Skye Bioscience, Inc. 10-Q

Item 5. Other Information. Completion of Acquisition or Disposition of Assets As previously disclosed in the Current Reports on Form 8-K filed by the Company with the Securities and Exchange Commission (the “SEC”), the Company entered into an Arrangement Agreement on May 11, 2022 (as amended, the “Arrangement Agreement”), with EHT, pursuant to which the Company agreed to acquire all of the issued and outstanding common shares of EHT (the “EHT Shares”) pursuant to a plan of arrangement (the “Plan of Arrangement”) under the Business Corporations Act (British Columbia) (the “Acquisition”). The Supreme Court of British Columbia issued a final order approving the Acquisition on August 25, 2022. On November 7, 2022, EHT and the Company agreed to waive the mutual closing condition requiring the Company to obtain conditional approval from the Canadian Stock Exchange to list the common stock of the Company. The Acquisition was consummated on November 10, 2022 (the “Closing Date”).Under the terms of the Arrangement Agreement and the Plan of Arrangement, on November 10, 2022, each share of EHT common stock (“EHT Shares”) outstanding immediately prior to the effective time of the Acquisition (the “Effective Time”) was transferred to the Company in exchange for 1.95 of a share (the “Exchange Ratio”) of Company common stock, par value $0.001 per share (“Company Common Stock”). In the aggregate, EHT shareholders received 416,270,514 shares of Company Common Stock (the “Consideration Shares”). The Exchange Ratio was agreed to on May 11, 2022 and was not adjusted for any subsequent changes in market price of the Company Common Stock or EHT Shares prior to the Closing Date. It is expected that, for U.S. and Canadian federal income tax purposes, the Acquisition shall constitute a taxable exchange by the EHT shareholders of EHT Shares for Company Common Stock. In addition, at the Effective Time, (i) all EHT options to purchase EHT Shares (“EHT Options”) granted under EHT’s omnibus incentive plan that are outstanding as of the Effective Time, were exchanged into options to purchase shares of Company Common Stock, with the number of shares underlying each option (and the exercise price of such option) adjusted based on the Exchange Ratio, with the options retaining the same term to expiry, conditions to and manner of exercise and other terms and conditions as the EHT Options (the “Replacement Options”) and (ii) each of the warrants to acquire EHT Shares (the “EHT Warrants”) were be exchanged into warrants to acquire Company Common Stock after adjustments to reflect the Acquisition and to account for the Exchange Ratio, with each warrant retaining the same term to expiry, conditions to and manner of exercise and other terms and conditions of the EHT Warrants (the “Replacement Warrants”). In the aggregate, the Company issued 8,282,626 Replacement Options and 60,947,407 Replacement Warrants in connection with the Acquisition. 43 Table of Contents The foregoing summary description of the completion of the Acquisition does not purport to be complete and is qualified in its entirety by reference to the terms of the Arrangement Agreement, which was filed as Exhibit 2.1 to this Quarterly Report on Form 10-Q , as well as the amendments to the Arrangement Agreement filed as Exhibits 2.2, 2.3 and 2.4 to this Quarterly Report on Form 10-Q. Unregistered Sales of Equity Securities The Consideration Shares, the Replacement Options, and the Replacement Warrants issued by Company in connection with the consummation of the Acquisition were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 3(a)(10) of the Securities Act based on the final order of the Supreme Court of British Columbia following a hearing by the court which considered, among other things, the fairness of the Acquisition to the persons affected. Election of Director As of the Effective Time, the Board of Company appointed Bobby Rai to serve as a director until his successor is duly elected or appointed and qualified or until his earlier retirement, disqualification resignation, removal or death. Mr. Rai will receive annual director compensation for his service on the Board in an amount equal to $40,000, plus aggregate annual committee compensation of $1,000. Additionally, Company anticipates that Mr. Rai will be granted a one time award of stock options consistent with their non-employee director compensation policy. In addition, Mr. Rai entered into the Company’s standard indemnification agreement. Financial Statements The financial statements required by Item 9.01(a) of Form 8-K and the notes related thereto are filed as Exhibit 99.1 and 99.2 to this Quarterly Report on Form 10-Q. The pro forma financial information required by Item 9.02(b) of Form 8-K and the notes related thereto are included above in Note 3 to the Condensed Consolidated Financial Statements (Unaudited) and are incorporated by reference herein. Entry into a Material Definitive Agreement On November 10, 2022, EHT, C3 Souvenir Holding, Inc., a corporation governed under the Canada Business Corporations Act ("Purchaser"), Verdélite Sciences, Inc. ("Verdélite"), Verdélite Property Holdings, Inc. ("VPHI") entered into a stock purchase agreement (the "Verdélite SPA") effective November 8, 2022, pursuant to which Purchaser will acquire all of the outstanding shares of Verdélite, the holder of EHT's most significant real estate asset, for an aggregate purchase price of approximately USD$9,312,000, subject to certain adjustments. Prior to the closing of the Acquisition, VPHI was wound up into Verdélite and Verdélite is a wholly owned subsidiary of EHT. The terms of the Verdélite SPA provide for an upfront, non refundable deposit, except in the case of material breach, in the amount of approximately $548,000, which as already been received by EHT. The remainder of the purchase price will be paid as follows, (i) approximately $6,026,000 to be paid on the closing date of the Verdélite SPA, (ii) three equal installments of approximately $913,000 to be paid on each of the 18-month ("Term 1"), 30-month ("Term 2"), and 42 month ("Term 3") anniversaries of the closing date. Annual compounded interest on the loan receivable will be payable at the end of Term 3 and will accrue at a rate equal to the Prime Rate set by the Bank of Montreal plus 1.55%, 3.55% and 5.55% per annum for Term 1, Term 2 and Term 3, respectively. The Purchaser has the option to prepay the principal term payments in full at any time during Term 1 or Term 2. If prepayment occurs, the interest rate will be retrospectively adjusted to the Prime Rate plus 1.55%, compounded annually, until the installment payments are paid in full. The balance of the purchase price after closing will be secured against the assets and stock of the Purchaser. The Verdélite SPA contains customary closing conditions including, but not limited to, the completion of an environmental audit by EHT. The foregoing description of the Verdelite SPA do not purport to be complete and are qualified in their entirety by reference to the text of the Verdelite SPA which is attached as exhibit 10.3 to this Quarterly Report on Form 10-Q and is incorporated herein by reference. 44 Table of Contents Item 6. Exhibits. 2.1 Arrangement Agreement, dated May 11, 2022, by and between the Company and EHT (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on May 11, 2022) 2.2 Amendment No. 1 to the Arrangement Agreement, dated June 14, 2022, by and between the Company and EHT (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 17, 2022) 2.3 Amendment No. 2 to the Arrangement Agreement, dated July 15, 2022, by and between the Company and EHT (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 21, 2022) 2.4 Amendment No. 3 to the Arrangement Agreement, dated October 18, 2022, by and between the Company and EH T (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 19, 2022) 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) 10.1 Skye Bioscience , Inc. 2014 Amended and Restated Omnibus Incentive Plan (incorporated by reference to our definitive proxy statement filed on August 31, 2022) 10.2* Form of Stock Option Award - For Canadian Optionees under Amended and Restated 2014 Omnibus Incentive Plan 10.3*+ Share Purchase Agreement, dated November 8, 2022, by and between Emerald Health Therapeutics, Inc., 14428773 Canada Inc., Verdelite Sciences, Inc., Verdelite Property Holdings, Inc. and C3 Centre Holding Inc. 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 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 Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1 Financial statements of EHT as of December 31, 2021 and December 31, 2020 (incorporated by reference to our definitive proxy statement filed on August 31, 2022) 99.2 Unaudited Condensed Interim Consolidated Financial Statements of EHT as of June 30, 2021 and June 30, 2022 (incorporated by reference to our definitive proxy statement filed on August 31, 2022) 101 The following materials from the Skye Biosciences, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets (Unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited), (iii) Condensed Consolidated Statements of Cash Flows (Unaudited), (iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited), and (v) related Notes to the Unaudited Condensed Consolidated Financial Statements. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) ________ (*) Filed herewith. + Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits or schedules upon request. 45 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Skye Bioscience, Inc., a Nevada corporation November 14, 2022 By: /s/ Punit Dhillon Punit Dhillon Its: Chief Executive Officer, Secretary, Chairman of the Board, and Director (Principal Executive Officer) November 14, 2022 By: /s/ Kaitlyn Arsenault Kaitlyn Arsenault Its: Chief Financial Officer (Principal Financial and Accounting Officer) 46