Skye Bioscience, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements (unaudited) for the three and nine months ended September 30, 2024 and 2023, together with the notes thereto and the consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements in this Quarterly Report on Form 10-Q contain forward-looking statements that are based on management’s current expectations and assumptions and information currently available to management and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially and negatively affected. In some cases, you can identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth in the section below titled “Risk Factors,” including, without limitation, risks relating to: • the results of our research and development activities, including uncertainties relating to the discovery of potential product candidates and the preclinical and clinical testing of our current product candidate, nimacimab; • the translation of our preclinical results and data and early clinical trial results in particular relating to safety, efficacy and durability into future clinical trials in humans; • the timing, progress and results of our clinical trial for nimacimab and our estimates regarding the market opportunity for nimacimab if approved; • the early stage of our product candidate presently under development; • our ability to obtain and, if obtained, maintain regulatory approval of our current product candidate, and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate; • our ability to retain or hire key scientific or management personnel; • our ability to protect our intellectual property rights that are valuable to our business, including patent and other intellectual property rights; • our dependence on third party manufacturers, suppliers, research organizations, testing laboratories and other potential collaborators, including global supply chain disruptions; • our ability to develop successful sales and marketing capabilities in the future as needed; • the size and growth of the potential markets for our current product candidate, nimacimab, and any of our future product candidates, and the rate and degree of market acceptance of our current product candidate and any of our future product candidates; • our competitive position and the development of competing therapies that are or may become available; • regulatory developments in the United States and foreign countries; and • current pending litigation matters, including the Cunning Lawsuit. 21 We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, including the current global economic environment, the impacts of the high inflationary environment, and associated business disruptions such as delayed clinical trials, laboratory resources and supply chain limitations, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations. Unless otherwise provided in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” and “Skye” in this discussion and analysis refer to Skye Bioscience, Inc., a Nevada corporation, together with its wholly owned subsidiaries, Nemus, a California corporation, SKYE Bioscience Pty Ltd ("SKYE Bioscience Australia"), an Australian proprietary limited company, Emerald Health Therapeutics, Inc. ("EHT") a corporation governed by the Business Corporations Act (British Columbia), Bird Rock Bio Sub, Inc. ("BRB"), a Delaware corporation and Ruiyi Acquisition Corp, a Delaware corporation. Overview We are a clinical-stage biopharmaceutical company focused on unlocking new therapeutic pathways for metabolic health through the development of next-generation molecules that modulate G-protein-coupled receptors ("GPCRs"). GPCRs regulate diverse physiological and pathological processes, particularly those that maintain metabolic homeostasis. Therapeutics that target these GPCR-associated pathways may represent novel approaches to address metabolic disorders. Our product candidate, nimacimab, is a peripherally-restricted negative allosteric modulating antibody specific for the human CB1 receptor (CB1), administered as a subcutaneous injectable initially for the treatment of obesity. During the three months ended September 30, 2024, we commenced our Phase 2 clinical trial, CBeyond TM , for nimacimab. The CBeyond TM clinical trial includes 120 patients, 18 clinical trial sites and an exploratory combination arm with a GLP-1 agonist to assess differences in weight loss, body composition, and other attributes. The CBeyond TM clinical trial continues to enroll patients and we expect to meet our goal of 50% enrollment by the end of 2024. We expect to provide interim and topline data in the second and fourth quarters of 2025, respectively. This CBeyond TM clinical trial's primary endpoint is to evaluate weight loss using nimacimab compared to placebo. Secondary endpoints include evaluations of safety and tolerability, neuropsychiatric and cognitive evaluation, change in body composition by Dual-Energy X-ray Absorptiometry (DEXA), and changes in key metabolic biomarkers such as triglycerides, and insulin and leptin sensitivity. We believe that nimacimab has competitive advantages that differentiate it within the CB1 inhibitor class. First, as a monoclonal antibody, it is a large molecule that has great difficulty crossing the blood-brain barrier and restricts its engagement to CB1 receptors present in tissue/organs within the periphery of the body (i.e., outside the brain). Second, it is a negative allosteric modulator, a unique binding mechanism compared to small-molecule CB1 inhibitors, which may confer advantages in terms of its therapeutic index. Our antibody-based CB1 inhibitor shares many of the characteristics of small molecule inverse agonists by targeting CB1 receptors in adipose tissue to directly increase fat metabolism and indirectly impact hunger hormones. However, we believe its virtually complete restriction to the periphery eliminates problematic central engagement in the brain. In the case of small-molecule CB1 inhibitors, CB1 inhibition in the brain has been associated with dose-dependent neuropsychiatric adverse events. We do not believe that central targeting of CB1 inhibition is required for meaningful efficacy. To demonstrate this, we have developed a diet-induced obesity (DIO) model using humanized mice with knock-in CB1 receptors to interrogate the in vivo efficacy of nimacimab, a humanized IgG4 anti-CB1 antibody. During November 2024, we shared initial data from our DIO study with nimacimab showing dose-dependent weight loss as well as positive changes in body composition and glycemic control upon treatment. Further analysis and repeat studies are underway but we believe that true peripheral CB1 inhibition can positively impact metabolic disorders including obesity. Given the distinct mechanism and beneficial attributes of nimacimab as a peripheral CB1 inhibitor, within the large and heterogeneous obesity landscape we believe there is significant opportunity for nimacimab to potentially complement GLP-1 agonists and other anti-obesity drug mechanisms of action as well as to have a potential role as a monotherapy. 22 In January 2024 and March 2024, we completed two private placement equity transactions (the "January and March PIPE Financings") with institutional accredited investors, in which we raised combined net aggregate proceeds of $83,556,563. The net capital raised from the January and March PIPE Financings along with the reallocation of funds from the elimination of our glaucoma program will allow us to fund our clinical trial for obesity through top-line Phase 2 data and provide us with the ability to expand upon our metabolic program. In April 2024, Skye uplisted to the NASDAQ Global Market® stock exchange from the OTCQB. On May 10, 2024, we entered into an Equity Distribution Agreement (the “ATM Agreement”) with Piper Sandler & Co, as the sales agent (the “Sales Agent”), under which we may, from time to time, sell up to $100,000,000 of shares of our common stock through the Sales Agent (the “ATM Offering”). We are not obligated to, and we cannot provide any assurances that we will make any sales of the shares under the ATM Agreement. We will pay the Sales Agent a commission for their services in acting as agent in the sale of common stock in an amount up to 3% of the gross sales price per share sold. During the three and nine months ended September 30, 2024, we did not issue any shares under the ATM Offering. In June 2024, we completed our Phase 2a double-masked randomized, placebo-controlled trial of SBI-100 Ophthalmic Emulsion (“SBI-100 OE”) in 56 patients with elevated intraocular pressure ("IOP") diagnosed with primary open-angle glaucoma or ocular hypertension. The primary endpoint evaluated the change in diurnal IOP in the treated arm vs. placebo over 2 weeks. The study did not achieve a statistically significant improvement in IOP over placebo. As a result, we eliminated our ocular program and strategically redirected our efforts and capital resources to our metabolic program. We have also terminated our license agreement with the University of Mississippi and other vendor contracts related to the manufacture, development, and sublicense of SBI-100. In August of 2024, the Convertible Note (as defined in Note 5 to the accompanying Unaudited Condensed Consolidated Financial Statements). with a principal value of $5,000,000 was converted into 968,973 shares of our common stock. In March of 2023, we appealed the judgment in the Cunning Lawsuit (as defined in Note 9 to the accompanying Unaudited Condensed Consolidated Financial Statements) with the Ninth Circuit Court of Appeals (the "Ninth Circuit"). On October 22, 2024, the Ninth Circuit issued its decision on the appeal and vacated the judgment and remanded the case back to the District Court for a new trial. By the end of 2024, we expect to exonerate the bond and remove the restriction on our cash balance to extend our cash runway and reallocate the funds to further our clinical pipeline. We were incorporated under the laws of the State of Nevada on March 16, 2011, and our headquarters are based in San Diego, CA. We also maintain office space in San Francisco, CA. Since our incorporation, we have devoted substantially all of our efforts to building our product portfolio through the acquisition of clinical assets and licensing agreements, carrying out research and development, building infrastructure and raising capital. Financial Overview Revenues To date, we have not generated any revenue. We do not expect to receive any revenue from our lead drug candidate, nimacimab, or any future drug candidates that we develop unless and until we obtain regulatory approval for, and commercialize, nimacimab or future drug candidates or generate revenue from collaborative agreements with third parties. Research and Development Expenses During the three months ended September 30, 2024, we incurred $4,883,337 in research and development expenses primarily related to our Phase 2 clinical trial of nimacimab for obesity, manufacturing and residual costs from our legacy Phase 2a SBI-100 OE clinical trial. During the three months ended September 30, 2023, we incurred $1,254,653 in research and development expense primarily related to our efforts in conducting the Phase 1 SBI-100 OE clinical trial. During the nine months ended September 30, 2024, we incurred $10,908,538 in research and development expenses primarily related to our Phase 2 clinical trial of nimacimab for obesity, manufacturing and residual costs from our legacy Phase 2a SBI-100 OE clinical trial. During the nine months ended September 30, 2023, we incurred $4,227,967 in research and development expense primarily related to our efforts in conducting the Phase 1 SBI-100 OE clinical trial. We expect that our ongoing research and development expenses will consist of costs incurred for the development of our lead drug candidate, nimacimab, or our future drug candidates, including, but not limited to: • employee-related expenses, which include salaries, benefits and stock-based compensation; • payments to third party contract research organizations and investigative sites; and • payments to third party manufacturing organizations and consultants. 23 We expect to incur future research and development expenditures to support our preclinical, nonclinical, and clinical studies. Preclinical and nonclinical activities include early discovery efforts with novel molecules, laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess safety and efficacy. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our lead drug candidate, nimacimab, and any future drug candidate is highly uncertain. Our future research and development expenses will depend on the clinical success of nimacimab and any future drug candidates as well as ongoing assessments of the commercial potential of such drug candidates. In addition, we cannot forecast with any degree of certainty which drug candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect to incur increased research and development expenses in the future as we continue our efforts towards advancing our lead program for nimacimab. General and Administrative Expenses Our general and administrative expenses have fluctuated year-over-year as we have entered into various strategic acquisitions to restructure and reposition our company. Additionally, as a business in the early stages of drug development we are in the process of scaling our operations by hiring additional employees and building the infrastructure necessary to increase efficiencies. These initiatives have resulted in additional costs related to the implementation of certain systems, insurance, facilities, legal, tax and accounting costs. As a public company, we expect to incur additional expenses related to insurance, investor relations activities, legal and other administration and professional services to comply with the rules and regulations of the SEC, FINRA and Nasdaq. Other significant costs are expected to include legal fees relating to patent and corporate matters, business development costs and fees for consulting services. To incentivize our employees and be competitive to retain strong talent we issued additional equity awards in 2023 and 2024, which have resulted in increased stock-based compensation expense. We also expect that certain general and administrative expenses which are commensurate with headcount, will continue to increase in the future in order to support our expected increase in research and development activities, including increased salaries, technology, facilities and other related costs. Other (Income) Expense Other (income) expense primarily includes a gain from the sale of the AVI building (see Note 2 to the accompanying Unaudited Condensed Consolidated Financial Statements), interest income and interest expense incurred from the Convertible Note which was converted during the three months ended September 30, 2024. Critical Accounting Estimates There have been no material changes in our Critical Accounting Estimates from the information provided in the "Critical Accounting Estimates" section of "Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, e xcept, for the addition of our critical accounting estimate related to the estimate for accrued legal contingencies and related expenses and loss recoveries. We follow ASC 450, subtopic 450-20 to report accounting for loss contingencies and recoveries. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies and recoveries related to legal proceedings that are pending or un-asserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency or loss recovery indicates that it is probable that a material loss has been incurred or a loss recovery is realizable and the amount of the asset or liability can be estimated, then the estimated asset or liability would be recorded in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Recently Issued and Adopted Accounting Pronouncements See Note 1 to the accompanying Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on recently issued accounting pronouncements and recently adopted accounting pronouncements. While we expect certain recently adopted accounting pronouncements to impact our estimates in future periods, the impact upon adoption was not significant to our current estimates and operations. 24 Results of Operations For the three months ended September 30, 2024 and 2023 Research and Development Expenses Below is a summary of our research and development expenses during the three months ended September 30, 2024 and for the same period in 2023: Three Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 Research and development expenses $ 4,883,337 $ 1,254,653 $ 3,628,684 289 % Research and development expenses for the three months ended September 30, 2024, increased by $3,628,684 as compared to the same period in 2023. The net increase in research and development expenses was primarily due to an increase of $693,556 in research and development salaries and equity based compensation, a net increase of $2,735,109 in contracted clinical and manufacturing costs from our Phase 2 clinical trial of nimacimab for obesity, an increase of $74,758 in consulting expense, and an increase of $122,174 in travel and other business expenses. Cost to acquire IPR&D asset Below is a summary of our cost to acquire the IPR&D asset, nimacimab, pursuant to the BRB Acquisition (as defined in Note 2 of to the accompanying Unaudited Condensed Consolidated Financial Statements) during the three months ended September 30, 2024, and for the same period in 2023: Three Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 Cost to acquire IPR&D asset $ — $ 21,215,214 $ (21,215,214) (100) % Cost to acquire the IPR&D asset for the three months ended September 30, 2024, decreased by $21,215,214 as compared to the same period in 2023. The decrease is due to the cost of the acquired IPR&D in the BRB Acquisition during the three months ended September 30, 2023 and no acquisition of IPR&D in the same period during 2024. General and Administrative Expenses Below is a summary of our general and administrative expenses during the three months ended September 30, 2024, and for the same period in 2023: Three Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 General and administrative expenses $ 4,638,927 $ 2,235,899 $ 2,403,028 107 % General and administrative expenses for the three months ended September 30, 2024, increased by $2,403,028 as compared to the same period in 2023. The increase in general and administrative expenses was primarily due to an increase in salaries and benefits of $1,826,208 driven by stock-based compensation expense from the achievement of certain performance based milestones related to RSUs granted to members of management and a member of the board of directors of the Company and increased headcount. During the three months ended September 30, 2024, professional fees increased by $214,192 due to services provided under a financial advisory agreement, increased corporate tax fees and corporate legal fees related to patent prosecution for nimacimab. The net increase included an offset of $164,000 from the reduction in general corporate legal expenses related to the Cunning Lawsuit and Partner Re case as compared to the prior period. 25 Change in Estimate for Legal Contingencies Total change in estimate for legal contingencies for the three months ended September 30, 2024 and 2023, are as follows: Three Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 Change in estimate for legal contingencies $ (4,553,468) $ — $ (4,553,468) 100 % For the three months ended September 30, 2024, we recorded a change in estimate for legal contingencies (as defined in Note 9 to the accompanying Unaudited Condensed Consolidated Financial Statements) based on changes after September 30, 2024 to the facts and circumstances related to our legal proceedings that existed as of the balance sheet date. Other (Income) Expense Below is a summary of our other (income) expense for the three months ended September 30, 2024 and for the same period in 2023: Three Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 Interest (income) expense $ (90,766) $ 271,307 $ (362,073) (133) % Interest income (907,697) (16,562) (891,135) 5381 % (Gain) loss from asset sales (72,837) — (72,837) 100 % Wind-down costs — (14,677) 14,677 (100) % Other expense $ 801 $ — 801 100 % Total other (income) expense $ (1,070,499) $ 240,068 $ (1,310,567) (546) % For the three months ended September 30, 2024, we had net other income of $1,070,499 related primarily to the increase in interest income of $891,135 resulting from interest earned on our cash and cash equivalents and the restricted cash on deposit with financial institutions, offset by a decrease in interest expense primarily from the reversal of accrued interest on our legal contingency, which was vacated. The interest income was offset by an increase in interest expense from the Convertible Note (as defined in Note 5 to the accompanying Unaudited Condensed Consolidated Financial Statements). For the three months ended September 30, 2023, we had net other expense of $240,068 related primarily to interest expense from the premiums on the irrevocable letter of credit and appeal bond for the Cunning Lawsuit (as defined in Note 9 to the accompanying Unaudited Condensed Consolidated Financial Statements), and interest expense from the Convertible Note. For the nine months ended September 30, 2024 and 2023 Research and Development Expenses Below is a summary of our research and development expenses during the nine months ended September 30, 2024 and for the same period in 2023: Nine Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 Research and development expenses $ 10,908,538 $ 4,227,967 $ 6,680,571 158 % Research and development expenses for the nine months ended September 30, 2024, increased by $6,680,571 as compared to the same period in 2023. The net increase in research and development expenses was primarily due to an increase of $1,494,336 in research and development salaries from increased headcount and equity based compensation, a net increase of $4,570,417 in contracted clinical costs and manufacturing associated with our clinical trial for nimacimab in obesity and the completion of our Phase 2a clinical trial for SBI-100 OE in glaucoma. In addition, we had increased travel expenses of $95,275 due to our increased presence at conferences and events during the nine months ended September 30, 2024. 26 In connection with the discontinuation of our clinical trials for SBI-100 OE, we incurred contract cancellation fees and other general expenses of $335,022. In addition, there was an increase in consulting fees of $265,853 related to our Phase 2 clinical trial for nimacimab in obesity, which was offset by a decrease in license fees of $70,248 from the elimination of the SBI-200 license agreement with the University of Mississippi in the prior year. Cost to acquire IPR&D asset Below is a summary of our cost to acquire the IPR&D in connection with the BRB Acquisition asset during the nine months ended September 30, 2024, and for the same period in 2023: Nine Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 Cost to acquire IPR&D asset $ — $ 21,215,214 $ (21,215,214) (100) % Cost to acquire the IPR&D asset for the nine months ended September 30, 2024, decreased by $21,215,214 as compared to the same period in 2023 .The decrease is due to the cost of the acquired IPR&D in the BRB Acquisition during the nine months ended September 30, 2024 and no acquisition of IPR&D in the same period during 2024. General and Administrative Expenses Below is a summary of our general and administrative expenses during the nine months ended September 30, 2024, and for the same period in 2023: Nine Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 General and administrative expenses $ 13,171,547 $ 5,357,577 $ 7,813,970 146 % General and administrative expenses for the nine months ended September 30, 2024, increased by $7,813,970 as compared to the same period in 2023. The increase in general and administrative expenses was primarily due to an increase in salaries and benefits of $5,389,259 from increased headcount and the recognition of stock based compensation expense due to the achievement of certain performance based milestones related to RSUs granted to members of management and a members of the board of directors of the Company. During the nine months ended September 30, 2024, professional fees increased by $1,035,567 due to services provided under a financial advisory agreement, professional services related to the registration of the resale of shares issued in the January and March PIPE Financings and general corporate legal fees associated with our uplisting to Nasdaq, the filing of our shelf registration statement, legal fees related to nimacimab patent prosecution, increased tax fees due to increased tax complexity and the entry into the ATM Agreement. In addition, our general business expenses increased by $875,842 due to regulatory agency filing fees, the Nasdaq initial listing fee, recruiting fees, investor relations fees and corporate events. Other increases included consulting, insurance, marketing, software and travel of $127,188, $177,458, $130,907, $73,704 and $122,630, respectively. 27 Change in Estimate for Legal Contingencies Total change in estimate for legal contingencies for the nine months ended September 30, 2024 and 2023, are as follows: Nine Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 Change in estimate for legal contingencies $ (4,553,468) $ (151,842) $ (4,401,626) 2899 % For the nine months ended September 30, 2024, we recorded a change in estimate for legal contingencies (as defined in Note 9 to the accompanying Unaudited Condensed Consolidated Financial Statements) based on changes after September 30, 2024 to the facts and circumstances related to our legal proceedings that existed as of the balance sheet date. Other (Income) Expense Below is a summary of our other (income) expense for the nine months ended September 30, 2024, and for the same period in 2023: Nine Months Ended September 30, 2024 2023 $ Change 2024 vs. 2023 % Change 2024 vs. 2023 Interest (income) expense $ 796,222 $ 476,135 $ 320,087 67 % Interest income (2,296,488) (49,669) (2,246,819) 4524 % (Gain) loss from asset sales (1,217,978) 307,086 (1,525,064) (497) % Debt conversion inducement expense — 1,383,285 (1,383,285) (100) % Wind-down costs — 455,504 (455,504) (100) % Other expense (income) 2,200 (3) 2,203 100 % Total other (income) expense $ (2,716,044) $ 2,572,338 $ (5,288,382) (206) % For the nine months ended September 30, 2024, we had net other income of $2,716,044 related primarily to the gain on the sale of the AVI building and collections from the sale of VDL of $1,217,978, an increase in interest income of $2,246,819, offset by a net increase of $320,087 in interest expense from an increase in interest on our Convertible Note offset by the reversal of interest from the judgment related to the Cunning Lawsuit. In addition, during 2023, we incurred a one-time debt conversion inducement expense of $1,383,285 and recognized wind down costs of $455,504 from the EHT Acquisition. Liquidity and Capital Resources Liquidity We have incurred operating losses and negative cash flows from operations since our inception, and as of September 30, 2024, we had working capital of $74,184,006, an accumulated deficit of $121,203,193, and stockholders’ equity of $75,803,375. We had unrestricted cash and cash equivalents in the amount of $67,412,614 as of September 30, 2024, as compared to $1,256,453 as of December 31, 2023. For the nine months ended September 30, 2024 and 2023, the Company incurred losses from operations of $19,526,617 and $30,648,916, respectively. For the nine months ended September 30, 2024 and 2023, the Company incurred net losses of $16,820,644 and $33,224,854, respectively. In January 2024 and March 2024, we completed the January and March PIPE Financings (as such terms are defined in Note 6 to the accompanying Unaudited Condensed Consolidated Financial Statements), in which we raised combined net aggregate proceeds of $83,556,563. We expect the capital from the January and March PIPE Financings to fund our Phase 2 clinical trial for obesity through top line Phase 2 data in late 2025 and the potential expansion of our metabolic program. In May 2024, we entered into the ATM Agreement under which the Company may, sell up to $100,000,000 of shares of common stock through the Sales Agent. The Company has not sold any shares under the ATM Agreement as of the date hereof and is not obligated to, and cannot provide any assurances that the Company will continue to, make any sales of the shares under the ATM Agreement. 28 In July 2024, 1,301,573 pre-funded warrants, with an intrinsic value of $10,424,294, were exercised on a cashless basis, resulting in the issuance 1,301,410 shares of our common stock (see Note 6 to the accompanying Unaudited Condensed Consolidated Financial Statements). In August 2024, the holder of the Convertible Note exercised their conversion option and converted the principal balance of $5,000,000 into 968,973 shares of our common stock. In March of 2023, we appealed the judgment in the Cunning Lawsuit to the Ninth District Court of Appeals (the "Ninth Circuit"). In October of 2024, the Ninth Circuit issued its decision and vacated the $6,053,468 judgment and remanded the case back to the District Court for the Central District of California for a new trial. By the end of 2024, we expect to exonerate the bond and recover the $9,080,202 restriction on our cash balance to extend our cash runway and reallocate the funds to further our clinical pipeline. The Company’s Unaudited Condensed 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 will be sufficient to fund its projected operations for at least 12 months from the date of the issuance of these consolidated financial statements. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. Our future capital requirements will depend on many factors, including: • the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related activities; • our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; • the timing of, and the costs involved in, obtaining regulatory approvals for any of nimacimab or any future drug candidates; • the number and characteristics of the drug candidates we seek to develop or commercialize; • the cost of manufacturing clinical supplies, and establishing commercial supplies, of our drug candidates; • the cost of commercialization activities if our current or future drug candidates are approved for sale, including marketing, sales and distribution costs; • the expenses needed to attract and retain skilled personnel; • the costs associated with being a public company; • the amount of revenue, if any, received from commercial sales of our drug candidates, should any of our drug candidates receive marketing approval; and • the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation. Cash Flows The following is a summary of our cash flows for the periods indicated and has been derived from our Unaudited Condensed Consolidated Financial Statements which are included elsewhere in this Quarterly Report on Form 10-Q: Nine Months Ended September 30, 2024 2023 Net cash used in operating activities $ (17,064,377) $ (10,107,460) Net cash (used in) provided by investing activities (336,025) 6,603,473 Net cash provided by financing activities 83,556,563 16,465,924 Cash Flows from Operating Activities The primary use of cash for our operating activities during the period was to fund research development activities for our clinical product candidates and general and administrative activities. Our cash used in operating activities also reflected changes in our working capital, net of adjustments for non-cash charges, such as stock-based compensation, depreciation and amortization, amortization of debt discount and the (gain) loss from divestiture of assets. Cash used in operating activities of $17,064,377 during the nine months ended September 30, 2024, reflected a net loss of $16,820,644, partially offset by aggregate non-cash charges of $1,515,581 and included a $1,759,314 net change in our operating assets and liabilities. Non-cash charges included $6,228,270 for stock-based compensation expense primarily attributable to the vesting of RSUs related to the achievement of certain market based performance milestones, $599,006 in non-cash interest expense debt 29 amortization expense, $1,217,978 gain from the sale of a real estate asset, $123,347 in depreciation and amortization and $325,610 from the write-off of vendor deposits. The net change in our operating assets and liabilities included a $2,076,835 cash outflow from changes in our prepaid expenses and other current assets, a $711,281 net cash outflow from changes in our accrued expenses and other current liabilities and a $375,760 cash outflow from the repayment of our accounts payable. Cash used in operating activities of $10,107,460 during the nine months ended September 30, 2023, reflected a net loss of $33,224,854, partially offset by aggregate non-cash charges of $23,476,130 and included a $358,736 net change in our operating assets and liabilities. Cash Flows from Investing Activities During the nine months ended September 30, 2024, the Company purchased $1,554,003 in machinery and office equipment and recognized $1,217,978 in net proceeds from the sale of the AVI building and the collection of receivables from the sale of VDL (see Note 2 to the accompanying Unaudited Condensed Consolidated Financial Statements). During the nine months ended September 30, 2023, the Company purchased $5,533 in machinery office equipment, received $5,532,266 in proceeds related to the divestiture of VDL and received $1,076,740 in cash from the acquisition of BRB. Cash Flows from Financing Activities Cash flows from financing activities primarily reflect proceeds from the sale of our securities and loan repayments. During the nine months ended September 30, 2024, cash provided by financing activities included $83,556,563 in proceeds received in connection with the January and March PIPE Financings, net of issuance costs. During the nine months ended September 30, 2023, cash provided by financing activities included $4,973,684 in proceeds received in connection with the Convertible Note net of issuance costs, and $11,734,947 in proceeds received in connection with the 2023 PIPE Financing, net of issuance costs, offset by a $236,681 repayment on our insurance premium loan payable. Off-Balance Sheet Arrangements There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not applicable.