Skye Bioscience, Inc. 10-Q

Item 1. Financial Statements SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2024 December 31, 2023 (Unaudited) ASSETS Current assets Cash $ 83,342,907 $ 1,256,453 Restricted cash 9,080,202 9,080,202 Prepaid expenses 640,536 194,259 Other current assets 1,506,442 1,119,929 Total current assets 94,570,087 11,650,843 Property and equipment, net 36,076 43,276 Operating lease right-of-use asset 220,804 237,983 Other assets 8,309 8,309 Total assets $ 94,835,276 $ 11,940,411 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable $ 1,095,134 $ 1,155,785 Accrued interest - related party 124,658 126,027 Accrued payroll liabilities 353,462 888,381 Accrued interest - legal contingency 309,823 234,750 Other current liabilities 3,179,647 998,552 Estimate for legal contingency 6,053,468 6,053,468 Convertible note - related party, net of discount 4,609,203 4,371,998 Operating lease liability, current portion 75,535 72,038 Total current liabilities 15,800,930 13,900,999 Non-current liabilities Operating lease liability, net of current portion 150,953 171,230 Total liabilities 15,951,883 14,072,229 Commitments and contingencies (Note 9) Stockholders’ equity (deficit) Preferred stock, $ 0.001 par value; 200,000 shares authorized at March 31, 2024 and December 31, 2023; no shares issued and outstanding at March 31, 2024 and December 31, 2023 — — Common stock, $ 0.001 par value; 100,000,000 shares authorized at March 31, 2024 and December 31, 2023; 28,062,907 and 12,349,243 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 28,063 12,349 Additional paid-in-capital 188,257,410 102,238,382 Accumulated deficit ( 109,402,080 ) ( 104,382,549 ) Total stockholders’ equity (deficit) 78,883,393 ( 2,131,818 ) 3 Total liabilities and stockholders’ equity (deficit) $ 94,835,276 $ 11,940,411 See accompanying notes to the condensed consolidated financial statements. 4 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended March 31, 2024 2023 Operating expenses Research and development $ 1,946,450 $ 1,184,880 General and administrative 4,205,800 1,915,278 Total operating expenses 6,152,250 3,100,158 Operating loss ( 6,152,250 ) ( 3,100,158 ) Other (income) expense Interest expense 436,936 18,396 Interest income ( 426,514 ) ( 24,514 ) (Gain) loss from asset sales ( 1,145,141 ) 307,086 Debt conversion inducement expense — 1,383,285 Wind-down costs — 383,109 Total other (income) expense, net ( 1,134,719 ) 2,067,362 Loss before income taxes ( 5,017,531 ) ( 5,167,520 ) Provision for income taxes 2,000 — Net loss $ ( 5,019,531 ) $ ( 5,167,520 ) Loss per common share: Basic $ ( 0.18 ) $ ( 1.37 ) Diluted $ ( 0.18 ) $ ( 1.37 ) Weighted average shares of common stock outstanding used to compute earnings per share: Basic 27,999,901 3,767,578 Diluted 27,999,901 3,767,578 See accompanying notes to the condensed consolidated financial statements. 5 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 5,019,531 ) $ ( 5,167,520 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 27,560 33,174 Stock-based compensation expense 2,478,179 131,579 Amortization of debt discount 237,205 — (Gain) loss from divestiture of assets ( 1,145,141 ) 307,086 Debt conversion inducement expense — 1,383,285 Accrued interest conversion expense — 15,952 Foreign currency remeasurement gain — ( 45,351 ) Changes in assets and liabilities: Prepaid expenses ( 446,277 ) 96,668 Other current assets ( 386,513 ) ( 258,443 ) Accounts payable ( 60,652 ) ( 445,903 ) Accounts payable - related parties — ( 20,331 ) Accrued interest - related party ( 1,369 ) — Accrued interest - legal contingency 75,073 — Accrued payroll liabilities ( 534,919 ) 134,767 Operating lease liability ( 16,780 ) 2,618 Other current liabilities 85,042 ( 132,654 ) Other current liabilities - related parties — ( 95,850 ) Net cash used in operating activities ( 4,708,123 ) ( 4,060,923 ) Cash flows from investing activities: Proceeds from the sale of assets, net of sales costs 1,145,141 5,532,266 Purchase of property and equipment ( 3,181 ) ( 1,860 ) Net cash provided by investing activities 1,141,960 5,530,406 Cash flows from financing activities: Proceeds from the issuance of common stock and warrants, net of equity issuance costs of $ 4,338,393 85,652,617 — Repayment of insurance premium loan payable — ( 45,307 ) Net cash provided by (used in) financing activities 85,652,617 ( 45,307 ) Net increase in cash and restricted cash 82,086,454 1,424,176 Cash and restricted cash , beginning of period $ 10,336,655 $ 1,249,107 Cash and restricted cash, end of period $ 92,423,109 $ 2,673,283 6 Supplemental disclosures of cash-flow information: Reconciliation of cash and restricted cash: Cash $ 83,342,907 $ 2,668,697 Restricted cash 9,080,202 4,586 Total cash and restricted cash shown in the condensed consolidated statements of cash flows $ 92,423,109 $ 2,673,283 Cash paid during the period for: Interest $ 126,027 $ 4,275 Income taxes 2,000 5,141 Supplemental disclosures of non-cash financing activities: Accrued financing charges $ 2,096,054 $ — Common stock warrant exercises — 282,905 Conversion of multi-draw credit agreement — 1,565,470 Conversion of accrued interest due to related party — 31,766 Financing of insurance premium — 203,884 See accompanying notes to the condensed consolidated financial statements. 7 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED) Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity/ (Deficit) Shares Amounts Balance, January 1, 2024 12,349,243 $ 12,349 $ 102,238,382 $ ( 104,382,549 ) $ ( 2,131,818 ) Stock-based compensation expense — — 2,478,179 — 2,478,179 Issuance of common stock and warrants, net of issuance costs of $ 6,434,447 15,713,664 15,714 83,540,849 — 83,556,563 Net loss — — — ( 5,019,531 ) ( 5,019,531 ) Balance, March 31, 2024 28,062,907 $ 28,063 $ 188,257,410 $ ( 109,402,080 ) $ 78,883,393 Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity/ (Deficit) Shares Amounts Balance, January 1, 2023 3,654,119 $ 3,654 $ 63,726,057 $ ( 66,737,765 ) $ ( 3,008,054 ) Stock-based compensation expense — — 131,579 — 131,579 Exercise of pre-funded warrants 66,566 66 282,839 — 282,905 Conversion of multi-draw credit agreement - related party and accrued interest 165,517 166 2,980,355 — 2,980,521 Net loss — — — ( 5,167,520 ) ( 5,167,520 ) Balance, March 31, 2023 3,886,202 $ 3,886 $ 67,120,830 $ ( 71,905,285 ) $ ( 4,780,569 ) See accompanying notes to the condensed consolidated financial statements. 8 SKYE BIOSCIENCE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization, Basis of Presentation and Significant Accounting Policies Nature of Operations Skye Bioscience, Inc. (the “Company” or “Skye”) was incorporated in Nevada on March 16, 2011. The Company is a clinical stage pharmaceutical company 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 and development efforts. As of March 31, 2024, the Company has devoted substantially all its efforts to securing its product pipeline (through a strategic acquisition and academic licenses), carrying out its own research and development, preparing for and conducting clinical trials, building infrastructure and raising capital. The Company has not yet realized revenue from its planned principal operations and is a number of years away from potentially being able to do so. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year, or any future periods. The Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, from which the prior year balance sheet information herein was derived. The Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Certain reclassifications have been made to the amounts in prior periods to conform to the current period’s presentation, primarily the separate classification of prepaid expenses and other current assets on the Company's condensed balance sheet, and condensed statement of cash flows and change in fair value of derivative liability and interest expense on the condensed statement of operations. Such reclassifications did not have a material impact on the Unaudited Condensed Financial Statements. During Q1 2024, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Pronouncements Implemented 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. 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. We early adopted the ASU and determined that its adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures. As defined the ASU, operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the CODM in making decisions on how to allocate resources and assess performance for the organization. The Company operates and manages its business as one reportable and operating segment — pharmaceutical development. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s chief operating decision maker reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company. 9 In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) . The new standard reduces the number of accounting models for convertible debt instruments, amends the accounting for certain contracts in an entity’s own equity, and modifies how certain convertible instruments and contracts that may be settled in cash or shares impact the calculation of diluted earnings per share. Specifically, the guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments and requires the use of the if-converted method to calculate diluted earnings per share. The adoption of this standard did not have an impact on the Company's Consolidated Financial Statements. 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. 2. Asset Dispositions Sale of real estate The wind down of Emerald Health Therapeutics, Inc. ("EHT's") operations included the disposition of real estate held by AVI (the "AVI building"). At the time of the EHT Acquisition, none of the purchase consideration was allocated to the fair value of the AVI building . As a result of the sale, for the three months ended March 31, 2024, the Company recorded a gain on sale of $ 1,145,141 in other (income) expense, net of sales costs. Divestiture of VDL On February 9, 2023, the Company sold Verdélite Sciences, Inc. ("VDL"). For the three months ended March 31, 2023, the Company has recorded a loss on sale of asset of $ 307,086 in other (income) expense based on the difference between the carrying amount of the assets sold and the net cash proceeds. 10 3. Prepaid Expenses, Other Current Assets and Liabilities Prepaid expenses consist of the following: As of March 31, 2024 As of December 31, 2023 Clinical expenses $ 86,940 $ 61,352 Other prepaid expenses 553,596 132,907 $ 640,536 $ 194,259 Other current assets consist of the following: As of March 31, 2024 As of December 31, 2023 AusIndustry incentive $ 525,707 $ 540,604 Vendor deposits 814,195 403,439 Excise tax bonds 123,051 125,784 Other tax receivables 26,228 32,458 Other current assets 17,261 17,644 $ 1,506,442 $ 1,119,929 Other current liabilities consist of the following: As of March 31, 2024 As of December 31, 2023 Accrued placement agent fees $ 2,096,054 $ — Research and development costs 452,465 467,784 Legal fees 298,711 258,213 EHT Acquisition related liabilities 123,169 180,897 Professional and consulting fees 124,586 69,468 Other accrued liabilities 84,662 22,190 $ 3,179,647 $ 998,552 11 4. Warrants There are significant judgements and estimates inherent in the determination of the fair value of the Company’s warrants. These judgements and estimates include assumptions regarding the Company’s future operating performance and the determination of the appropriate valuation methods. Warrants Warrants vested and outstanding as of March 31, 2024 are summarized as follows: Source Exercise Price Weighted Average Remaining Contractual Term (Years) Number of Warrants Outstanding 2015 Common Stock Warrants $ 1,250.00 1.07 400 2016 Common Stock Warrants to Service Providers 287.50 2.59 160 2019 Common Stock Warrants 87.50 0.64 32,000 2020 Common Stock Warrants to Placement Agent 20.00 1.33 32,668 2021 Inducement Warrants 37.50 2.32 84,667 2021 Inducement Warrants to Placement Agent 47.00 2.32 5,927 2021 Common Stock Warrants 22.50 2.50 311,113 2021 Common Stock Warrants to Placement Agent 27.50 2.50 21,778 2022 Common Stock Warrants to Service Provider 10.00 0.00 8,000 November 2019 EHT Common Stock Warrants 72.25 0.67 34,213 December 2019 EHT Common Stock Warrants 37.25 0.75 3,783 February 2020 EHT Common Stock Warrants 37.25 0.86 80,694 August 2023 Convertible Note Common Stock Warrants 5.16 9.39 340,000 August 2023 PIPE Financing Common Stock Warrants 5.16 9.39 2,325,537 January 2024 Pre-Funded Warrants Common Stock 0.001 Indefinite 9,978,739 Total warrants outstanding as of March 31, 2024 13,259,679 As of March 31, 2024, all of the Company's warrants are fully vested . January 2024 Pre-Funded Warrants In connection with the January 2024 PIPE Financing (see Note 6), the Company entered into a Securities Purchase Agreement (the "January 2024 SPA"), pursuant to which the Company agreed to use and sell at closing to certain accredited institutional investors pre-funded warrants (the "Pre-Funded Warrants") to purchase shares of common stock of the Company. Per the January 2024 SPA, accredited institutional investors purchased Pre-Funded Warrants to purchase up to 9,978,739 shares of common stock at a price of $ 2.30 per Pre-Funded Warrant. The Pre-Funded Warrants have an exercise price of $ 0.001 per share, will be exercisable immediately and will be exercisable until exercised in full. The gross proceeds from the issuance of these Pre-Funded Warrants was $ 22,991,015 . The Company determined that the Pre-Funded Warrants are freestanding instruments that do not meet the definition of a liability or derivative. The Pre-Funded Warrants are indexed to the Company’s common stock and meets all other conditions for equity classification. Accordingly, the Pre-Funded Warrants are classified as equity and is accounted for as a component of additional paid-in capital at the time these were issued. The Company also determined that the Pre-Funded Warrants should be included in the determination of basic and diluted earnings per share calculation. ` 12 5. Debt The Company’s convertible debt consists of the following: As of March 31, 2024 As of December 31, 2023 Total principal value of convertible note - related party, net of discount $ 5,000,000 $ 5,000,000 Unamortized debt discount ( 379,947 ) ( 610,749 ) Unamortized debt issuance costs ( 10,850 ) ( 17,253 ) Carrying value of total convertible debt - related party $ 4,609,203 $ 4,371,998 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") (Note 4). The Convertible Note bears interest at a rate of 10 % per annum and matures on August 18, 2024, unless earlier repurchased or converted. MFDI can elect to convert the Convertible Note 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. The debt discounts related to the warrants, and debt issuance costs, 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 (income) expense within the Consolidated Statements of Operations. As of March 31, 2024 the fair value of the Company's Convertible Note approximates its intrinsic value which is equal to $ 10,155,039 . The intrinsic value of the Convertible Note was calculated as the excess fair value of the underlying conversion shares over the principal value of the Convertible Note. The Convertible Note is classified as Level 2 of the fair value hierarchy model based on market prices that can be corroborated with observable market data for the Company's common stock. For the three months ended March 31, 2024, the effective interest rate on the Convertible Note was 31.39 %. Interest Expense The Company’s interest expense consists of the following: Three Months Ended March 31, 2024 2023 Related party interest expense – stated rate $ 124,658 $ 15,952 Legal judgment interest expense 75,073 — Other interest expense — 2,444 Non-cash interest expense: Amortization of debt discount 237,205 — $ 436,936 $ 18,396 6. Stockholders’ Equity and Capitalization PIPE Financings January 2024 PIPE Financing On January 29, 2024 , the Company entered into a securities purchase agreement, pursuant to which on January 31, 2024 , the Company issued an aggregate of 11,713,664 shares of common stock and 9,978,739 pre-funded warrants 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 an exercise price of $ 0.001 . In connection with the January 2024 PIPE Financing, the Company incurred $ 3,823,752 in direct equity issuance costs for net proceeds of $ 46,167,258 . 13 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 March 2024 PIPE Financing, the Company incurred $ 2,610,695 in direct equity issuance costs for net proceeds of approximately $ 37,389,305 . 7. Stock-Based Compensation Stock Incentive Plan On October 31, 2014, the Board of Directors approved the Company’s 2014 Omnibus Incentive Plan. 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 Omnibus Incentive Plan in its entirety. 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 the Restated Plan became effective on November 6, 2023. As of March 31, 2024, 2,464,345 shares were authorized for the issuance under the 2014 Plan. The Company has reserved shares for issuance under our equity incentive plan upon share option exercise. As of March 31, 2024, the Company had 127,034 shares available for future grant under the 2014 Plan. Stock Options The following is a summary of option activities under the Company’s 2014 Amended and Restated Plan for the three months ended March 31, 2024: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value* Outstanding, December 31, 2023 498,298 $ 8.96 7.24 $ 20,441 Granted 703,100 14.56 Outstanding, March 31, 2024 1,201,398 $ 12.23 9.37 $ 5,678,677 Exercisable, March 31, 2024 218,793 $ 16.09 7.82 $ 1,442,967 *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 March 31, 2024 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options"). The weighted-average grant-date fair value of stock options granted during the three months ended March 31, 2024, was $ 11.60 . The fair value of the Company's stock option grants were estimated on the date of grant using the Black-Scholes option-pricing model under the following assumptions: Three Months Ended March 31, 2024 Dividend yield 0.00 % Volatility factor 99.58 % - 99.96 % Risk-free interest rate 4.26 % Expected term (years) 5.27 - 6.08 14 Restricted Stock Units On February 29, 2024, the Company granted RSUs to its executive management team and to certain members of the Board with market based vesting conditions. The RSUs are eligible to vest subject to the achievement and attainment of certain market capitalization target goals and share price targets (market-based vesting conditions). The Company used the Monte Carlo Simulation model to evaluate the derived service period and fair value of awards with market and performance conditions, including assumptions of historical volatility and risk-free interest rate commensurate with the vesting term. The fair value of the Company's market-based RSUs were estimated on the date of grant under the following assumptions: Three Months Ended March 31, 2024 Dividend yield 0.00 % Volatility factor 93.71 % Risk-free interest rate 4.16 % Derived service periods (years) 1.27 - 2.48 The following is a summary of restricted stock unit activity during the year ended March 31, 2024 : Number of Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2023 847,777 $ 3.66 Granted 275,000 14.10 Unvested, March 31, 2024 1,122,777 $ 6.21 Stock-Based Compensation Expense The Company recognizes stock-based compensation expense using the straight-line method over the requisite service period or derived service period. The Company recognized stock-based compensation expense for the stock options and the RSUs discussed above, in its Unaudited Condensed Consolidated Statements of Operations as follows: Three Months Ended March 31, 2024 2023 Research and development $ 391,611 $ 44,468 General and administrative 2,086,568 87,111 $ 2,478,179 $ 131,579 During the three months ended March 31, 2024, the first three market based conditions of the RSUs granted in August 2023 were met and the Company recognized $ 1,777,673 in stock based compensation related to these awards. The total amount of unrecognized compensation cost was $ 14,398,828 as of March 31, 2024. This amount will be recognized over a weighted average period of 4.75 years . 15 8. Loss Per Share of Common Stock The following tables are a reconciliation of the numerators and denominators used in the calculation of basic and diluted net loss per share computations: Three Months Ended March 31, (Unaudited) 2024 2023 Basic EPS and diluted EPS: Loss (Numerator) Net loss $ ( 5,019,531 ) $ ( 5,167,520 ) Shares (Denominator) Weighted average common shares outstanding(1) 27,999,901 3,767,578 Per-Share Amount $ ( 0.18 ) $ ( 1.37 ) The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive: Three Months Ended March 31, (Unaudited) 2024 2023 (1) Stock options 1,201,398 175,733 Warrants 3,280,940 708,373 Unvested restricted stock units 503,444 10,667 Unvested restricted stock 5,000 — Convertible Debt 968,922 — ___________________ (1) Previously reported o utstanding shares of common stock equivalents were adjusted for the effects of the reverse stock split at a ratio of one-for-two hundred and fifty (1-for-250). The reverse stock split was transacted on September 6, 2023. 9. Contingencies General Litigation and Disputes From time to time, in the normal course of operations, the Company may be a party to litigation and other dispute matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable outcome to any legal matter, if material, could have a materially adverse effect on the Company’s operations or financial position, liquidity or results of operations. Wendy Cunning vs Skye Bioscience, Inc. The Company is a party to a legal proceeding with a former employee alleging, among other things, wrongful termination, violation of whistleblower protections under the Sarbanes-Oxley Act of 2002, and retaliation under California law against the Company relating to certain actions and events that occurred with the Company's former management during the employee's employment term from March 2018 to July 2019. The case, entitled Wendy Cunning vs Skye Bioscience, Inc. , was filed in U.S. District Court (the "District Court") for the Central District of California (the “Cunning Lawsuit”). On January 18, 2023, a jury rendered a verdict in favor of Ms. Cunning and awarded her $ 512,500 in economic damages (e.g., lost earnings, future earnings and interest), $ 840,960 in non-economic damages (e.g., emotional distress) and $ 3,500,000 in punitive damages. On 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 . 16 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 to the Ninth District Court of Appeals, which is moving forward now that the District Court has ruled on the post-trial motions. 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 $ 309,823 at an annual interest rate of 4.9 % 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. For the three months ended March 31, 2024, the Company recorded interest expense of $ 75,073 and nil, respectively, which is included in Other (income) expense in the Condensed Consolidated Statements of Operations (Note 5). 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. 17