual retainer to VivaCell of $200,000 per year. The initial term of the agreement is one year, with automatic renewal for successive one-year terms unless either party terminates upon 60 days' prior written notice to the other party pursuant to the ESRA. Review, Approval and Ratification of Related Party Transactions It is the Company's policy that all related party transactions must be approved by directors independent of the parties involved. All of the transactions described above were approved and ratified by the independent members of our Board. In connection with the approval of the transactions described above, our Board took into account several factors, including their fiduciary duties to the Company, the relationships of the related parties described above to the Company, the material facts underlying each transaction, the anticipated benefits to the Company and related costs associated with such benefits, whether comparable products or services were available, and the terms we could receive from an unrelated third party. Conflicts Related to Other Business Activities The persons serving as our officers and directors have existing responsibilities and, in the future, may have additional responsibilities, to provide management and services to other entities in addition to us. As a result, conflicts of interest between us and the other activities of those persons may occur from time to time. 58 Table of Contents We will attempt to resolve any such conflicts of interest in our favor. Our officers and directors are accountable to our shareholders and us as fiduciaries, which requires that such officers and directors exercise good faith and integrity in handling our affairs. A shareholder may be able to institute legal action on our behalf or on behalf of that shareholder and all other similarly situated shareholders to recover damages or for other relief in cases of the resolution of conflicts in any manner prejudicial to us. Director Independence We have determined that Mr. Jim Heppell, Dr. Margaret Dalesandro, Dr. Praveen Tyle, and Dr. Keith Ward are independent members of our Board, as that term is defined in Rule 5605(a)(2) of the Nasdaq Listing Rules. Item 14. Principal Accounting Fees and Services . Audit Fees The aggregate fees billed for each of the fiscal years ended December 31, 2021 and 2020, for professional services rendered by Mayer Hoffman McCann P.C. for the audit of our annual consolidated financial statements included in our Annual Report on Form 10-K and quarterly reviews of the unaudited interim consolidated financial statements included in our Quarterly Reports on Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the years ended December 31, 2021 and 2020 were $366,736 and $392,402, respectively. Substantially all MHM’s personnel, who work under the control of MHM shareholders, are employees of wholly owned subsidiaries of CBIZ, Inc., which provides personnel and various services to MHM in an alternative practice structure. Tax Fees None. All Other Fees None. Pre-Approval Policies and Procedures Prior to engaging Mayer Hoffman McCann P.C. to perform audit services, our Board obtains an estimate for the service to be performed. All of the services described above were approved by the members of the Audit Committee of the Board in accordance with its procedures. 59 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules . Financial Statements. The following consolidated financial statements of Skye Bioscience, Inc., together with the report thereon of Mayer Hoffman McCann P.C., an independent registered public accounting firm (PCAOB Firm No. 199 ), are included in this Annual Report on Form 10-K: 60 Table of Contents SKYE BIOSCIENCE, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 3 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020 F- 4 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F- 5 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020 F- 6 Notes to the Consolidated Financial Statements F- 7 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Skye Bioscience, Inc. and Subsidiaries: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Skye Bioscience, Inc., formerly known as Emerald Bioscience, Inc., and Subsidiaries ("Company") as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Going Concern Uncertainty The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring operating losses and is dependent on additional financing to fund operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1 to the financial statements. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. /s/ Mayer Hoffman McCann P.C. We have served as the Company's auditor since 2014. Irvine, California March 25, 2022 F-2 Table of Contents SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 ASSETS 2021 2020 Current assets Cash $ 8,983,007 $ 2,469,410 Restricted cash 4,571 4,566 Prepaid expenses 554,217 190,134 Prepaid expenses - related party 13,432 — Other current assets 56,870 275 Total current assets 9,612,097 2,664,385 Property and equipment, net 87,710 7,341 Operating lease right-of-use asset 146,972 — Other assets 8,309 — Total assets $ 9,855,088 $ 2,671,726 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 897,880 $ 364,340 Accounts payable - related party 2,130 17,032 Accrued interest - related party 174,911 44,087 Accrued payroll liabilities 344,450 61,547 PPP loan current — 64,062 Other current liabilities 375,842 197,564 Derivative liabilities 59,732 38,567 Multi-draw credit agreement - related party 450,000 — Convertible multi-draw credit agreement - related party, net of discount 1,524,905 — Operating lease liability, current portion 82,372 — Total current liabilities 3,912,222 787,199 Non-current liabilities PPP loan non-current — 52,638 Multi-draw credit agreement - related party — 450,000 Convertible multi-draw credit agreement - related party, net of discount — 931,103 Operating lease liability, net of current portion 78,700 — Total liabilities 3,990,922 2,220,940 Commitments and contingencies (Note 12) Stockholders’ equity Preferred stock, $ 0.001 par value; 50,000,000 and 20,000,000 shares authorized at December 31, 2021 and 2020; no shares issued and outstanding at December 31, 2021 and 2020 — — Common stock, $ 0.001 par value; 5,000,000,000 and 500,000,000 shares authorized; 476,108,445 and 288,074,415 shares issued and outstanding at December 31, 2021 and 2020, respectively 476,108 288,074 Additional paid-in-capital 52,644,221 38,896,693 Accumulated deficit ( 47,256,163 ) ( 38,733,981 ) Total stockholders’ equity 5,864,166 450,786 Total liabilities and stockholders’ equity $ 9,855,088 $ 2,671,726 See accompanying notes to the consolidated financial statements. F-3 Table of Contents SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31 2021 2020 Operating expenses Research and development $ 2,931,437 $ 1,944,411 General and administrative 4,916,277 4,344,602 Total operating expenses 7,847,714 6,289,013 Operating loss ( 7,847,714 ) ( 6,289,013 ) Other expense (income) Change in fair value of derivative liabilities 21,165 ( 436,270 ) Gain on forgiveness of PPP loan ( 117,953 ) — Interest expense 769,159 706,385 Interest income ( 3 ) ( 29 ) Total other expense (income), net 672,368 270,086 Loss before income taxes ( 8,520,082 ) ( 6,559,099 ) Provision for income taxes 2,100 1,600 Net loss and comprehensive loss $ ( 8,522,182 ) $ ( 6,560,699 ) Loss per common share: Basic $ ( 0.02 ) $ ( 0.03 ) Diluted $ ( 0.02 ) $ ( 0.03 ) Weighted average shares of common stock outstanding used to compute loss per share: Basic 406,599,390 230,746,878 Diluted 406,599,390 231,420,973 See accompanying notes to the consolidated financial statements. F-4 Table of Contents SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 2021 2020 Cash flows from operating activities: Net loss and comprehensive loss $ ( 8,522,182 ) $ ( 6,560,699 ) Adjustments to reconcile net loss and comprehensive loss to net cash used in operating activities: Depreciation and amortization 34,131 1,872 Stock-based compensation expense 869,206 302,742 Change in fair value of derivative liabilities 21,165 ( 436,270 ) Amortization of debt discount - related party 593,802 544,033 Gain on debt forgiveness ( 117,953 ) — Changes in assets and liabilities: Prepaid expenses ( 364,083 ) ( 37,439 ) Prepaid expenses - related parties ( 13,432 ) — Other current assets ( 56,595 ) 7,275 Other assets ( 8,309 ) — Accounts payable 533,540 234,531 Accounts payable – related party ( 14,902 ) 7,032 Accrued interest – related party 130,824 44,087 Accrued payroll liabilities 282,903 — Operating lease liability ( 9,534 ) — Other current liabilities 166,531 ( 161,295 ) Net cash used in operating activities ( 6,474,888 ) ( 6,054,131 ) Cash flows from investing activities: Purchases of property and equipment ( 90,866 ) ( 7,230 ) Net cash used in investing activities ( 90,866 ) ( 7,230 ) Cash flows from financing activities: Proceeds from the issuance of common stock and warrants - net of $ 935,260 and $ 854,078 of issuance costs in 2021 and 2020, respectively 6,062,774 6,085,589 Proceeds from warrant exercises 6,999,999 48,533 Proceeds from pre-funded warrant exercises 11,800 — Proceeds from option exercises 4,783 — Proceeds from PPP loan — 116,700 Proceeds from multi-draw credit agreement - related party — 450,000 Net cash provided by financing activities 13,079,356 6,700,822 Net increase in cash and restricted cash 6,513,602 639,461 Cash and restricted cash , beginning of year $ 2,473,976 $ 1,834,515 Cash and restricted cash, end of year $ 8,987,578 $ 2,473,976 Supplemental disclosures of cash-flow information: Reconciliation of cash and restricted cash: Cash $ 8,983,007 $ 2,469,410 Restricted cash 4,571 4,566 Total cash and restricted cash shown in the consolidated statements of cash flows $ 8,987,578 $ 2,473,976 Cash paid during the year for: Interest $ 44,087 $ 117,459 Income taxes 1,600 1,600 Supplemental disclosures of non-cash financing activities: Establishment of right-of-use asset $ 170,606 $ — Reclassification of warrant liabilities to equity from exercise of warrants — 26,250 See accompanying notes to the consolidated financial statements. F-5 Table of Contents SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Stockholders' Equity Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity Shares Amounts Balance, December 31, 2019 182,895,247 $ 182,895 $ 32,538,445 $ ( 32,173,282 ) $ 548,058 Stock-based compensation expense — — 302,742 — 302,742 Issuance of common stock and warrants, net of issuance costs of $ 854,078 56,333,334 56,333 6,029,256 — 6,085,589 Exercise of pre-funded warrants 48,533,334 48,533 — — 48,533 Series B warrant exercises 312,500 313 26,250 — 26,563 Net loss and comprehensive loss for the year ended December 31, 2020 — — — ( 6,560,699 ) ( 6,560,699 ) Balance, December 31, 2020 288,074,415 $ 288,074 $ 38,896,693 $ ( 38,733,981 ) $ 450,786 Stock-based compensation expense 1,350,000 1,350 854,856 — 856,206 Issuance of common stock and warrants, net of issuance costs of $ 935,260 58,111,112 58,111 6,004,663 — 6,062,774 Exercise of pre-funded warrants 11,800,000 11,800 — — 11,800 Exercise of common stock warrants 116,666,668 116,666 6,883,333 — 6,999,999 Exercise of stock options 106,250 107 4,676 — 4,783 Net loss and comprehensive loss for the year ended December 31, 2021 — — — ( 8,522,182 ) ( 8,522,182 ) Balance, December 31, 2021 476,108,445 $ 476,108 $ 52,644,221 $ ( 47,256,163 ) $ 5,864,166 See accompanying notes to the consolidated financial statements. F-6 Table of Contents SKYE BIOSCIENCE, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations and Business Activities Nature of Operations Skye Bioscience, Inc. (the "Company") was initially incorporated in Nevada on March 16, 2011 as Load Guard Logistics, Inc. On October 31, 2014, the Company closed a reverse merger transaction (the "Merger") pursuant to which Nemus, a California corporation ("Nemus Sub"), became the Company’s wholly owned subsidiary, and the Company assumed the operations of Nemus Sub. Nemus Sub was incorporated in the State of California on July 17, 2012. On November 3, 2014, the Company changed its name to Nemus Bioscience, Inc. by merging with Nemus Sub to form a Nevada company. Effective March 25, 2019, the Company changed its name from Nemus Bioscience, Inc. to Emerald Bioscience, Inc. Effective January 19, 2021, the Company changed its name from Emerald Bioscience, Inc. to Skye Bioscience, Inc. In August 2019, the Company formed a new subsidiary in Australia, SKYE Bioscience Pty Ltd. (formerly "EMBI Australia Pty Ltd."), an Australian proprietary limited company ("SKYE Bioscience Australia"), in order to qualify for the Australian government’s research and development tax credit for research and development dollars spent in Australia. The primary purpose of SKYE Bioscience Australia is to conduct clinical trials for the Company’s product candidates. The Company is a pre-clinical pharmaceutical company located in San Diego, California that researches and develops and plans to commercialize cannabinoid derivatives through its own directed research efforts and through several license agreements with the University of Mississippi ("UM"). As of December 31, 2021, the Company has devoted substantially all its efforts to securing product licenses, carrying out its own research and development, 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. Liquidity and Going Concern The Company has incurred operating losses and negative cash flows from operations since inception and as of December 31, 2021, had an accumulated deficit of $ 47,256,163 . As of December 31, 2021, the Company had unrestricted cash in the amount of $ 8,983,007 . For the years ended December 31, 2021 and 2020, the Company incurred losses from operations of $ 7,847,714 and $ 6,289,013 , respectively. The Company expects to continue to incur significant losses and negative cash flows from operations through 2022 and into the foreseeable future. The Company’s continued existence is dependent on its ability to raise sufficient additional funding to cover operating expenses and to carry out its research and development activities. As the Company approaches its first clinical trial, it expects to ramp up research and development spending and to increase cash used in operating activities. However, based on the Company’s expected cash requirements, without obtaining additional funding by the third quarter of 2022, management believes that the Company will not have enough funds to continue clinical studies and pay down its related party debt. These conditions give rise to substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. On October 5, 2018, the Company entered into a Multi-Draw Credit Agreement (the "Credit Agreement") with Emerald Health Sciences ("Sciences"), a related party (See Note 11). On April 29, 2020, the Company entered into an Amended and Restated Multi-Draw Credit Agreement (the "Amended Credit Agreement") with Sciences. As of December 31, 2021, the Company had an outstanding principal balance of $ 2,464,500 under the Amended Credit Agreement. Effective September 15, 2021, the disbursement line under the Amended Credit Agreement was closed and it no longer serves as a potential source of liquidity to the Company. The outstanding advances plus accrued interest under the Amended Credit Agreement are due on October 5, 2022 (See Note 4). The Company plans to continue to pursue funding through public equity financings, licensing arrangements, government grants or other strategic arrangements. However, the Company cannot provide any assurances that such additional funds will be available on reasonable terms, or at all. If the Company raises additional funds by issuing equity securities, dilution to existing stockholders would result. F-7 Table of Contents In December 2019, a novel strain of coronavirus ("COVID-19") emerged in Wuhan, China. Since then, it has spread to the United States, the European Union, and Australia, where the Company has operations and conducts laboratory research and clinical studies. The effects of COVID-19 could impact the Company's ability to operate as a going concern and maintain sufficient liquidity to continue operations. The impact of COVID-19 on companies is evolving rapidly and its future effects are uncertain. It is possible that the Company may encounter issues relating to the current situation that will need to be considered by management in the future. The factors to take into account in going concern judgments and financial projections include travel bans, restrictions, government assistance and potential sources of replacement financing, financial health of suppliers and the general economy. The Company has made adjustments to its operations designed to keep its employees safe and comply with federal, state, and local guidelines. The extent to which COVID-19 may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence. In response to COVID-19, the United States government has passed legislation and taken other actions to provide financial relief to companies and other organizations affected by the pandemic. Notably, the Company relies on third party manufacturers to produce its product candidates. The manufacturing of SBI-100 is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but can rely on regulatory-accepted excipients that can be sourced from countries outside the United States. In connection with the COVID-19 pandemic, there could possibly be an impact on sourcing materials that are part of the eye drop formulation, as well as impacting volunteer and/or patient recruitment in Australia for clinical studies. The location of the clinical trial are clinical sites in Australia and since the COVID-19 outbreak in that country, the multiple cities have experienced health emergency lockdowns which have had a negative impact on the conduct and timelines of clinical studies. Therefore, the Company has shifted its first-in-human studies of SBI-100 to the second quarter of 2022. After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. 2 . Summary of Significant Accounting Policies Basis of Presentation The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. Actual results could differ from those estimates. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries SKYE Bioscience Australia and Nemus Sub. All intercompany accounts and transaction have been eliminated in consolidation. Use of Estimates The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates and judgments as to the appropriate carrying values of equity instruments, derivative liabilities, debt with embedded features, and the valuation of stock based compensation awards, which are not readily apparent from other sources. Risks and Uncertainties The Company’s operations are subject to a number of risks and uncertainties, including but not limited to, changes in the general economy, the size and growth of the potential markets for any of the Company’s product candidates, uncertainties related to the impact of COVID-19 (Note 1), results of research and development activities, uncertainties surrounding regulatory developments in the United States, the European Union and Australia, and the Company’s ability to attract new funding. F-8 Table of Contents Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying values of those investments approximate their fair value due to their short maturity and liquidity. Cash includes cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and does not believe it is exposed to any significant credit risk. As of December 31, 2021, and 2020, the Company has no cash equivalents. Restricted cash on the balance sheet represents a certificate of deposit held by the Company’s bank as collateral for the Company’s credit cards. Property and Equipment, net Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally two to three years . Leasehold improvements are amortized over the shorter of the estimated useful life of the improvements or the remaining lease term. Expenditures for repairs and maintenance, which do not extend the useful life of the property and equipment, are expensed as incurred. Upon retirement, the asset cost and related accumulated depreciation are relieved from the accompanying Consolidated Balance Sheets. Fair Value Measurements Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable, and the last is considered unobservable, is used to measure fair value: Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities. Level 2: Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The carrying values of the Company’s financial instruments, with the exception of the Amended Credit Agreement and derivative liabilities, approximate their fair value due to their short maturities. The derivative liabilities are valued on a recurring basis utilizing Level 3 inputs (Note 3). As of December 31, 2020, the Company estimated that the fair value of the Amended Credit Agreement to be materially consistent with the fair value estimate as of December 31, 2019 of $ 1,877,938 , plus the non-convertible advances made in 2020. This determination was based on the following considerations: (i) the Company has not experienced any significant change in its credit worthiness or operations year over year, (ii) there have been no repayments or convertible draws, (iii) the facility is closer to maturity, and (iv) the embedded conversion feature on the convertible advances is out-of-the-money at the reporting date. As of December 31, 2021, the Company estimated that the fair value of the Amended Credit Agreement, including the non-convertible advances was $ 2,484,768 . As of December 31, 2021 and 2020, the carrying value of the Amended Credit Agreement was $ 1,974,905 and $ 1,381,103 , respectively. Information pertinent to estimating the fair value of the Amended Credit Agreement includes valuing the embedded conversion feature using Level 3 inputs and considering the discounted cash flows of the interest and principal payments through maturity (Note 4). F-9 Table of Contents Income Taxes The Company accounts for deferred income tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities, net operating loss carryforwards (the “NOLs”) and other tax credit carryforwards. These items are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. Any interest or penalties would be recorded in the Company’s Consolidated Statements of Comprehensive Loss in the period incurred. When necessary, the Company recognizes interest and penalties related to income tax matters in income tax expense. The Company records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In making such determinations, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. Due to the substantial doubt related to the Company’s ability to utilize its deferred tax assets, a valuation allowance for the full amount of the deferred tax assets has been established at December 31, 2021 and 2020. As a result of this valuation allowance, there are no income tax benefits reflected in the accompanying Consolidated Statements of Comprehensive Loss to offset pre-tax losses. The Company recognizes a tax benefit from uncertain tax positions when it is more likely than not (50%) that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. Convertible Instruments The Company accounts for hybrid contracts with embedded conversion features in accordance with GAAP. ASC 815, Derivatives and Hedging Activities ("ASC 815") which requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The Company accounts for convertible debt instruments with embedded conversion features in accordance with ASC 470-20, Debt with Conversion and Other Options ("ASC 470-20") if it is determined that the conversion feature should not be bifurcated from their host instruments. Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the difference between the fair value of the underlying common stock at the commitment date and the embedded effective conversion price. When the Company determines that the embedded conversion option should be bifurcated from its host instrument, the embedded feature is accounted for in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract is allocated to the fair value of the derivative. The derivative is subsequently recorded at fair value at each reporting date based on current fair value, with the changes in fair value reported in the results of operations. The Company also follows ASC 480-10, Distinguishing Liabilities from Equity ("ASC 480-10") when evaluating the accounting for its hybrid instruments. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception (for example, a payable settled with a variable number of the issuer’s equity shares); (b) variations in something other than the fair value of the issuer’s equity shares (for example, a financial instrument indexed to the Standard and Poor’s S&P 500 Index and settled with a variable number of the issuer’s equity shares); or (c) variations inversely related to changes in the fair value of the issuer’s equity shares (for example, a written put option that could be net share settled). Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with a re-measurement reported in other expense (income), net in the accompanying Consolidated Statements of Comprehensive Loss. When determining the short-term vs. long-term classification of derivative liabilities, the Company first evaluates the instruments’ exercise provisions. Generally, if a derivative is a liability and exercisable within one year, it will be classified as short-term. However, because of the unique provisions and circumstances that may impact the accounting for derivative instruments, the Company carefully evaluates all factors that could potentially restrict the instrument from being exercised or F-10 Table of Contents create a situation where exercise would be considered remote. The Company re-evaluates its derivative liabilities at each reporting period end and makes updates for any changes in facts and circumstances that may impact classification. Warrants Issued in Connection with Financings The Company generally accounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that the Company may need to settle the warrants in cash. For warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement, the Company records the fair value of the warrants as a liability at each balance sheet date and records changes in fair value in other expense (income), net in the Consolidated Statements of Comprehensive Loss. Debt Issuance Costs and Interest Discounts related to bifurcated derivatives, freestanding instruments issued in bundled transactions, and issuance costs are recorded as a reduction to the carrying value of the debt and amortized over the life of the debt using the effective interest method. The Company makes changes to the effective interest rate, as necessary, on a prospective basis. For debt facilities that provide for multiple advances, the Company initially defers any issuance costs until the first advance is made and then amortizes the costs over the life of the facility. Research and Development Expenses and Licensed Technology Research and development costs are expensed when incurred. These costs may consist of external research and development expenses incurred under agreements with third party contract research organizations and investigative sites, third party manufacturing organizations and consultants; license fees; employee-related expenses, which include salaries and benefits for the personnel involved in the Company’s preclinical drug development activities, other expenses and equipment and laboratory supplies. Costs incurred for the rights to use licensed technologies in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where there is an identified alternative future use. No cost associated with the use of licensed technologies has been capitalized to date. Stock-Based Compensation Expense Stock-based compensation expense is estimated at the grant date based on the fair value of the award, and the fair value is recognized as expense ratably over the vesting period with forfeitures accounted for as they occur. Upon the exercise of stock option awards, the Company's policy is to issue new shares of its common stock. The Company uses the Black-Scholes valuation method for estimating the grant date fair value of stock options using the following assumptions: • Volatility - Expected volatility is estimated using the historical stock price performance over the expected term of the award. • Expected term - The expected term is based on a simplified method which defines the life as the weighted average of the contractual term of the options and the vesting period for each award. • Risk-free rate - The risk-free interest rate for the expected term of the option is based on the average market rate on U.S. Treasury securities in effect during the period in which the awards were granted. • Dividends - The dividend yield assumption is based on the Company’s history and expectation of paying no dividends in the foreseeable future. Comprehensive (Loss) Income Comprehensive (loss) income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. ASC 220 Comprehensive Income requires that an entity records all components of comprehensive (loss) income, net of their related tax effects, in its financial statements in the period in which they are recognized. For the years ended December 31, 2021 and 2020, the comprehensive loss was equal to net loss. F-11 Table of Contents Loss Per Common Share The Company applies ASC No. 260, Earnings per Share in calculating its basic and diluted loss per common share. Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted loss per share of common stock is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, options to purchase common stock, restricted stock subject to vesting, warrants to purchase common stock and common shares underlying convertible debt instruments are considered to be common stock equivalents. In periods with a reported net loss, such common stock equivalents are excluded from the calculation of diluted net loss per share of common stock if their effect is anti-dilutive. For additional information regarding the loss per share, see Note 7 “Loss Per Share of Common Share.” Leases In February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted the standard effective January 1, 2019. At the inception of an arrangement, the Company determines whether the arrangement is, or contains, a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in the lease contract is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. Lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the Consolidated Balance Sheets as operating lease right-of-use assets, operating lease liability, current portion and operating lease liability, net of current portion. Recent Accounting Pronouncements In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance . The aim of ASU 2021-10 is to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. Diversity currently exists in the recognition, measurement, presentation, and disclosure of government assistance received by business entities because of the lack of specific authoritative guidance in GAAP. The ASU will be effective for annual reporting periods after December 15, 2021, and early adoption is permitted. Upon implementation, the Company may use either a prospective or retrospective method of adoption when adopting the ASU. The adoption of ASU 2021-10 will impact the disclosures related to the rebates that the Company receives from the Australian Taxation Office ("ATO") against research and development activities for its Phase I clinical trials in Australia. The Company currently plans to adopt the provisions of this ASU on the effective date using a prospective adoption method as rebates from the ATO in prior periods have not been material to the Company's financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The aim of ASU 2021-08 is to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (1) Recognition of an acquired contract liability, and (2) Payment terms and their effect on subsequent revenue recognized by the acquirer. The ASU will be effective for annual reporting periods after December 15, 2022, should be applied on a prospective basis and early adoption is permitted. The adoption of ASU 2021-08 does not currently impact the Company's financial statements. The Company plans to adopt the provisions of this ASU on the effective date but reserves the right to early adopt this guidance. F-12 Table of Contents 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in fiscal periods ending after December 15, 2020. Upon implementation, the Company may use either a modified retrospective or full retrospective method of adoption. The adoption of ASU 2020-6 will likely impact the way the Company calculates its (loss) earnings per share, result in expanded disclosures around convertible instruments and remove the requirement to assess and record beneficial conversion features. The impact from adoption will depend on whether the Company elects to early adopt this ASU. The Company currently plans to adopt the provisions of this ASU on the effective date. However, it reserves the right to early adopt these provisions. Recently Adopted Accounting Pronouncements In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The aim of ASU 2021-04 is to clarify and reduce diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The Company elected to early adopt this guidance as of July 1, 2021, and has applied the guidance as of January 1, 2021, in accordance with the ASU. The adoption of this guidance had no impact on the interim periods in 2021 prior to the date of adoption. Upon implementation, the new guidance was applied to the July 2021 Inducement (Note 5), which resulted in recording the value attributable to the Inducement Warrants as an equity issuance cost. Because this amendment provided clarification where there was a lack of GAAP, management has determined that there was no resulting impact from the adoption of this standard to the financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The Board issued this update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness of the financial statements. The main provisions remove certain exceptions, including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the amendments simplify income tax accounting in the areas such as income-based franchise taxes, eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted this ASU on the effective date of January 1, 2021. The amendments in the update related to foreign subsidiaries have been applied on a modified retrospective basis, the amendments to franchise taxes were applied on a modified retrospective basis and all other amendments have been applied on a prospective basis. Because the Company’s deferred tax assets net of deferred tax liabilities are fully reserved, the impact from the adoption of this standard was not material. In October 2020, the FASB issued ASU 2020-10, Codification Improvements . The amendments in this ASU represent changes to clarify the ASC, correct unintended application of the guidance, or make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. This new standard was effective beginning January 1, 2021. The adoption of ASU 2020-10 did not have a material impact on the Company's financial position or results of operations upon adoption. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The ASU was effective and adopted by the Company on January 1, 2021. However, as of the effective date the Company did not have any cloud computing arrangements for which this guidance was applicable. During the fourth quarter of 2021, the Company entered into hosting arrangements meeting the definition of a service contract for which this guidance will be applicable. Due to the short term nature of these contracts, the impact to the Company's financial statements from the adoption of this guidance was not material. F-13 Table of Contents 3. Warrants and Derivative Liabilities Warrants There are significant judgments and estimates inherent in the determination of the fair value of the Company’s warrants and derivative liabilities. These judgments and estimates include assumptions regarding the Company’s future operating performance, the time to completing a liquidity event, if applicable, and the determination of the appropriate valuation methods. If the Company had made different assumptions, the fair value of the warrants and derivative liabilities could have been significantly different (See Note 2). Warrants vested and outstanding as of December 31, 2021 are summarized as follows: Source Exercise Price Term (Years) Number of Warrants Vested and Outstanding Pre 2015 Common Stock Warrants $ 1.00 10 1,110,000 2015 Common Stock Warrants 5.00 10 100,000 2016 Common Stock Warrants to Service Providers 1.15 10 40,000 2017 Series D Common Stock Warrants to Placement Agent 0.25 5 480,000 2017 Common Stock Warrants to Service Provider 0.41 5 125,000 2018 Emerald Financing Warrants 0.10 5 3,400,000 Emerald Multi-Draw Credit Agreement Warrants 0.50 5 7,500,000 2019 Common Stock Warrants 0.35 5 8,000,000 2020 Common Stock Warrants to Placement Agent 0.08 4.99 8,166,667 2021 Inducement Warrants 0.15 5 21,166,667 2021 Inducement Warrants to Placement Agent 0.19 5 1,481,667 2021 Common Stock Warrants 0.09 5 77,777,779 2021 Pre-Funded Warrants 0.0001 Indefinite 19,666,667 2021 Common Stock Warrants to Placement Agent 0.11 5 5,444,445 Total warrants vested and outstanding as of December 31, 2021 154,458,892 July 2021 Inducement Warrants and September 2021 Financing Warrants In connection with the July 2021 Inducement (Note 5), the Company issued 21,166,667 common stock warrants and 1,481,667 warrants to the placement agent. The warrants were equity classified at issuance and the Company recorded the fair value of the common stock warrants and placement agent warrants of $ 2,790,884 and $ 192,224 , respectively, as equity issuance costs related to the September 2021 Financing within equity. The warrants were vested at issuance and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions: Common Stock Warrants Placement Agent Warrants Dividend yield — % — % Volatility factor 137.87 % 137.87 % Risk-free interest rate 0.73 % 0.73 % Expected term (years) 5.0 5.0 Underlying common stock price $ 0.15 $ 0.15 F-14 Table of Contents In connection with the September 2021 Financing (Note 5), the Company issued 77,777,779 common stock warrants, 19,666,667 pre-funded warrants, and 5,444,445 common stock warrants to the placement agent. The warrants were equity classified at issuance and the Company allocated $ 3,265,676 and $ 943,489 of the gross proceeds to the common stock warrants and pre-funded warrants on a relative fair value basis, respectively. The common stock warrants issued to the placement agent were valued at $ 421,522 and recorded as equity issuance costs within equity. The warrants vested immediately and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions: Common Stock Warrants Pre-funded Warrants Placement Agent Warrants Dividend yield — % — % — % Volatility factor 136.02 % 135.06 % 136.02 % Risk-free interest rate 1.01 % 1.55 % 1.01 % Expected term (years) 5.0 10.0 5.00 Underlying common stock price $ 0.09 $ 0.09 $ 0.09 August 2020 Financing Warrants In connection with the August 2020 Financing (Note 5), the Company issued 116,666,668 common stock warrants, 8,166,667 common stock warrants to the placement agent and 60,333,334 pre-funded warrants. The warrants were equity classified at issuance and of the $ 6,939,667 in gross proceeds, the Company allocated $ 2,767,767 and $ 2,146,997 of the gross proceeds to the common stock warrants and pre-funded warrants on a relative fair value basis, respectively. The remaining $ 2,024,903 was allocated to the common stock. The warrants issued to the placement agent were valued at $ 261,333 and recorded as equity issuance costs within equity. The warrants vested immediately and were valued utilizing the Black-Scholes option pricing model with the following assumptions: Common Stock Warrants Pre-funded Warrants Placement Agent Warrants Dividend yield — % — % — % Volatility factor 91.64 % 93.86 % 91.64 % Risk-free interest rate 0.19 % 0.52 % 0.19 % Expected term (years) 5.0 10 4.99 Underlying common stock price $ 0.05 $ 0.05 $ 0.05 Derivative Liabilities The following tables summarize the activity of derivative liability for the periods indicated: Year Ended December 31, 2021 DECEMBER 31, 2020, Fair Value of Derivative Liability Fair Value of Derivative Liability Issued Change in Fair value of Liability Reclassification of Derivative to Equity December 31, 2021, Fair Value of Derivative Liability Emerald Financing - warrant liability (1) 38,567 — 21,165 — 59,732 Total derivative liability $ 38,567 $ — $ 21,165 $ — $ 59,732 F-15 Table of Contents Year Ended December 31, 2020 December 31, 2019 , Fair Value of Derivative Liabilities Fair Value of Derivative Liabilities Issued Change in Fair value of Liabilities Reclassification of Derivatives to Equity December 31, 2020, Fair Value of Derivative Liabilities Emerald Multi-Draw Credit Agreement - compound derivative liability (2) $ 90,797 $ — $ ( 90,797 ) $ — $ — Emerald Financing - warrant liability (1) 276,024 — ( 237,457 ) — 38,567 Series B - warrant liability (3) 134,579 — ( 108,016 ) ( 26,563 ) — Total derivative liabilities $ 501,400 $ — $ ( 436,270 ) $ ( 26,563 ) $ 38,567 Less, noncurrent portion of derivative liabilities ( 90,797 ) — Current balance of derivative liabilities $ 410,603 $ 38,567 Emerald Financing Warrant Liability (1) The Emerald Financing Warrants were issued during 2018 in connection with the Emerald Financing, and originally contained a price protection feature. In connection with the August 2020 Financing, the exercise price was permanently set to $ 0.10 . The warrants contain a contingent put option if the Company undergoes a subsequent financing that results in a change in control. The warrant holders also have the right to participate in subsequent financing transactions on an as-if converted basis. The Company reviewed the warrants for liability or equity classification under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the warrants should be classified as a liability and re-measured to fair value at the end of each reporting period. The Company also reviewed the warrants under ASC 815, Derivatives and Hedging/Contracts in Entity’s Own Equity , and determined that the warrants also meet the definition of a derivative. With the assistance of a third party valuation specialist, the Company valued the warrant liabilities utilizing the Monte Carlo valuation method pursuant to the accounting guidance of ASC 820-10, Fair Value Measurements . Beginning March 31 2021, the Company changed its valuation model for the Emerald Financing Warrant Liability to a Black-Scholes valuation method, as it was determined that a more simplistic model such as the Black-Scholes valuation method yields a substantially similar result as a Monte Carlo simulation due to the Company's current assumptions. The warrant liabilities were valued at the balance sheet dates using the following assumptions: As of December 31, 2021 2020 Dividend yield — % — % Volatility factor 126.50 % 90.90 % Risk-free interest rate 0.43 % 0.14 % Expected term (years) 1.13 2.13 Underlying common stock price $ 0.05 $ 0.04 Emerald Multi-Draw Credit Agreement Compound Derivative Liability (2) In connection with the advances under the Credit Agreement (See Note 4), the Company bifurcated a compound derivative liability related to a contingent interest feature and acceleration upon default provision (contingent put option) provided to Sciences. The Company’s estimate of fair value of the compound derivative liability was determined by using a differential cash flows valuation model, wherein the fair value of the underlying debt facility and its conversion right are estimated both with and without the presence of the contingent interest feature, holding all other assumptions constant. The resulting difference between the estimated fair values in both scenarios is the estimated fair value of the compound derivative. The fair value of the underlying debt facility was estimated by calculating the expected cash flows with consideration of the estimated probability of a change in control transaction, defined as an event of default by the agreement, and applying the expected default interest rate from the date of such default through maturity. The expected cash flows are then discounted back to the reporting date using a benchmark market yield. The conversion right component of the compound derivative was measured using a standard Black-Scholes Option Pricing model for each payment period. F-16 Table of Contents On April 29, 2020, the Company entered into the Amended Credit Agreement which removed the change in control provision as an event of default for advances before and after the amendment. As a result of the modification, the contingent interest feature component of the compound derivative is no longer required to be bifurcated as a derivative liability. During the year ended December 31, 2020, the liability was reduced to $ 0 through an adjustment to the change in fair value of derivative liabilities. Because Sciences would forgo the contingent interest if the contingent put option was exercised upon an event of default, the value ascribed to the contingent put option within the compound derivative is considered de minimis before and after the amendment to the Credit Agreement. Series B Warrant Liability (3) During the year ended December 31, 2020, 312,500 Series B Common Stock Warrants with an intrinsic value of $ 26,563 were exercised for no consideration per share, which resulted in the issuance of 312,500 shares of common stock. Prior to exercise, these Series B Warrants were adjusted to fair value using a Black-Scholes valuation method which considered the closing trading price on the exercise dates. Because the exercise price of these options had been reset to $ 0.00 , the fair value derived from the valuation model approximated the market value of the Company’s common stock on the exercise dates. The warrants required liability classification because of certain cash redemption rights upon the occurrence of certain fundamental transactions, as defined in the Series B Common Stock Warrant agreements. 4. Debt Multi-Draw Credit Agreement-Related Party The Company’s Debt with Sciences consists of the following: As of December 31, Conversion Price 2021 2020 Total principal value of convertible debt—related party $ 0.40 $ 2,014,500 $ 2,014,500 Unamortized debt discount ( 487,668 ) ( 1,079,821 ) Unamortized debt issuance costs ( 1,927 ) ( 3,576 ) Carrying value of total convertible debt—related party 1,524,905 931,103 Total principal value of non-convertible debt—related party n/a 450,000 450,000 Total carrying value of advances under the multi-draw credit agreement $ 1,974,905 $ 1,381,103 On October 5, 2018, the Company entered into the Credit Agreement with Sciences, a related party (See Note 11). On April 29, 2020, the Company entered into the Amended Credit Agreement with Sciences, which amends and restates the Credit Agreement. For all pre-existing and new advances, the Amended Credit Agreement removed the change in control as an event of default (See Note 3) and deferred the quarterly payment of interest until the Company completed a capital raise of at least $ 5,000,000 . As of August 2020, interest ceased being deferred as a result of the August 2020 Financing. The amendments to the pre-existing advances were accounted for as a modification. On March 29, 2021, the Company amended the Amended Credit Agreement to defer interest payments through the earlier of maturity or prepayment of the principal balance. On September 15, 2021, the Company further amended the Amended Credit Agreement to close the disbursement line. The amendments were considered a modification for accounting purposes. Advances under the Amended Credit Agreement are unsecured and bear interest at an annual rate of 7 % and mature on October 5, 2022. At Sciences' election, convertible advances and unpaid interest may be converted into common stock at the fixed conversion price of the underlying advance, subject to customary adjustments for stock splits, stock dividends, recapitalizations, etc. F-17 Table of Contents The Amended Credit Agreement provides for customary events of default which may result in the acceleration of the maturity of the advances in addition to, but not limited to, cross acceleration to certain other indebtedness of the Company. In the case of an event of default arising from specified events of bankruptcy or insolvency or reorganization, all outstanding advances will become due and payable immediately without further action or notice. If any other event of default under the Amended Credit Agreement occurs or is continuing, Sciences may, by written notice, terminate its commitment to make any advances and/or declare all the advances with any other amounts payable due immediately. If any amount under the Amended Credit Agreement is not paid when due, such overdue amount shall bear interest at an annual default interest rate of the applicable rate plus 10 %, until such amount is paid in full. In connection with each advance under the Amended Credit Agreement, the Company agreed to issue to Sciences warrants to purchase shares of common stock in an amount equal to 50 % of the number of shares of common stock that each advance may be converted into. The warrants have a term of five years that are immediately exercisable upon issuance. All of the warrants issued under the Credit Agreement have an exercise price of $ 0.50 per share. The exercise price is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events or upon any distributions of assets, including cash, stock or other property to the Company’s stockholders (See Note 3). In accounting for each advance and the warrants issued under the Amended Credit Agreement, the Company allocated the proceeds between the debt host and the freestanding warrants on a relative fair value basis for each advance. On the date of each advance, if the effective conversion rate of the debt was less than the market value of the Company’s common stock, the Company recorded a beneficial conversion feature as a discount to the debt and an increase to additional paid-in capital. The debt discounts related to the warrants, beneficial conversion features and compound derivatives, if any, are being amortized over the term of the Amended Credit Agreement using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense and the compound derivatives related to the contingent interest feature and acceleration upon default provision were remeasured at fair value in subsequent periods in the Company’s Consolidated Balance Sheets. On November 1, 2018, an initial advance was made for $ 2,000,000 and the Company issued 2,500,000 warrants with an exercise price of $ 0.50 per share (See Note 3). In accounting for the convertible advance and warrants under the Credit Agreement, $ 1,684,920 of the proceeds was allocated to the debt and $ 315,080 was allocated to equity classified warrants. A beneficial conversion feature of $ 90,080 and a compound derivative liability of $ 204,102 were also recorded. During the year ended December 31, 2019, the Company initiated two advances, each in the amount of $ 2,000,000 , for an aggregate principal amount of $ 4,000,000 , and the Company issued an aggregate of 5,000,000 warrants with an exercise price of $ 0.50 per share (See Note 3). In accounting for the convertible advances and warrants, an aggregate amount of $ 3,283,890 was allocated to the debt and $ 716,110 was allocated to equity classified warrants. A beneficial conversion feature of $ 1,584,850 and compound derivative liabilities of an aggregate of $ 516,058 were recorded (See Note 3). Of the $ 516,058 in compound derivatives, $ 322,644 was recorded as other expense in the Consolidated Statements of Comprehensive (Loss) Income for the year ended December 31, 2019, as the value of the beneficial conversion feature exceeded the proceeds allocated to the third draw. During the year ended December 31, 2019, the Company used $ 3,985,500 in proceeds from the exercise of the 2019 Emerald Financing Warrants to prepay a portion of the outstanding principal balance. In connection with the prepayment, the Company recorded an extinguishment loss of $ 725,425 in the fourth quarter of 2019. The extinguishment loss was calculated as the difference between the fair value of the consideration paid to extinguish the debt and carrying value of the debt host plus the related compound derivative liability. During the year ended December 31, 2020, the Company effected a fourth and fifth advance in the amounts of $ 150,000 and $ 300,000 , respectively. Sciences has elected that the fourth and fifth advances will not be convertible into shares of the Company’s common stock and gave notice to the Company that no warrants will be issued in connection with the advances. Aggregate financing costs of $ 63,007 have been incurred and are recorded as a discount to the debt host and are being amortized using the effective interest rate method and recognized as non-cash interest expense over the term of the Amended Credit Agreement. For the years ended December 31, 2021 and 2020, the effective interest rate related to the convertible portion of the Amended Credit Agreement was 43.30 % and 98.01 %, respectively. As of December 31, 2021, the unamortized debt discount on the convertible advances will be amortized over a remaining period of approximately 0.76 years. As of December 31, 2021, the fair value of the shares underlying the convertible advances under the Amended Credit agreement was $ 261,885 . As of December 31, 2021, the if-converted value did not exceed the principal balance. F-18 Table of Contents PPP Loan On April 24, 2020, the Company received funding from the PPP Loan Lender pursuant to the PPP of the CARES Act administered by the SBA for a principal amount of $ 116,700 . The PPP Loan had an interest rate of 1.00 % per year and funds from the PPP Loan could only be used by the Company for payroll costs, costs for continuing group healthcare benefits, mortgage interest payments, rent, utility and interest on any other debt obligations that were incurred before October 9, 2020. On April 5, 2021, the Company submitted an application for the full forgiveness of the PPP Loan to the PPP Loan Lender for the full amount of the loan. On May 20, 2021, the Company received notification that the application was accepted and that the full amount of the PPP Loan including accrued interest was forgiven. During the year ended December 31, 2021, the Company has recorded a gain on forgiveness of the PPP loan in an amount of $ 117,953 . Interest Expense The Company’s interest expense consists of the following: Year Ended December 31, 2021 2020 Related party interest expense – stated rate $ 174,911 $ 161,546 PPP loan interest expense – stated rate 446 806 Non-cash interest expense: Amortization of debt discount 592,154 542,523 Amortization of transaction costs 1,648 1,510 $ 769,159 $ 706,385 5. Stockholders’ Equity and Capitalization As of December 31, 2021 and 2020, the Company had reserved shares of common stock, on an as-if converted basis, for issuance as follows: Year Ended December 31, 2021 2020 Options issued and outstanding 35,405,000 22,050,000 Options available for grant under the 2014 Plan 14,132,929 12,790,775 Restricted stock unit awards issued and outstanding 4,000,000 0 Unreleased restricted stock awards issued to a service provider 150,000 0 Common stock underlying the Amended Credit Agreement 5,393,684 5,126,343 Warrants issued and outstanding 154,458,892 157,513,335 213,540,505 197,480,453 Increase to Authorized Shares of Capital Stock On February 5, 2021, the Company increased its authorized shares of common and preferred stock to 5,000,000,000 and 50,000,000 , respectively. Common Stock July 2021 Inducement and September 2021 Financing On July 21, 2021, the Company entered into an Inducement Offer to Exercise Common Stock Purchase Warrants (the “July 2021 Inducement”) with certain institutional investors and H.C. Wainwright & Co., LLC ("Wainwright") acting as the placement agent. As a result, on July 26, 2021, the investors exercised 21,166,667 warrants at their original exercise price of $ 0.06 , for gross proceeds of $ 1,270,000 . In exchange, the Company granted 21,166,667 new warrants with substantially the same terms and an exercise price of $ 0.15 per share (Notes 2 & 3). F-19 Table of Contents On September 27, 2021, the Company entered into a Securities Purchase Agreement with certain institutional investors for the issuance and sale of securities, with Wainwright acting as the placement agent, pursuant to which the Company sold 58,111,112 shares of common stock and 19,666,667 pre-funded warrants, and issued 77,777,779 common stock warrants, in a registered public offering which closed on September 29, 2021 (the “September 2021 Financing”). The common stock and pre-funded warrants were sold at a price per share of $ 0.09 and $ 0.0899 , respectively, for gross aggregate proceeds of $ 6,998,034 . The common stock warrants and pre-funded warrants have an exercise price of $ 0.09 and $ 0.0001 , respectively. The common stock warrants have a term of five years , and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full (Note 3). In connection with the July 2021 Inducement and September 2021 Financing, the Company incurred cash issuance costs of $ 935,260 , for net proceeds of $ 6,062,774 . Additionally, the Company issued warrants to purchase 6,926,112 shares of common stock to the placement agent, which represent 7 % of the total shares of common stock and pre-funded warrants sold in the offering and 7 % of the Inducement Warrants issued (Note 3). August 2020 Financing On July 31, 2020, the Company entered into a Securities Purchase Agreement with certain institutional investors for the issuance and sale of securities, with H.C. Wainwright & Co., LLC acting as the placement agent, pursuant to which the Company sold 56,333,334 common units, each consisting of one share of common stock and one warrant to purchase one share of common stock, and 60,333,334 pre-funded units, each consisting of one pre-funded warrant to purchase one share of common stock and one warrant to purchase one share of common stock, in a registered public offering which closed on August 4, 2020 (the “August 2020 Financing”). The common units and pre-funded units were sold at a price per unit of $ 0.06 and $ 0.059 , respectively, for gross aggregate proceeds of $ 6,939,667 . The common stock warrants and prefunded warrants have an exercise price of $ 0.06 and $ 0.001 , respectively. The common stock warrants have a term of five years , and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full (Note 3). In connection with the August 2020 Financing, the Company incurred issuance costs of $ 854,078 , for net proceeds of $ 6,085,589 . Additionally, the Company issued warrants to purchase 8,166,667 shares of common stock to the placement agent, which represent 7 % of the total shares of common stock and pre-funded warrants sold in the offering. The placement agent warrants have an exercise price of $ 0.075 per share and a term of five years . Warrant Exercises During the year ended December 31, 2021, 11,800,000 pre-funded warrants with an intrinsic value of $ 460,200 were exercised in exchange for 11,800,000 shares of common stock for gross proceeds of $ 11,800 . As of December 31, 2021 all of the pre-funded warrants from the August 2020 Financing have been exercised. During the year ended December 31, 2021, 116,666,668 of the 2020 common stock warrants, including the warrants that were exercised in connection with the July 2021 Inducement discussed above, with an intrinsic value of $ 8,764,967 were exercised in exchange for 116,666,668 shares of common stock for gross proceeds of $ 6,999,999 . During the year ended December 31, 2020, the Pre-Funded Warrant holders exercised 48,533,334 warrants with an intrinsic value of $ 2,104,667 , which resulted in the issuance of 48,533,334 shares of common stock. During the year ended December 31, 2020, the Series B Warrant holders exercised 312,500 warrants with an intrinsic value of $ 26,563 , which resulted in the issuance of 312,500 shares of common stock. F-20 Table of Contents 6. Stock-Based Compensation Stock Incentive Plan On October 31, 2014, the Board approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan initially reserved 3,200,000 shares for future grants. In October 2018, the Company increased the share reserve under the 2014 Plan to equal 10 % of the number of issued and outstanding shares of common stock of the Company on an evergreen basis. In August 2020, the Company approved Amendment No. 2 to the 2014 Plan, which increased the share reserve by an additional 7,876,835 shares over the 10 % of the number of issued and outstanding shares of common stock and removed certain restrictions on the number of shares of common stock and the amount of cash-based awards up to which participants of the 2014 Plan can receive in a calendar year. The 2014 Plan authorizes the issuance of awards including stock options, stock appreciation rights, restricted stock, stock units and performance units to employees, directors, and consultants of the Company. As of December 31, 2021, the shares available for future grant under the 2014 Plan are as follows: Shares Available for Grant Available as of December 31, 2020 12,790,775 Share pool increase 18,803,404 Cancelled 202,500 Forfeited 1,091,250 Granted ( 18,755,000 ) Available as of December 31, 2021 14,132,929 Stock Options Options granted under the 2014 Plan expire no later than ten years from the date of grant. Options granted under the 2014 Plan may be either incentive or non-qualified stock options. For incentive and non-qualified stock option grants, the option price shall be at least 100 % of the fair value on the date of grants, as determined by the Company’s Board of Directors. If at any time the Company grants an option, and the optionee directly or by attribution owns stock possessing more than 10 % of the total combined voting power of all classes of stock of the Company, the option price shall be at least 110 % of the fair value and shall not be exercisable more than five years after the date of grant. Options granted under the 2014 Plan may be immediately exercisable if permitted in the specific grant approved by the Board of Directors and, if exercised early may be subject to repurchase provisions. The shares issued generally vest over a period of one to four years from the date of grant. The following is a summary of option activities under the Company’s 2014 Plan for the year ended December 31, 2021: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value* Outstanding, December 31, 2020 22,050,000 $ 0.06 9.52 $ — Granted 14,755,000 0.08 Exercised ( 106,250 ) 0.05 13,281 Forfeited ( 1,091,250 ) 0.05 Cancelled ( 202,500 ) 0.05 Outstanding, December 31, 2021 35,405,000 $ 0.07 9.08 $ 134,750 Exercisable, December 31, 2021 9,122,500 $ 0.09 8.41 $ 49,963 Vested and expected to vest, December 31, 2021 35,405,000 $ 0.07 9.08 $ 134,750 *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 December 31, 2021 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options"). F-21 Table of Contents During the year ended December 31, 2021, the Company received gross proceeds of $ 4,783 from the exercise of stock options. The weighted-average grant-date fair value of stock options granted for the years ended December 31, 2021 and 2020 was $ 0.07 and $ 0.04 , respectively. The total fair value of the stock options that vested during the years ended December 31, 2021 and 2020 was $ 316,929 and $ 168,168 , respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model under the following assumptions: Year Ended December 31, 2021 2020 Dividend yield 0.00 % 0.00 % Risk-free interest rate 0.01 - 1.11 % 0.28 - 0.46 % Expected term (years) 5.27 - 6.13 5.65 - 6.13 Volatility 119.10 - 138.00 % 92.51 - 107.87 % In connection with the termination of Dr. Avtar Dhillon's Independent Contractor Agreement on October 14, 2021 (Note 11), the Company modified Dr. Dhillon's option awards to accelerate the vesting of 1,650,000 unvested stock options and, extend the post-termination exercise period from 30 days to five years for all of his outstanding awards. The approval of the modification and receipt of notice to terminate the Independent Contractor Agreement on September 14, 2021, resulted in the recognition of $ 309,487 in stock compensation expense for the year ended December 31, 2021 . Restricted Stock Units On December 14, 2021, the Company granted restricted stock units (“RSUs”) to its executive management team. The RSUs cliff vest 33 % per year on the anniversary of the grant date over a three year period. The following is a summary of restricted stock unit activity during the year ended December 31, 2021: Number of Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2020 — $ — Granted 4,000,000 0.06 Released — — Unvested, December 31, 2021 4,000,000 $ 0.06 There was no RSU activity under the Company’s 2014 Plan during the year ended December 31, 2020. Awards Granted Outside the 2014 Plan During the year ended December 31, 2021, the Company granted 1,200,000 and 300,000 restricted shares of common stock to a non-employee consultant for investor relations services under two successive six month service contracts. Half of the shares will be issued within the first month of entering each service contract and the remaining half will be issued within thirty days from contract completion. F-22 Table of Contents The following is a summary of restricted stock activity outside of the Company’s 2014 Plan during the year ended December 31, 2021: Number of Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2020 — $ — Granted 1,500,000 0.12 Released ( 1,350,000 ) 0.12 *Unvested, December 31, 2021 150,000 $ 0.13 *As of December 31, 2021, the Company has recorded a share issuance liability of $ 13,000 , included in other current liabilities for the vested and unreleased portion of the restricted stock awards (Note 13). Stock-Based Compensation Expense The Company recognizes stock-based compensation expense using the straight-line method over the requisite service period. The Company recognized stock-based compensation expense, including compensation expense for RSUs discussed above, in its Consolidated Statements of Comprehensive Loss as follows: Year Ended December 31, 2021 2020 Research and development $ 59,653 $ 93,545 General and administrative 809,553 209,197 $ 869,206 $ 302,742 The total amount of unrecognized compensation cost was $ 1,645,478 as of December 31, 2021. This amount will be recognized over a weighted-average period of 3.12 years. 7. 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: For the Year Ended December 31, 2021 Loss (Numerator) Shares (Denominator) Per-Share Amount Net loss and comprehensive loss $ ( 8,522,182 ) Basic EPS Loss available to common stockholders ( 8,522,182 ) 406,599,390 $ ( 0.02 ) Diluted EPS Loss available to common stockholders + assumed conversions $ ( 8,522,182 ) 406,599,390 $ ( 0.02 ) F-23 Table of Contents For the Year Ended December 31, 2020 Income (Numerator) Shares (Denominator) Per-Share Amount Net loss and comprehensive loss $ ( 6,560,699 ) Basic EPS Income available to common stockholders ( 6,560,699 ) 230,746,878 $ ( 0.03 ) Effect of Dilutive Securities Warrants – liability classified ( 345,473 ) 674,095 Diluted EPS Loss available to common stockholders + assumed conversions $ ( 6,906,172 ) 231,420,973 $ ( 0.03 ) 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: Year Ended December 31, 2021 2020 Stock options 35,405,000 22,050,000 Unvested restricted stock units 4,000,000 — Unvested restricted stock 150,000 — Common shares underlying convertible debt 5,393,684 5,126,343 Warrants 134,792,225 145,039,240 8. Income Taxes The components of loss before the income tax provision consist of the following: Year Ended December 31, 2021 2020 United States $ ( 8,446,034 ) $ ( 6,556,280 ) Foreign ( 74,048 ) ( 2,819 ) Pre-tax loss and comprehensive loss from operations $ ( 8,520,082 ) $ ( 6,559,099 ) The Company is subject to taxation in the United States, various states, and Australia. The Company’s tax years for 2018 (federal), 2017 (states) and 2020 (Australia) and forward are subject to examination by the United States, state and Australia tax authorities. However, to the extent allowed by law, the taxing authorities may have the right to examine periods where NOLs and credits were generated and carried forward and make adjustments up to the amount of the NOL and credit carryforwards. The Company is not currently under examination by any jurisdiction. At December 31, 2021, the Company had federal and state NOLs aggregating $ 36,355,745 and $ 36,211,638 , respectively. If not used, $ 13,129,037 of Federal NOLs and $ 36,138,820 of state NOLs will begin to expire in 2033. $ 23,226,708 of federal NOLs and $ 72,818 of state NOLs will carry forward indefinitely subject to an 80% limitation against taxable income. At December 31, 2021, the Company had Australia NOLs aggregating $ 71,322 which do not expire. At December 31, 2021, the Company had federal and California research credit carryforwards of approximately $ 208,183 and $ 87,316 , respectively. The federal research credit carry forwards will begin to expire in 2040, unless previously utilized and the California research credits will carry forward indefinitely. The Company’s NOLs and research credit carryforwards are subject to a reserve. F-24 Table of Contents Utilization of the domestic NOL could be subject to a substantial annual limitation due to ownership change limitations that may have occurred, or that could occur in the future, as required by Section 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOLs that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders. Upon the occurrence of an ownership change under Section 382 as outlined above, utilization of the NOLs are subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL before utilization. While the Company has not performed a Section 382 study, multiple ownership changes may have already occurred as the Company raised capital through the issuance of stock. However, due to the existence of the valuation allowance for deferred tax assets, any potential change in ownership will not impact the Company’s effective tax rate. The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred income tax assets are as follows: As of December 31, Current deferred tax assets/(liabilities): 2021 2020 State taxes $ 441 $ 336 Amortization 109 180 Research and development credits 138,581 54,324 Lease liability 33,906 — Other 446,623 83,056 Net operating loss 8,887,647 7,679,216 Gross deferred tax assets 9,507,307 7,817,112 Valuation allowance ( 9,373,577 ) ( 7,590,215 ) Net deferred tax assets $ 133,730 $ 226,897 Deferred tax liabilities Right-of-use asset $ ( 30,939 ) $ — Discount - Amended Credit Agreement ( 102,791 ) ( 226,897 ) Total deferred tax liabilities ( 133,730 ) ( 226,897 ) Net deferred tax assets $ — $ — The provision for income taxes on earnings subject to income taxes differs from the statutory Federal rate at December 31, 2021 and 2020, due to the following: As of December 31, 2021 2020 Expected income tax benefit at federal statutory tax rate $ ( 1,789,217 ) $ ( 1,377,411 ) State income taxes, net of federal benefit ( 475,287 ) ( 415,249 ) Change in fair value of warrants 4,445 ( 72,549 ) Change in valuation allowance 1,783,362 1,383,765 Uncertain tax positions 557,016 470,838 Non-deductible interest 36,731 33,925 Stock compensation 31,863 64,273 Research and development credits ( 168,514 ) ( 108,649 ) Rate adjustment 785 — Other permanent difference 20,916 22,657 Provision for income taxes $ 2,100 $ 1,600 F-25 Table of Contents The Company records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Due to the substantial doubt related to the Company’s ability to utilize its deferred tax assets, a valuation allowance for the full amount of the deferred tax assets has been established at December 31, 2021. As a result of this valuation allowance, there are no income tax benefits reflected in the accompanying Consolidated Statements of Comprehensive Loss to offset pre-tax losses. During the year ended December 31, 2021, the valuation allowance increased by $ 1,783,362 . The Tax Cuts and Jobs Act of 2017 subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income , states that an entity can make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company elects to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Due to the Company's history of net operating losses, the CARES Act is not expected to have a material impact on the Company's financial statements. On April 22, 2020, the Company entered into the PPP Loan with the PPP Loan Lender (Note 4). In accordance with the Consolidated Appropriations Act, 2021 enacted on December 27, 2020, certain qualified expenses used with the funds of the PPP Loan are fully deductible for Federal income tax purposes. In 2021, the Company received forgiveness of the PPP loan. This amount is not considered taxable for Federal or state income tax purposes. Under the FASB’s accounting guidance related to income tax positions, among other things, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, the guidance provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. A reconciliation of the beginning and ending amounts of unrecognized tax positions are as follows: As of December 31, 2021 2020 Unrecognized tax positions, beginning of the year $ 1,134,173 $ 552,082 Gross increase - current period tax positions 687,598 585,812 Gross decrease – prior period tax positions ( 37,145 ) ( 3,721 ) Unrecognized tax positions, end of year $ 1,784,626 $ 1,134,173 If recognized, none of the unrecognized tax positions would impact the Company’s income tax benefit or effective tax rate as long as the Company’s net deferred tax assets remain subject to a full valuation allowance. The Company does not expect any significant increases or decreases to the Company’s unrecognized tax positions within the next twelve months. The Company had no accrual for interest or penalties on the Company’s Consolidated Balance Sheets at December 31, 2021 and 2020 and has no t recognized interest and/or penalties in the Consolidated Statements of Comprehensive Loss for the years then ended . F-26 Table of Contents 9. Other Current Liabilities Other current liabilities consist of the following: As of December 31 2021 2020 Accrued research and development costs 140,953 93,888 Accrued legal expense 133,537 57,596 Accrued board fees 44,984 40,625 Total other accrued liabilities 56,368 5,455 $ 375,842 $ 197,564 10. Significant Contracts - University of Mississippi UM 5050 and UM 8930 License Agreements In July 2018, the Company renewed its ocular licenses for UM 5050 and UM 8930. On May 24, 2019, the ocular delivery licenses were replaced by “all fields of use” licenses for both UM 5050 and UM 8930 (collectively, the “License Agreements”). Pursuant to the License Agreements, UM granted the Company an exclusive, perpetual license, including, with the prior written consent of UM, not to be unreasonably withheld, the right to sublicense, the intellectual property related to UM 5050 and UM 8930 for all fields of use. The License Agreements contain certain milestone payments, royalty and sublicensing fees payable by the Company, as defined therein. Each License Agreement provides for an annual maintenance fee of $ 75,000 payable on the anniversary of the effective date. The Company made upfront payments for UM 5050 and UM 8930 of $ 100,000 and $ 200,000 , respectively. In addition, in March 2020, the Company was notified by the United States Patent and Trademark Office, that a notice of allowance was issued for SBI-200, under the UM 8930 License Agreement. As a result, the Company was required to pay UM a fee of $ 200,000 . The milestone payments payable for each license are as follows: i) $ 100,000 paid within 30 days following the submission of the first Investigational New Drug Application ("NDA") to the Food and Drug Administration or an equivalent application to a regulatory agency anywhere in the world, for a product; ii) $ 200,000 paid within 30 days following the first submission of an NDA, or an equivalent application to a regulatory agency anywhere in the world, for each product that is administered in a different route of administration from that of the early submitted product(s); and iii) $ 400,000 paid within 30 days following the approval of an NDA, or an equivalent application to a regulatory agency anywhere in the world, for each product that is administered in a different route of administration from that of the early approved product(s). The royalty percentage due on net sales under each License Agreement is in the mid-single digits. The Company must also pay to UM a portion of all licensing fees received from any sublicensees, subject to a minimum royalty on net sales, and the Company is required to reimburse patent costs incurred by UM related to the licensed products. The royalty obligations apply by country and by licensed product, and end upon the later of the date that no valid claim of a licensed patent covers a licensed product in a given country, or ten years after the first commercial sale of such licensed product in such country. Each License Agreement continues, unless terminated, until the later of the expiration of the last to expire of the patents or patent applications within the licensed technology or the expiration of the Company’s payment obligations under such License Agreement. UM may terminate each License Agreement, by giving written notice of termination, upon the Company’s material breach of such License Agreement, including failure to make payments or satisfy covenants, representations or warranties without cure, noncompliance, a bankruptcy event, the Company’s dissolution or cessation of operations, the Company’s failure to make reasonable efforts to commercialize at least one product or failure to keep at least one product on the market after the first commercial sale for a continuous period of one year , other than for reasons outside the Company’s control, or the Company’s failure to meet certain pre-established development milestones. The Company may terminate each License Agreement upon 60 days’ written notice to UM. As of December 31, 2021, with the exception of the fee due for the notice of allowance for SBI-200, none of the other milestones under these license agreements have been met. F-27 Table of Contents UM 5070 License Agreement In January 2017, the Company entered into a license agreement with UM pursuant to which UM granted the Company an exclusive, perpetual license, including the right to sublicense, to intellectual property related to a platform of cannabinoid-based molecules ("UM 5070"), to research, develop and commercialize products for the treatment of infectious diseases. The Company paid UM an upfront license fee of $ 65,000 under the license agreement. Under the license agreement, the Company is also responsible for annual maintenance fees of $ 25,000 that will be credited against any royalties incurred, contingent milestone payments upon achievement of development and regulatory milestones, and royalties on net sales of licensed products sold for commercial use. The aggregate milestone payments due under the license agreement if all the milestones are achieved is $ 700,000 and the royalty percentage due on net sales is in the mid-single digits. The Company must also pay to UM a percentage of all licensing fees we receive from any sublicensees, subject to a minimum royalty on net sales by such sublicensees. The Company’s royalty obligations apply on a country by country and licensed product by licensed product basis, and end upon the later of the date that no valid claim of a licensed patent covers a licensed product in a given country, or ten years after first commercial sale of such licensed product in such country. The license agreement continues, unless terminated, until the later of the expiration of the last to expire of the patents or patent applications within the licensed technology or expiration of the Company’s payment obligations under the license. UM may terminate the license agreement, effective with the giving of notice, if: (a) the Company fails to pay any material amount payable to UM under the license agreement and do not cure such failure within 60 days after UM notifies us of such failure, (b) the Company materially breaches any covenant, representation or warranty in the license agreement and do not cure such breach within 60 days after UM notifies the Company of such breach, (c) the Company fails to comply in any material respect with the terms of the license and do not cure such noncompliance within 60 days after UM notifies us of such failure, (d) the Company is subject to a bankruptcy event, (e) the Company dissolves or ceases operations or (f) if after the first commercial sale of a product during the term of the license agreement, the Company materially fails to make reasonable efforts to commercialize at least one product or fail to keep at least one product on the market after the first commercial sale for a continuous period of one year, other than for reasons outside of the Company’s control. The Company may terminate the license agreement upon 60 days’ written notice to UM. As of December 31, 2021, none of the milestones under this license agreement had been met. On November 9, 2021, the Company provided its 60 day notice of termination to UM to terminate the UM 5070 license agreement effective January 8, 2022. 11. Related Party Matters Emerald Health Sciences In January 2018, the Company entered into a securities purchase agreement with Sciences pursuant to which Sciences purchased a majority of the equity interest in the Company, resulting in a change in control (the "Emerald Financing"). While Sciences no longer maintains a controlling interest in the Company, it holds a significant equity interest as of December 31, 2021 (Note 13) and has provided the Company with financing under the Amended Credit Agreement (Note 4). As of December 31, 2020, the Company had accrued $ 7,032 in reimbursable expenses due to Sciences. No amounts were due to Sciences as of December 31, 2021. On December 19, 2019, the Company entered into an Independent Contractor Services Agreement with Dr. Avtar Dhillon, at the time, a member of Sciences Board of Directors and its CEO, pursuant to which Dr. Dhillon provided ongoing corporate finance and strategic business advisory services to the Company. In exchange for his services, Dr. Dhillon received a monthly fee of $ 10,000 , per month for his services. Under the Independent Contractor Agreement, for the years ended December 31, 2021 and 2020, the Company incurred fees of $ 94,516 and $ 127,387 , respectively. As of December 31, 2020, the Company accrued $ 10,000 in expense related to the Independent Contractor Services Agreement. On September 14, 2021, Dr. Dhillon provided his notice to terminate the Independent Contractor Services Agreement, with an effective termination date of October 14, 2021. As of October 14, 2021, the Company no longer has any obligations or business relationship with Dr. Dhillon (Note 6). On August 10, 2020, Sciences, transferred to Dr. Avtar Dhillon 500,000 shares of the Company’s common stock at a deemed price of $ 0.10 in exchange for the cancellation of $ 50,000 of debt. On August 10, 2020, Sciences, Inc. extinguished debt of $ 186,667 by transferring 1,566,666 shares of the Company’s common stock at a deemed price of $ 0.10 per share to certain officers, employees and directors of the Company. F-28 Table of Contents In addition, the Board Observer Agreement in place with Sciences was amended in September 2021 to allow any board member or officer of Sciences to act as a representative of Sciences on a non-voting observer basis in meetings of the Board. On December 14, 2021, the Board Observer Agreement was terminated. Emerald Health Pharmaceuticals, Inc. On April 30, 2021, the Company entered into a month-to-month lease agreement with Emerald Health Pharmaceuticals, an affiliate of the Company with a significant common shareholder, as the sublessor and the Company as the sublessee. The Company shared the same office location as Emerald Health Pharmaceuticals in San Diego, California until the termination of the sublease on August 31, 2021. Under the sublease agreement, the Company paid monthly base rent of $ 4,000 in addition to its share of common area expenses and utilities. For the year ended December 31, 2021, the Company recognized $ 15,453 in expense under the sublease. VivaCell Biotechnology España, S.L.U (formerly known as Emerald Health Biotechnology España, S.L.U.) In January 2021 and April 2021, the Company entered into two separate Collaborative Research Agreements pursuant to a Master Services Agreement with VivaCell Biotechnology España, S.L.U ("VivaCell"), a research and development entity with substantial expertise in cannabinoid science and a subsidiary of Emerald Health Research, Inc. which is 100 % owned by Sciences. Under the Collaborative Research Agreements, VivaCell will provide research and development services pursuant to agreed upon project plans for the research and development of SBI-200 and the preclinical development services for novel derivatives. The term of each agreement is initially for a one-year period. The agreements will terminate upon delivery and acceptance of the final deliverables under the project plans or if either party is in breach of the terms of the contract and such breach remains uncured for 45 days. Payment for services are based on the negotiated amounts for the completion of agreed upon objectives as provided in the Collaborative Research Agreements. For the year ended December 31, 2021, the Company incurred $ 220,418 in expenses under the Collaborative Research Agreements. As of December 31, 2021, the Company has recognized a prepaid asset in the amount of $ 8,056 to be offset against future research and development costs under the Collaborative Research Agreements. On October 11, 2021, the Company entered into an Exclusive Sponsored Research Agreement (the “ESRA”) with VivaCell to fund certain research and development programs which are of mutual interest to both the Company and VivaCell. The Company will have the right to use all data, products, and information, including intellectual property which are generated in the performance of the research under each and all projects funded by the Company pursuant to the ESRA, and VivaCell assigns and agrees to assign, to the Company all rights to any intellectual property created or reduced-to-practice under, or as a part of, a project funded by the Company pursuant to the ESRA. The Company has agreed to pay to VivaCell a royalty based on any and all licensing revenue or other consideration paid to the Company by a third-party licensee, assignee or purchaser of intellectual property rights created under the ESRA. In addition, upon a change of control transaction the Company has agreed to pay an amount equal to the royalty percentage multiplied by the fair value of the intellectual property created under the ESRA. Pursuant to the ESRA, VivaCell will provide a budget to be approved by the Company for each project, and the Company will make payments in accordance with the approved budget and pay an annual retainer to VivaCell of $ 200,000 per year. For the year ended December 31, 2021, the Company incurred $ 44,624 in expenses under the ESRA. As of December 31, 2021, the Company has recognized a prepaid asset in the amount of $ 5,376 to be offset against future research and development costs under the ESRA. The initial term of the agreement is one year , with automatic renewal for successive one-year terms unless either party terminates upon 60 days' prior written notice to the other party pursuant to the ESRA. Board Members As of December 31, 2021, Jim Heppell and Punit Dhillon are board members of the Company and Emerald Health Pharmaceuticals, a subsidiary of Sciences. As of December 31, 2021, Jim Heppell is also a board member of Sciences and VivaCell. The Company’s CEO, Punit Dhillon also served as a board member of Sciences and VivaCell until he tendered his resignation from such boards on August 10, 2020 and September 22, 2021, respectively. F-29 Table of Contents 12. Commitments and Contingencies Office Lease The Company leases office space for its corporate headquarters, located at 1250 El Camino Real, San Diego, California 92130. The lease is effective from September 1, 2021 through October 31, 2023 and contains a renewal option for a two-year extension after the current expiration date. The Company does not expect that the renewal option will be exercised, and has therefore excluded the option from the calculation of the right of use asset and lease liability. The lease provides for two months of rent abatement and the initial monthly rent is $ 8,067 per month with annual increases of 3 % commencing on November 1, 2022. The lease includes non-lease components (i.e., property management costs) that are paid separately from rent, based on actual costs incurred, and therefore were not included in the right-of-use asset and lease liability but are reflected as an expense in the period incurred. In calculating the present value of the lease payments, the Company has elected to utilize its incremental borrowing rate based on the lease term. For the year ended December 31, 2021, lease expense comprised of $ 30,234 in lease cost from the Company's non-cancellable operating lease. The remaining lease term and discount rate related to the operating lease are presented in the following table: December 31, 2021 Weighted-average remaining term – operating lease (in years) 1.83 Weighted-average discount rate – operating lease 12 % Future minimum lease payments as of December 31, 2021 are presented in the following table: Year: 2022 $ 97,291 2023 83,093 Total future minimum lease payments: 180,384 Less imputed interest ( 19,312 ) Total $ 161,072 Reported as: Operating lease liability $ 82,372 Operating lease liability, net of current portion 78,700 Total lease liability $ 161,072 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. As of December 31, 2021, the Company is party to a legal proceeding with a former employee alleging wrongful termination. While there is a reasonable possibility that a loss may have been incurred, due to the stage of the proceedings as of December 31, 2021, the Company is unable to make an estimate as to the amount of the contingency, as the legal proceeding is in the early stage of discovery. The Company is expensing the legal costs related to this proceeding as incurred. F-30 Table of Contents 13. Subsequent Events Warrant Exercises On January 20, 2022, 19,666,667 pre-funded warrants with an intrinsic value of $ 1,178,033 were exercised in exchange for 19,666,667 shares of common stock for gross proceeds of $ 1,967 . Board Members and Related Party Contractor On January 10, 2022, the Company's Board member, Jim Heppell, was appointed the CEO of Sciences and tendered his resignation from VivaCell. On February 28, 2022, the Company entered into a standard consulting agreement with the CEO's brother. Compensation under the agreement is for a rate of approximately $ 75 per hour. The consulting agreement may be terminated by either party upon providing 15 days of advance notice. VivaCell In March 2022, the Company entered into the first project under the ESRA, under which it has committed to a budget of $ 190,000 . Common Stock Issuance On March 2, 2022, the Company released 150,000 shares of common stock to a service provider (Note 6). F-31 Table of Contents The following exhibits are filed with this Annual Report on Form 10-K. Exhibit Number Description of Exhibit 3.1 Articles of Incorporation of Registrant, as amended (incorporated by reference to Exhibit 3.1 to our Report on Form 10-K filed on March 2, 2021) 3.2 Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to our Report on Form 10-K filed on March 2, 2021) 4.1 Pre 2015 Common Stock Warrants (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on November 3, 2014) 4.2 2015, 2016 and 2017 Form of Common Stock Warrant (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed August 20, 2015) 4.3 2018 Emerald Financing Warrants (incorporated by reference to Exhibit 4.1 and contained in Exhibit 10.1 in exhibit to our Current Report on Form 8-K filed January 22, 2018) 4.4 Emerald Multi-Draw Credit Agreement Warrants (incorporated by reference to Exhibit 4.10 to our Annual Report on Form 10-K filed on March 14, 2019) 4.5 2019 Common Stock Warrants ( incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on November 21, 2019) 4.6 2020 Common Stock Warrants ( inc orporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on August 5, 2020) 4.7 July 2021 Letter Agreement - Inducement ( incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.8 2021 Inducement Warrants ( incorporated by reference to Exhibit 10. 2 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.9 September 2021 Securities Purchase Agreement ( incorporated by reference to E xhibit 10.1 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.10 September 2021 Lock-up Agreement ( in corporated by reference to E xhibit 10.2 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.11 2021 Common Stock Warrants ( inc orporated by reference to E xhibit 4.1 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.12 2021 Pre-Funded Warrants ( inc orporated by reference to E xhibit 4.2 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.13 2021 Common Stock Warrants to Placement Agent ( incorporated by reference to E xhibit 4.3 to our Quarterly Report on Form 10-Q filed November 10, 2021) 10.1† 2014 Omnibus Incentive Plan ( incorporated by reference to E xhibit 10.4 to our Current Report on Form 8-K filed on November 3, 2014) 10.2† Amendment No. 1 to 2014 Omnibus Incentive Plan ( incorporated by reference to E xhibit 10. 3 to our Current Report on Form 8-K filed on October 12, 2018) 10.3† Amendment No. 2 to 2014 Omnibus Incentive Plan ( incorporated by reference to E xhibit 10. 3 to our Current Report on Form 8-K filed on August 12, 2020) 10.4† Form of Stock Option Agreement under 2014 Omnibus Incentive Plan ( incorporated by reference to E xhibit 10.5 to our Current Report on Form 8-K filed on November 3, 2014) 10.5†* Form of Restricted Stock Unit Agreement under 2014 Omnibus Incentive Plan 10.6†* Notice of Option Amendment 10.7† Form of Indemnification Agreement ( inco rporated by reference to E xhibit 10.1 to our Current Report on Form 8-K filed on January 12, 2015) 10.8† Officer Change in Control Severance Plan ( incorporated by referen ce to E xhibit 10.1 to our Current Report on Form 8-K filed on February 27, 2015) 10.9† Employment Agreement, dated August 10, 2020, by and between Emerald Bioscience, Inc. and Punit Dhillon ( i nc orporated by reference to E xhibit 10.2 to our Current Report on Form 8-K filed on August 12, 2020) 10.10† Employment Agreement, dated October 4, 2021, by and between Skye Bioscience, Inc. and Kaitlyn Arsenault ( inco rporated by reference to E xhibit 10.1 to our Current Report on Form 8-K filed on October 6, 2021) 60 Table of Contents 10.11** License Agreement, dated January 10, 2017, between Nemus and the University of Mississippi, School of Pharmacy (UM 5070) ( incorporated by reference to E xhibit 10.1 to our Current Report on Form 8-K/A filed on January 20, 2017) 10.12*|** Restated and Amended License Agreement, dated as of May 24, 2019, by and between the Company and University of Mississippi, School of Pharmacy (UM 5050) 10.13 Restated and Amended License Agreement, dated as of May 24, 2019, by and between the Company and University of Mississippi, School of Pharmacy (UM 8930) ( inco rporated by reference to E xhibit 10.1 to our Current Report on Form 8-K filed on May 29, 2019) 10.14 Multi-Draw Credit Agreement, dated October 5, 2018, by and between Nemus Bioscience, Inc. and Emerald Health Sciences, Inc. ( i ncorporated by reference to E xhibit 10.1 to our Current Report on Form 8-K filed on October 12, 2018) 10.15 Amended and Restated Multi-Draw Credit Agreement, dated April 29 , 2020, by and between Emerald Bioscience, Inc. and Emerald Health Sciences, Inc. ( incorporated by reference to E xhibit 10.1 to our Current Report on Form 8-K filed on April 29, 2020) 10.16 Amendment No. 2 to the Amended and Restated Multi-Draw Credit Agreement, dated March 29, 2021 ( incorporated by reference to E xhibit 10.1 to our Quarterly Report on Form 10-Q filed May 7, 2021) 10.17* Amendment No. 3 to the Amended and Restated Multi-Draw Credit Agreement, dated September 15, 2021 10.18 Collaborative Research Agreement, dated January 2021, by and between Skye Bioscience, Inc. and Emerald Health Biotechnology España, S.L., (incorporated by reference to Exhibit 10.63 to our Annual Report on Form 10-K filed on March 10, 2021) 10.19** Collaborative Research Agreement, dated April 2021, by and between Skye Bioscience, Inc. and Emerald Health Biotechnology España, S.L., ( incorporated by reference to E xhibit 10.1 to our Q uarterly R eport on Form 10-Q filed on August 6, 2021) 10.20** Exclusive Sponsored Research Agreement, dated October 1 1 , 2021, by and between the Company and Emerald Health Biotechnology España, S.L. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 15, 2021) 10.2 Office Lease, dated as of August 25, 2021, by and between ROIC California, LLC and the Company (incorporated by reference to Exhibit 99 .1 to our Current Report on Form 8-K filed on September 15, 2021) 21.1* Subsidiaries of the Registrant 23.1* Consent of Independent Registered Public Accounting Firm 31.1* Certification of Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934 31.2* Certification of Principal Financial and Accounting Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934 32.1*** Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2*** Certification of Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.ins†† Instance Document 101.sch†† XBRL Taxonomy Schema Document 101.cal†† XBRL Taxonomy Calculation Linkbase Document 101.def†† XBRL Taxonomy Definition Linkbase Document 101.lab†† XBRL Taxonomy Label Linkbase Document 101.pre†† XBRL Taxonomy Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) _________ * Filed Herewith ** Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. *** Furnished Herewith † Management contract or compensatory plan or arrangement. †† In accordance with Regulation S-T, XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, 61 Table of Contents and is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not otherwise subject to liability under these sections. Item 16. Form 10-K Summary . None. 62 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 March 25, 2022 By: /s/ Punit Dhillon Punit Dhillon Its: Chief Executive Officer, Chairman (Principal Executive Officer) March 25, 2022 By: /s/ Kaitlyn Arsenault Kaitlyn Arsenault Its: Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Punit Dhillon March 25, 2022 Punit Dhillon Its: Chief Executive Officer, Chairman (Principal Executive Officer) By: /s/ Kaitlyn Arsenault March 25, 2022 Kaitlyn Arsenault Its: Chief Financial Officer (Principal Financial and Accounting Officer) By: /s/ Margaret Dalesandro March 25, 2022 Margaret Dalesandro Its: Director By: /s/ Jim Heppell March 25, 2022 Jim Heppell Its: Director By: /s/ Praveen Tyle March 25, 2022 Praveen Tyle Its: Director By: /s/ Keith Ward March 25, 2022 Keith Ward Its: Director 63