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. 63 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, 2023, 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, 2023, 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, 2023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 64 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 43 Chief Executive Officer, Chairman, Director Kaitlyn Arsenault 37 Chief Financial Officer Tuan Tu Diep 43 Chief Development Officer Margaret Dalesandro 77 Director Deborah Charych 59 Director Praveen Tyle 64 Director Keith Ward 54 Director Andy Schwab 53 Director Paul Grayson 59 Director Annalisa Jenkins 58 Director Biographies of Directors, Executive Officers and Significant Employees Punit Dhillon. Punit Dhillon currently serves as the Chair of the Board of Directors and as the Company’s President and Chief Executive Officer. Mr. Dhillon was appointed as a member of the Board of Directors in January 2018. In December 2019, Mr. Dhillon was appointed as the Chairman of the Board of Directors. In August 2020, Mr. Dhillon was appointed as the Company's Chief Executive Officer. Mr. Dhillon is currently a board member and audit committee chair of Arch Therapeutics Inc., a US-based biotechnology company (OTCQB: ARTH). Mr. Dhillon was the co-founder and former President & CEO of OncoSec Medical, Inc. (NASDAQ: ONCS), a leading biopharmaceutical company developing cancer immunotherapies for the treatment of solid tumors, where he served as an executive until March 2018 and as a director until February 2020. He led OncoSec through over $250 million in capital raised, NASDAQ listing and launched the registration study, KEYNOTE695, of their proprietary immunotherapy product for melanoma in combination with Keytruda, based on a drug collaboration with Merck. Prior to that, from September 2003 to March 2011, Mr. Dhillon served as Vice President of Finance and Operations at Inovio Pharmaceuticals, Inc. (NASDAQ: INO), a DNA vaccine development company. From February 2017 to August 2020, Mr. Dhillon was a director of Emerald Health Sciences a private company that made strategic equity investments related to endocannabinoid based science and clinical products. Collectively, Mr. Dhillon has led and assisted in raising over $500 million through financings and mergers and acquisitions deals, as well as several licensing and development transactions with large pharmaceutical companies including Merck & Co., Inc. (NYSE: MRK), Bristol Myers Squibb Co (NYSE: BMY), and Pfizer Inc. (NYSE: PFE). Mr. Dhillon also co-founded and is the director of YELL Canada, a registered Canadian charity that partners with schools to support entrepreneurial learning. Mr. Dhillon received his Bachelor of Arts Honors degree in Political Science with a minor in Business Administration from Simon Fraser University. 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 . Kaitlyn Arsenault was appointed as the Company’s Chief Financial Officer in October 2021. From 2014 to 2021, Ms. Arsenault served as the President of KA Consulting, Inc., a registered public accounting firm in San Francisco, CA, providing independent technical accounting consulting services for emerging public and private companies in the pharmaceutical, life sciences, technology, and FinTech industries. From September 2016 to October 2021, she served as the Company’s Head of Financial Reporting and Technical Accounting. Ms. Arsenault's experience includes addressing complex technical accounting issues related to equity financings, derivatives, debt instruments, stock-based compensation, revenue recognition, and mergers and acquisitions, among other subjects. Prior to becoming an independent financial consultant, Ms. Arsenault spent seven years in public accounting as an assurance manager in the SEC practice of Friedman LLP (now Marcum LLP), 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). Ms. Arsenault's prior track record with the Company, extensive experience with pharmaceutical, life science, and technology companies, and vast exposure to different accounting and financial issues in the public markets give her the qualifications and skills necessary to serve as an officer of the Company. 65 Tuan Tu Diep. Tuan Tu Diep was appointed as the Company’s Chief Development Officer in January 2022, after serving as the Company’s Senior Vice President of Development from October 2020 to January 2022. From March 2020 to October 2020, Mr. Diep served as the Director of Business Process of Element Bioscience, a next-generation sequencing company focused on the the development of revolutionary and proprietary technology to deliver high-quality sequencing on their benchtop instrument, AVITI. In addition, he served as the President of Emerald Health Bioceuticals from October 2019 through January 2020. From July 2018 to October 2019, Mr. Diep served as the Vice President of Strategic Operations of Emerald Health Sciences USA, a private life science company that made strategic equity investments related to endocannabinoid based science and clinical products. Mr. Diep was a founding employee of OncoSec Medical Inc. (NASDAQ:ONCS) a leading biopharmaceutical company developing cancer immunotherapies for the treatment of solid tumors, where he served in multiple roles of increasing responsibility from 2011 to 2018. Here he led the initiation of OncoSec's first clinical trials in melanoma nd merkel cell carcinoma. As OncoSec's business development lead he was instrumental in establishing a partnership and clinical collaboration with Merck & Co. Inc. (NYSE: MRK) for the evaluation of Keytruda with OncoSec's lead drug, tavokinogene telsaplasmid and launched the pivotal trial, KEYNOTE-695. Mr. Diep is an experienced executive that has taken multiple drugs from early preclinical development to the clinic. He has demonstrated a proficiency in managing the initiation and execution of multiple clinical trials; including the manufacture, release, and distribution of drugs and devices for clinical use; managing the completion of financial audits for both private and public companies; overseeing due diligence activities related to partnering and licensing initiatives; and playing significant roles in raising funds in public markets. Mr. Diep received his Bachelor degree in Human Kinetics from the University of British Columbia in 2004 and his Masters of Science from the University of Toronto in 2006. Mr. Diep’s vast experience with life science companies gives him the qualifications and skills necessary to serve as an officer of the Company. Dr. Margaret Dalesandro . Dr. Margaret Dalesandro is currently a member of the Board and has served as a member since August 2020. From 2019 to 2021, Dr. Dalesandro served 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. In addition, she served as Chair of the OncoSec Medical Incorporated Board from early 2020 through 2021. Since 2021, Dr Dalesandro has served on the board and chaired the Nominating and Corporate Governance Committee of Seelos Therapeutics (NASDAQ:SEEL), a company focusing on the development of treatments for central nervous system diseases including ALS. Since 2023, Dr. Dalesandro has served on the Board of Ambrx Biopharma Inc (NASDAQ: AMAM), a company expert in the development of antibody drug conjugates (ADCs), immune-oncology and bispecific candidates for the treatment of cancers including prostate and breast cancer. In January 2024, Ambrx announced an agreement of sale to Johnson & Johnson for $2 billion. Since 2012, Dr. Dalesandro has been the President of Brecon Pharma Consulting LLC., a full-service pharma/biotech consultancy focusing on technical due diligence and creating strategic development plans identifying and obtaining critical information early in pharma/biotech product development. Dr. Dalesandro has over thirty-five years of experience leading strategic product development in the pharmaceutical, biotechnology, and diagnostics industries. From 2009 to 2012, she served as the Business Director of Integrative Pharmacology in the Life Sciences (Corning Integrative Pharmacology - CIP) division at Corning Incorporated (NYSE:GLW), leading all aspects of the CIP business including commercial, technical, P&L, competitive assessment, strategy, and talent management; from 2002 to 2009, as Vice President of Project, Portfolio, and Alliance Management at ImClone Systems Incorporated, which was a biopharmaceutical company dedicated to developing biologic medicines in the area of oncology and purchased by Eli Lilly (NYSE:LLY) for $6 billion. During her time at ImClone Systems, she contributed significantly to the development and approval of breakthrough oncology drugs including: Erbitux, Cyramza and Lartruvo; from 2000 to 2002, as Executive Director of Project and Portfolio Management at GlaxoSmithKline, a global pharmaceutical company producing treatments for respiratory illnesses, HIV, immuno-inflammation, and oncology (among others) (NYSE: GSK); and from 1998 to 2000, as Senior Consultant at Cambridge Pharma Consultancy, Europe's largest pharmaceutical R&D strategy consulting firm. During her tenure from 1989 to 1998 at Centocor Incorporated, a biotechnology company forming a part of the Johnson & Johnson group of companies and specializing in the production of antibody treatments for infectious, cardiovascular, and autoimmune diseases and cancer, Dr. Dalesandro played a key role in the development of Remicade, the first anti-TNF alpha antibody developed for autoimmune disease and ReoPro for the prevention of myocardial ischemia. She also 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 and the University of Pennsylvania.. Dr. Dalesandro’s extensive experience with life science and technology companies gives her the qualifications and skills necessary to serve as a director of the Company. 66 Dr. Deborah Charych. Dr. Deborah Charych is currently a member of the Board and has served as a member since February 2023. From October 2018 to September 2022, Dr. Charych has served as the Co-Founder, Chief Technology Officer, and Advisor of RayzeBio, Inc, an oncology company focused on the targeted delivery of radionuclides. Dr. Charych conceived and led the scientific and operational R&D strategy for RayzeBio, recently acquired by BMS for $4.1 billion, leading a successful Series A financing and launch in August 2020, as well as subsequent Series B, C, and D rounds. Prior to launching RayzeBio, Dr. Charych held a number of scientific leadership positions in biotech focused on translational drug development. From 2017 to 2019, she founded Third Rock Ventures, creating new biotech companies based on strong science, co-founding Maze Therapeutics, which focuses on harnessing the power of human genetics, functional genomics, and data science to advance our understanding of how to more effectively treat patients with severe rare and common diseases. From 2010 to 2018, Dr. Charych served as Executive Director of Preclinical and Translational Research at Nektar Therapeutics, conceiving of and leading the pre-clinical and early clinical development of an immuno-oncology pipeline with NKTR-214 and NKTR-358, next-generation IL-2 receptor agonists, which are currently in Phase 3 oncology and Phase 2 autoimmune clinical trials. At FivePrime Therapeutics from 2007 to 2010, Dr. Charych was the Director of Biologics Process Development/CMC/Protein Chemistry, leading a team that contributed to the clinical development of novel biologics for pan-FGF and CSF1 antagonist antibodies for oncology and immunology diseases. From 1998 to 2006, while at Chiron Corporation, she initiated and led a large proteomics effort to guide oncology target discovery, including the discovery of peptide-mimetic binders ('peptoids'). During her time at Lawrence Berkeley National Laboratory from 1993 to 1998, she assumed an academic leadership role as a tenured Principal Investigator, focusing on new biomaterials. Dr. Charych earned a PhD in Physical Chemistry from the University of California in Berkeley, CA and a B.S. in Chemistry from Carnegie-Mellon University in Pittsburgh, PA. Dr. Charych’s education and significant experience with a wide variety of life science companies give her the qualifications and skills necessary to serve as a director of the Company. Dr. Praveen Tyle. Dr Tyle is currently the Founder of Potens Pharmaceuticals, which is focussed on helping companies develop drug development programs with speed to market. Dr. Praveen Tyle is currently a member of the Board and has served as a member since July 2021. Since 2006, Dr. Tyle has served as a member of the board at Kiora Pharmaceuticals, a pharmaceutical company that develops therapies for the treatment of eye diseases (NASDAQ: KPRX) and currently serves as its Chairman and since 2003, he has served as a member of the board at Orient Europharma Co., Ltd., a pharmaceutical company operating primarily in Asia and producing a wide range of prescription drugs and nutrition products. Since 2021, Dr. Tyle has served as President, Chief Executive Officer, and Director of Invectys, Inc., a clinical-stage biopharmaceutical company founded from the world-renowned Pasteur Institute and focused on the development of innovative immunotherapy approaches to treat cancers. From 2016 to 2021, he was Executive Vice President of Research and Development at Lexicon Pharmaceuticals, Inc., a pharmaceutical company whose genetic approach to drug development is based on Nobel Prize-winning technology (NASDAQ: LXRX). From 2013 to 2016, he served as President, Chief Executive Officer, and Director of Osmotica Holdings (Cyprus & Osmotica Pharmaceutical), a company focusing on central nervous system drug development. From 2011 to 2012, Dr. Tyle was the Executive Vice President and Chief Scientific Officer of United States Pharmacopeia, an independent scientific nonprofit organization focused on building trust in the supply of safe, quality medicines. From 2008 to 2010, Dr. Tyle served as Senior Vice President and Global Head of Business Development and Licensing and Global Head of Research and Development at Novartis OTC, a pharmaceutical company that produces both patented and generic product on a global scale (NYSE: NVS). Earlier in his career, from 2004 to 2008, he was Corporate Senior Vice President and Chief Scientific Officer at Bausch + Lomb Corporation, a company specializing in eye care and whose products and innovations range from pharmaceuticals, lenses, and diagnostic and surgical tools (NYSE: BLCO / TSX: BLCO). Since 2005, Dr. Tyle has served as an Adjunct Associate Professor of Ophthalmology at the University of Rochester Eye Institute Medical Center, among other current and past academic roles. He has coauthored over 100 peer-reviewed academic papers and presentations and is named on multiple patents, including those related to ophthalmic innovations, drug delivery, and glaucoma. Dr. Tyle earned his B.Pharm. from Banaras Hindu University in India and received his PhD in Pharmaceutics & Pharmaceutical Chemistry from Ohio State University. Dr. Tyle's significant contributions in the field of ophthalmology and extensive experience with life science companies give him the qualifications and skills necessary to serve as a director of the Company. 67 Dr. Keith Ward. Dr. Keith Ward is currently a member of the Board and has served as a member since December 2021. Dr. Ward is a life sciences executive with over twenty-five years of experience in the biotech and pharmaceutical industry. In 2022, Dr. Ward co-founded Kuria Therapeutics, a private pharmaceutical company developing novel ophthalmic and dermal therapeutics, where he currently serves as President and Chief Executive Officer. Since 2019, Dr. Ward has also served 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 B.S. 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. 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. Andy Schwab. Andrew Schwab is a Founding Partner and Managing Member of 5AM Venture Management, LLC, a venture capital firm focused on life science investments founded in 2002. Mr. Schwab was previously a Principal at Bay City Capital, a life sciences investment firm, where he was involved with companies such as Cubist Pharmaceuticals, Inc., PTC Therapeutics, Inc., Symyx Technologies, Inc. and Syrrx, Inc. Previously, Mr. Schwab was Vice President of Business Development at Digital Gene Technologies, Inc., and a Vice President in the life science investment banking group of Montgomery Securities. At 5AM, Mr. Schwab has led the firm’s investments in and currently serves on the Board of Directors of Skye Bioscience, Inc. (formerly Bird Rock Bio, Inc.), Camp4 Therapeutics Corporation, Escient Pharmaceuticals, Inc., Fellow Health, Inc., Novome Biotechnologies, Inc., Radionetics Oncology, Inc., Rarecyte, Inc., Scientist.com, and TMRW Life Sciences, Inc. Mr. Schwab previously served on the Board of Directors of various companies, including BlueLight Therapeutics, Inc, Cleave Therapeutics, Inc., DVS Sciences, Inc. (which was acquired by Fluidigm Corporation), Enliven Therapeutics, Inc., Flexion Therapeutics, Inc., Ikaria, Inc. (which was acquired by Mallinckrodt plc and spun out Bellerophon Therapeutics, Inc.), Ilypsa, Inc. (which was acquired by Amgen, Inc.), Miikana Therapeutics, Inc. (which was acquired by EntreMed, Inc.), Panomics Inc. (which was acquired by Affymetrix, Inc.), Pear Therapeutics, Inc., Precision NanoSystems, Inc. (which was acquired by Danaher Corporation), Purigen Biosystems, Inc., Synosia Therapeutics Holding AG (which was acquired by Biotie Therapies Corp.), Viveve Medical, Inc., and 5:01 Acquisition Corp. Mr. Schwab also currently serves on the boards of trustees of the California Academy of Sciences and Davidson College. He holds a B.S. degree with Honors in Genetics & Ethics from Davidson College. Mr. Schwab’s extensive experience in the biotechnology industry give him the qualifications and skills necessary to serve as a director of the Company. Paul Grayson. Paul Grayson has served as President and Chief Executive Officer of Radionetics Oncology, a clinical stage biotechnology company focused on novel radiopharmaceutical products, since November 2023. From July 2020 to November 2023 President and Chief Executive Officer of Tentarix Biotherapeutics Inc., a biotechnology company, and as President and Chief Executive Officer of Bird Rock Bio, Inc., a clinical stage biopharmaceutical company, from June 2011 until its acquisition by the Company. From November 2019 to July 2020, Mr. Grayson also served as a partner at Versant Ventures, a venture capital firm. Mr. Grayson currently serves on the board of directors of Radionetics Oncology. He received a Bachelor of Arts in Biochemistry and Computer Science from the University of California, Los Angeles and a Master of Business Administration from the University of California, Irvine. Mr. Grayson’s extensive experience in the biotechnology industry give him the qualifications and skills necessary to serve as a director of the Company. Annalisa Jenkins. Dr. Annalisa Jenkins is currently a member of the Board and has served as a member since March 2024. From November 2017 until April 2019, Dr. Jenkins served as the President and Chief Executive Officer of PlaqueTec Ltd., a biotechnology company focusing on coronary artery disease treatment and prevention. Previously, Dr. Jenkins served as the President and Chief Executive Officer and a member of the board of directors of Dimension Therapeutics, Inc., a biotechnology company focused on rare and metabolic diseases associated with the liver, from September 2014 until its sale to Ultragenyx Pharmaceutical Inc. in November 2017. Dr. Jenkins also serves on the board of directors of many public companies, including Avrobio, Inc. (Nasdaq: AVRO), Affimed N.V. (Nasdaq: AFMD), Compass Pathways (Nasdaq: CMPS), Mereo Biopharma Group plc (Nasdaq: MREO), and a number of privately held biotechnology and life science companies, and serves as a trustee to a number of non-profit organizations. Dr. Jenkins previously served on the board of numerous biotechnology and life science companies, including AgeX Therapeutics, Inc. (NYSE American: AGE), Silence Therapeutics, Ardelyx, Inc., OncoSec Medical Incorporated, and Sensyne Health plc., and she served as a committee member of the science board to the FDA, which advised leadership on complex scientific and technical issues. Dr. Jenkins also previously held leadership roles at Merck Serono Pharmaceuticals as Head of Global Research and Development, and at Bristol-Myers Squibb as Senior Vice President and Head of Global Medical Affairs. Dr. Jenkins graduated with a degree in medicine from St. Bartholomew’s Hospital in the University of London and subsequently trained in cardiovascular medicine in the UK National Health Service. Earlier in her career, Dr. Jenkins served as a medical officer in the British Royal Navy. Dr. Jenkins significant industry experience and training give her the qualifications and skills necessary to serve as a director of the Company. 68 Section 16(a) Beneficial Ownership Reporting Compliance Section 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, 2023, 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 2023, our Board met eight times (including telephonic meetings) and took action by written consent twenty-two 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. During 2023, our Board met by special committee eleven times (including telephonic meetings) and took action by written consent two times as a result of the special committee meetings. 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. Charych, Andy Schwab, Paul Grayson and Dr. Annalisa Jenkins who were elected as directors in 2023 and 2024 - attended our most recent meeting of stockholders in 2022. Audit Committee and Financial Expert Our Audit Committee is composed of Dr. Keith Ward, Dr. Margaret Dalesandro and Dr. Praveen Tyle. Dr. Ward is the chairperson of our Audit Committee. Dr. Keith Ward, Dr. Margaret Dalesandro and Dr. Praveen Tyle meet the requirements for independence for audit committee members under the SEC rules and regulations. Each member of our Audit Committee is financially literate. In addition, our board has determined that Dr. Ward is an “audit committee financial expert” as defined in applicable SEC rules. This designation does not impose any duties, obligations, or liabilities that are greater than are generally imposed on members of our Audit Committee and our Board. Our Audit Committee is responsible for, among other things: our accounting and financial reporting processes, including our financial statement audits and the integrity of our financial statements; our compliance with legal and regulatory requirements; reviewing and approving related party transactions; selecting and hiring our registered independent public accounting firm; the qualifications, independence and performance of our independent registered public accountants; and the preparation of the audit committee report to be included in our annual proxy statement. During the fiscal year ended December 31, 2023, the Audit Committee met five times. Compensation Committee Our Compensation Committee is composed of Dr. Praveen Tyle, Dr. Margaret Dalesandro and Dr. Annalisa Jenkins. Dr. Praveen Tyle is the chairperson of our Compensation Committee. The composition of our Composition Committee meets the requirements for independence under the SEC rules and regulations. Our Compensation Committee is responsible for, among other things: evaluating, recommending, approving and reviewing executive officer compensation arrangements, plans, policies and programs; administering our cash-based and equity-based compensation plans; and making recommendations to the Board regarding any other Board responsibilities relating to executive compensation. During the fiscal year ended December 31, 2023, the Compensation Committee met five times. 69 Nomination and Corporate Governance Committee Our Nominating and Corporate Governance Committee is composed of Dr. Margaret Dalesandro, Dr. Praveen Tyle, Dr. Keith Ward, Dr. Annalisa Jenkins and Dr. Deborah Charych. Dr. Charych is the chairperson of our Nominating and Corporate Governance Committee. The composition of our Nominating and Corporate Governance Committee meets the requirements for independence under the SEC rules and regulations. Our Nominating and Corporate Governance Committee is responsible for, among other things: identifying, considering and recommending candidates for membership on our Board; overseeing the process of evaluating the performance of our Board; and advising our Board on other corporate governance matters. During the fiscal year ended December 31, 2023, the Nominating and Corporate Governance Committee met five times. 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. Code of Ethics The Board has established a formal code of business conduct and ethics that applies to our officers, directors and employees. Any amendment or waiver disclosed on our website will remain available on our website for at least 12 months after the initial disclosure. Any waiver of the code of business conduct and ethics for our executive officers or directors must be approved by the Board, and any such waiver shall be promptly disclosed to the stockholders. Insider Trading Policy We maintain a Policy on Insider Trading and Insider Information that prohibits our officers, directors and employees from purchasing or selling any type of security while in possession of material, non-public information relating to the security, whether the issuer of such security is the Company or any other company. Additionally, no officer, director or employee shall purchase or sell any security of the Company during the period beginning on the 15th calendar day of the last month of each fiscal quarter of the Company and ending upon completion of the second full trading day after the public release of earnings data for such fiscal quarter or during any other trading suspension period declared by the Company. It prohibits officers, directors, or employees from pledging our stock as collateral to secure loans and from engaging in hedging transactions, including zero-cost collars and forward sale contracts. It further prohibits margin purchases of our stock, short sales of our stock, and any transactions in puts, calls or other derivative securities involving our stock. Availability of Corporate Governance Materials Stockholders may view our corporate governance materials, including the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee and our Code of Business Conduct and Ethics, on our website at www.skyebioscience.com under “Governance” on the “Investors” page, and these documents are available in print to any stockholder who sends a written request to such effect to Skye Bioscience, Inc., 11250 El Camino Real, Suite 100, San Diego, CA 92130, Attention: Corporate Secretary. Information on or accessible from our website is not and should not be considered a part of this Annual Report on Form 10-K. 70 Item 11. Executive Compensation . The Company effected a reverse stock split at a ratio of one-for-two hundred and fifty (1-for-250) effective September 8, 2023 (the “Reverse Stock Split”). All share amounts and exercise prices included herein have been adjusted to reflect the Reverse Stock Split. 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, 2023 and 2022 of our named executive officers as determined in accordance with SEC rules. SUMMARY COMPENSATION TABLE Name and Principal Position Year Salary ($) Bonus ($) (2) Stock Awards ($) (1) Option Awards ($) (1) Non-Equity Incentive Plan Compensation ($) Total ($) Punit Dhillon 2023 450,000 — 994,364 92,974 270,000 1,807,338 CEO 2022 432,577 74,000 — — 161,904 668,481 Kaitlyn Arsenault 2023 340,000 — 656,234 138,056 136,000 1,270,290 Chief Financial Officer 2022 325,856 55,500 — — 87,731 469,087 ___________ (1) Amounts reflect the full grant date fair value of RSUs, computed in accordance with ASC Topic 718 - Stock based compensation , rather than the amounts paid to or realized by the named executive officers. The valuation assumptions used in the valuation of options and RSUs may be found in Note 2 to our financial statements included in this annual report on Form 10-K for the year ended December 31, 2023. The amount reported is also the amount that would be reported assuming the highest level of performance conditions are achieved. The restricted stock units vest upon achievement of the following performance milestones, subject to continued services to the Company through the applicable vesting date: an incremental 25% of the restricted stock units vest upon the Company achieving a market capitalization of $125 million, $250 million, $400 million, respectively, and an additional 25% vests if the Company achieves a value of $500 million or greater at an exit event. If the Company achieves an exit value greater than $500 million at an earlier date, subject to the executive’s continued services with the Company through such exit event, all of the restricted stock units will vest. No restricted stock units will vest until the compensation committee of the Company determines that shares can be sold into the market to cover withholding tax obligations associated with the vesting of the restricted stock units. As of December 31, 2023, no market capitalization milestone was achieved and no restricted stock units were vested. Amounts reflect the full grant date fair value of stock options, computed in accordance with ASC Topic 718 - Stock based compensation , rather than the amounts paid to or realized by the named executive officers. The value of stock option awards was estimated using the Black-Scholes option pricing model. The valuation assumptions used in the valuation of options and restricted stock units may be found in Note 2 to our financial statements included in this annual report on Form 10-K for the year ended December 31, 2023. (2) Amounts reflect the cash bonuses earned by our named executive officers for performance of services in 2023 and 2022. Bonuses were based upon achievement of corporate performance goals as determined by the Board. Narrative Disclosure to Summary Compensation Table Our compensation committee has historically determined the compensation of our named executive officers. Our compensation committee typically reviews and discusses management’s proposed compensation with the Chief Executive Officer for all executives other than the Chief Executive Officer. Based on those discussions and its discretion, the compensation committee then approves the compensation of each executive officer after discussions without members of management present. 71 Base Salary Base salaries for our named executive officers are initially established through arm’s-length negotiations at the time of the executive officer’s hiring, taking into account such executive officer’s qualifications, experience, the scope of his or her responsibilities and competitive market compensation paid by other companies for similar positions within the industry and geography. Annual base salaries are intended to provide a fixed component of compensation to our named executive officers, reflecting their skill sets, experience, roles and responsibilities. Base salaries are reviewed, determined, and approved periodically, typically in connection with our annual performance review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. The annualized 2023 base salaries for our named executive officers were as follows: (i) $450,000 for Mr. Dhillon and (ii) $340,000 for Ms. Arsenault. Annual Performance-Based Compensation In addition to base salaries, our named executive officers are eligible to receive annual performance-based bonuses, which are designed to provide appropriate incentives to our executive officers to achieve annual performance goals and to reward them for achievement towards these goals. Performance based milestones are approved by the board at the beginning of the year and executive officers are assessed against these performance-based milestones subsequent to year end. With respect to 2023, our compensation committee awarded a bonus of $161,904 to Mr. Dhillon, a bonus of $87,731 to Ms. Arsenault. Please see “Employment and Severance Agreements —Employment Agreements” below for additional information. Equity Incentives We believe that our ability to grant equity-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees, consultants and directors with the financial interests of our shareholders. Our compensation committee periodically reviews the equity incentive compensation of our executive officers, including our named executive officers, and from time to time may grant equity incentive awards to them. In August 2023, we completed the acquisition of Bird Rock Bio, Inc. and closed a concurrent private placement financing and a convertible note financing. Following the completion of the transaction, our compensation committee, and its advisors undertook a review of the compensation of our executive officers, directors and employees. Following such review, on August 25, 2023, we granted each of Mr. Dhillon and Ms. Arsenault (i) an option to purchase 9,013 and 13,383 shares of our common stock, respectively, at an exercise price per share of $3.50 and (ii) a contingent option award to, purchase 21,586 and 32,053 shares of our common stock, respectively, at an exercise price per share of $3.50, subject to the approval of an amendment to our Amended and Restated 2014 Omnibus Incentive Plan (the “A&R 2014 Incentive Plan”) to increase the number of shares authorized for issuance under the A&R 2014 Incentive Plan (the “Plan Amendment”). On September 29, 2023 holders of a majority of the voting power of the outstanding capital stock of the Company (the “Majority Stockholders”) and the Board approved the Plan Amendment. These options vest in equal monthly installments over four years, subject to continued services to the Company through the applicable vesting date. If a change in control occurs, 100% of such options will become fully vested. Additionally, on August 25, 2023, we granted each of Mr. Dhillon and Ms. Arsenault (i) performance-based RSUs covering 81,110 and 53,529 shares of our common stock, respectively, and (ii) contingent performance-based RSUs covering 194,270 and 128,209 shares of our common stock, respectively, subject to approval of the Plan Amendment, which was approved by the Majority Stockholders and the Board on September 29, 2023. These RSUs vest upon achievement of the f ollowing performance milestones, subject to continued services to the Company through the applicable vesting date: 25% of the restricted stock units vest upon the Company achieving a market capitalization of $125 million, $250 million, $400 million, respectively, and an additional 25% vests if the Company achieves a value of $500 million or greater at an exit event. If the Company achieves an exit value greater than $500 million at an earlier date, subject to the executive’s continued services with the Company through such exit event, all of the RSUs will vest. No RSUs will vest until the compensation committee of the Company determines that shares can be sold into the market to cover withholding tax obligations associated with the vesting of the restricted stock units. As of December 31, 2023, no market capitalization milestone was achieved and no restricted stock units were vested. For additional information, please see below under “ Outstanding Equity Awards at Fiscal Year End .” 72 Employment and Severance Arrangements Employment Agreement with Punit Dhillon On August 7, 2020, we entered into an employment agreement with Mr. 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 50% of his base salary based on Mr. Dhillon’s achievement of annual corporate milestones agreed to by the Board. Effective June 1, 2022, Mr. Dhillon's annual base salary was increased to $450,000 per year and his annual discretionary bonus eligibility was increased to 60% of his base salary. Mr. Dhillon also receives the normal benefits available to other similarly situated executives and will be entitled to severance pay under the circumstances described below. Mr. Dhillon’s employment with the Company is at-will. The employment agreement provides that, except for a termination of Mr. Dhillon’s employment for “Cause,” “By Death”, “By Disability” (as such terms are defined in his employment agreement), Mr. Dhillon is entitled to a severance payment equal to 24 months of his then current base salary, less applicable statutory deductions and withholdings if terminated by the Company. Employment Agreement with Kaitlyn Arsenault On October 4, 2021, we entered into an employment agreement with Ms. 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 35% of her base salary based in part on Ms. Arsenault’s achievement of milestones agreed to by the Board. Effective June 1, 2022, Ms. Arsenault’s annual base salary was increased to $340,000 per year and her annual discretionary bonus eligibility was increased to 40% of her base salary. Ms. Arsenault also receives 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. The employment agreement provides that, except for a termination of Ms. Arsenault’s employment for “Cause,” “By Death” or “By Disability” (as such terms are defined in her employment agreement), (a) in the event that following a “Change of Control” (as defined in the Company's Amended and Restated 2014 Omnibus Incentive Plan) Ms. Arsenault’s employment is terminated by the Company, she will be entitled to a severance payment equal to 12 months of her then current base salary less applicable statutory deductions and withholdings, and (b) in the event that prior to a Change of Control, Ms. Arsenault’s employment is terminated by the Company, she would be entitled to a severance payment equal to (i) 6 months of her then current base salary, less applicable statutory deductions and withholdings, if such termination were to occur before April 4, 2023, (ii) 9 months of her then current base salary, less applicable statutory deductions and withholdings, if such termination were to occur on or after April 4, 2023 and before October 4, 2024, and (iii) 12 months of her then current base salary, less applicable statutory deductions and withholdings, if such termination were to occur on or after October 4, 2024. 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. 73 Outstanding Equity Awards at Fiscal Year-end As of December 31, 2023, 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 or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) (1) Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Market or Payout Value Of Unearned Shares, Units or Other Rights That Have Not Vested ($) Punit Dhillon, 10/10/2018 (2) 800 — 76.25 10/10/2028 CEO/Chairman 8/7/2020 (3) 25,200 10,800 11.25 8/7/2030 12/14/2021 (4) 6,180 6,180 14.50 12/14/2031 12/14/2021 (5) 2,667 7,254 8/25/2023 (8) 752 8,261 3.50 8/25/2033 9/29/2023 (8) 1,798 19,788 3.50 9/29/2033 8/25/2023 (9) 81,110 220,619 9/29/2023 (9) 194,270 528,414 Kaitlyn Arsenault 9/15/2021 (6) 880 720 30.00 9/15/2031 CFO 10/4/2021 (7) 3,520 2,880 22.50 10/4/2031 12/14/2021 (4) 3,540 3,540 14.50 12/14/2031 12/14/2021 (5) 1,333 3,626 8/25/2023 (8) 1,116 12,267 3.50 8/25/2033 9/29/2023 (8) 2,671 28,159 3.50 9/29/2033 8/25/2023 (9) 53,529 145,599 9/29/2023 (9) 128,209 348,728 (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, 2023. (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. (8) The options specified above vest as follows: monthly on the grant date thereafter over four years. 74 (9) The restricted stock units vest on the following performance milestones: an incremental 25% of the RSUs vest upon the Company achieving a market capitalization of $125 million, $250 million, $400 million, respectively, and an additional 25% vests if the Company achieves a value of $500 million or greater at an exit event. If the Company achieves an exit value greater than $500 million at an earlier date, subject to the executive’s continued services with the Company through such exit event, all of the RSUs will vest. No RSUs shall vest until the compensation committee of the Company determines that shares can be sold into the market to cover withholding tax obligations associated with the vesting of the restricted stock units. As of December 31, 2023, no market capitalization milestone was achieved and no RSUs were vested. Exercises of Options There were no exercises of stock options by our named executive officers during the year ended December 31, 2023. Director Compensation As of December 31, 2023, 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 20,000 stock options which vest in twelve equal monthly installments. In subsequent annual periods, each non-employee director receives a grant of 20,000 stock options which vest in twelve equal monthly installments. Non-employee directors who serve as members of special committees of the Board receive additional compensation as follows: • Audit Committee: $10,000 per year ($20,000 for the chair) • Compensation Committee: $3,500 per year ($10,000 for the chair) • Nominating and Corporate Governance Committee: $2,500 per year ($5,000 for the chair) On January 5, 2023, each of Drs. Dalesandro, Tyle, and Ward received 1,000 options, and on February 14, 2023, Dr. Charych received 1,000 options, which options vest monthly over 12 months. These grants were made in consideration of their service as a director of the Company for the year ended December 31, 2022 and were consistent with the non-employee director compensation policy in place at the time of the grant. On August 25, 2023, each director other than Mr. Grayson received an annual grant of 20,000 stock options, which vest monthly over 12 months. These grants were made in consideration of their service as a director of the Company for the year ended December 31, 2023 and were consistent with the non-employee director compensation policy as of December 31, 2023. In connection with Mr. Grayson’s appointment to the Board and in recognition of his skills, experience and future contributions to the Company, the Company paid Mr. Grayson a cash bonus of $350,000 on September 18, 2023. In addition, in recognition of his skills, experience and future contributions to the Company, on August 25, 2023, we granted Mr. Grayson performance-based RSUs covering 72,531 shares of our common stock and contingent performance-based RSUs covering 173,721 shares of our common stock, subject to approval of the Plan Amendment, which was approved by the Majority Stockholders and the Board on September 29, 2023. The restricted stock units vest on the following milestones: 25% of the restricted stock units vest upon the Company achieving a market capitalization of $125 million, $250 million, $400 million, respectively, and an additional 25% vests if the Company achieves a value of $500 million or greater at an exit even or greater at an exit event. If the Company achieves an exit value greater than $500 million at an earlier date, subject to Mr. Grayson’s continued services with the Company through such exit event, all of the restricted stock units will vest. No restricted stock units will vest until the compensation committee of the Company determines that shares can be sold into the market to cover withholding tax obligations associated with the vesting of the restricted stock units. As of December 31, 2023, no market capitalization milestone was achieved and no RSUs were vested. 75 The table below summarizes the compensation paid by us to our non-employee directors for the year ended December 31, 2023. Mr. Dhillon, our employee director, does not receive additional compensation for his services as a member of our Board: DIRECTOR COMPENSATION Name Fees Earned or Paid in Cash ($) Stock Awards ($) (1) Option Awards ($) (1) Total ($) Margaret Dalesandro 54,516 — 61,842 (2) 116,358 Praveen Tyle 58,184 — 61,842 (3) 120,026 Keith Ward 61,504 — 61,842 (4) 123,346 Deborah Charych 35,688 — 66,592 (5) 102,280 Andy Schwab 15,988 — 58,092 (6) 74,080 Paul Grayson 364,731 (8) 889,458 — (7) 1,254,189 (1) The amounts reported under "Stock Awards" and “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 8 to our financial statements included in this annual report on Form 10-K for the year ended December 31, 2023. The annual Board member grants for the year ended December 31, 2023, were granted on August 25, 2023. As of December 31, 2023, each non-employee director is entitled to an annual grant of 20,000 common stock options, all of which vest in twelve equal monthly installments. (2) The aggregate number of shares issuable upon exercise of option awards outstanding on December 31, 2023 for Dr. Dalesandro was 22,601, of which 9,267 were fully vested. (3) The aggregate number of shares issuable upon exercise of option awards outstanding at December 31, 2023 for Dr. Tyle was 22,101, of which 8,767 were fully vested. (4) The aggregate number of shares issuable upon exercise of option awards outstanding at December 31, 2023 for Dr. Ward was 22,001, of which 8,667 were fully vested. (5) The aggregate number of shares issuable upon exercise of option awards outstanding at December 31, 2023 for Dr. Charych was 21,001, of which 7,501 were fully vested. (6) The aggregate number of shares issuable upon exercise of option awards outstanding at December 31, 2023 for Mr. Schwab was 20,001, of which 6,667 were fully vested. (7) As of December 31, 2023, Mr. Grayson had 246,252 restricted stock units with market and performance based vesting conditions. The restricted stock units vest on the following milestones: 25% of the restricted stock units vest upon the Company achieving a market capitalization of $125 million, $250 million, $400 million, respectively, and an additional 25% vests if the Company achieves a value of $500 million or greater at an exit event. If the Company achieves an exit value greater than $500 million at an earlier date, subject to Mr. Grayson’s continued services with the Company through such exit event, all of the restricted stock units will vest. No restricted stock units will vest until the compensation committee of the Company determines that shares can be sold into the market to cover withholding tax obligations associated with the vesting of the restricted stock units. As of December 31, 2023, no market capitalization milestone was achieved and no restricted stock units were vested. (8) Amount includes the prorated annual cash retainer that Mr. Grayson received for his service from August 18, 2023 to December 31, 2023 and a cash bonus of $350,000 in connection with Mr. Grayson’s appointment to the Board and in recognition of his skills, experience and future contributions to the Company. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Securities Authorized for Issuance under Equity Compensation Plans 76 The table below includes the following information as of December 31, 2023 for the Company’s 2014 Amended and Restated Omnibus Incentive Plan (the “2014 Amended and Restated Plan”). Shares available for issuance under the 2014 Amended and Restated 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 Amended and Restated Plan, refer to Note 8 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 2014 Amended and Restated Omnibus Incentive Plan 1,346,075 $ 8.96 487,672 2022 Employee Stock Purchase Plan — — 112,000 Equity compensation plans not approved by security holders — — — Total 1,346,075 $ — 599,672 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 20, 2024, 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. 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 or vesting of an RSU) 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 28,062,907 shares of our common stock issued and outstanding on March 20, 2024. 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. 77 Name and Address of Beneficial Owner Beneficial Ownership Percent of Class More than 5% Beneficial Owners Entities affiliated with 5am Ventures 11,884,898 (1) 40.29 % Entities affiliated with Versant Ventures III LLC. 2,530,950 (2) 8.86 % Altium Growth Fund, L.P. 1,801,518 (3) 6.42 % Entities affiliated with Sphera Global Healthcare Management L.P. 1,501,518 (4) 5.35 % Named Executive Officers and Directors Punit Dhillon 289,780 (5) 1.02 % Kaitlyn Arsenault, CPA 159,066 (6) *% Tuan Tu Diep 76,997 (7) *% Dr. Margaret Dalesandro 21,767 (8) *% Dr. Praveen Tyle 21,267 (9) *% Dr. Keith Ward 21,167 (10) *% Dr. Deborah Charych 20,167 (11) *% Andrew Schwab 19,167 (12) *% Paul Grayson 190,522 (13) *% Dr. Annalisa Jenkins 6,667 (14) *% All executive officers and directors as a group (10 persons) 826,567 2.9 % _________ *Denotes beneficial ownership of less than 1% of our outstanding shares of common stock. (1) Based on a Schedule 13D/A filed with the SEC on March 13, 2024, which reported that the beneficial ownership includes (i) 8,393,520 shares of Common Stock held by 5AM Ventures VII L.P. (“Ventures VII”) and (ii) 1,705,393 shares of Common Stock issuable upon exercise of warrants held by Ventures VII that are currently exercisable, (iii) 1,718,189 shares of Common Stock held by 5AM Ventures II, L.P. (“Ventures II”) and (iv) 67,796 shares held by 5AM Co-Investors II, L.P. (“Co-Investors II”). 5AM Partners VII, LLC (“Partners VII”) serves as sole general partner of Ventures VII and shares voting and dispositive power over the securities held by Ventures VII. 5AM Partners II, LLC (“Partners II”) serves as sole general partner of Ventures II and Co-Investors II. Andrew J. Schwab, Dr. Kush Parmar, Dr. John D. Diekman are managing members of Partners II. Each of Partners II, Andrew J. Schwab, Dr. Kush Parmar, Dr. John D. Diekman shares voting and dispositive power over the securities held by Ventures II and Co-Investors II. Andrew J. Schwab, one of our directors, is an affiliate of Ventures VII, Ventures II, and Co-Investors II. Each of Partners VII, Partners II, Andrew J. Schwab, Dr. Kush Parmar, Dr. John D. Diekman disclaim beneficial ownership of such shares except to the extent of its or their pecuniary interest therein. The address of all entities affiliated with Ventures VII is c/o 5AM Ventures, 501 2nd Street, Suite 350, San Francisco, CA 94107. (2) Based on a Schedule 13G filed with the SEC on August 28, 2023, which reported that the beneficial ownership includes (i) 1,995,916 shares of Common Stock held by Versant Venture Capital III, L.P. (“Versant III”), (ii) 520,173 shares of Common Stock issuable upon exercise of warrants held by Versant Venture Capital III, L.P. that are currently exercisable, (iii) 11,788 shares of Common Stock held by Versant Side Fund III, L.P. (“Side Fund III”) and (iv) 3,073 shares of Common Stock issuable upon exercise of warrants held by Side Fund III that are currently exercisable. Versant Ventures III, LLC (“Versant Ventures III”) is the sole general partner of Versant III and Side Fund III. Versant Ventures III shares voting and investment power over the securities held by Versant III and Side Fund III and as a result may be deemed to have beneficial ownership over such securities. The address of all entities affiliated with Ventures III is c/o Versant Ventures, One Sansome Street, Suite 1650, San Francisco, CA 94104. (3) Based on a Schedule 13G filed with the SEC on February 5, 2024 and other information available to the Company. Consists of 1,801,518 shares of common stock held by Altium Growth Fund, LP. Altium Capital Management, LP, the investment manager of Altium Growth Fund, LP, has voting and investment power over these securities. Jacob Gottlieb is the managing member of Altium Capital Growth GP, LLC, which is the general partner of Altium Growth Fund, LP. Each of Altium Growth Fund, LP and Jacob Gottlieb disclaims beneficial ownership over these securities. The principal address of Altium Capital Management, LP is 152 West 57th Street, 20th Floor, New York, NY. 78 (4) Based on a Schedule 13G filed with the SEC on February 8, 2024 and other information available to the Company. Consists of (i) 256,920 shares of Common Stock are held directly by Sphera Global Healthcare Master Fund, which has delegated its investment management authority to Sphera Global Healthcare Management LP (the "Management Company") and (ii) 1,244,598 shares of common stock are held directly by Sphera Biotech Master Fund, L.P., which has delegated its investment management authority to the Management Company. The Management Company is managed, controlled, and operated by its general partner, Sphera Global Healthcare GP Ltd., the shares of which are owned 90% by Sphera Funds Management Ltd. Their business address is 4 Itzak Sade, Building A, 29th Floor, Tel Aviv 6777504, Israel. (5) Includes (i) 9,343 shares of common stock held by a family trust of which Mr. Dhillon is the trustee, (ii) 18,961 shares of common stock held directly by Mr. Dhillon, (iii) 1,326 shares of common stock issuable upon exercise of warrants, (iv) includes 53,616 and 206,534 shares of common stock underlying options and RSUs, respectively, that may be exercised within 60 days of March 20, 2024. (6) Includes 20,096 and 136,303 shares of common stock underlying options and RSUs, respectively,that may be exercised within 60 days of March 20, 2024. (7) Includes 19,706 and 54,624 shares of common stock underlying options and RSUs, respectively, that may be exercised within 60 days of March 20, 2024. (8) Includes 21,767 shares of common stock underlying options that may be exercised within 60 days of March 20, 2024. (9) Includes 21,267 shares of common stock underlying options that may be exercised within 60 days of March 20, 2024. (10) Includes21,167 shares of common stock underlying options that may be exercised within 60 days of March 20, 2024. (11) Includes 20,167 shares of common stock underlying options that may be exercised within 60 days of March 20, 2024. (12) Includes 19,167 shares of common stock underlying options that may be exercised within 60 days of March 20, 2024. (13) Includes 5,833 and 184,689 shares of common stock underlying options and RSUs, respectively, that may be exercised within 60 days of March 20, 2024. (14) Includes 6,667 shares of common stock underlying options that may be exercised within 60 days of March 20, 2024. 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, 2023 and 2022, and in which any related person had or will have a direct or indirect material interest. Compensation arrangements for our directors and Named Executive Officers are described in Item 11 of this Form 10-K under the section entitled "Executive Compensation." 79 Emerald Health Sciences On October 5, 2018, we entered into a multi-draw credit agreement with Emerald Health Sciences, Inc. (“Sciences”), who was previously a beneficial holder of more than 5% of our capital stock, for an unsecured credit facility of up to $20,000,000 (as amended or restated from time to time, the “Credit Agreement”). On November 17, 2022, we entered into an amendment to the Credit Agreement (the “November 2022 Amendment”), pursuant to which we prepaid outstanding principal amount under the Credit Agreement, equal to $616,125, plus outstanding accrued interest of $328,737 and extended the maturity date for the loan underlying the Credit Agreement. In addition, pursuant to the November 2022 Amendment, we agreed to amend the exercise price of all of the warrants to purchase Company common stock held by Sciences to $4.25 per share. On February 16, 2023, the Company and Sciences entered in a master transaction agreement (the “Master Transaction Agreement”) pursuant to which Sciences agreed to exercise 66,566 warrants to purchase common stock of the Company (the “Warrants”) and the parties agreed that the aggregate exercise price for the Warrants of $282,906 was to be paid through a reduction in the debt owed by the Company to Sciences (the “Credit Consideration”) under the Credit Agreement. Pursuant to the terms of the Master Transaction Agreement, after the application of the Credit Consideration to the amounts owed under the Credit Agreement, Sciences agreed to convert the remaining balance of $1,597,236 owed under the Credit Agreement into 165,517 shares of common stock of the Company at a conversion price of $9.65. Following the issuance of the shares described above, the Credit Agreement was terminated in its entirety. During the periods ended December 31, 2023 and December 31, 2022, the Company paid to Sciences nil and $616,125 in principal and interest under the Credit Agreement. On December 14, 2022, the Company and Sciences entered into a piggyback registration rights agreement pursuant to which, among other things, the Company agreed to provide registration rights for the shares of common stock underlying the warrants to purchase Company common stock held by Sciences should the Company file a registration statement with the SEC for the purpose of effecting an offering of common stock. On August 15, 2023, Sciences waived their right to include such shares in the registration statement to be filed with the Securities and Exchange Commission in connection with the Merger and 2024 Financing (as such terms are defined below). Jim Heppell, a director of the Company from January 2019 until May 18, 2022 was also the CEO and a board member of Sciences until March 10, 2023. 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 Biotechnology Espana, 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. For the years ended December 31, 2023 and 2022, we incurred $0 and $87,927, respectively, in expenses under the Collaborative Research Agreements. No amounts were due to or from VivaCell under these agreements for the year ended December 31, 2023. 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. On May 8, 2023, the Company terminated the ESRA effective March 31, 2023 and Vivacell waived the required notice period under the ESRA. For the years ended December 31, 2023 and 2022, we incurred $50,000 and $200,000 in expenses under the ESRA. As of December 31, 2023 and 2022, we recognized accounts payable of $0 and $50,000, respectively. On March 1, 2022, we entered into a research project with VivaCell under the ESRA Agreement for the development of a screening platform for anteroposterior ocular diseases. The project budget is $190,500. For the year ended December 31, 2023 and 2022, we incurred $39,167 and $167,000, respectively, of research and development expenses under the ESRA. As of December 31, 2023 and 2022, we recognized $0 and $7,835, respectively, in other current liabilities - related parties related to the first research project. As of December 31, 2023 and 2022, we recognized $0 and $47,001 , respectively, in accounts payable - related parties under this agreement. Merger and 2023 Financing On August 18, 2023, the Company completed the acquisition of Bird Rock Bio, Inc., a Delaware corporation (“Bird Rock”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated August 15, 2023 (the “Merger Agreement”), by and among the Company, Aquila Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”) and Bird Rock. Pursuant to the Merger Agreement, Merger Sub merged with and into Bird Rock, with Bird Rock surviving such merger as a wholly owned subsidiary of the Company (the “Merger”). Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), the Company issued to certain former stockholders of Bird Rock, an aggregate of 3,872,184 shares of the common stock of the Company, par value $0.001 per share (the “Common Stock”), valued at approximately $20.0 million based on the 60 trading day volume weighted average price of the Common Stock as of an agreed upon date. 80 In connection with the execution of the Merger Agreement, on August 15, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors (collectively, the “Investors”), pursuant to which the Company sold to the Investors an aggregate of 2,325,537 shares of Common Stock (the “PIPE Shares”), at a price of $5.16 per share, and accompanying warrants to purchase up to 2,325,537 of Common Stock (the “PIPE Warrants”), for an aggregate purchase price of $12.0 million (the “2023 Financing”). Pursuant to the Merger Agreement and the Purchase Agreement, at the Effective Time, the Company issued to certain former stockholders of Bird Rock, an aggregate of 2,228,638 shares of Common Stock as a result of the participation of such former stockholders or their respective affiliates in the 2023 Financing. Following the consummation of t he Merger and the Financing, each of 5am Ventures and Affiliates and Versant Ventures and Affiliates became owner s of more than 5% of our common stock. On August 15, 2023, in connection with the execution of the Merger Agreement and the Purchase Agreement the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with certain investors, pursuant to which such holders of Company securities will have certain customary registration rights, including rights with respect to the filing of a registration statement under the Securities Act within 180 days from the date of the Registration Rights Agreement. Indemnification Agreements We have entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements, our articles of incorporation and our bylaws require us to indemnify our directors to the fullest extent not prohibited by Nevada law. Subject to certain limitations, our bylaws also require us to advance expenses incurred by our directors and officers. 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. 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 Dr. Margaret Dalesandro, Dr. Praveen Tyle, Dr. Keith Ward, Dr. Annalisa Jenkins and Dr. Deborah Charych 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, 2023 and 2022, for professional services rendered by Marcum LLP. 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, 2023 and 2022 were $285,000 and $125,861, respectively. Audit Related Fees None. 81 Tax Fees None. All Other Fees None. Pre-Approval Policies and Procedures Prior to engaging Marcum LLP 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. 82 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 Marcum LLP, an independent registered public accounting firm (PCAOB Firm No. 688 ), are included in this Annual Report on Form 10-K. 83 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Reports of Independent Registered Public Accounting Firm (PCAOB ID 688 ) F- 2 Consolidated Balance Sheets as of December 31, 2023 and 2022 F- 3 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 F- 4 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F- 5 Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2023 and 2022 F- 7 Notes to the Consolidated Financial Statements F- 8 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Skye Bioscience, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Skye Bioscience, Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 provides 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 are no critical audit matters. /s/ Marcum LLP Marcum LLP We have served as the Company's auditor since 2022. East Hanover, New Jersey March 21, 2024 F-2 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 ASSETS 2023 2022 Current assets Cash $ 1,256,453 $ 1,244,527 Restricted cash 9,080,202 4,580 Prepaid expenses 425,259 780,807 Assets held for sale — 6,432,216 Other current assets 888,929 481,588 Total current assets 11,650,843 8,943,718 Property, plant and equipment, net 43,276 87,854 Operating lease right-of-use asset 237,983 71,191 Other assets 8,309 8,309 Total assets $ 11,940,411 $ 9,111,072 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 1,155,785 $ 1,669,997 Accounts payable - related parties — 124,901 Accrued interest - related party 126,027 15,814 Accrued interest - legal contingency 234,750 — Accrued payroll liabilities 888,381 657,734 Other current liabilities 998,552 1,422,445 Other current liabilities - related parties — 95,850 Estimate for legal contingency 6,053,468 6,205,310 Convertible multi-draw credit agreement - related party — 1,848,375 Convertible note - related party, net of discount 4,371,998 — Operating lease liability, current portion 72,038 78,700 Total current liabilities 13,900,999 12,119,126 Non-current liabilities Operating lease liability, net of current portion 171,230 — Total liabilities 14,072,229 12,119,126 Commitments and contingencies (Note 13) Stockholders’ deficit Preferred stock, $ 0.001 par value; 200,000 shares authorized at December 31, 2023 and 2022; no shares issued and outstanding at December 31, 2023 and 2022 — — Common stock, $ 0.001 par value; 100,000,000 and 20,000,000 shares authorized at December 31, 2023 and 2022, respectively; 12,349,243 and 3,654,119 shares issued and outstanding at December 31, 2023 and 2022, respectively 12,349 3,654 Additional paid-in-capital 102,238,382 63,726,057 Accumulated deficit ( 104,382,549 ) ( 66,737,765 ) Total stockholders’ deficit ( 2,131,818 ) ( 3,008,054 ) Total liabilities and stockholders’ deficit $ 11,940,411 $ 9,111,072 See accompanying notes to the consolidated financial statements. F-3 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 2023 2022 Operating expenses Research and development $ 5,819,461 $ 6,011,805 Cost to acquire IPR&D asset 21,215,214 — General and administrative 7,852,340 6,094,617 Estimated legal contingency ( 151,842 ) 6,205,310 Total operating expenses 34,735,173 18,311,732 Operating loss ( 34,735,173 ) ( 18,311,732 ) Other expense Change in fair value of derivative liability ( 3 ) ( 59,729 ) Interest expense 906,270 665,133 Interest income ( 99,974 ) ( 19,011 ) Finance charge — 120,228 Loss from asset sale 307,086 — Debt conversion inducement expense 1,383,285 — Wind-down costs 409,347 456,508 Total other expense, net 2,906,011 1,163,129 Loss before income taxes ( 37,641,184 ) ( 19,474,861 ) Provision for income taxes 3,600 6,741 Net loss $ ( 37,644,784 ) $ ( 19,481,602 ) Loss per common share Basic $ ( 5.37 ) $ ( 8.77 ) Diluted $ ( 5.37 ) $ ( 8.77 ) Weighted average shares of common stock outstanding used to compute loss per share: Basic 7,006,038 2,221,080 Diluted 7,006,038 2,221,080 See accompanying notes to the consolidated financial statements. F-4 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 2023 2022 Cash flows from operating activities: Net loss $ ( 37,644,784 ) $ ( 19,481,602 ) Adjustments to reconcile net loss to net cash used in operating activities: Finance charge from Sciences warrant modification — 120,228 Depreciation and amortization 124,251 114,998 Net gain on disposal of asset ( 4,080 ) — Stock-based compensation expense 987,510 629,032 Change in fair value of derivative liability ( 3 ) ( 59,729 ) Amortization of debt discount 329,890 489,595 Estimate for legal contingency ( 151,843 ) 6,205,310 Loss from divestiture of asset 307,086 — Debt conversion inducement expense 1,383,285 — Accrued interest conversion expense 15,952 — Cost to acquire IPR&D asset 21,215,214 — Foreign currency remeasurement gain ( 45,350 ) — Changes in assets and liabilities: Prepaid expenses 564,232 ( 16,396 ) Prepaid expenses - related party — 13,432 Other current assets ( 257,790 ) 112,907 Accounts payable ( 576,384 ) 688,269 Accounts payable – related parties ( 124,901 ) 111,471 Accrued interest – related party 126,027 ( 159,097 ) Accrued interest - legal contingency 234,750 — Accrued payroll liabilities 230,647 313,284 Other current liabilities ( 493,471 ) ( 1,839,252 ) Other current liabilities - related parties ( 95,850 ) 95,850 Operating lease liability ( 76,566 ) ( 82,372 ) Net cash and restricted cash used in operating activities ( 13,952,178 ) ( 12,744,072 ) Cash flows from investing activities: Proceeds from asset sale, net of legal expenses 5,532,266 — Cash divested net of proceeds from the sale of an asset — ( 66,458 ) Purchases of property and equipment ( 12,550 ) ( 28,060 ) Cash acquired in asset acquisition, net of transaction costs of $ 0 and $ 1,475,144 for the years ended December 31, 2023 and 2022, respectively 1,076,740 5,308,913 Net cash and restricted cash provided by investing activities 6,596,456 5,214,395 Cash flows from financing activities: Proceeds from PIPE financing, net of $ 265,053 issuance costs 11,734,947 — Proceeds from convertible note - related party 4,973,684 — Financing costs allocated to warrants issued with convertible debt ( 6,026 ) — Proceeds from pre-funded warrant exercises — 1,967 Repayment of loan payable ( 259,335 ) ( 275,537 ) Proceeds from EHT bridge financing — 680,901 Repayment of Amended Credit Agreement — ( 616,125 ) Net cash and restricted cash provided by (used in) financing activities 16,443,270 ( 208,794 ) Net increase (decrease) in cash and restricted cash 9,087,548 ( 7,738,471 ) Cash and restricted cash , beginning of year $ 1,249,107 $ 8,987,578 Cash and restricted cash, end of year $ 10,336,655 $ 1,249,107 F-5 Supplemental disclosures of cash-flow information: Reconciliation of cash and restricted cash: Cash $ 1,256,453 $ 1,244,527 Restricted cash 9,080,202 4,580 Total cash and restricted cash shown in the consolidated statements of cash flows $ 10,336,655 $ 1,249,107 Cash paid during the year for: Interest $ 198,352 $ 333,547 Income taxes 3,600 6,741 Supplemental disclosures of non-cash financing activities: Financing of insurance premium $ 203,884 $ 275,537 Common stock warrant exercises 282,906 — Conversion of multi-draw credit agreement 1,565,470 — Conversion of accrued interest due to related party 31,766 — Right of use asset obtained in exchange for operating lease liabilities 241,134 — Stock issued for assets 20,532,846 — Deferred issuance costs — 22,471 Purchases of property and equipment in other current liabilities — 11,300 Release of share liability to additional paid-in-capital — 13,000 Asset acquisition costs in other current liabilities and accounts payable — 102,857 Stock issued for assets, net of equity issuance costs — 3,074,098 See accompanying notes to the consolidated financial statements. F-6 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT Stockholders' Deficit Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' Deficit Shares Amounts Balance, December 31, 2021 1,904,434 $ 1,904 $ 53,118,425 $ ( 47,256,163 ) $ 5,864,166 Stock-based compensation expense 5,935 6 629,026 — 629,032 Exercise of pre-funded warrants 78,667 79 1,888 — 1,967 Common stock, options and warrants issued for asset acquisition, net of issuance costs of $ 25,511 1,665,083 1,665 9,856,490 — 9,858,155 Finance charge from Sciences warrant modification — 120,228 — 120,228 Net loss for the year ended December 31, 2022 — — — ( 19,481,602 ) ( 19,481,602 ) Balance, December 31, 2022 3,654,119 $ 3,654 $ 63,726,057 $ ( 66,737,765 ) $ ( 3,008,054 ) Stock-based compensation expense 10,333 10 987,500 — 987,510 Exercise of common stock warrants 66,566 67 282,839 — 282,906 Conversion of multi-draw credit agreement - related party and accrued interest 165,517 166 2,980,355 — 2,980,521 Common stock issued in acquisition of IPR&D asset 5,436,378 5,436 21,604,150 — 21,609,586 PIPE Financing, net of equity issuance costs $ 265,053 2,989,981 2,990 11,731,957 — 11,734,947 Warrants issued with Convertible Note — — 925,550 — 925,550 Common stock issued for fractional share adjustment in reverse stock split 26,349 26 ( 26 ) — — Net loss for the year ended December 31, 2023 — — — ( 37,644,784 ) ( 37,644,784 ) Balance, December 31, 2023 12,349,243 $ 12,349 $ 102,238,382 $ ( 104,382,549 ) $ ( 2,131,818 ) See accompanying notes to the consolidated financial statements. F-7 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” or “Skye”) was incorporated in Nevada on March 16, 2011. The Company is a clinical stage pharmaceutical company located in San Diego, California, focused on the discovery, development and commercialization of novel classes of therapeutic drugs that modulate the endocannabinoid system, which has been shown to play a vital role in overall human health. Notably, the Company is developing drugs with novel mechanisms of action targeting the CB1 receptor through its own research efforts acquired intellectual property and license agreements. 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 Company conducted its Phase 1 clinical trial for glaucoma at SKYE Bioscience Australia. On August 18, 2023, the Company completed a strategic transaction to acquire a clinical asset pursuant to an Agreement and Plan of Merger and Reorganization, dated as of August 15, 2023, by and among the Company, Bird Rock Bio, Inc. and Aquila Merger Sub, Inc., pursuant to which Aquila Merger Sub, Inc. merged with and into Bird Rock Bio, Inc. with Bird Rock Bio, Inc. surviving as a wholly owned subsidiary of the Company (the “BRB Acquisition”). In connection with the BRB Acquisition, Bird Rock Bio changed its name from Bird Rock Bio, Inc. to Bird Rock Bio Sub, Inc ("BRB"). In the BRB Acquisition, the Company issued to certain former stockholders of BRB an aggregate of 5,436,378 shares of the common stock of the Company, valued at $ 21,609,586 (Note 3). As of December 31, 2023, 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 Capital Resources The Company has incurred operating losses and negative cash flows from operations since inception and as of December 31, 2023, had a working capital deficit of $ 2,250,156 and an accumulated deficit of $ 104,382,549 . As of December 31, 2023, the Company had unrestricted cash in the amount of $ 1,256,453 . For the years ended December 31, 2023 and 2022, the Company incurred losses from operations of $ 34,735,173 and $ 18,311,732 , respectively. For the years ended December 31, 2023 and 2022, the Company incurred net losses of $ 37,644,784 and $ 19,481,602 , respectively. The Company expects to continue to incur significant losses and negative cash flows from operations through 2024 and in the future. Historically, the Company has funded its operations through convertible debt, public equity financings, asset acquisitions and private investments in public equity. On August 18, 2023, the Company entered into the Convertible Note Financing, the August PIPE Financing and BRB Acquisition which provided the Company with the necessary funds to continue operations post an appeal bond to stay the execution of the judgment in the Cunning Lawsuit (Note 13) and reposition the Company to focus on nimacimab as its lead clinical asset for obesity. Following the August 2023 financings, the Company executed a 1:250 reverse stock split and increased its authorized shares outstanding (Note 7). On January 31, 2024 and March 13, 2024, the Company completed two private placement equity transactions with institutional investors, in which it raised combined net aggregate proceeds of approximately $ 83,500,000 . The capital from the January and March financings will allow the Company to fund its planned Phase 2 clinical trials for glaucoma and obesity through top line data. The Company’s consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. Based on its current operational requirements, the Company believes that its current cash, and cash equivalents will be sufficient to fund its projected operations for at least 12 months from the date of the issuance of these consolidated financial statements. Impact of Geopolitical and Macroeconomic Factors It is possible that the Company may encounter supply chain issues related to global economic and political conditions such as a lack of production or laboratory resources. pandemics or cyberattacks that could cause business disruptions and clinical trial delays which will need to be managed in the future. There may also be significant uncertainty resulting from the impact of other geopolitical and macroeconomic factors, including global pandemics, inflation, supply chain issues, rising interest rates, future bank failures, increased geopolitical tensions between the U.S. and China and the impact of the Russia/Ukraine conflict and the Israel-Hamas war. F-8 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. Certain reclassifications have been made to the amounts in prior periods to conform to the current period’s presentation, primarily the separate classification of prepaid expenses, other current assets, estimate for legal contingency, accrued interest for legal contingency, and other current liabilities. Such reclassifications did not have a material impact on the Consolidated Financial Statements. Reverse Stock Split On September 6, 2023, the Company filed a Certificate of Change and Certificate of Correction with the Secretary of State of the State of Nevada which effected a reverse stock split at a ratio of one-for-two hundred and fifty (1-for-250) of the Company's issued and outstanding shares of common stock as of 12:01 a.m. Eastern Standard Time on September 8, 2023 . The Company did not issue fractional shares in the reverse stock split and elected to issue one whole share for each fractional share which resulted in the issuance of 26,349 common shares to our existing stockholders. The Company's financial statements have been adjusted on a retrospective basis to reflect the change. Assets Held for Sale On November 10, 2022, the Company completed the EHT Acquisition. At the time of the EHT Acquisition there were arrangements in place to sell the acquired assets and liabilities that comprised two of EHT's subsidiaries, Emerald Health Therapeutics Canada, Inc. ("EHTC") and VDL. As a result, EHTC and VDL were considered held for sale since the EHT Acquisition and the Company has classified the associated assets of VDL as held for sale on the Consolidated Balance Sheets and the period costs related to both EHTC and VDL have been presented as wind-down costs in the Consolidated Statements of Operations. EHTC was divested on December 28, 2022, and VDL was divested on February 9, 2023 (see Note 3). Assets meeting the held-for-sale criteria are classified as held for sale on the Consolidated Balance Sheets in subsequent periods until sold. 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 the original carrying value. Due to the asset acquisition accounting on the date of the EHT Acquisition, AVI had no initial carrying value. Derecognition of Nonfinancial Assets The Company generally accounts for sales of nonfinancial assets that are outside the scope of our ordinary activities under ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. Pursuant to ASC 610-20, the Company applies the guidance in ASC 606 to determine if a contract exists, identify the distinct nonfinancial assets, and determine when control transfers and, therefore, when to derecognize the nonfinancial asset. Additionally, the Company applies the measurement principles of ASC 606 to determine the amount of consideration, if any, to include in the calculation of the gain or loss for the sale of the nonfinancial asset. Refer to Note 3 for further information. Principles of Consolidation The accompanying consolidated financial statements as of December 31, 2023, include the accounts of the Company and its wholly owned subsidiaries SKYE Bioscience Australia, EHT, AVI, BRB, Ruiyi Acquisition Corporation, and Nemus Sub. All intercompany accounts and transactions 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 judgements used in determining stock based compensation expense and estimates related to the Company's estimation of the percentage of completion under its research and development contracts, which are not readily apparent from other sources. F-9 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 current global environment, including economic factors such as inflation, and risks related to the global supply chain disruptions (Note 1), risks related to operating primarily in a virtual environment, results of research and development activities, uncertainties surrounding regulatory developments in the United States, Canada, the European Union, and Australia and the Company’s ability to attract new funding. 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. December 31, 2023, restricted cash on the balance sheet collateralizes an irrevocable letter of credit (Note 13). As of December 31, 2022, restricted cash is a certificate of deposit held by the Company’s bank as collateral for the Company’s credit cards. Property, Plant and Equipment, net Property, plant and equipment is 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 three to five 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 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 5). 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 Operations in the period incurred. When necessary, the Company recognizes interest and penalties related to income tax matters in income tax expense. F-10 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, 2023 and 2022. As a result of this valuation allowance, there are no income tax benefits reflected in the accompanying Consolidated Statements of Operations 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 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 Operations. 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 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, net in the Consolidated Statements of Operations. F-11 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. Revenue Recognition The Company accounts for its collaboration arrangement under the provisions of Accounting Standard Codification Topic 606, Revenue from Contract with Customers , or ASC 606. In accordance with ASC 606, when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received in exchange for those goods or services, the Company performs the following five steps in determining the appropriate amount of revenue to be recognized as it fulfills its obligations under such agreements: • identification of the promised goods and services in the contract; • determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; • measurement of the transaction price, including any constraint on variable consideration; • allocation of the transaction price to the performance obligations; and • recognition of revenue when, or as, we satisfy each performance obligation. If an agreement includes a license to the Company's intellectual property and that license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligations to determine whether the combined performance obligations are satisfied over time or at a point in time. If over time, the Company evaluates the measure of progress over time proportionate to the costs incurred to perform the services using an input method as a measure of progress towards satisfying the performance obligation. Any change made to estimated progress towards completion of a performance obligation due to changes in the estimated activities required to complete the performance obligation and, therefore, revenue recognized will be recorded as a change in estimate. The Company receives payments from its collaborators based on billing schedules established in each contract. Upfront payments and other payments may require deferral of revenue recognition to a future period until the Company performs its obligation under its collaboration arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. 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; and clinical 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. None of the costs associated with the use of licensed technologies has been capitalized to date. Similarly, costs incurred to acquire in-process research and development ("IPR&D") are charged to research and development expense in the situation where the Company has not identified an alternative future use and are capitalized in the situation where there is an alternative future use. All costs associated with the acquisition of IPR&D have been expensed 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. F-12 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 - Stock price volatility is estimated over the expected term based on a blended daily rate of industry peers stock volatility. • 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. Additionally, the Company uses the Monte Carlo Simulation model to evaluate the derived service period and fair value of awards with market conditions, including assumptions of historical volatility and risk-free interest rate commensurate with the vesting term. 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. 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, restricted stock units, 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 9). Leases The Company applies ASU, No. 2016-02, Leases (Topic 842), in accounting for operating lease arrangements. 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. Asset Acquisitions The Company evaluates 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 the Company has 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. F-13 For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition. Common stock, warrants and options issued as consideration in an asset acquisition are generally measured based on the acquisition date fair value of the equity interests issued. The Company refers to ASC 718 and utilizes a Black-Scholes Model to value the options and warrants issued is an asset acquisition and includes the fair value of such awards in the purchase consideration. Direct transaction costs are recognized as part of the cost of an asset acquisition. The Company also evaluates 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 Company's name, are recorded on a gross basis as an asset with a corresponding liability in our consolidated balance sheet. Unless an acquired asset is expensed at the date of acquisition, in accordance with other applicable GAAP, 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 a relative fair value basis. Government Assistance The Company adopted ASU 2021-10 Government Assistance on January 1, 2022. The Company accounts for the tax rebates received from the Australian Taxation Office ("ATO") under such guidance. The Company accounts for the rebates that it receives under the AusIndustry research and development tax incentive program under the income recognition model of IAS 20. Under this model, when there is reasonable assurance that the rebate will be received, the Company recognizes the income from the tax rebate as an offset to research and development expense during the period which the benefit applies to the research and development costs incurred. The total tax rebates received under the AusIndustry incentive program were $ 180,374 for the year ended December 31, 2023 related to incentives earned in the prior year and $ 34,189 for the year ended December 31, 2022. As of December 31, 2023 and 2022, the Company has recognized $ 540,604 and $ 179,687 , respectively, in other current assets in its Consolidated Balance Sheets. Foreign Currency Translation The Company’s reporting currency and the functional currency of its foreign subsidiaries is the United States dollar. The local currencies of its foreign subsidiaries are the Canadian Dollar (“CAD”) or Australian dollar (“AUD”). Assets and liabilities are remeasured based on the exchange rates at the balance sheet date 0.7549 for the CAD, 0.6818 for the AUD as of December 31, 2023 and 0.7384 for the CAD and 0.6792 for the AUD as of December 31, 2022, while expense accounts are remeasured at the weighted average exchange rate for the period 0.7453 for the CAD and 0.6697 for the AUD for the year ended December 31, 2023 and 0.7361 for the CAD and 0.6748 for the AUD as of December 31, 2022. Equity accounts are remeasured at historical exchange rates. The resulting remeasurement adjustments are recognized in general and administrative expenses in the consolidated financial statements. During the years ended December 31, 2023 and 2022, the Company recorded foreign currency remeasurements of $ 61,767 and $ 63,717 , respectively, which are reflected in general and administrative expenses in the accompanying Consolidated Statements of Operations. Foreign currency gains and losses resulting from transactions denominated in foreign currencies are recorded in the Consolidated Statements of Operations. During the years ended December 31, 2023 and 2022, the Company recorded foreign currency transaction loss of $ 9,143 and gain of $ 3,352 , respectively, which is reflected in the general and administrative expenses in the accompanying consolidated statement of operations. Commitments and Contingencies The Company follows ASC 440, Commitments and ASC 450, Contingencies , 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 the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates 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. F-14 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 the Company’s 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, management believes that the current litigation matter related to the Cunning lawsuit will have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows. Refer to Note 13 for additional information. In accordance with ASC 450, Contingencies, subtopic 450-20, the Company does not reflect a contingency that may result in a gain until it is realized. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Account Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This ASU replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The amendments in this ASU are effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 as of January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures. Recent Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures . This ASU requires greater disaggregation of information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. This ASU applies to all entities subject to income taxes and is intended to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. This ASU should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. This ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in this ASU and existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures, and does not expect the standard will have a material impact on the Company’s consolidated financial statements and related disclosures. 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 beginning 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 2020-06 will, result in expanded disclosures around convertible instruments and remove the requirement to assess and record beneficial conversion features. The Company currently plans to adopt the provisions of this ASU on the effective date using a modified retrospective method of adoption. F-15 3. Asset Acquisitions BRB Acquisition On August 18, 2023, the Company acquired 100 % of Bird Rock Bio Sub, Inc. pursuant to an Agreement and Plan of Merger and Reorganization, dated August 15, 2023. The purpose of the acquisition was to acquire BRB's clinical asset, nimacimab, an antibody targeting the CB1 receptor, for development to treat obesity. Pursuant to the BRB Acquisition, the Company issued 3,872,184 shares of Skye common stock to the former preferred shareholders of BRB equal to $ 20,000,000 in base merger consideration priced at $ 5.16 . In addition, the former preferred shareholders of BRB were entitled to additional merger consideration for each dollar invested in the August 2023 PIPE Financing (Note 7). Because the August 2023 PIPE Financing and BRB Acquisition occurred contemporaneously and in contemplation of each other, in accounting for the transaction, the Company allocated the shares issued as additional merger consideration between the BRB Acquisition and PIPE Financing using a residual allocation method, whereby the fair value of the consideration transferred was first allocated to the monetary assets and August 2023 PIPE Financing proceeds with the remainder allocated to the IPR&D asset. As a result, 1,564,194 additional shares of common stock were allocated to the BRB Acquisition. Below is a summary of the total consideration, assets acquired and the liabilities assumed in connection with the BRB Acquisition: August 18, 2023 Purchase consideration Common stock $ 21,609,586 (a) Total consideration $ 21,609,586 Assets acquired and liabilities assumed: IPR&D asset $ 21,215,214 Cash and cash equivalents 1,076,740 Prepaid expenses 4,800 Accounts payable ( 73,473 ) Other current liabilities ( 613,695 ) Total net assets acquired $ 21,609,586 (a) Equal to the aggregate common shares issued of 5,436,378 , multiplied by the Company's closing stock price of $ 3.975 as of August 18, 2023. The cost to acquire the IPR&D asset related to nimacimab was expensed on the date of the BRB Acquisition as it was determined to have no future alternative use. Accordingly, costs associated with the BRB Acquisition to acquire the asset were expensed as incurred. Acquisition of Emerald Health Therapeutics, Inc. On May 11, 2022, the Company entered into an Arrangement Agreement, as amended on June 14, 2022, July 15, 2022 and October 14, 2022 (the “Arrangement Agreement”) with Emerald Health Therapeutics, Inc., a corporation existing under the laws of the Province of British Columbia, Canada (“EHT”), pursuant to a plan of arrangement under the Business Corporations Act (British Columbia) (the “EHT Acquisition”). On November 10, 2022, the Company completed the EHT Acquisition and each share of EHT common stock outstanding immediately prior to the effective time of the EHT Acquisition was transferred to the Company in exchange for 1.95 shares of the Company's common stock (the “Exchange Ratio”). The Company evaluated the accounting for the transaction and accounted for the EHT Acquisition as an asset acquisition due to the wind-down state of EHT. The primary purpose of the EHT Acquisition was to utilize EHT's remaining cash and cash equivalents and liquidate the primary real estate asset owned by EHT in order to fund the Company's operations. To account for the Acquisition, the Company measured the equity interests issued on the Closing Date (including the value of the options and warrants rolled over) and accumulated the direct costs attributable to the Acquisition. F-16 Upon closing the EHT Acquisition, the Company acquired net assets with an estimated fair value of $ 15,045,412 . The fair value of the consideration was allocated on a relative fair value basis to the “qualifying assets” in the EHT Acquisition and any excess in the fair value of the assets initially reduced the value of the qualifying assets before reducing the value of the assets held for sale. The only qualifying asset identified in the EHT Acquisition was AVI. The fair value of AVI at the time of Acquisition was $ 1,536,275 and the value attributable to AVI was fully eliminated in the Acquisition accounting . As of December 31, 2023 the Company has divested both of EHT's former operating entities and as of January 15, 2024, the divestiture of substantially all of EHTs assets, including the real estate held by AVI, is complete. Upon the Closing Date of the EHT Acquisition, the Company issued each EHT shareholder 1.95 shares of Skye common stock, for each share of EHT common stock outstanding as of the Closing Date. On November 10, 2022, the Company issued 1,665,083 shares of stock as consideration in the EHT Acquisition and no fractional shares of Skye Common Stock were issued. For U.S. and Canadian federal income tax purposes, the EHT Acquisition constitutes a taxable exchange by the EHT shareholders. In addition, all outstanding stock options and warrants of EHT were exchanged for replacement options and warrants of Skye with identical terms, as adjusted in accordance with the Exchange Ratio. Below is a summary of the total consideration, assets acquired and the liabilities assumed in connection with the Acquisition: November 10, 2022 Purchase consideration Common stock $ 9,574,222 (a) EHT rollover stock options 105,929 (b) EHT rollover warrants 203,515 (c) Transaction costs 1,552,490 (d) Total consideration $ 11,436,156 Assets acquired and liabilities assumed: Cash and cash equivalents $ 6,784,057 Accounts receivable 14,375 Prepaid Expenses 4,227 Assets held for sale 6,610,662 (e) Related party loan 680,901 (f) Other current assets 356,961 (g) Accounts payable ( 909,048 ) Short term liability ( 557,010 ) (h) Payroll liabilities ( 577,421 ) Insurance premium loan payable ( 89,851 ) Tax liabilities ( 158,858 ) Other current liabilities ( 722,839 ) (i) Total net assets acquired $ 11,436,156 a. Common Stock, The Company issued 1,665,083 shares of common stock at $ 5.75 per share for an aggregate fair value of $ 9,574,222 . b. EHT Rollover Stock Options, The estimated fair value of options issued as consideration in the EHT Acquisition was $ 105,929 and 33,132 SKYE options were issued after applying the Exchange Ratio. The assumptions to value these options were as follows (see Note 8): November 10, 2022 Dividend yield 0.00 % Volatility 76.61 - 126.45 % Risk-free interest rate 3.51 - 4.56 % Expected term (years) 0.02 - 4.83 F-17 c. EHT Rollover Warrants, The estimated fair value of warrants issued as consideration for the Acquisition was $ 203,515 and 243,781 SKYE warrants were issued after applying the Exchange Ratio. The assumptions used to value these warrants are as follows: November 10, 2022 Dividend yield 0.00 % Volatility 102.9 - 114.6 % Risk-free interest rate 4.29 - 4.53 % Expected term (years) 0.56 - 2.27 d. Transaction Costs, The Company incurred aggregate transaction costs of $ 1,945,140 in connection with the Acquisition, of which $ 341,629 were expensed, $ 1,552,490 were considered part of the transaction consideration and $ 25,511 , represented equity issuance costs, which were included as an offset to equity. e. Assets held for sale, The Company acquired assets related to EHT and its subsidiaries which are considered held for held for sale in the amount of $ 6,610,662 . This amount is primarily composed of the following balances: i. The adjusted fair value of the VDL assets held for sale of $ 8,540,732 , net of direct liquidation costs of $ 390,241 , which includes legal costs, advisory fees and other professional fees. In addition, the VDL assets were further reduced by $ 2,072,981 as a result of the relative fair value allocation. The resulting carrying value of the asset recorded by the Company is $ 6,467,751 . ii. The Company acquired deposits related to utilities for EHT's subsidiaries held for sale. The fair value of these deposits at the time of acquisition is $ 23,910 . iii. The Company has acquired the value of EHTC's Health Canada license which was transferred with the sale of EHTC (See Divestiture of Emerald Health Therapeutics Canada, Inc. below ) . The value of the license at the time of the acquisition was $ 91,700 . iv. The Company acquired prepaid expenses related to entities held for sale of $ 27,301 . f. Related party loan , on October 17, 2022, the Company and EHT entered into a loan agreement pursuant to which EHT loaned the Company $ 700,000 in accordance with the terms of a promissory note. Upon closing the Acquisition, the loan was offset by the balance due to Skye under the consulting agreement. The net related party loan balance was $ 680,901 as of the closing of the Acquisition. After the closing of the EHT Acquisition, this balance eliminates in consolidation. g. Other current assets, The Company acquired other current assets related to EHT and its subsidiaries which are considered held for held for sale in the amount of $ 356,961 . This amount is primarily composed of the following balances: i. The Company acquired deposits related to EHT's excise tax bonds of $ 252,418 . As a condition of the EHTC and VDL stock purchase agreements it is expected that the cash value of these bonds will be received upon transfer of the Health Canada licenses to the purchasers of EHTC and VDL. ii. The Company acquired an open receivables balance of $ 104,543 made up of a balance due from the buyer of VDL, a former customer of EHT's of $ 75,396 . Additionally, this balance includes a property tax refund due of $ 29,147 . h. Short-term liability EHT received an upfront deposit of $ 557,010 for the sale of VDL, i. Other current liabilities, The Company acquired liabilities related to EHT and its subsidiaries which are considered in the amount of $ 722,839 . This amount is primarily composed of the following balances: i. The Company acquired an outstanding accrued liabilities balance of $ 587,139 . The majority of the balance includes estimated late fees related to late tax filings. ii. In accordance with ASC 450, the Company has recorded a contingent liability related credits due to customers of EHT's former operations. At the time of the EHT Acquisition, this liability was estimated at $ 135,700 . F-18 Divestiture of Emerald Health Therapeutics Canada, Inc. On December 28, 2022, approximately six weeks after the EHT Acquisition, the Company entered into a Share Purchase Agreement (“SPA”) with a third-party whereby the Company transferred all of its outstanding and fully paid, non-assessable 11,776,338 shares of common stock (the "EHTC Common Shares"), all of which were held by EHT with no par value, for the total purchase price of $ 110,759 . The purchase price also includes the transfer of two licenses issued by Health Canada. EHTC was classified as an asset acquisition and did not meet the criteria of a business at the of EHT Acquisition, and was considered held for sale at the time of EHT Acquisition. Therefore, the sale of EHTC is determined to be treated as the sale of an asset to a third-party due to the discontinued state of the business at the date of divestment. No gain or loss related to the divestiture of EHTC was recorded. Divestiture of VDL On November 10, 2022, EHT and C3, a third-party, entered into the Verdélite SPA, as amended, effective November 8, 2022, pursuant to which C3 would acquire all of the outstanding shares of VDL, the holder of EHT's most significant real estate asset. On February 9, 2023, u pon closing the transactions contemplated by the Verdélite SPA, the Company sold all of the outstanding shares of VDL for an aggregate purchase price of approximately $ 9,451,233 . Prior to closing the EHT Acquisition, EHT received a $ 557,705 cash deposit, which was considered in the sale as of the closing date. Upon closing, the Company received gross proceeds, net of legal and advisory fees as of the closing date, of $ 5,532,266 . The remainder of the purchase price will be paid as follows: (i) $ 370,350 will be payable in five ( 5 ) equal monthly installments payable on the last day of each month beginning on December 31, 2023, and ending April 30, 2024, with interest in accordance with the terms of the Verdélite SPA and (ii) $ 2,777,625 will be payable in three (3) equal installments on each of the 18-month , 30-month , and 42-month anniversaries of the VDL Closing Date, with interest in accordance with the terms of the Verdélite SPA. The Company recognized the sale of VDL when control transferred on February 9, 2023. In accordance with recognition guidance, the Company has determined to fully reserve for the remaining receivables and will record a gain on the sale when additional cash payments are received. For the year ended December 31, 2023, the Company has recorded a loss on sale of asset of $ 307,086 in other expense based on the difference between the carrying amount of the assets sold and the net cash proceeds. 4. Prepaid Expenses, Other Current Assets and Other Current Liabilities Prepaid expenses consist of the following: As of December 31 2023 2022 Prepaid clinical expenses $ 292,352 $ 646,072 Total other prepaid expenses 132,907 134,735 $ 425,259 $ 780,807 Other current assets consist of the following: As of December 31 2023 2022 AusIndustry incentive $ 540,604 $ 179,687 Vendor deposits 172,439 101,386 Excise Tax Bonds 125,784 74,121 Other tax receivables 32,458 — Other current assets 17,644 126,394 $ 888,929 $ 481,588 F-19 Other current liabilities consist of the following: As of December 31 2023 2022 Research and development costs $ 467,784 $ 40,597 Legal expenses 258,213 227,350 EHT Acquisition related liabilities 180,897 369,111 Consulting fees 47,400 — Professional fees 22,068 86,682 Insurance loan payable — 55,451 Deposit - Verdélite SPA — 553,800 Other accrued liabilities 22,190 89,454 $ 998,552 $ 1,422,445 5. Warrants and Derivative Liabilities There are significant judgements and estimates inherent in the determination of the fair value of the Company’s warrants. These judgements and estimates include assumptions regarding the Company’s future operating performance and the determination of the appropriate valuation methods. If the Company had made different assumptions, the fair value of the warrants could have been significantly different (See Note 2). Warrants Warrants vested and outstanding as of December 31, 2023 are summarized as follows: Source Exercise Price Remaining Term (Years) Number of Warrants Outstanding 2015 Common Stock Warrants 1,250.00 1.32 400 2016 Common Stock Warrants to Service Providers 287.50 2.84 160 2019 Common Stock Warrants 87.50 0.89 32,000 2020 Common Stock Warrants to Placement Agent 20.00 1.58 32,668 2021 Inducement Warrants 37.50 2.57 84,667 2021 Inducement Warrants to Placement Agent 47.00 2.57 5,927 2021 Common Stock Warrants 22.50 2.75 311,113 2021 Common Stock Warrants to Placement Agent 27.50 2.75 21,778 2022 Common Stock Warrants to Service Provider 10.00 0.25 8,000 November 2019 EHT Common Stock Warrants* 72.25 0.92 34,213 December 2019 EHT Common Stock Warrants* 37.75 1.00 3,783 February 2020 EHT Common Stock Warrants* 37.25 1.11 80,694 August 2023 Convertible Note Common Stock Warrants 5.16 9.64 340,000 August 2023 PIPE Financing Common Stock Warrants 5.16 9.64 2,325,537 Total warrants outstanding as of December 31, 2023 3,280,940 *Replacement warrants issued on November 10, 2022 in conjunction with the Acquisition (see Note 3). As of December 31, 2023, all of the Company's warrants are fully vested. F-20 August 2023 PIPE Financing Common Stock Warrants In connection with the PIPE Financing (Note 7), the Company issued 2,325,537 common stock warrants. The warrants were equity classified at issuance and $ 4,784,894 of the gross proceeds from the PIPE Financing were allocated to the common stock warrants on a relative fair value basis. The warrants vested immediately and the fair value of $ 7,881,972 was determined using the Black-Scholes Merton option pricing model with the following assumptions: August 18, 2023 Dividend yield 0.00 % Volatility factor 87.88 % Risk-free interest rate 4.26 % Expected term (years) 10.00 Underlying common stock price $ 5.16 August 2023 Convertible Note Common Stock Warrants In connection with the Convertible Note (See Note 6), the Company issued 340,000 common stock warrants. The warrants were equity classified at issuance and $ 931,576 of the gross proceeds from the Convertible Note were allocated to the common stock warrants on a relative fair value basis. The warrants vested immediately and the fair value of $ 1,144,886 was determined using the Black-Scholes Merton option pricing model with the following assumptions: August 18, 2023 Dividend yield 0.00 % Volatility factor 87.88 % Risk-free interest rate 4.26 % Expected term (years) 10 Underlying common stock price $ 5.16 February 2023 Sciences Warrant Exercises Effective February 16, 2023, Company and Sciences entered into a Master Transaction Agreement (the "MTA"). Under the MTA, Sciences agreed to exercise 66,566 common stock warrants at $ 4.25 per share (the "MTA Warrants"). Under the MTA, the parties agreed that the aggregate proceeds from the exercise of the MTA Warrants of $ 282,906 was to be paid through a reduction of the Amended Credit Agreement owed by the Company to Sciences (Note 6). On February 22, 2023, the Company issued 66,566 shares of common stock to Sciences in connection with the exercise of the MTA Warrants (Note 7). November 2022 Sciences Warrant Repricing On November 17, 2022, the Company entered into an Amendment and Acknowledgement Agreement (the "Amendment Agreement") with Sciences. Under the terms of the Amendment Agreement, the exercise prices of all the outstanding Sciences Multi-Draw Credit Agreement Warrants and the December 2019 EHT Common Stock Warrants were repriced to $ 4.25 . Refer to Note 6 for further information on the Amendment Agreement. F-21 The Company accounted for the repricing of the warrants as a modification by comparing the fair value of the warrants immediately before and after the modification date to determine the incremental fair value of the repricing. The aggregate modified fair value of $ 150,851 resulted in an increase in fair value of $ 120,228 . The Company recorded the incremental fair value as a finance charge to other expense in the Consolidated Statements of Operations for the year ended December 31, 2023. On the date of modification, the Company revalued the warrants with a Black-Scholes valuation method using the following assumptions as of the repricing date: November 17, 2022 Dividend yield 0.00 % Volatility factor 97.53 - 115.96 % Risk-free interest rate 4.40 - 4.67 % Expected term (years) 0.96 - 2.12 Underlying common stock price $ 4.25 EHT Rollover Warrants On November 10, 2022, the Company issued equity classified replacement warrants with a fair value of $ 203,515 in exchange for all outstanding warrants of EHT adjusted in accordance with the Exchange Ratio. The replacement warrants were exchanged with identical terms, including exercise prices, vest terms, and expiration dates (see Note 3). 2022 Common Stock Warrants Issued to a Service Provider On April 1, 2022, the Company granted 8,000 equity classified warrants with a fair value of $ 35,688 to a service provider at an exercise price of $ 10.00 per share. The warrants vest monthly over one year and expire on April 1, 2024. Refer to Note 8 for the summary of stock-based compensation expense. As of the date of grant, the Company valued the warrants with a Black-Scholes valuation method using the following assumptions: April 1, 2022 Date of Issuance Dividend yield 0.00 % Volatility factor 118.46 % Risk-free interest rate 1.92 % Expected term (years) 1.27 Underlying common stock price $ 9.25 Derivative Liability During the year ended December 31, 2023, the warrant shares underlying the Emerald Financing Warrant Liability expired unexercised and the decrease in fair value during the year ended December 31, 2023 was nominal. The following table summarizes the activity of the derivative liability for the period indicated: Year Ended December 31, 2022 December 31, 2021 , Fair Value of Derivative Liabilities Fair Value of Derivative Liabilities Issued Change in Fair value of Liability Reclassification of Derivatives to Equity December 31, 2022, Fair Value of Derivative Liabilitiy Emerald Financing - warrant liability 59,732 — ( 59,729 ) — 3 Total derivative liability $ 59,732 $ — $ ( 59,729 ) $ — $ 3 Emerald Financing Warrant Liability 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 $ 25.00 . 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. F-22 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 liability is valued at the balance sheet dates using the following assumptions: December, 31, 2022 Dividend yield — % Volatility factor 140.83 % Risk-free interest rate 4.21 % Expected term (years) 1.13 Underlying common stock price $ 4.00 6. Debt The Company’s convertible debt consists of the following: As of December 31, 2023 2022 Total principal value of convertible note - related party, net of debt discount $ 5,000,000 $ — Total principal value of convertible multi-draw credit agreement - related party — 1,848,375 Unamortized debt discount ( 610,749 ) — Unamortized debt issuance costs ( 17,253 ) — Carrying value of total convertible debt—related party $ 4,371,998 $ 1,848,375 Convertible Note - Related Party On August 15, 2023, the Company entered into a Secured Note and Warrant Purchase Agreement with MFDI, LLC (“MFDI”), pursuant to which the Company issued to MFDI a $ 5,000,000 secured convertible promissory note (the "Convertible Note") and a warrant to purchase 340,000 shares of common stock on August 18, 2023 (the "Convertible Note Financing") (Notes 5 & 12). The Convertible Note bears interest at a rate of 10 % per annum and matures on August 18, 2024, unless earlier repurchased or converted. The Convertible Note may be converted at any time and the conversion price is fixed at $ 5.16 . Accrued interest will be payable quarterly within 30 days of the last day of each calendar quarter. The Company may prepay the principal or interest outstanding under the Note at any time without penalty. In accounting for the Convertible Note, the Company allocated $ 4,068,424 in proceeds to the debt host and $ 931,576 in proceeds to the freestanding warrants based on relative fair value. The debt discounts of $ 931,576 and $ 26,316 related to the warrants, and debt issuance costs, respectively, are being amortized over the term of the Convertible Note using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense in Other expense within the Consolidated Statements of Operations. In addition, the Company recorded $ 6,026 in equity issuance costs as a deduction to additional paid in capital in the Statements of Stockholders' Deficit. For the year ended December 31, 2023, the effective interest rate on the Convertible Note was 31.39 %, the remaining amortization period on the debt was 0.63 years and the fair value of the underlying conversion shares did not exceed the carrying value of the debt at December 31, 2023. F-23 Bridge Loan On July 24, 2023, the Company entered into a loan agreement in the principal amount of $ 250,000 (the “Bridge Loan”) with MFDI, LLC. The Bridge Loan was obtained in order to provide bridge financing for the operations of the Company until it completed the BRB Acquisition. Concurrent with the closing of the BRB Acquisition, August 2023 PIPE Financing and Convertible Note Financing, the Bridge Loan was cancelled and converted into an investment in the August 2023 PIPE Financing (Note 7). All interest and rights related to the Bridge Loan were concurrently cancelled. Multi-Draw Credit Agreement- Related Party On October 5, 2018, the Company entered into the Credit Agreement with Sciences, a related party (Note 12). Between April 29, 2020 and March 29, 2021, the Company and Sciences entered into a series of Amendments until the disbursement line was closed on September 15, 2021 (the "Amended Credit Agreement"). The amendments were considered a modifications for accounting purposes. On November 17, 2022, the Company entered into Amendment No. 4 with Sciences. Under the terms of Amendment No. 4, the parties agreed that the Company would prepay 25 % of the outstanding principal amount equal to $ 616,125 , plus all accrued interest of $ 328,737 through the date of the Amendment No. 4. In addition, the Amended Credit Agreement was amended to extend the maturity date to the earlier of December 30, 2022, or the Termination Date (as such term is defined in the Credit Agreement) and the parties agreed to use good faith efforts to enter into a customary piggyback registration rights agreement. In exchange for the extension, the Company agreed to reprice all of the outstanding Sciences warrants to $ 4.25 per share (Note 5). On December 30, 2022, the Company entered into Amendment No. 5 to the Amended Credit Agreement to extend the maturity date to the earlier of (a) five business days after the closing of the sale of VDL (b) February 28, 2023 or (c) the Termination Date (as such term is defined in the Amended Credit Agreement). The terms of the Amended Credit Agreement provided that convertible advances and unpaid interest may be converted into common stock at the applicable fixed conversion price of the underlying advance, subject to customary adjustments for stock splits, stock dividends, recapitalizations, etc. Effective February 16, 2022, upon entering the MTA, the remaining principal balance plus accrued interest was offset by the aggregate exercise price of $ 282,906 from the exercise of the MTA Warrants (Note 5) and the Company induced conversion by reducing the conversion price of the Amended Credit Agreement from $ 100.00 to $ 9.65 . The remaining balance of $ 1,597,236 was converted into 165,517 shares of common stock of the Company. In connection with the induced conversion, the Company recorded a debt conversion inducement expense of $ 1,383,285 equal to the fair value of the incremental shares issued upon conversion. Following the issuance of shares described above, the Amended Credit Agreement was terminated in its entirety per the terms of the MTA. Additionally, under the MTA, Sciences agreed to use its best efforts to transfer all of the common stock of the Company held by Sciences to its shareholders on a pro-rata basis at or immediately prior to the Company's listing to a nationally recognized stock exchange, subject to compliance with applicable securities laws. For the years ended December 31, 2023 and 2022, the effective interest rate related to the convertible portion of the Amended Credit Agreement was 0.00 % and 29.20 %, respectively. As of December 31, 2022, the debt discount on the convertible advances was fully amortized. Insurance premium loan payable On February 28, 2023, the Company entered into an annual financing arrangement for a portion of its Directors and Officers Insurance Policy (the “D&O Insurance”) with First Insurance Funding in an amount of $ 203,884 . The loan is payable in equal monthly installments of $ 23,374 , matures on January 31, 2024, and bears interest at a rate 4.24 % per annum. As of December 31, 2023 a total of $ 21,238 remains in prepaid expenses and the loan has been repaid. On February 28, 2022, the Company entered into an annual financing arrangement for a portion of its Directors and Officers Insurance Policy with First Insurance Funding in an amount of $ 275,537 . The loan is payable in equal monthly installments of $ 31,150 , matures on January 31, 2023 and bears interest at a rate 4.17 % per annum. As of December 31, 2022, a total of $ 22,961 remains in prepaid expenses and the loan has been repaid. F-24 Interest Expense The Company’s interest expense consists of the following: Year Ended December 31, 2023 2022 Related party interest expense – stated rate $ 202,254 $ 169,640 Insurance premium loan payable – stated rate 6,485 5,896 Legal judgment interest expense 234,750 — Bond premium 59,929 — Premium on irrevocable letter of credit 69,861 — Other interest expense 3,100 — Non-cash interest expense: Amortization of debt discount 320,828 488,238 Amortization of transaction costs 9,063 1,359 $ 906,270 $ 665,133 7. Stockholders’ Equity and Capitalization The Company reserved shares of common stock, on an as-if converted basis, for issuance as follows: Year Ended December 31, 2023 2022 Options issued and outstanding 498,298 171,980 Awards available for grant under the 2014 Plan 487,672 169,099 Shares for issuance under our equity incentive plan 112,000 112,000 Restricted stock unit awards issued and outstanding 847,777 10,665 Unreleased restricted stock awards issued to a service provider 5,000 — Common stock underlying the Amended Credit Agreement — 18,642 Common stock underlying the Convertible Note - Related Party 968,973 — Warrants issued and outstanding 3,280,940 788,539 6,200,660 1,270,925 Increase to Authorized Shares of Capital Stock On November 6, 2023, the Company increased its authorized shares of common stock to 100,000,000 . Common Stock Issuance BRB Acquisition On August 18, 2023, the Company issued an aggregate of 5,436,378 shares of common stock in connection with the BRB Acquisition (Note 3). F-25 August 2023 PIPE Financing Concurrent with the BRB Acquisition and Convertible Note Financing, on August 15, 2023, the Company entered into the August 2023 PIPE Financing, pursuant to which on August 18, 2023, the Company issued an aggregate of 2,989,981 shares of common stock and accompanying warrants to purchase up to 2,325,537 shares of common stock (the " August 2023 PIPE Financing Common Stock Warrants" - Note 5 ) for an aggregate purchase price of $ 12,000,000 . The August 2023 PIPE Financing was priced at $ 5.16 per share based on the 60-day volume-weighted average share price preceding August 15, 2023. The two lead investors in the PIPE Financing were also former preferred shareholders of BRB. As an incentive to participate in the August 2023 PIPE Financing, the Agreement and Plan of Merger and Reorganization with BRB entitled each BRB stockholder participating in the August 2023 PIPE Financing an additional share of common stock for every share of common stock purchased in the PIPE Financing. As a result, the two former BRB preferred shareholders who participated in the August 2023 PIPE Financing were issued an additional 2,228,638 shares of common stock. Because the PIPE Financing and BRB Acquisition occurred contemporaneously and in contemplation of one another, the Company allocated 664,444 of the common shares issued in the BRB Acquisition to the August 2023 PIPE Financing (Note 3). In connection with the August 2023 PIPE Financing, the Company incurred $ 265,053 in direct equity issuance costs for net proceeds of $ 11,734,947 . Stock Issued for Services On November 1, 2023, the Company released 5,000 shares of common stock to a service provider (Note 8). On March 2, 2022, the Company released 600 shares of common stock to a service provider (Note 8). EHT Acquisition On November 10, 2022, the Company issued 1,665,083 shares of common stock to EHT shareholders at a 1.95 conversion rate as consideration in the EHT Acquisition (Note 3). Warrant Exercises During the December 31, 2023, 66,566 of the outstanding stock warrants held by Sciences in conjunction with the MTA, with an intrinsic value of $ 332,830 were exercised in exchange for 66,566 shares of common stock for proceeds of $ 282,906 which were applied to the balance of the Amended Credit Agreement (Note 6). During the year ended December 31, 2022, 78,667 pre-funded warrants with an intrinsic value of $ 1,178,033 were exercised in exchange for 78,667 shares of common stock for proceeds of $ 1,967 . As of December 31, 2023 all of the pre-funded warrants from the September 2021 Financing have been exercised. Induced Conversion of Amended Credit Agreement During the year ended December 31, 2023, the Company issued 165,517 shares of common stock to Sciences. The shares were issued in conjunction with the MTA, in exchange for the remaining principal balance plus accrued interest less the aggregate exercise price of $ 282,905 from the exercise of the MTA Warrants in the amount of $ 1,597,236 at a conversion price of $ 9.65 (Note 6). Restricted Stock Units Released On December 14, 2023, the Company released 5,333 restricted stock units that had vested to executives of the Company (Note 8). On December 14, 2022, the Company released 5,333 restricted stock units that had vested to executives of the Company (Note 8). 8. 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 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. F-26 On June 14, 2022, the Board approved the 2014 Amended and Restated Omnibus Incentive Plan (the “2014 Amended and Restated Plan”) which replaced the 2014 Plan in its entirety. The 2014 Amended and Restated Plan, among other things, fixed the number of shares that can be issued under the plan to 364,879 , provided that each January 1 beginning in 2023 and ending on (and including) January 1, 2032 the number of shares will increase by 5 % of the outstanding shares of Common Stock as of the prior December 31, unless the Board of Directors of the Company decides to a lesser increase. On September 30, 2022, the Amended and Restated 2014 Plan was approved by the shareholders. The 2014 Amended and Restated 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. On September 29, 2023, the Board and Majority Stockholders adopted and approved Amendment No. 1 to the 2014 Amended and Restated Plan. Amendment No. 1 to the 2014 Amended and Restated Plan became effective on November 6, 2023. The 2014 Amended and Restated Plan was amended to increase the number of shares of the Company’s common stock authorized for issuance under the Plan by 1,299,297 to an aggregate pool of 1,846,883 , while retaining the automatic share replenishment feature. The Company has reserved shares for issuance under our equity incentive plan upon share option exercise. As of December 31, 2023, the Company had 487,672 shares available for future grant under the 2014 Plan. As of December 31, 2023, the shares available for future grant under the 2014 Amended and Restated Plan are as follows: Shares Available for Grant Available as of December 31, 2022 169,099 Share pool increase 1,482,003 Forfeited 24,448 Cancelled 37,789 RSU releases 5,333 RSU grants ( 842,445 ) Option grants ( 388,555 ) Available as of December 31, 2023 487,672 Stock Options Options granted under the 2014 Amended and Restated Plan expire no later than ten years from the date of grant. Options granted under the 2014 Amended and Restated 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 Amended and Restated 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. F-27 The following is a summary of option activities under the Company’s 2014 Amended and Restated Plan for the year ended December 31, 2023: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value* Outstanding, December 31, 2022 171,980 $ 45.00 7.14 $ — Granted 388,555 3.49 Forfeited ( 37,789 ) 116.95 Cancelled ( 24,448 ) 10.28 Outstanding, December 31, 2023 498,298 $ 8.96 7.24 $ 20,441 Exercisable, December 31, 2023 145,502 $ 19.88 7.24 $ 1,276 Vested and expected to vest, December 31, 2023 498,298 $ 8.96 8.86 $ 20,441 *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, 2023 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options"). The weighted-average grant-date fair value of stock options granted for the years ended December 31, 2023 and 2022, excluding EHT rollover options issued related to the EHT Acquisition, was $ 2.95 and $ 10.00 , respectively. The total fair value of the stock options that vested during the years ended December 31, 2023 and 2022 was $ 512,470 and $ 466,263 , 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, 2023 2022 Dividend yield 0.00 % 0.00 % Risk-free interest rate 3.86 - 4.61 % 2.89 - 3.60 % Expected term (years) 5.27 - 6.08 5.00 - 6.08 Volatility 87.93 - 127.00 % 126.27 - 132.58 % In connection with the EHT Acquisition, the Company issued a total of 33,131 stock options to EHT option holders on November 10, 2022 (Note 3). The exercise price and rollover option shares were adjusted by the Exchange Ratio at the Acquisition date and retain the vest periods as originally issued. 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. On August 25, 2023, the Company granted RSUs to its executive management team and to certain members of the Board with market and performance based conditions. The RSUs are eligible to vest subject to the achievement and attainment of certain market capitalization target goals (market-based conditions) or the achievement of a successful exit (a performance-based condition); provided, however, that no RSUs shall vest until the Compensation Committee of the Board determines that shares can be sold into the market to cover withholding tax obligations associated with the vesting of the RSUs. F-28 The following is a summary of restricted stock unit activity during the year ended December 31, 2023: Number of Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2022 10,665 $ 14.43 Granted 842,445 3.59 Released ( 5,333 ) 14.43 Unvested, December 31, 2023 847,777 $ 3.66 The Company used the Monte Carlo Simulation model to evaluate the derived service period and fair value of awards with market and performance conditions, including assumptions of historical volatility and risk-free interest rate commensurate with the vesting term. The fair value of the Company's performance-based RSUs were estimated on the date of grant under the following assumptions: Year Ended December 31, 2023 Dividend yield 0.00 % Volatility factor 87.4 - 87.9 % Risk-free interest rate 4.21 - 4.54 % Derived service periods (years) 0.81 - 3.11 During the first quarter of 2024, the first three market based conditions of the RSUs were met. Awards Granted Outside the 2014 Amended and Restated Plan During the year ended December 31, 2023, the Company granted shares of common stock to a non-employee consultant for investor relations services. Half of the shares were issued upon entering each service contract and the remaining half will be issued on October 31, 2024, unless the agreement is earlier terminated. The following is a summary of restricted stock activity outside of the 2014 Amended and Restated Plan during the year ended December 31, 2023: Number of Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2022 — $ — Granted 10,000 1.55 Released ( 5,000 ) — *Unvested, December 31, 2023 5,000 $ 1.55 F-29 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 warrants with vesting provisions issued to a service provider (Note 5), and the RSUs discussed above, in its Consolidated Statements of Operations as follows: Year Ended December 31, 2023 2022 Research and development $ 188,886 $ 77,965 General and administrative 798,624 530,234 $ 987,510 $ 608,199 The total amount of unrecognized compensation cost was $ 3,955,054 as of December 31, 2023. This amount will be recognized over a weighted-average period of 7.19 years. 2022 Employee Stock Purchase Plan In June 2022, the Company's board of directors approved the 2022 Employee Stock Purchase Plan (the "ESPP"). Under which the Company will offer eligible employees the option to purchase common stock at a 15 % discount to the lower of the market value of the stock at the beginning or end of each participation period under the terms of the ESPP. Total individual purchases in any year are limited to 15 % of compensation. The ESPP was approved by the Company's stockholders on September 30, 2022. As of December 31, 2023, no shares were issued under the ESPP. 9. 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, 2023 Loss (Numerator) Shares (Denominator) Per-Share Amount Net loss $ ( 37,644,784 ) Basic EPS and diluted EPS Net loss available to common stockholders ( 37,644,784 ) 7,006,038 $ ( 5.37 ) For the Year Ended December 31, 2022 Income (Numerator) Shares (Denominator) Per-Share Amount Net loss $ ( 19,481,602 ) Basic EPS and diluted EPS Net loss available to common stockholders ( 19,481,602 ) 2,221,080 $ ( 8.77 ) F-30 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, 2023 2022 Stock options 498,298 171,980 Unvested restricted stock units 847,777 10,665 Unvested restricted stock (service provider) 5,000 — Common shares underlying convertible debt 968,973 18,642 Warrants 3,280,940 788,539 Total 5,600,988 989,826 10. Income Taxes The components of loss before the income tax provision consist of the following: Year Ended December 31, 2023 2022 United States $ ( 25,799,330 ) $ ( 18,801,570 ) Foreign ( 11,841,854 ) ( 673,291 ) Pre-tax loss and comprehensive loss from operations $ ( 37,641,184 ) $ ( 19,474,861 ) The components of the income tax expense consisted of the following: Year Ended December 31, Current income tax expense 2023 2022 Federal $ — $ — State 3,600 6,741 Foreign — — Total current income tax expense $ 3,600 $ 6,741 The Company is subject to taxation in the United States, various states, Australia, and Canada. The Company’s tax years for 2020 (federal), 2019 (States), 2019 (Australia) and 2019 (Canada) and forward are subject to examination by the United States, state, Australian, and Canadian 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, 2023, the Company had federal and state NOLs aggregating $ 110,288,344 and $ 113,806,359 , respectively. If not used, $ 46,622,953 of Federal NOLs and $ 113,678,291 of state NOLs will begin to expire in 2031, $ 63,665,391 of federal NOLs and $ 128,068 of state NOLs will carry forward indefinitely subject to an 80% limitation against taxable income. At December 31, 2023, the Company had Australia NOLs aggregating $ 233,321 which do not expire and $ 43,762,031 of Canadian NOLS which begin to expire in 2024. At December 31, 2023, the Company had Canadian capital loss carryforwards of approximately $ 64,743,505 which may be carried forward indefinitely. At December 31, 2023, the Company had federal and California research credit carryforwards of $ 3,480,111 and $ 2,073,709 , respectively. The federal research credit carry forwards will begin to expire in 2027, unless previously utilized. The California research credits will carry forward indefinitely. The Company’s NOLs and research credit carryforwards are subject to a reserve. Additionally, the Company had Canadian SR&ED credits as of December 31, 2023 of $ 940,180 which may be carried forward indefinitely. F-31 Utilization of the domestic NOL's and research credits 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 and credits 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 and credits 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 NOLs and credits 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 and (liabilities): 2023 2022 Net operating loss $ 40,900,348 $ 30,648,168 Capital loss carryforwards 17,157,029 8,824,896 Contingent legal accrual 1,320,526 1,306,098 Depreciation 663,197 286,452 Amortization 225,678 216,077 Research and development credits 3,694,501 1,199,256 Capitalized research and development costs 1,835,326 1,000,777 Lease liability 51,086 16,565 State taxes 777 756 Other 663,067 473,429 Gross deferred tax assets 66,511,533 43,972,473 Valuation allowance ( 66,461,557 ) ( 43,957,489 ) Net deferred tax assets $ 49,976 $ 14,984 Deferred tax liabilities Right-of-use asset $ ( 49,976 ) $ ( 14,984 ) Total deferred tax liabilities ( 49,976 ) ( 14,984 ) Net deferred tax assets $ — $ — F-32 The provision for income taxes on earnings subject to income taxes differs from the statutory Federal rate at December 31, 2023 and 2022, due to the following: As of December 31, 2023 2022 Expected income tax benefit at federal statutory tax rate $ ( 7,904,649 ) $ ( 4,089,720 ) State income taxes, net of federal benefit ( 847,810 ) ( 749,744 ) Change in fair value of warrants — ( 76,672 ) Change in valuation allowance 3,167,507 ( 892,837 ) Uncertain tax positions 1,008,482 884,911 Reduction in deferreds upon divestiture — 4,974,768 Non-deductible interest — 35,624 Stock compensation 100,958 69,754 Research and development credits ( 315,498 ) ( 281,709 ) Rate adjustment 6,042 ( 3,568 ) Foreign rate differential ( 1,918,633 ) 14,934 Divestiture of VDL 2,269,297 — In process research and development 4,455,195 — Other ( 17,293 ) 121,000 Provision for income taxes $ 3,600 $ 6,741 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 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, 2023. During the year ended December 31, 2023, the valuation allowance increased by $ 22,504,068 . 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. 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, 2023 2022 Unrecognized tax positions, beginning of the year $ 2,872,020 $ 1,784,626 Gross increase - current period tax positions 1,243,191 1,087,413 Gross increase - prior period tax positions 2,316,932 — Gross decrease – prior period tax positions — ( 19 ) Unrecognized tax positions, end of year $ 6,432,143 $ 2,872,020 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, 2023 and 2022 and has no t recognized interest and/or penalties in the Consolidated Statements of Operations for the years then ended . F-33 11. Licensed Intellectual Property UM 5050 The Company in-licenses the intellectual property used in its glaucoma product, SBI-100 OE, from the University of Mississippi under an "all fields of use" license. The license grants the Company an exclusive, perpetual license, including, with the prior written consent of UM, not to be unreasonably withheld, the right to sublicense. The License Agreement provides for an annual maintenance fee of $ 75,000 payable on the anniversary of the effective date. The remaining milestone payments under the license are as follows: i) $ 200,000 paid within 30 days following the first submission of an Investigational New Drug Application ("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 ii) $ 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. In July 2022, the Company paid $ 100,000 upon submitting its Investigational New Drug Application to the Food and Drug Administration for authorization to conduct the Company's Phase 1 trial of SBI-100 OE to the Therapeutic Goods Administration in Australia. UM 5070 and 8930 License Agreements Until January 8, 2022 and January 30, 2024, the Company licensed UM 5070 and UM 8930, respectively. Under these agreements, the Company was required to pay annual maintenance fees and certain milestones. However, after further evaluation, both licenses were terminated. Tautomer Exclusive License Agreement On November 30, 2023, the Company provided Tautomer Bioscience, (Pty) Limited (“Tautomer”). with an exclusive license to develop and commercialize SBI-100 as a novel suppository formulation in the territory of the countries of the continent of Africa for chronic intractable pain and other indications in South Africa and the rest of Africa (the "Territory"). Under the terms of the agreement, Tautomer is responsible for all formulation, preclinical and clinical development, drug product manufacturing and regulatory costs. The Company is entitled to receive from Tautomer milestone payments upon achievement of certain development, regulatory and commercial events of up to $ 11,350,000 and tiered double-digit royalties on net product sales in the Territory. Additionally, the Company will be paid cost plus 20 % mark-up for all development work, including the supply of SBI-100. We have retained certain rights and options to obtain rights to the future use of new jointly developed intellectual property and other intellectual property owned or controlled by Tautomer related to SBI-100. 12. 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, MFDI has significant influence over Sciences and has been issued the Convertible Note from the Company (Note 6) and participated in the August 2023 PIPE Financing (Note 7). As of December 31, 2023, the Amended Credit Agreement has been extinguished and all of the warrants held by Sciences were exercised pursuant to the MTA (Notes 5 & 6). F-34 On May 18, 2022, Jim Heppell resigned from the Company's board of directors and concurrently entered into a consulting agreement with the Company pursuant to which Mr. Heppell will provide services mutually agreed upon by the Company. The consulting agreement has an initial minimum term of one-year and will be automatically renewed for a one-year period on the anniversary of the contract unless terminated with 60 days' notice. Under the consulting agreement, Mr. Heppell is entitled to a monthly fee of $ 6,300 , which was increased to $ 16,600 per month upon the closing of the EHT Acquisition. The consulting agreement provided Mr. Heppell with a termination payment of $ 74,700 on March 1, 2023, equal to the monthly fees through the then-remaining term of the agreement if Mr. Heppell’s engagement was terminated by the Company without cause. In addition, Mr. Heppell was awarded 16,000 stock options which are subject to certain performance and other conditions. On February 9, 2023, the Company provided notice and terminated the consulting agreement with Mr. Heppell effective March 11, 2023 and effective March 10, 2023, Mr. Heppell was removed from the Board of Sciences and no longer serves as Sciences CEO. During the year ended December 31, 2023, the first tranche of stock options issued to Mr. Heppell were cancelled, unexercised, and the second tranche of stock options were cancelled upon the closing of the Verdélite SPA. The Company accounted for the consulting contract as an in-substance severance arrangement. During the year ended December 31, 2023, no severance expense was recognized. The Company recognized $ 139,615 in severance expense during the year ended December 31, 2022. The accrual for Mr. Heppell's severance was adjusted to include the increased fee payments when the Company closed the EHT Acquisition. As of December 31, 2022, the Company recognized $ 16,600 , in accounts payable - related party and $ 75,503 in other current liabilities - related party under this consulting agreement. As of December 31, 2023, the Company no longer has any obligations or business relationship with Mr. Heppell. VivaCell Biotechnology España, S.L.U (formerly known as Emerald Health Biotechnology España, S.L.U.) In 2021, the Company entered into two separate Agreements pursuant to a Master Services Agreement with VivaCell Biotechnology España, S.L.U ("VivaCell"), 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. Payment for services are based on the negotiated amounts for the completion of agreed upon objectives as provided in the Agreements. The Company did not incur any expenses for the year ended December 31, 2023. For the year ended December 31, 2022, the Company incurred $ 87,927 in expenses under the Agreement. In 2021, the Company entered into an Exclusive Sponsored Research Agreement (the “ESRA”) with VivaCell to fund certain research and development programs. 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. 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. For the years ended December 31, 2023 and 2022, the Company incurred $ 50,000 and $ 200,000 , respectively, in research and development expenses related to the retainer under the ESRA. As of December 31, 2023 and 2022, the Company has recognized $ 0 and $ 50,000 in accounts payable - related parties, respectively, related to the retainer under the ESRA. On March 1, 2022, the Company entered into a research project with VivaCell under the ESRA Agreement for the development of a screening platform for anteroposterior ocular diseases. The project budget is $ 190,500 . For the years ended December 31, 2023 and 2022, the Company incurred $ 39,167 and $ 167,000 , respectively, of research and development expenses under the ESRA. As of December 31, 2023 and 2022, the Company recognized $ 0 and $ 7,835 in other current liabilities, and $ 0 and $ 47,001 in accounts payable- related parties under this agreement. On May 8, 2023, the Company terminated the ESRA effective March 31, 2023, and Vivacell waived the required notice period under the ESRA. Management Conflicts Until the date of the EHT Acquisition, the Company's CEO, Punit Dhillon, was a board member of the Company and EHT (Note 3). On February 28, 2022, the Company entered into a standard consulting agreement with the CEO's brother to assist with diligence on the EHT Acquisition due to his knowledge and expertise as a former executive of EHT. Compensation under the agreement is for a rate of approximately $ 73 per hour. The consulting agreement may be terminated by either party upon providing 15 days of advance notice. For the years ended December 31, 2023 and 2022, the Company incurred $ 35,087 and $ 46,684 , respectively, in consulting expenses under this agreement. As of December 31, 2023 and 2022, the Company recorded $ 0 and $ 12,511 to other current liabilities - related parties related to this consulting agreement. Effective June 30, 2023, this contract was terminated. F-35 13. Commitments and Contingencies Office Lease The Company leases office space for its corporate headquarters, located at 11250 El Camino Real, Suite 100 San Diego, California 92130. The original lease term was effective from September 1, 2021 through October 31, 2023 and contained a renewal option for a two-year extension after the current expiration date. At the commencement date, the Company did not expect to exercise the renewal option, 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 included 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. The Company entered into an amended and restated lease agreement on June 27, 2023 for its corporate headquarters, extending the lease term to 36 months, retroactive to September 1, 2021 through October 31, 2026. The Company treated the amended and restated lease agreement as a single modified lease. For the years ended December 31, 2023 and 2022, lease expense comprised of $ 97,986 and $ 90,701 , respectively 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, 2023 Weighted-average remaining term – operating lease (in years) 2.83 Weighted-average discount rate – operating lease 15 % Future minimum lease payments as of December 31, 2023 are presented in the following table: Year: 2024 103,216 2025 106,313 2026 90,798 Total future minimum lease payments: 300,327 Less imputed interest ( 57,059 ) Total $ 243,268 Reported as: December 31, 2023 December 31, 2022 Operating lease liability $ 72,038 $ 78,700 Operating lease liability, net of current portion 171,230 — Total lease liability $ 243,268 $ 78,700 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. F-36 Wendy Cunning vs Skye Bioscience, Inc. The Company is a party to a legal proceeding with a former employee alleging, among other things, wrongful termination, violation of whistleblower protections under the Sarbanes-Oxley Act of 2002, and retaliation under California law against the Company relating to certain actions and events that occurred with the Company's former management during the employee's employment term from March 2018 to July 2019. The case, entitled Wendy Cunning vs Skye Bioscience, Inc., was filed in U.S. District Court (the "District Court") for the Central District of California (the “Cunning Lawsuit”). On January 18, 2023, a jury rendered a verdict in favor of Ms. Cunning and awarded her $ 512,500 in economic damages (e.g., lost earnings, future earnings and interest), $ 840,960 in non-economic damages (e.g., emotional distress) and $ 3,500,000 in punitive damages. On February 13, 2023, the Company received the final judgment on the special verdict (the "Final Judgment") from the District Court. On August 2, 2023, the District Court ruled on the plaintiff's motion for attorney fees and awarded the plaintiff $ 1,200,008 . Based on this order, the Company reduced the aggregate estimate for the legal contingency by $ 151,842 , the difference between the attorney fees awarded by the District Court and the Company's previous estimate. Immediately prior to the closing of the PIPE Financing, on August 17, 2023, the Company obtained a stay on enforcement of the judgment in the Cunning Lawsuit by posting an appeal bond in the amount of $ 9,080,202 . On October 19, 2023, the Company received the final orders from the District Court denying the post-trial motions that the Company filed with the District Court in March 2023 seeking judgment as a matter of law, a new trial, and/or a reduction of the judgment. Additionally, in March of 2023, the Company appealed the judgment in the Cunning Lawsuit with the Ninth District Court of Appeals, which is moving forward now that the District Court has ruled on the post-trial motions. In March 2024, the Company filed the opening brief for the appeal with the Ninth District Court of Appeals. The Company strongly believes that this case was incorrectly decided as to liability, the amount of compensatory damages, and the appropriateness and amount of punitive damages. The Company is challenging the verdict in the Ninth District Court of Appeals and is pursuing reimbursement under its existing insurance policies, but given the jury verdict, the Company has determined that a loss is probable and accordingly have recorded a legal contingency expense and a current balance sheet liability for the total amount of the jury verdict. The Company has recorded an aggregate estimate for the legal contingency of $ 6,053,468 plus accrued interest of $ 234,750 at an annual interest rate of 4.87 % on the judgment and 5.38 % on the legal fees, which is determined by the Superior Court of California. Depending on the judge's final order on the post-trial motions and appeal, it is reasonably possible that the legal contingency booked could materially change after the issuance of these financials. Skye Bioscience, Inc. vs Partner Re Ireland Insurance In February 2023, the Company brought a suit against the Company's D&O carrier, Partner Re Ireland Insurance DAC ("Partner Re"), bringing claims for (a) breach of contract, (2) tortious breach of the implied covenant of good faith and fair dealing and (3) declaratory relief that Partner Re is obligated to reimburse the Company for the defense fees and costs incurred in defense of the Cunning Lawsuit and must indemnify the Company for any settlement or judgment in the Cunning Lawsuit. The Company's allegations arise out of Partner Re's refusal to reimburse the Company for costs incurred by the Company in defending the Cunning Lawsuit. The case, entitled Skye Bioscience, Inc., v. Partner Re Ireland Insurance DAC, was filed in the United Stated District Court for the Central District of California. On April 17, 2023, Partner Re filed a motion to dismiss the Company's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). On June 20, 2023, the judge issued a final ruling in favor of the Company and denied Partner Re's motion to dismiss the Company's lawsuit. In its ruling, the Court rejected Partner Re's primary basis for denying coverage. Based on the outcome, the Company is pursuing up to $ 5,000,000 in coverage less the deductible to cover legal expenses incurred and the final verdict or settlement of the Cunning Lawsuit. 14. Subsequent Events Sale of Real Estate Held by AVI On January 15, 2024, the Company closed the sale of the real estate held by AVI, which comprised of substantially all of AVI's assets.. The real estate and related equipment was sold to Tab Labs, Inc. for an aggregate purchase price of $ 1,139,572 . F-37 PIPE Financings January 2024 PIPE Financing On January 29, 2024, the Company entered into a Securities Purchase Agreement, pursuant to which on January 31, 2023, the Company issued an aggregate of 11,713,664 shares of common stock and 9,978,739 pre-fund warrants to purchase up to 9,978,739 shares of common stock (the "January 2024 PIPE Financing") for an aggregate purchase price of $ 49,991,010 . The January 2024 PIPE Financing was priced at $ 2.31 per common share and per $ 2.30 pre-funded warrant based on the 5-day average share price preceding January 29, 2024. The pre-funded warrants are exercisable at any time for $ 0.001 . In connection with the PIPE Financing, the Company incurred $ 3,824,841 in direct equity issuance costs for net proceeds of $ 46,166,169 . March 2024 PIPE Financing On March 11, 2024, the Company entered into a Securities Purchase Agreement, pursuant to which on March 13, 2024, the Company issued an aggregate of 4,000,000 shares of common stock (the "March 2024 PIPE Financing") for an aggregate purchase price of $ 40,000,000 . The March 2024 PIPE Financing was priced at $ 10.00 per common share. In connection with the PIPE Financing, the Company incurred $ 2,625,000 in direct equity issuance costs for net proceeds of approximately $ 37,375,000 . Stock-based Compensation On February 29, 2024, the Company granted certain employees and directors 275,000 RSUs with market based vesting conditions. The RSUs vest on the following milestones: (i) 25 % vests upon achieving a market cap of $ 750,000,000 and a stock price of $ 20.00 per share, (ii) 25 % vests upon achieving a market cap of $ 1,000,000,000 and a stock price of $ 30.00 per share, (iii) 25 % vests upon achieving a market cap of $ 1,250,000,000 and a stock price of $ 32.50 per share, and (iv) 25 % vest upon achieving a market cap of $ 1,500,000,000 or greater and a stock price of $ 35.00 per share; provided, however, that no RSUs shall vest until the compensation committee of the Company determines that shares can be sold into the market to cover withholding tax obligations associated with the vesting of the RSUs. Upon a change in control of the Issuer, 100 % of the RSUs will become fully vested. On February 29, 2024, the Company granted certain employees and directors 703,100 stock options to buy shares of the Company's common stock with and exercise price of $ 14.56 . Of the aggregate grant, 250,000 shares will vest over a 1 year period and 488,100 shares will vest over a 4-year period . F-38 The following exhibits are filed with this Annual Report on Form 10-K. Exhibit Number Description of Exhibit 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 EHT (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 19, 2022) 2.5 Loan Agreement and Note, dated October 17, 2022, by and between the Company and EHT (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on October 19, 2022) 2.6 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. (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on November 14, 2022) 2.7 Amendment No. 1 to the Share Purchase Agreement, dated January 26, 2023, by and between Emerald Health Therapeutics, Inc., 14428773 Canada Inc., Verdelite Sciences, Inc., Verdelite Property Holdings, Inc. and C3 Centre Holding Inc. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 27, 2023) 2.8 Amendment No. 2 to the Share Purchase Agreement, dated February 9, 2023, by and between Emerald Health Therapeutics, Inc., 14428773 Canada Inc., Verdelite Sciences, Inc., Verdelite Property Holdings, Inc. and C3 Centre Holding Inc. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February 15, 2023) 2.9* Agreement and Plan of Merger and Reorganization, dated August 15, 2023, by and among Skye Bioscience, Inc., Aquila Merger Sub, Inc., and Bird Rock Bio, Inc. 3.1* Articles of Incorporation of Registrant, as amended 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 2019 Common Stock Warrants (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on November 21, 2019) 4.5 2020 Common Stock Warrants (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on August 5, 2020) 4.6 2021 Inducement Warrants (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.7 2021 Common Stock Warrants (incorporated by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.8 2021 Pre-Funded Warrants (incorporated by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.9 2021 Common Stock Warrants to Placement Agent (incorporated by reference to Exhibit 4.3 to our Quarterly Report on Form 10-Q filed November 10, 2021) 4.10 2022 Form of Warrant Issued to Former EHT Warrant Holders (incorporated by reference to Exhibit 4.12 to our Annual Report on Form 10-K filed on March 31, 2023) 4.11 2023 Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on August 21, 2023 ) 60 4.12 2023 Form of Secured Convertible Promissory Note issued by Skye Bioscience, Inc. to MFDI, LLC (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on August 21, 2023 ) 4.13 2023 Common Stock Purchase Warrant issued by Skye Bioscience, Inc. to MFDI, LLC (incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed on August 21, 2023 ) 4.14* Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 10.1† Skye Bioscience, Inc. 2014 Amended and Restated Omnibus Incentive Plan (incorporated by reference to Appendix D our definitive proxy statement filed on August 31, 2022) 10.2† Amendment No. 1 to Amended and Restated 2014 Omnibus Incentive Plan (incorporated by reference to Annex B to our definitive information statement filed on October 17, 2023) 10.3† Form of Stock Option Agreement under 2014 Amended and Restated Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on November 3, 2014) 10.4† Form of Restricted Stock Unit Agreement under 2014 Amended and Restated Omnibus Incentive Plan (incorporated by reference to Exhibit 10.5 to our Annual Report on Form 10-K filed on March 28, 2022) 10.5† Form of Stock Option Award Agreement - For Canadian Optionees under 2014 Amended and Restated Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on November 14, 2022) 10.6† Notice of Option Amendment (incorporated by reference to Exhibit 10.6 to our Annual Report on Form 10-K filed on March 28, 2022) 10.7† Skye Bioscience, Inc. 2022 Employee Stock Purchase Plan (incorporated by reference to Appendix C to our definitive proxy statement filed on August 31, 2022) 10.8† Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 12, 2015) 10.9† Form of Indemnification Agreement (incorporated by reference to Exhibit 10. 4 to our Current Report on Form 8-K filed on August 21, 2023 ) 10.10† Employment Agreement, dated August 10, 2020, by and between Emerald Bioscience, Inc. and Punit Dhillon (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on August 12, 2020) 10.11† Employment Agreement, dated October 4, 2021, by and between Skye Bioscience, Inc. and Kaitlyn Arsenault (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 6, 2021) 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) (incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K filed on March 28, 2022) 10.13 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) 10.14** Collaborative Research Agreement, dated April 2021, by and between Skye Bioscience, Inc. and Emerald Health Biotechnology España, S.L., (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on August 6, 2021) 10.15** Exclusive License Agreement, dated November 30, 2023, by and between the Company and Tautomer Bioscience (Pty) Limited (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 5, 2023 ) 10.16 Offer to Sell, dated November 29, 2023, by and among Colliers Macaulay Nicolls Inc., Tab Labs Inc. and Avalite Sciences, Inc. (incorporated by reference to Exhibit 10. 2 to our Current Report on Form 8-K filed on December 5, 2023 ) 10.17** Securities Purchase Agreement, dated as of August 15, 2023, by and among Skye Bioscience, Inc. and the Investors named therein (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 21, 2023 ) 10.18** Registration Rights Agreement, dated as of August 15, 2023, by and among Skye Bioscience, Inc. and the Investors named therein (incorporated by reference to Exhibit 10. 2 to our Current Report on Form 8-K filed on August 21, 2023 ) 10.19** Secured Note and Warrant Purchase Agreement, dated as of August 15, 2023, by and among Skye Bioscience, Inc. and MFDI, LLC (incorporated by reference to Exhibit [10.1] to our Current Report on Form 8-K filed on August 21, 2023 ) 61 10.2 F orm of Lock-Up Agreement (incorporated by reference to Exhibit 10.5 to our Q uarterly Report on Fo rm 10-Q filed on November 14, 2023) 10.21 Piggyback Registration Rights Agreement, dated December 14, 2022, by and between the Company and Emerald Health Sciences, Inc. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 19, 2022) 10.23 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* C onsent of Marcum LLP 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 97.1*† Policy relating to recovery of erroneously awarded compensation, as required by applicable listing standards adopted pursuant to 17 CFR 240.10D-1 101* Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) _________ * Filed Herewith ** Portions of this exhibit have been omitted in compliance with Regulation S-K Item 601(b)(10)(iv). † Management contract or compensatory plan or arrangement. Item 16. Form 10-K Summary . None. 62 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 21, 2024 By: /s/ Punit Dhillon Punit Dhillon Its: Chief Executive Officer, Chairman (Principal Executive Officer) March 21, 2024 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. 63 By: /s/ Punit Dhillon March 21, 2024 Punit Dhillon Its: Chief Executive Officer, Chairman (Principal Executive Officer) By: /s/ Kaitlyn Arsenault March 21, 2024 Kaitlyn Arsenault Its: Chief Financial Officer (Principal Financial and Accounting Officer) By: /s/ Margaret Dalesandro March 21, 2024 Margaret Dalesandro Its: Director By: /s/ Deborah Charych March 21, 2024 Deborah Charych Its: Director By: /s/ Praveen Tyle March 21, 2024 Praveen Tyle Its: Director By: /s/ Keith Ward March 21, 2024 Keith Ward Its: Director By: /s/ Andrew Schwab March 21, 2024 Andrew Schwab Its: Director By: /s/ Paul Grayson March 21, 2024 Paul Grayson Its: Director By: /s/ Annalisa Jenkins March 21, 2024 Annalisa Jenkins Its: Director 64