What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-28 · 196 added, 115 removed, 135 unchanged (70% of the section changed)

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Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Unless otherwise provided in this Annual Report, references to “we,” “us,” “our” and “Skye Bioscience” in this discussion and analysis refer to Skye Bioscience, Inc., a Nevada corporation formerly known as Emerald Bioscience, Inc., together with its wholly owned subsidiaries, Nemus, a California corporation, and SKYE Bioscience Pty Ltd ("SKYE Bioscience Australia"), an Australian proprietary limited company formerly known as EMBI Australia Pty Ltd.

Unless otherwise provided in this Annual Report, references to “we,” “us,” “our” and “Skye Bioscience” in this discussion and analysis refer to Skye Bioscience, Inc., a Nevada corporation formerly known as Emerald Bioscience, Inc., together with its wholly owned subsidiaries, Nemus, a California corporation, SKYE Bioscience Pty Ltd ("SKYE Bioscience Australia"), an Australian proprietary limited company formerly known as EMBI Australia Pty Ltd., Emerald Health Therapeutics, Inc.

(EHT), Verdélite Sciences, Inc.

(VDL) and Avalite Sciences, Inc.

About Skye Bioscience, Inc.

We were incorporated in the State of Nevada on March 16, 2011.

We are a preclinical pharmaceutical company focused on the discovery, development and commercialization of a novel class of cannabinoid derivatives to modulate the endocannabinoid system, which has been shown to play a vital role in overall human health and, notably, in multiple ocular indications.

We are a clinical stage pharmaceutical company focused on the discovery, development and commercialization of a novel class of cannabinoid derivatives to modulate the endocannabinoid system, which has been shown to play a vital role in overall human health and, notably, in multiple ocular indications.

We are developing novel cannabinoid derivatives through our own directed research efforts and multiple license agreements.

Effective March 25, 2019, we changed our name from Nemus Bioscience, Inc.

to Emerald Bioscience, Inc.

and effective January 19, 2021, we changed our name to Skye Bioscience, Inc.

We have retained Novotech as our contract research organization ("CRO") in Australia and commenced our Phase 1 trial in December 2022.

We have also filed our IND for SBI-100 OE in the United States in anticipation of the start of our Phase 2 clinical trial in 2023, which we expect to commence in mid 2023.

Effective January 19, 2021, we changed our name from Emerald Bioscience, Inc.

to Skye Bioscience, Inc.

Our common stock is quoted on the OTCQB, under the symbol "SKYE".

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The primary purpose of SKYE Bioscience Australia is to conduct clinical trials for our drug product candidates.

SKYE Bioscience Australia is currently conducting our Phase 1 clinical study in Australia.

We expect to report final data from this study in the fourth quarter of 2023.

As described in more detail in the section below titled “ Liquidity and Going Concern ”, without additional funding during the second quarter of 2023, management believes that the Company will not have enough funds to meet its obligations and continue pre-clinical and clinical studies beyond the one year date the consolidated financial statements are issued.

If we do not receive additional funding during of the second quarter of 2023, we likely cannot continue operations.

EHT Acquisition

On May 11, 2022, we entered into an Arrangement Agreement (as amended, the “Arrangement Agreement”) with EHT, pursuant to which we agreed to acquire all of the issued and outstanding common shares of EHT pursuant to a plan of arrangement under the Business Corporations Act (British Columbia) (the “Acquisition”).

The Acquisition was consummated

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on November 10, 2022.

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 shares (the “Exchange Ratio”) of Company common stock.

The cash and assets of EHT and its subsidiaries acquired in the Acquisition are being used to fund our Phase 1 and Phase 2 clinical trials.

EHT and its subsidiaries are currently in the final stages of its realization process to wind down all prior operations and liquidate substantially all of its remaining assets.

As of the date of this Annual Report on Form 10K, we have divested both of EHT's former operating subsidiaries, VDL and Emerald Health Therapeutics Canada, Inc., and are in the process of resolving EHT's legacy tax matters with the Canadian tax authorities.

In February 2023, the closing payment from the sale of VDL provided the Company with $5,547,000.

This Acquisition has been a pivotal financing event for our business, allowing us to extend our cash runway into the second quarter of 2023 and will provide us with future funding as we collect the remaining receivables.

In addition, EHT has a vacant lab facility which we are currently evaluating to determine whether it is practical to bring certain aspects of our research and development activities in house or to divest to generate additional corporate funding.

Our Product Candidates and Significant Contracts.

UM 5050 and UM 8930 License Agreements

In May 2019, we executed amended and restated license agreements with University of Mississippi ("UM") which expanded our use of UM 5050 and UM 8930 from ocular delivery only to "all fields of use" (collectively, the “License Agreements”).

Pursuant to the License Agreements, UM granted us an exclusive perpetual license including, with the prior written consent of UM, the right to sublicense the intellectual property related to UM 5050 and UM 8930 for all fields of use.

All fields of use means that we may develop UM 5050 and UM 8930 to treat any disease through any form of delivery under the License Agreements.

The exclusive license for SBI-100, a cannabinoid receptor type 1 ("CBR1") agonist, under UM 5050 is expected to allow us to explore related uses for the active moiety of SBI-100.

We have license agreements with University of Mississippi ("UM") for UM 5050 and UM 8930 for "all fields of use" (each, a "License Agreement" and, collectively, the “License Agreements”).

Pursuant to the License Agreements, UM granted us an exclusive license including, with the prior written consent of UM, the right to sublicense the intellectual property related to UM 5050 (referred to by Skye as SBI-100) and UM 8930 (referred to by Skye as SBI-200) for all fields of use.

All fields of use means no restrictions on use of the underlying inventions, including developing UM 5050 and UM 8930 to treat any disease through any form of delivery under the License Agreements.

The exclusive license for our lead molecule, SBI-100, a cannabinoid receptor type 1 ("CBR1") agonist, under the License Agreement for UM 5050 is expected to allow us to explore related uses for the active moiety of SBI-100.

Independent in vitro and in vivo studies have demonstrated the potential use of SBI-100 in a variety of potential indications based on the ability of CBR1 agonists to act as an anti-inflammatory, anti-fibrotic and/or inhibitor of neovascularization.

The Company has generated data related to these effects using an ex vivo human tissue model of the eye.

SBI-100 is designed to enhance the pharmacokinetics and pharmacodynamics of the active part of the molecule once introduced into the body through various routes of administration being considered by the development team.

The exclusive license of SBI-200, a novel cannabinoid receptor ("CBR") modulator, under UM 8930, is expected to allow us to explore uses in ophthalmic disorders as well as expanded research and development into organ systems outside of ophthalmology.

Potential therapeutic areas beyond ophthalmic indications for SBI-200 may include the central nervous system, the gastrointestinal tract, the endocrine/metabolic system, reproductive system diseases, or as yet unrecognized opportunities.

While earlier third party research validated the utility of a cannabinoid to provide therapeutic utility against diseases such as glaucoma, available methods of administration were burdened with their own side effects and limitations.

Notably, it is difficult to topically deliver a natural cannabinoid molecule into the eye due to its lipophilic nature.

SBI-100 is a natural cannabinoid that has been chemically modified to reduce the lipophilic nature of the original molecule and enhance the ability to administer the molecule on and through the eye.

It is designed such that after it is introduced into the body, enzymes convert it back to its original active ingredient and enable its beneficial mechanisms of action to be unlocked.

The Company's development team is also considering various routes of administration for SBI-100 into the body for different potential disease applications.

The exclusive license of SBI-200, a novel cannabinoid receptor ("CBR") modulator, under the License Agreement for UM 8930, allows us to explore uses in ophthalmic disorders as well as expanded research and development into organ systems outside of ophthalmology.

Potential therapeutic areas beyond ophthalmic indications for SBI-200 may include the central nervous system, gastrointestinal tract, endocrine/metabolic system, reproductive system, or as yet unrecognized opportunities.

We have developed strategic collaborations to identify and advance these applications.

Our lead compound, SBI-100, is initially being developed to treat ocular disease.

The first-in-human Phase 1 trials are expected to be conducted in healthy volunteers in Australia (the “Clinical Trial”) to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of SBI-100.

Our lead product, SBI-100 OE, is initially being developed to treat glaucoma and ocular hypertension.

SBI-100 OE is comprised of the molecule licensed from UM, SBI-100, plus a proprietary nanoemulsion formulation.

The first-in-human Phase 1 trial of SBI-100 OE is currently being conducted in healthy volunteers in Australia to evaluate this drug candidate's safety, tolerability, pharmacokinetics and pharmacodynamics.

We are eligible under the AusIndustry research and development tax incentive program to obtain a cash incentive from the Australian Taxation Office.

The tax incentive is available to us based on specific criteria with which we must comply and is based on our eligible research and development spend in Australia.

The Company may be eligible for either a 43.5% refundable tax offset if it has aggregate turnover of less than $20 million per annum or a 38.5% non-refundable tax offset of eligible research and development expenditure up to $100 million if it has annual turnover of $20 million or more per annum.

Prior to August 2020, we executed several agreements and the work underlying those agreements was subsequently delayed to the second quarter of 2022.

Since August 2020, we have been focused on clinical enabling activities, notably:

• formulation and manufacturing of drug product to supply for our first-in-human Phase 1 clinical trial;

• initiating and completing GLP toxicology studies to support our first-in-human Phase 1 clinical trial;

• initiating and completing validation of a pharmacokinetic assay for both animal and human samples to support our pre-clinical and clinical studies;

• engaging our vendors and contractors to support the finalization of study-related materials for our Phase 1 study, including the finalization of the clinical study protocol and investigator's brochure.

The manufacturing of SBI-100 ophthalmic emulsion is conducted in the United States.

Formulation of the eye drop for testing is also performed in the United States but we rely on compendial excipients that can be sourced from countries outside the United States, such as China.

Due to the continuing effects of the COVID-19 pandemic, there could possibly be a negative impact on our ability to source materials that are part of the eye drop formulation, as well as negative impacts to our volunteer and/or patient recruitment in Australia for clinical studies.

Subsequent to the initiation of the Phase 1 study, we intend to file an investigational new drug ("IND") application with the United States Food and Drug Administration ("FDA") to study SBI-100 ophthalmic emulsion in a Phase 2 randomized, controlled, double-masked clinical trial in patients with glaucoma or ocular hypertension to obtain additional data to determine whether the topical delivery of SBI-100 ophthalmic emulsion is safe and well-tolerated, and whether the IOP is markedly different between SBI-100 and placebo.

Design of the Phase 2 clinical trial will be dependent upon the advice of our clinical advisory board, the FDA and other regulatory bodies.

We have initiated research activities to explore the utility of different formulations of SBI-200.

The Company is currently eligible for a 48.5% refundable tax offset as long as it has aggregate turnover of less than $20 million per annum.

Manufacturing of SBI-100 OE has been conducted in the United States.

We completed the manufacture of the clinical trial material for our Phase 1 clinical trial in September 2022.

We rely on compendial excipients that can be sourced from countries outside the United States, such as China.

In June 2022, we received approval from Belberry Limited, a certified Australian Human Research Ethics Committee, to begin our Phase 1 clinical trial for the study of our lead product candidate, SBI-100 OE.

We subsequently notified the Australian Therapeutics Goods Administration of our intent to initiate our Phase 1 clinical trial through the Clinical Trial Notification

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In connection with this marketing approval to initiate the first-in-human trial for SBI-100 OE, we triggered the first milestone payment under our License Agreement for UM 5050 with UM.

We commenced enrollment and dosing of the Phase 1 in November and December 2022.

We expect our Phase 1 study to complete enrollment in the first half of 2023.

The Company has announced that the safety review committee ("SRC") for this study reviewed safety data from the first and second cohorts of the single ascending dose arm of the Phase 1 and recommended advancing to the next cohort.

After the review of the second cohort of safety data, the SRC also provided its recommendation that the study progress to the second arm of the Phase 1 study.

During the third and fourth quarter of 2022, we manufactured the active pharmaceutical ingredient to be used in our Phase 2 clinical trial.

The formulation and packaging of SBI-100 OE for its planned Phase 2 trial will be conducted by NextPharma Oy at its Finnish facility.

NextPharma is a contract manufacturing organization with strong capabilities in preservative-free multi-dose and blow-fill-seal packaging of eye drop dispensers.

In December 2022 we obtained FDA clearance of our Investigational New Drug application to conduct clinical studies in the US, clearing the path to commence our Phase 2 trial in the United States without having to first complete our Phase 1 study.

We expect to begin our Phase 2 trial in the middle of 2023.

The Phase 2 study will be a randomized, controlled, double-masked clinical trial in patients with glaucoma or ocular hypertension to obtain additional data to determine whether the topical delivery of SBI-100 OE is safe and well-tolerated, and whether the IOP is markedly different between SBI-100 OE and the placebo.

In January 2023, our Phase 2 clinical trial protocol received study level approval from a central institutional review board (“IRB”).

Additionally, in February 2023 we announced an agreement with Lexitas Pharma Services, Inc.

(“Lexitas”), a leading full-service ophthalmic-focused contract research organization (“CRO”), to conduct our Phase 2a study for glaucoma and ocular hypertension.

We have initiated research activities to explore the utility of SBI-200.

Early studies of SBI-200 demonstrated analgesic, anti-inflammation, anti-fibrotic and anti-seizure properties, including the potential treatment and management of several eye diseases, such as uveitis, dry eye syndrome, macular degeneration and diabetic retinopathy.

Data we presented at the American Association of Pharmaceutical Scientists ("AAPS") meeting held in November 2017 revealed that an ocular formulation of SBI-200 was able to penetrate multiple compartments of the eye, including reaching the retina and the optic nerve.

Further testing will need to be conducted to further evaluate the possible utility of this compound as a therapeutic agent and we continue to advance our research studies related to SBI-200 to explore different therapeutic applications.

Data we presented at the American Association of Pharmaceutical Scientists ("AAPS") meeting held in November 2017 revealed that an early ocular formulation of SBI-200 was able to penetrate multiple compartments of the eye, including reaching the retina and the optic nerve.

We are further evaluating the possible utility and development of this compound as a therapeutic agent.

General Trends and Outlook

COVID-19 related

The evolving COVID-19 pandemic has prompted governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of business, quarantines, and shelter-in-place orders.

The COVID-19 pandemic has significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.

The COVID-19 pandemic and the measures taken by many countries in response have affected, and could in the future, materially impact the Company's business, results of operations, financial condition and stock price.

As we approach the start of our Phase 1 Clinical study in Australia, the ultimate impact on us is unknown.

However, we expect that our contract research organizations ("CROs") could experience setbacks during clinical trials from reduced capacity for safety monitoring due to on site social distancing, reductions in the participant pool or staffing due to vaccination requirements or patients testing positive for COVID-19 prior to enrollment or dosing in the study.

To mitigate operational risk our CRO has a COVID Emergency Management Committee in place to assess the various health and government recommendations, advice, potential risks, and impacts so that proactive measures may be taken, as needed, such as remote patient monitoring.

The majority of our workforce continues to be and was remote prior to the COVID-19 pandemic, and therefore our employees have seen little disruption as a result of the COVID-19 pandemic.

However, employee safety and well-being is of paramount importance to us in any year and continued to be of particular focus in 2021 in light of the continuing and evolving COVID-19 pandemic.

In response to the pandemic, we have supported our employees and government efforts to curb the COVID-19 pandemic through safety and communication efforts and investments, which include:

• Aligning onsite policies to local guidelines and regulation;

• Continuing to provide and promote flexibility for onsite employees to reduce density at our facility;

• Implementing weekly COVID-19 testing for all onsite employees;

• Increased cleaning protocols;

• Provision of masks to all onsite employees and masking requirements aligned to state and local guidelines;

• Limited domestic and international non-essential travel for all employees.

The full extent of the future impact of the COVID-19 pandemic on the Company's operational and financial performance is currently uncertain and will depend on many factors outside of our control, including, without limitation, the timing, extent, trajectory, and the duration of the pandemic;

the availability, distribution, acceptance and effectiveness of vaccines, particularly against new variants;

the imposition of protecting public safety measures, and the impact of the pandemic on any local operations across the United States, European Union, and Australia, where we have operations and conduct laboratory research and clinical studies.

The overall delay in our drug product research and development, is unknown, but our operations and financial condition will likely continue to suffer in the event of continued business interruptions, supply chain issues, delayed clinical trials, production or a lack of laboratory resources due to the pandemic.

As of the date of this filing, we are aware of the impact on our business as a result of COVID-19 but uncertain as to the extent of this impact on our consolidated financial statements.

There is uncertainty as to the duration and hence the ultimate impact.

As a result, we are unable to estimate the potential impact on our business as of the date of this filing.

During the second quarter of 2022, we were indirectly impacted by a cyberattack on our Phase 1 clinical supply contract manufacturer.

This disruption delayed our production timeline and the anticipated initiation of enrollment in our Phase 1 clinical studies for SBI-100 Ophthalmic Emulsion ("SBI-100 OE") to the fourth quarter of 2022.

The overall potential delay in our drug product research and development from these types of incidents is unknown, but our operations and financial condition may continue to suffer in the event of continued business interruptions, supply chain issues, delayed clinical trials, production or a lack of laboratory resources due to the pandemic and other global conditions.

It is possible that we may encounter other similar issues relating to the current situation that will need to be managed in the future.

The factors to take into account in going concern judgements and financial projections include travel bans, restrictions, government assistance and potential sources of replacement financing, financial health of service providers and the general economy.

Financial Overview

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Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

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United States of America.

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.

On an on-going basis, management evaluates its estimates and judgments, including those related to accrued expenses, financing operations, contingencies, and litigation.

On an on-going basis, management evaluates its estimates and judgments, including those related to accrued expenses, the percentage of completion as it relates to our clinical accruals, financing operations, contingencies, the fair value of assets acquired in the acquisition, and litigation.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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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 our financial instruments, with the exception of the Amended Credit Agreement and derivative liabilities, approximate their fair value due to their short maturities.

The carrying values of our financial instruments, with the exception of the derivative liabilities, approximate their fair value due to their short maturities.

The derivative liabilities are valued on a recurring basis utilizing Level 3 inputs.

As of December 31, 2020, we estimated that the fair value of the Amended Credit Agreement was 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) we had not experienced any significant change in our 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, we estimated that the fair value of the Amended Credit Agreement, including the non-convertible advances was $2,484,768.

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.

Convertible Instruments

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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.

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We also follow ASC 480-10, Distinguishing Liabilities from Equity ("ASC 480-10") when evaluating the accounting for our hybrid instruments.

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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.

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We generally account 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 we 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, we record the fair value of the warrants as a liability at each balance sheet date and record changes in fair value in other expense (income), net in our Consolidated Statements of Comprehensive Loss.

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.

We use the Black-Scholes valuation method for estimating the grant date fair value of stock options using the following assumptions:

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.

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• Dividends - The dividend yield assumption is based on our history and expectation of paying no dividends in the foreseeable future.

The Company accounts for liability-classified stock option awards (“liability options”) under ASC 718 - Compensation - Stock Compensation (“ASC 718”), under which the Company accounts for its awards containing other conditions as liability classified instruments.

Liability options are initially recognized at fair value in stock-compensation expense and subsequently re-measured to their fair values at each reporting date with changes in the fair value recognized in share-based compensation expense or additional paid-in capital upon settlement or cancellation.

Loss Per Common Share

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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.

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Commitments and Contingencies

We follow ASC 440 & ASC 450, subtopic 450-20 to report accounting for contingencies and commitments respectively.

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur.

We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment.

In assessing loss contingencies related to legal proceedings that are pending against us or un-asserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements.

If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

Based upon information available at this time, we believe that the current litigation matter related to the Cunning Lawsuit will have a material adverse effect on our consolidated financial position, results of operations and cash flows.

Asset Acquisition

We evaluate acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

If the screen is met, the transaction is accounted for as an asset acquisition.

If the screen is not met, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs which would meet the definition of a business.

Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.

For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition.

Common stock issued as consideration in an asset acquisition is generally measured based on the acquisition date fair value of the equity interests issued.

Direct transaction costs are recognized as part of the cost of an asset acquisition.

We also evaluate which elements of a transaction should be accounted for as a part of an asset acquisition and which should be accounted for separately.

Consideration deposited into escrow accounts are evaluated to determine whether it should be included as part of the cost of an asset acquisition or accounted for as contingent consideration.

Amounts held in escrow where we have legal title to such balances but where such accounts are not held in the our name, are recorded on a gross basis as an asset with a corresponding liability in our Consolidated Balance Sheets.

The cost of an asset acquisition, including transaction costs, are allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis.

Goodwill is not recognized in an asset acquisition.

Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values.

However, as of the date of acquisition, if certain assets are carried at fair value under other applicable GAAP the consideration is first allocated to those assets with the remainder allocated to the non-monetary identifiable assets based on relative fair value basis.

Assets Held for Sale

Assets held for sale include the VDL real estate asset, Health Canada license and related intellectual property, that we plan to sell within the next year.

Assets that meet the held for sale criteria are held for sale and reported at the lower of their carrying value or their fair value, less estimated costs to sell.

Changes in fair value are recorded as a gain or loss in the results of operations but not to exceed original carrying value.

An arrangement was in place to sell the assets of VDL at the time we completed the Acquisition of EHT, as such the VDL assets are considered held for sale and are presented within the Consolidated Balance Sheets.

As of December 31, 2022 the VDL assets are held at carrying value less any costs to sell.

The divestiture of VDL was completed after the balance sheet date on February 9, 2023.

Recently Issued and Adopted Accounting Pronouncements

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While we expect certain recently adopted accounting pronouncements to impact our estimates in future periods, the impact upon adoption was not significant to our current estimates and operations.

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Results of Operations

Our results of operations have fluctuated from period to period and may continue to fluctuate in the future, based upon the progress of our clinical trials, our research and development efforts, variations in the level of expenditures related to investor relations and seeking new sources of capital, debt service obligations during any given period, and the uncertainty as to the extent and magnitude of the impact from the COVID-19 pandemic.

Results of operations for any period may be unrelated to results of operations for any other period.

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2022 2021 $ Change

2020 % Change

Research and development expenses $ 6,011,805 $ 2,931,437 $ 3,080,368 105 %

Research and development expenses for the year ended December 31, 2021 increased as compared to the year ended December 31, 2020.

The increase in research and development expenses was primarily due to an increase in contract research and development activities of approximately $765,000, an increase in our use of specialized consultants of approximately $215,000 and an increase in compensation cost of approximately $122,000 due to additional headcount from the addition of regulatory and development personnel.

These increases were offset by a decrease of $200,000 from reduced license fees due to the milestone payment related to the notice of patent allowance for SBI-200, which was paid to UM in the prior year.

Research and development expenses for the year ended December 31, 2022 increased by $3,080,368 when compared to the year ended December 31, 2021.

The increase in research and development expenses was primarily due to an increase in contract research and development activities, including $2,348,534 for the manufacturing of our Phase 1 clinical trial material for SBI-100 OE, the manufacture of API for our Phase 2 study and contracted site initiation costs for our Phase 1 clinical study.

In addition, we incurred an increase of $77,601 in expense for the use of specialized consultants, had increased costs related to lab supplies and materials of $36,105, an increase in compensation cost of $493,281 due to bonus expense and additional headcount from the addition of regulatory and development personnel, an increase in software of $24,956 and an increase in license fees of $86,979 from meeting the first milestone under our license agreement with UM which was offset by the cancellation of UM5070.

General and Administrative Expenses

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2022 2021 $ Change

2020 % Change

General and administrative expenses $ 6,094,617 $ 4,916,277 $ 1,178,340 24 %

General and administrative expenses for the year ended December 31, 2021 increased as compared to the year ended December 31, 2020.

The increase in general and administrative expenses was primarily due to an increase in employee headcount of approximately $487,000 which included a one-time stock compensation charge from the modification of option awards, an increase in recruiting fees of approximately $72,000, an increase in dues and subscriptions of approximately $79,000, an increase in facilities and rent expense of approximately $52,000, and an increase in investor relations expenses of approximately $441,000.

The aggregate increase was partially offset by a decrease of approximately $589,000 in professional fees from lower legal and accounting costs, and a decrease of approximately $87,000 in insurance premiums incurred during the period.

Other Expense (Income)

Below is a summary of other expense (income) during the years ended December 31, 2021 and 2020:

General and administrative expenses for the year ended December 31, 2022 increased by $1,178,340 as compared to the year ended December 31, 2021.

The increase in general and administrative expenses was primarily due to an increase in employee wages and board fees of $746,952 related to the hiring of our chief financial officer, the addition of two board members and the special transaction bonus for executives and board members related to the Acquisition.

Additionally, there were increases in professional and legal fees of $732,529 related primarily to preliminary diligence costs associated with the Acquisition which were expensed as incurred during the first quarter and other general legal costs from litigation and the roll out of our employee stock purchase plan and the amendment to our equity incentive plan.

We also had increases in software expense of $169,183 from the implementation of new systems, an increase in facilities and rent expense of $23,290 and increases in travel and

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insurance costs totaling $96,210.

The aggregate increase was offset by decreases of $278,224, $202,834 and $119,205 in investor relations expenses, consulting and marketing and other general business expenses, respectively.

Estimated legal contingency

Below is a summary of the estimated legal contingency during the years ended December 31, 2022 and 2021:

Year Ended December 31,

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2021 % Change

Change in fair value of derivative liabilities 21,165 (436,270) $ 457,435 (105) %

Estimated legal contingency $ 6,205,310 $ — $ 6,205,310 N/A

For the year ended December 31, 2022, we recorded an estimated for a legal contingency of $6,205,310 related to the Cunning Lawsuit.

The estimate reflects the full amount of the judgement plus an estimate for the plaintiff's legal fees.

Other Expense

Below is a summary of other expense during the years ended December 31, 2022 and 2021:

Year Ended December 31,

2022 2021 $ Change

Change in fair value of derivative liability $ (59,729) $ 21,165 $ (80,894) (382) %

Gain on forgiveness of PPP loan — (117,953) 117,953 (100) %

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Interest income (19,011) (3) (19,008) 633600 %

Total other expense (income) $ 672,368 $ 270,086 $ 402,282 149 %

For the year ended December 31, 2021 , we had net other expense of $672,368 primarily related to interest expense and a loss from the change in fair value of derivative liabilities.

The primary reason for the increase in the loss on the change in fair value of our derivative liabilities was due to the increase in our stock price and volatility, for the period ended December 31, 2021 as compared to the period ended December 31, 2020.

In addition, the Amended Credit Agreement was amended in the prior period which resulted in the extinguishment of the compound derivative liability.

The increase in interest expense was due to a higher average outstanding principal balance from non-convertible advances on the Amended Credit Agreement for the period ended December 31, 2021, as compared to the period ended December 31, 2020.

Other expenses during the period were offset by the gain on debt forgiveness realized from the PPP Loan.

For the year ended December 31, 2020, the Company had other expense of $270,086 related primarily to interest expense under the Amended Credit Agreement, which was offset by a gain from the decrease in the fair value of our derivative liabilities.

Finance charge 120,228 — 120,228 N/A

Wind-down costs 456,508 — 456,508 N/A

Total other expense, net $ 1,163,129 $ 672,368 $ 490,761 73 %

For the year ended December 31, 2022 , we had net other expense of $1,163,129 primarily related to interest expense and wind down costs associated with the Acquisition.

In addition, we recognized a finance charge of $120,228 from the repricing of the Sciences warrants.

The increase was offset by decreases in interest expense of $104,026 due to a lower average outstanding principal balance outstanding during the year on the Amended Credit Agreement, a decrease in the fair value of the derivative liabilities of $80,894 and interest income of $19,008.

Other expenses were offset by the gain on debt forgiveness realized from the PPP Loan that was realized during the period ended December 31, 2021.

Results of operations for any period may be unrelated to results of operations for any other period.

In addition, historical results should not be viewed as indicative of future operating results.

In particular, to the extent our medical affairs personnel and clinical trial subjects are subject to varying levels of restriction on accessing clinical trial sites due to COVID-19, we expect our progress towards executing our clinical trials to be adversely affected.

In particular, to the extent our medical affairs personnel and clinical trial subjects are subject to varying levels of restriction on accessing clinical trial sites due to constraints on the global supply chain, we expect our progress towards executing our clinical trials to be adversely affected.

Liquidity, Going Concern and Capital Resources

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We anticipate that we will continue to incur net losses in order to advance and develop potential drug candidates into preclinical and clinical development activities and support our corporate infrastructure, which includes the costs associated with being a public company.

Historically, we have funded our operations primarily through issuance of equity securities and borrowings from a related party.

Historically, we have funded our operations primarily through issuance of equity securities, borrowings from a related party and strategic transactions.

Table of Cont ents

As of December 31, 2022, we had an accumulated deficit of $66,737,765, stockholders’ deficit of $3,008,054 and a working capital deficit of $3,175,408.

We had unrestricted cash of $1,244,527 as of December 31, 2022, as compared to $8,983,007 as of December 31, 2021.

The decrease in our cash balance was primarily attributable to increased research and development expenses related to manufacturing SBI-100 in anticipation of the start of our Phase 2 clinical trial and prepayments to our CRO for our Phase 1 clinical trial, which commenced in the fourth quarter of 2022.

The Company expects to continue to incur significant losses and negative cash flows from operations through 2023 and expects to incur significant losses and negative cash flows from operations in the future.

During 2022, we also expended significant legal and professional resources on the Acquisition and general litigation, including litigation associated with the Cunning Lawsuit, as described in more detail above under the caption "Legal Proceedings - Cunning Lawsuit".

The various Acquisition related transactional delays resulted in the further extension of the outside date to close the Acquisition.

Due to these delays, in October 2022 the Company entered into a working capital loan from EHT to provide funds to continue operations through the date of closing of the Acquisition.

Upon closing the Acquisition, we acquired net assets with an estimated fair value of $15,045,412, upon closing the Acquisition we received $6,784,057 in cash and upon the closing of the Verdélite SPA we received a closing payment of $5,547,000 on February 10, 2023.

We expect to collect the remainder of the value from the divestiture of EHT's assets over a four year period.

However, there are significant risks and uncertainties around the timing of these payments and ultimate realization of these assets.

On October 5, 2018, we secured a Credit Agreement with Sciences, that provided us with a credit facility of up to $20,000,000.

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On March 29, 2021, we entered the second amendment to the Amended Credit Agreement to defer interest payments until the earlier of maturity or prepayment of the principal balance.

Effective September 15, 2021, the disbursement line under the credit facility was closed and the Amended Credit Agreement no longer serves as a potential source of liquidity to the Company.

The outstanding principal advances of $2,464,500 under the Amended Credit Agreement bear interest at 7% per annum and mature on October 5, 2022.

On April 22, 2020, we received a principal amount of $116,700 from City National Bank under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S.

Small Business Administration.

We used the proceeds of the PPP loan for the payment of payroll and rent for our office space.

On May 20, 2021, the principal amount plus interest was forgiven in full and we recognized a gain of $117,953 for the year ended December 31, 2021.

On July 21, 2021, we entered into the July 2021 Inducement with certain institutional investors to exercise 21,166,667 existing warrants in exchange for the issuance of 21,166,667 new warrants with an exercise price of $0.15 per share.

The existing warrants had an exercise price of $0.06 and we received gross proceeds of $1,270,000 from the exercise.

Wainwright acted as the placement agent in the transaction and upon the issuance of the Inducement Warrants, we issued 1,481,667 placement agent warrants with an exercise price of $0.19 and paid $132,950 in fees to Wainwright.

On September 27, 2021, we 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 we 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 direct public offering which closed on September 29, 2021.

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 indefinitely.

As of December 31, 2021, we had an accumulated deficit of $47,256,163, stockholders’ equity of $5,864,166 and working capital of $5,699,875.

We had unrestricted cash of $8,983,007 as of December 31, 2021, as compared to $2,469,410 as of December 31, 2020.

The net increase was primarily attributable to the exercise of 116,666,668 common stock warrants and 11,800,000 pre-funded warrants for cash proceeds of $6,999,999 and $11,800, respectively, net cash proceeds of $6,062,774 from the sale of our common stock, pre-funded warrants, and common stock warrants, as described above, offset by operating cash burn during the year ended December 31, 2021.

Without additional funding, management believes that we will not have enough funds to meet our obligations and continue our pre-clinical and clinical studies beyond one year after the date the consolidated financial statements are issued.

Effective September 15, 2021, the disbursement line under the credit facility was closed.

As of December 31, 2022, we had an outstanding principal balance of $1,848,375 under the Amended Credit Agreement.

The outstanding advances plus accrued interest under the Amended Credit Agreement were due on October 5, 2022 and on November 17, 2022, we executed an extension of the maturity date to December 30, 2022 in exchange for the repricing of Sciences warrants and the repayment of 25% of the outstanding principal balance plus accrued interest.

On December 30, 2022, we negotiated an additional extension of the maturity date to the earlier of February 28, 2023 or the closing Verdélite SPA.

On February 16, 2023, Sciences exercised all of its outstanding warrants and converted the remaining balance of the Amended Credit Agreement plus accrued interest which extended our cash runway.

Pursuant to the February 16, 2023 Master Transaction Agreement with Sciences, Sciences agreed to use its best efforts to distribute the shares of Skye held by Sciences to the individual shareholders of Sciences upon Skye's listing to a nationally recognized exchange.

As described more fully above under the caption, “Legal Proceedings – Cunning Lawsuit”, on January 18, 2023, a jury rendered a verdict in favor of Ms.

Cunning and awarded her $512,500 in economic damages (e.g., lost earnings, future earnings and interest), $840,960 in non-economic damages (e.g., emotional distress) and $3,500,000 in punitive damages.

The plaintiff's counsel has also filed a motion for attorney fees claiming fees of $1,351,850 and a multiplier of 1.5, for a total of $2,027,775.

This jury verdict resulted in the recognition of an estimated legal contingency of $6,205,310, this judgement and the trial preparation also increased our overall legal costs for the year ended December 31, 2022.

We strongly believe that this case was incorrectly decided as to liability, the amount of compensatory damages, and the appropriateness and amount of punitive damages.

We intend to vigorously challenge the verdict in the trial court and appeal and pursue reimbursement under our existing insurance policies.

However, the outcome of the litigation and the amount recoverable under its existing insurance policies, if any, is inherently uncertain.

We expect that the potential expected cash outflows required to pursue legal appeals or other strategies may limit our ability to pursue all of our plans for our business.

Furthermore, the uncertainty as to the resolution of the litigation could limit our ability to raise new capital from investors to operate our business.

Additionally, the increased turmoil in the U.S.

capital markets created a substantially more difficult business environment.

Our ability to access the capital markets is expected to be extremely limited.

Without additional funding during the second quarter of 2023, management believes that the Company will not have enough funds to meet its obligations and continue pre-clinical and clinical studies beyond one year after the date the consolidated financial statements are issued.

If we do not receive additional funding during the second quarter of 2023, we likely cannot continue operations.

These conditions indicate it is probable that there is substantial doubt as to our ability to continue as a going concern, unless we are able to raise sufficient capital to continue our operations.

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Our consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business.

Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due.

The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern.

Our ability to continue as a going concern is dependent upon, among other things, the successful resolution of our litigation with Ms.

Cunning, our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due.

The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as

Table of Cont ents

a going concern.

Our consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

The following is a summary of our cash flows for the periods indicated and has been derived from our consolidated financial statements which are included elsewhere in this Form 10-K:

The follo wing is a summary of our cash flows for the periods indicated and has been derived from our consolidated financial statements which are included elsewhere in this Form 10-K:

Year Ended December 31,

Net cash used in operating activities $ (6,474,888) $ (6,054,131)

Net cash used in investing activities (90,866) (7,230)

Net cash provided by financing activities 13,079,356 6,700,822

Net cash, case equivalents and restricted cash provided by (used in):

Operating activities $ (12,744,072) $ (6,474,888)

Investing activities 5,214,395 (90,866)

Financing activities (208,794) 13,079,356

Net (decrease) increase in cash, cash equivalents and restricted cash $ (7,738,471) $ 6,513,602

Cash Flows from Operating Activities

The primary use of cash for our operating activities during these periods was to fund research development activities for our pre-clinical product candidates and general and administrative activities .

Our cash used in operating activities also reflected changes in our working capital, net of adjustments for non-cash charges, such as stock-based compensation, non-cash interest expense related to the amortization of our debt discounts on our related party Amended Credit Agreement, fair value adjustments related to our warrant liability and the gain realized from the forgiveness of the PPP Loan.

Cash use d in operating activities of $6,474,888 during the year ended December 31, 2021, reflected a net loss of $8,522,182, partially offset by aggregate non-cash charges of $1,400,351 and included a $646,943 net change in our operating assets and liabilities.

The primary use of cash for our operating activities during these periods was to fund research development activities for our clinical product candidate, SBI-100 OE, and general and administrative activities.

Our cash used in operating activities also reflected changes in our working capital, net of adjustments for non-cash charges, such as a finance charge from the repricing of the Sciences warrants in connection with the extension of the Amended Credit Agreement, stock-based compensation expense, non-cash interest expense related to the amortization of our debt discounts on our related party Amended Credit Agreement, fair value adjustments related to our warrant liability and an estimated legal contingency related to the Cunning Lawsuit.

Cash used in operating activities of $12,744,072 during the year ended December 31, 2022, reflected a net loss from operations of $19,481,602, the losses were adjusted by aggregate non-cash charges of $7,499,434 and included a $761,904 decrease in our operating assets and liabilities.

Non-cash charges included $629,032 for stock-based compensation expense, $489,595 non-cash interest expense from the amortization of the debt discount on the Amended Credit Agreement, a $59,729 gain from the decrease in fair value of our warrant liability, depreciation and amortization of $114,998, a finance charge of $120,228 due to the Sciences warrant repricing, and a loss of $6,205,310 due to the estimated legal contingency associated with the Cunning Lawsuit.

The net change in our operating assets and liabilities included a $109,943 increase in our prepaid expense and other current assets, an increase in accounts payable of $799,740, and a $1,671,587 decrease in our accrued expense and other current liabilities.

Cash used in operating activities of $6,474,888 during the year ended December 31, 2021, reflected a net loss of $8,522,182, partially offset by aggregate non-cash charges of $1,400,351 and included a $646,943 net change in our operating assets and liabilities.

Non-cash charges included $869,206 for stock-based compensation expense, $593,802 non-cash interest expense from the amortization of the debt discount on the Amended Credit Agreement, a $21,165 loss from the increase in fair value of our warrant liability, depreciation and amortization of $34,131, and a $117,953 gain from the forgiveness of the PPP Loan.

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Cash Flows from Investing Activities

Our investing activities have consisted primarily of our capital expenditures in relation to the purchase of property plant and equipment.

During the years ended December 31, 2021 and 2020, the Company purchased $90,866 and $7,230, respectively, in machinery and office equipment.

Cash provided by continued investing activities of $5,214,395 during the year ended December 31, 2022 consisted of our capital expenditures in relation to the purchase of property plant and equipment of $28,060, cash divested net of proceeds received from the sale of an asset of $66,458 and cash proceeds received from the Acquisition of $5,308,913.

During the year ended December 31, 2021, the Company purchased $90,866 of machinery and office equipment.

Cash Flows from Financing Activities

Cash flows from financing activities primarily reflect proceeds from the sale of our securities and debt financings.

During the year ended December 31, 2021 and 2020, cash provided by financing activities included $7,011,799 and $48,533 in proceeds received in connection with the exercise of warrants, $6,062,774 and $6,085,589 in net proceeds from the issuance of common stock, pre-funded warrants and common stock warrants, respectively, and $4,783 received from employee stock option exercises in 2021.

During the year ended December 31, 2022, cash used in financing activities included $1,967 in proceeds received in connection with pre-funded warrants and $680,901 in proceeds from the EHT bridge financing, offset by $275,537 in repayments on our insurance premium financing, and $616,125 in prepayments on the Amended Credit Agreement.

During the year ended December 31, 2021 cash provided by financing activities included $7,011,799 in proceeds received in connection with the exercise of warrants, $6,062,774 in net proceeds from the issuance of common stock and warrants and $4,783 received from employee stock option exercises in 2021.

Table of Cont ents

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis