What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-11-07 compared with 2024-08-09 · 202 added, 124 removed, 355 unchanged (48% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2024 December 31,

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Other current liabilities 2,065,658 998,552

Estimate for legal contingency 6,053,468 6,053,468

Estimate for accrued legal contingencies and related expenses 1,792,337 6,053,468

Convertible note - related party, net of discount — 4,371,998

9 unchanged sentences

Preferred stock, $ 0.001 par value;

200,000 shares authorized at June 30, 2024 and December 31, 2023;

no shares issued and outstanding at June 30, 2024 and December 31, 2023

200,000 shares authorized at September 30, 2024 and December 31, 2023;

no shares issued and outstanding at September 30, 2024 and December 31, 2023

Common stock, $ 0.001 par value;

100,000,000 shares authorized at June 30, 2024 and December 31, 2023;

28,067,907 and 12,349,243 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

100,000,000 shares authorized at September 30, 2024 and December 31, 2023;

30,338,290 and 12,349,243 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

30,338 12,349

12 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the For the Nine Months Ended

September 30,

2024 2023 2024 2023

2 unchanged sentences

$ 4,883,337 $ 1,254,653 $ 10,908,538 $ 4,227,967

Cost to acquire IPR&D asset

— 21,215,214 — 21,215,214

General and administrative 4,638,927 2,235,899 13,171,547 5,357,577

Estimated legal contingency — ( 151,842 ) — ( 151,842 )

Change in estimate for legal contingencies

( 4,553,468 ) — ( 4,553,468 ) ( 151,842 )

Total operating expenses

2 unchanged sentences

Other (income) expense

Interest expense

Interest (income) expense

( 90,766 ) 271,307 796,222 476,135

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

For the Nine Months Ended

September 30,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation expense 6,228,270 394,657

Change in fair value of derivative liabilities

Amortization of debt discount 599,006 102,400

Write-down of vendor deposits

Estimate for legal contingency — 30,329

Change in estimate for legal contingencies

( 4,553,468 ) 7,009

(Gain) loss from divestiture of assets

3 unchanged sentences

Accrued interest conversion expense — 15,952

Cost to acquire IPR&D asset — 21,215,214

Foreign currency remeasurement gain — ( 45,350 )

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Accrued interest - legal contingency

( 234,750 ) —

Accrued payroll liabilities 14,889 ( 11,904 )

7 unchanged sentences

Purchase of property and equipment ( 1,554,003 ) ( 5,533 )

Net cash provided by investing activities

Cash from asset acquisition, net of transaction costs — 1,076,740

Net cash (used in) provided by investing activities

( 336,025 ) 6,603,473

Cash flows from financing activities:

Proceeds from the issuance of common stock and warrants, net of equity issuance costs of $ 6,434,447

Proceeds from convertible note - related party

Proceeds from the issuance of common stock and warrants, net of equity issuance costs of $ 6,434,447 and $ 265,053 , respectively

83,556,563 11,734,947

Financing costs allocated to warrants issued with convertible debt

Repayment of insurance premium loan payable — ( 236,681 )

Net cash provided by (used in) financing activities

Net cash provided by financing activities

83,556,563 16,465,924

Net increase (decrease) in cash and restricted cash

Net increase in cash and restricted cash

66,156,161 12,961,937

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Financing of insurance premium — 203,884

Release of share liability to additional paid-in-capital — 241,134

Right of use asset obtained in exchange for operating lease liabilities

Stock issued for assets

Conversion of convertible note - related party to common stock

See accompanying notes to the unaudited condensed consolidated financial statements.

16 unchanged sentences

Balance, June 30, 2024 28,067,907 $ 28,068 $ 190,085,879 $ ( 117,304,896 ) $ 72,809,051

Stock-based compensation expense — — 1,921,617 — 1,921,617

Conversion of convertible note - related party 968,973 969 4,970,035 — 4,971,004

Exercise of pre-funded warrants 1,301,410 1,301 ( 1,301 ) — —

— — — ( 3,898,297 ) ( 3,898,297 )

Balance, September 30, 2024 30,338,290 $ 30,338 $ 196,976,230 $ ( 121,203,193 ) $ 75,803,375

Common Stock Additional

5 unchanged sentences

Stock-based compensation expense — — 131,579 — 131,579

Exercise of pre-funded warrants 66,566 66 282,839 — 282,905

Exercise of common stock 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

4 unchanged sentences

Balance, June 30, 2023 3,886,202 $ 3,886 $ 67,223,701 $ ( 75,016,785 ) $ ( 7,789,198 )

Stock-based compensation expense — — 160,207 — 160,207

PIPE financing, net of equity issuance costs of 265,053

2,989,981 2,990 11,731,957 — 11,734,947

Common stock issued in acquisition of IPR&D asset 5,436,378 5,436 21,604,150 — 21,609,586

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 — — — ( 24,945,834 ) ( 24,945,834 )

Balance, September 30, 2023 12,338,910 $ 12,338 $ 101,645,539 $ ( 99,962,619 ) $ 1,695,258

See accompanying notes to the unaudited condensed consolidated financial statements.

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The Company is a clinical stage biopharmaceutical company developing next-generation molecules that modulate G protein-coupled receptors to treat obesity and metabolic diseases.

As of June 30, 2024, the Company has devoted substantially all its efforts to securing its product pipeline, carrying out its own research and development, preparing for and conducting clinical trials, building infrastructure and raising capital.

As of September 30, 2024, the Company has devoted substantially all its efforts to securing its product pipeline, 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.

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Such reclassifications did not have a material impact on the Unaudited Condensed Consolidated Financial Statements.

During the six months ended June 30, 2024 , there were no changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

During the nine months ended September 30, 2024 , there were no changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Pronouncements Implemented

In November 2023, the Financial Account Standards Board ("FASB") issued Accounting Standards Update ("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, including interim periods within those fiscal years, with early adoption permitted.

The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements.

The Company early adopted the ASU as of January 1, 2024, and determined that its adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

As defined in the ASU, operating segments are 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 CODM is the Chief Executive Officer.

The Company’s CODM reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company.

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) .

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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.

Asset Dispositions

The Company does not expect the impact of adopting ASU 2023-09 to be material on its consolidated financial statements .

In November 2023, the Financial Account Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

ASU 2023-07 is to be applied retrospectively to all prior periods presented in the financial statements with an effective date for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company does not expect the impact of adopting ASU 2023-07 to be material on its consolidated financial statements.

Asset Acquisitions and 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").

("EHT's") operations included the disposition of real estate held by Avalite Sciences, Inc.

("AVI") (the "AVI building").

At the time of the Company’s acquisition of EHT on November 10, 2022 (the “EHT Acquisition”) , none of the purchase consideration was allocated to the fair value of the AVI building.

As a result of the sale of the AVI building, for the six months ended June 30, 2024, the Company recorded a gain of $ 1,145,141 in other (income) expense, net of sales costs.

Divestiture of VDL

As a result of the sale of the AVI building, for the nine months ended September 30, 2024, the Company recorded a gain of $ 1,145,141 recorded as a (Gain) Loss from Asset Sales within the Other Income and Expense section of the Company's Unaudited Condensed Consolidated Statements of Operations.

Divestiture of VDL, Release and Discharge Agreement

On February 9, 2023, the Company sold Verdélite Sciences, Inc.

For the six months ended June 30, 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.

Prepaid Expenses, Other Current Assets and Liabilities

For the nine months ended September 30, 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.

On July 17, 2024, the Company reached a transaction, release and discharge agreement with the purchaser of VDL.

Under the transaction, release and discharge agreement, the purchase price of VDL was adjusted in exchange for a full release of any future claims by VDL against the Company.

As part of the agreement, the parties agreed to an installment payment schedule for the remaining aggregate balance of the purchase price of $ 2,047,080 through December 2027.

The remainder of the purchase price receivable bears interest at 8 %.

Upon signing the transaction, release and discharge agreement, the Company received the first installment payment of $ 72,837 recorded as a (Gain) Loss from Asset Sales within the Other Income and Expense section of the Company's Unaudited Condensed Consolidated Statements of Operations.

BRB Acquisition

On August 18, 2023, the Company acquired 100 % of the equity interests in Bird Rock Bio Sub, Inc.

("BRB") pursuant to an Agreement and Plan of Merger and Reorganization, dated August 15, 2023 (the "BRB Acquisition").

The purpose of the acquisition was to acquire BRB's clinical asset, nimacimab, an antibody targeting the CB1 receptor, for development to treat metabolic conditions.

Pursuant to the BRB Acquisition, the Company issued 3,872,184 shares of Company common stock to the former preferred stockholders of BRB equal to $ 20,000,000 in base merger consideration priced at $ 5.16 .

In addition, the former preferred stockholders of BRB were entitled to additional merger consideration for each dollar invested in a concurrent private investment in public equity transaction (the "2023 PIPE Financing").

Because the 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 2023 PIPE Financing using a residual allocation method, whereby the fair value of the consideration transferred was first allocated to the monetary assets and 2023 PIPE Financing proceeds with the remainder allocated to the in-process research and development (" IPR&D") asset, nimacimab.

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:

Cash and cash equivalents 1,076,740

Prepaid expenses

Accounts payable ( 73,473 )

Other current liabilities

Total net assets acquired $ 21,609,586

(a) Equal to the aggregate of 5,436,378 shares of common stock issued, multiplied by the Company's closing stock price of $ 3.98 as of August 18, 2023.

The cost to acquire the IPR&D asset, 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.

Property and Equipment, Prepaid Expenses, Other Current Assets and Liabilities

Property and equipment, net consists of the following:

As of September 30, 2024 As of December 31, 2023

Machinery and equipment $ 1,527,419 $ 78,024

Computer equipment 74,868 46,732

Leasehold improvements 13,954 13,954

Total property and equipment, gross

1,616,241 138,710

accumulated depreciation ( 99,629 ) ( 95,434 )

Total property and equipment, net $ 1,516,612 $ 43,276

Depreciation expense for the three and nine months ended September 30, 2024 was $ 47,519 and $ 69,873 , respectively.

Depreciation expense for the three and nine months ended Sepember 30, 2023 was $ 12,788 and $ 38,107 , respectively.

Prepaid expenses consist of the following:

As of June 30, 2024 As of December 31, 2023

As of September 30, 2024 As of December 31, 2023

Clinical expenses

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Other current assets consist of the following:

As of June 30, 2024 As of December 31, 2023

As of September 30, 2024 As of December 31, 2023

AusIndustry incentive $ 9,033 $ 540,604

Vendor deposits 2,216,427 403,439

Excise tax bonds

Other tax receivables 3,678 158,242

2 unchanged sentences

Other current liabilities consist of the following:

As of June 30, 2024 As of December 31, 2023

As of September 30, 2024 As of December 31, 2023

Research and development costs $ 1,220,041 $ 467,784

1 unchanged sentence

EHT Acquisition related liabilities

Travel and entertainment expenses

Consulting Fees 23,756 —

Professional and consulting fees 410,512 69,468

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These judgements and estimates include assumptions regarding the Company’s future operating performance and the determination of the appropriate valuation methods.

Warrants vested and outstanding as of June 30, 2024 are summarized as follows:

Warrants vested and outstanding as of September 30, 2024 are summarized as follows:

Source Exercise

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January 2024 Pre-Funded Warrants Common Stock 0.001 Indefinite 8,677,166

Total warrants outstanding as of June 30, 2024 13,251,679

As of June 30, 2024, all of the Company's warrants are fully vested .

Total warrants outstanding as of September 30, 2024 11,950,106

As of September 30, 2024, all of the Company's warrants are fully vested .

January 2024 Pre-Funded Warrants

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The Company’s convertible debt consists of the following:

As of June 30, 2024 As of December 31, 2023

As of December 31, 2023

Total principal value of convertible note - related party, net of discount $ 5,000,000

3 unchanged sentences

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") (See 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 is payable quarterly within 30 days of the last day of each calendar quarter.

The Company may prepay the principal or interest outstanding under the Convertible 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.

On August 15, 2023, the Company entered into a secured note and warrant purchase agreement (the "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") (See Note 4).

The Convertible Note had an interest rate of 10 % per annum and had a fixed conversion rate of $ 5.16 .

On August 8, 2024, MFDI exercised the conversion option under the Convertible Note and converted the full principal balance of $ 5,000,000 under the Convertible Note.

This conversion resulted in the issuance of 968,973 shares of the Company's common stock and the payment of accrued interest in cash, thereby fully satisfying the Company's debt obligations to MFDI.

Accrued interest was payable quarterly within 30 days of the last day of each calendar quarter.

The debt discounts related to the warrants, and debt issuance costs, were 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 June 30, 2024, the fair value of the Convertible Note approximates its intrinsic value which is equal to $ 2,761,474 .

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 and six months ended June 30, 2024, the effective interest rate on the Convertible Note was 31.39 %.

Subsequent to June 30, 2024, the conversion option on the Convertible Note was exercised (See Note 10).

Interest Expense

Through the date of conversion, 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 and nine months ended September 30, 2024, the effective interest rate on the Convertible Note was 31.39 %.

Interest Expense (Income)

The Company’s interest expense consists of the following:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

Related party interest expense – stated rate $ 53,425 $ 60,274 $ 302,741 $ 76,227

Legal judgment interest expense 75,189 182,171 150,146 182,171

Insurance premium loan payable – stated rate — 2,162 — 5,764

Legal judgment interest (income) expense ( 384,897 ) ( 23,320 ) ( 234,751 ) 158,851

Bond premium 59,929 59,930 59,929 59,930

Premium on irrevocable letter of credit 69,297 69,861 69,297 69,861

Other interest expense — — — 3,102

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The January 2024 PIPE Financing was priced at $ 2.31 per common share and $ 2.30 per Pre-Funded Warrant based on the 5-day average share price preceding January 29, 2024.

The Ore-Funded Warrants are exercisable at any time for an exercise price of $ 0.001 .

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 .

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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 .

Prefunded Warrant Exercise

On July 1, 2024, 1,301,573 pre-funded warrants issued in the January 2024 PIPE Financing with an intrinsic value of $ 10,424,294 were exercised on a cashless basis, resulting in the issuance of 1,301,410 shares of Company's common stock.

Conversion of Debt

On August 8, 2024, the Company issued 968,973 shares of common stock to MFDI upon conversion in full of the Convertible Note (see Note 5).

Stock-Based Compensation

Stock Incentive Plan

On October 31, 2014, the Board of Directors ("Board") 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 October 31, 2014, the Board of Directors of the Company ("Board") approved the Company’s 2014 Omnibus Incentive Plan.

On June 14, 2022, the Board approved the 2014 Amended and Restated Omnibus Incentive Plan (as amended, the “2014 Amended and Restated Plan”) which replaced the 2014 Omnibus Incentive Plan in its entirety.

On September 29, 2023, the Board and holders of the voting power of the outstanding capital stock of the Company adopted and approved Amendment No.

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1 to the 2014 Amended and the Restated Plan became effective on November 6, 2023.

As of June 30, 2024, 2,464,345 shares were authorized for the issuance under the 2014 Amended and Restated Plan.

The Company has reserved shares for issuance under 2014 Amended and Restated Plan upon share option exercise.

As of June 30, 2024, the Company had 137,833 shares available for future grant under the 2014 Amended and Restated Plan.

As of September 30, 2024, 2,464,345 shares were authorized for the issuance under the 2014 Amended and Restated Plan.

As of September 30, 2024, the Company had 27,578 shares available for future grant under the 2014 Amended and Restated Plan.

2024 Inducement Equity Incentive Plan

On July 2, 2024, the Board adopted the Skye Bioscience, Inc.

2024 Inducement Equity Incentive Plan (the "Inducement Plan").

The Inducement Plan was adopted in order to grant share-based awards to newly hired employees as an inducement to join the Company.

The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2014 Amended and Restated Plan with the exception that awards may only be made to an employee who has not previously been an employee or member of the Board of Directors of the Company if the award is in connection with commencement of employment.

The Company has reserved 600,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan.

As of September 30, 2024, the Company had 246,500 shares available for future grant under the Inducement Plan.

Stock Options

The following is a summary of option activities under the Company’s 2014 Amended and Restated Plan for the six months ended June 30, 2024:

The following is a summary of option activity under the Company’s 2014 Amended and Restated Plan and the Inducement Plan, for the nine months ended September 30, 2024:

Shares Weighted

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Forfeited ( 108,496 ) 9.22

Outstanding, June 30, 2024 1,190,599 $ 11.54 9.14 $ 1,532,218

Exercisable, June 30, 2024 345,887 $ 11.08 8.23 $ 591,698

*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 June 30, 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 six months ended June 30, 2024, was $ 11.42 .

Outstanding, September 30, 2024 1,639,354 $ 10.05 8.33 $ 158,794

Exercisable, September 30, 2024 519,839 $ 11.36 5.76 $ 71,783

*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 September 30, 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 nine months ended September 30, 2024, was $ 8.82 .

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:

Six Months Ended

June 30, 2024

Nine Months Ended

September 30, 2024

Dividend yield 0.00 %

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The fair value of the Company's market-based RSUs were estimated on the date of grant under the following assumptions:

Six Months Ended

June 30, 2024

Nine Months Ended

September 30, 2024

Dividend yield 0.00 %

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Derived service periods (years)

The following is a summary of RSU activity during the period ended June 30, 2024 :

On August 22, 2024, the Board approved a modification to the terms of the RSUs issued on August 25, 2023, and September 29, 2023 to its executive management team and to a member of the Board.

The vesting condition was modified from a performance-based condition to a market-based condition.

Since the performance condition under the original award was improbable of being met at the time of the modification, no expense was previously recognized.

Therefore, on the modification date, the Company established a new fair value and will recognize the expense over the derived service period.

The Company used the Monte Carlo Simulation model to evaluate the derived service period and fair value of the awards.

The fair value of the Company's market-based RSUs were estimated on the modification date under the following assumptions:

Nine Months Ended

September 30, 2024

Dividend yield 0.00 %

Volatility factor 94.3 %

Risk-free interest rate 3.76 %

Derived service periods (years) 2.11

The following is a summary of RSU activity during the period ended September 30, 2024 :

Shares Weighted Average Grant Date Fair Value

1 unchanged sentence

Granted 290,000 13.87

Unvested, June 30, 2024 1,122,777 $ 6.24

Unvested, September 30, 2024 1,137,777 $ 6.26

Common Stock Issued for Services

Additionally, during the three months ended June 30, 2024, the Company issued 5,000 shares of common stock to a service provider as compensation for services provided.

Such shares were issued in a private placement outside of the 2014 Amended and Restated Plan.

Additionally, during the nine months ended September 30, 2024, the Company issued 5,000 shares of common stock to a service provider as compensation for services provided.

Such shares were issued in a private placement outside of the Company's equity incentive plans.

Stock-Based Compensation Expense

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

2 unchanged sentences

$ 1,921,617 $ 160,207 $ 6,228,270 $ 394,657

During the three and six months ended June 30, 2024, the first three market based vesting conditions of the RSUs granted in August 2023 were met.

The total amount of unrecognized compensation cost was $ 11,848,634 as of June 30, 2024.

During the nine months ended September 30, 2024, the first three market-based vesting conditions of the RSUs granted in August and September 2023 were met.

Stock Compensation Adjustments Related to Board Member Resignations

On July 2, 2024, the Board accepted the resignations of several Board members effective August 1, 2024.

Concurrently, the Board approved a modification to the option awards granted such Board members, which modification accelerated the vesting of all unvested options as of the resignation date and extended the post-termination exercise period to December 31, 2025.

As a result of the modification, the Company recognized $ 274,019 in incremental stock compensation expense during the three and nine months ended September 30, 2024.

The total amount of unrecognized compensation cost was $ 11,758,346 as of September 30, 2024.

This amount will be recognized over a weighted average period of 2.61 years .

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Three Months Ended

June 30, (Unaudited) Six Months Ended

June 30, (Unaudited)

September 30, (Unaudited) Nine Months Ended

September 30, (Unaudited)

2024 2023 2024 2023

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Shares (Denominator)

Weighted average common shares outstanding (1)

Weighted average common shares outstanding, including shares issuable upon the exercise of pre-funded warrants

38,819,387 7,880,546 35,317,352 5,207,411

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Three Months Ended

June 30, (Unaudited) Six Months Ended

June 30, (Unaudited)

2024 2023 (1)

September 30, (Unaudited) Nine Months Ended

September 30, (Unaudited)

2024 2023 2024 2023

3 unchanged sentences

513,446 843,110 513,446 843,110

Convertible Debt

968,973 Convertible Debt

Common shares underlying convertible debt

— 980,673 — 980,673

(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.

Contingencies

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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 .

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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 to the Ninth District Court of Appeals (the "Ninth Circuit").

Oral argument before the Ninth Circuit is scheduled in the third quarter of 2024.

The Company believes that this case was incorrectly decided as to liability, the amount of compensatory damages, and the appropriateness and amount of punitive damages.

While the Company is challenging the verdict in the Ninth Circuit and is pursuing reimbursement under its existing insurance policies, there is no guarantee that the Company will be successful in these efforts.

Given the jury verdict, the Company has determined that a loss is probable and accordingly has 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 $ 384,896 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 outcome of the appeal, it is reasonably possible that the legal contingency booked could materially change after the issuance of these financials.

For the three and six months ended June 30, 2024, the Company recorded interest expense of $ 75,189 and $ 150,146 respectively, which is included in Legal judgment interest expense in Other (income) expense in the Unaudited Condensed Consolidated Statements of Operations (See Note 5).

In March of 2023, the Company appealed the judgment in the Cunning Lawsuit to the United States Court of Appeals for the Ninth District (the "Ninth Circuit").

Subsequent to quarter end, on October 22, 2024, the Ninth Circuit issued its decision in the Company's favor which vacated the judgment and remanded the case back to the District Court for a new trial.

As a result, the Company will be able to recover the $ 9,080,202 restriction on its cash related to the bond.

Skye Bioscience, Inc.

vs Partner Re Ireland Insurance

In February 2023, the Company brought a suit against the Company's D&O insurance 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.

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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 April 17, 2023, Partner Re filed a motion to dismiss the Company's complaint.

On June 20, 2023, the court issued a ruling in favor of the Company and denied Partner Re's motion to dismiss the Company's lawsuit.

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The court granted the Company's motion for judgment on the pleadings with respect to Partner Re's affirmative defense related to whether the Cunning Lawsuit constituted a “Securities Claim” as defined in the Partner Re policy, rejecting what had been Partner Re's primary basis for denying coverage.

The Company is pursuing up to $ 5,000,000 in coverage less the deductible to cover legal expenses incurred and to be incurred pending the final verdict or settlement of the Cunning Lawsuit.

The Company is pursuing up to $ 5,000,000 in coverage less the deductible to cover legal expenses incurred and any potential loss incurred from the Cunning Lawsuit.

Estimate for accrued legal contingencies and related expenses

Following the Ninth Circuit's favorable decision and the Company's mediation efforts with PartnerRe, a change in estimate for legal contingencies was recorded.

As of September 30, 2024, the Company has reversed the accrued interest on the original judgment and adjusted its potential loss for accrued legal contingencies and related expenses, which includes legal accruals and all other costs related to its ongoing litigation matters.

Management uses significant judgment in developing its estimates related to legal contingencies and loss recoveries.

These adjustments are based on the evaluation of case history, mediation efforts, the facts of the cases and take into consideration both future potential judgment amounts, damages and potential attorney fee awards if the cases were to be retried.

The final amount of the loss and loss recoveries remain uncertain.

The ultimate amount of the potential loss may be significantly less than the amount of the revised legal contingency and there is no guarantee that the Company will be successful in its efforts to recover additional losses.

The Company believes that it is at least reasonably possible that the estimated amount of the potential loss may change in the near term.

Subsequent Events

2024 Inducement Equity Incentive Plan

On July 2, 2024, the Board of Directors of the Company adopted the Skye Bioscience, Inc.

2024 Inducement Equity Incentive Plan (the "Inducement Plan").

The Inducement Plan was adopted in order to grant share-based awards to newly hired employees as an inducement to join the Company.

The Company has reserved 600,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan.

VDL Transaction, Release and Discharge Agreement

On July 17, 2024, the Company reached a transaction, release and discharge agreement with the purchaser of VDL.

Under the transaction, release and discharge agreement, the purchase price of VDL was adjusted in exchange for a full release of any future claims.

As part of the agreement, the parties agreed to an installment payment schedule for the remaining aggregate balance of the purchase price of $ 2,047,080 through December 2027.

The note receivable bears interest at 8 %.

Upon signing the transaction, release and discharge agreement the Company received the first installment payment of $ 73,110 .

Approval of Amended and Restated Omnibus Incentive Plan

On October 22, 2024, the Company's stockholders voted to approve the second amendment and restatement of the Company's Amended and Restated 2014 Omnibus Incentive Plan to increase the number of shares of the Company's common stock issuable thereunder by 1,535,655 to increase the number of incentive stock options that may be granted thereunder to 4,000,000 , extend the expiration date of the plan to September 10, 2034, update the name of the plan to the “Skye Bioscience, Inc.

Amended and Restated Omnibus Incentive Plan” and make certain administrative amendments (as so amended and restated, the "Amended and Restated Plan").

Stock Option Grants

Subsequent to June 30, 2024 , the Company granted an aggregate of 153,000 common stock options to consultants, employees and directors under the 2014 Amended and Restated Plan.

Subsequent to June 30, 2024 , the Company granted 60,000 common stock options and 15,000 RSUs under Inducement Plan.

Prefunded Warrant Exercise

Subsequent to June 30, 2024, 1,301,573 pre-funded warrants with an intrinsic value of $ 10,424,294 were cashless exercise in exchange for 1,301,410 shares of common stock.

Settlement of Convertible Note

On August 8, 2024, the holder of the Convertible Note exercised their conversion option in exchange for 968,973 shares of the Company's common stock.

Accrued interest will be paid to the holder in cash through the settlement date.

Subsequent to September 30, 2024, the Company granted an aggregate of 1,456,400 common stock options to members of management, employees and directors under the Amended and Restated Plan.

San Francisco Office Lease

On September 25, 2024, the Company entered into a new lease agreement for approximately 2,077 square feet of office space located at 632 Commercial Street, 5th Floor, San Francisco, California 94111.

The lease has a term of three years and two months , beginning on October 1, 2024, with a monthly rent of $ 9,000 and annual increases of 3 %.

This office space will support our continued growth and operational needs as we expand our development activities.

No material changes to our financial position are anticipated as a result of this lease.

Legal Contingencies

See Note 9 for disclosure of the recognized subsequent event related to our estimate for legal contingencies.

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

What changed 10-Q

Item 1. Financial Statements