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Item 7. Management’s Discussion and Analysis

2025-03-20 compared with 2024-03-22 · 154 added, 103 removed, 113 unchanged (69% of the section changed)

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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 Annual Report on Form 10-K.

Unless otherwise provided in this Annual Report, references to “we,” “us,” “our” and “Skye Bioscience” in this discussion and analysis refer to Skye Bioscience, Inc., a Nevada corporation , 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), Birdrock Bio Sub, Inc.

("BRB"), a Delaware corporation, Ruiyi Acquisition Corp, a Delaware corporation and Avalite Sciences, Inc.

(AVI) a corporation governed by the Business Corporations Act (British Columbia).

We are a clinical stage biopharmaceutical company with a mission to pioneer and lead the development of new pharmaceutical products that unlock the potential of the ECS.

Our strategy and clinical assets focus, initially, on the modulation of the CB1 axis to advance the standard of care and provide novel alternative therapies to treat diseases with neuropathic, inflammatory, and metabolic conditions.

Our lead clinical program's product candidate nimacimab, is a peripherally-restricted negative allosteric modulating antibody specific for the human CB1 receptor, administered as a subcutaneous injectable for the treatment of metabolic disorders, including obesity.

We plan to launch a Phase 2 clinical trial of nimacimab, which will include a combination study with a GLP-1 agonist, to treat obesity by mid-year 2024, with final data in late 2025.

In August of 2023, we acquired nimacimab from the acquisition of BRB as a Phase 2 ready asset.

Nimacimab's Phase 1 trial was designed to test the safety and tolerability in a single ascending dose (SAD) in health volunteers and a multiple ascending dose (MAD) in patients with NAFLD.

The Phase 1 study, indicated a strong safety profile and provided important indications of effectiveness in reducing cholesterol levels in the NAFLD population.

Based on the results of this study, we further evaluated other potential use cases for nimacimab in metabolic, inflammatory and fibrotic processes.

Based on our comprehensive review of the overall market, clinical pipeline of competition and potential target product profile (TPP) of nimacimab, in December 2023, we filed an IND to treat patients with obesity in a Phase 2 study.

Our other product candidate, SBI-100 OE, is a Phase 2-stage CB1 agonist (activator) delivered topically into the eye for the treatment of glaucoma and ocular hypertension.

Our proprietary eye drop is a nano emulsion formulation that has been developed in a way that provides enhanced bio-availability and permeability, while also extending the duration of activity.

In February 2024, we announced the completion of patient enrollment in our Phase 2a placebo controlled study designed to treat glaucoma and ocular hypertension and are expecting to report data in Q2 2024.

We commenced dosing of our Phase 1 clinical study for SBI-100 OE in December 2022 and in November 2023 we reported data demonstrating that SBI-100 OE was safe and well-tolerated.

Importantly, we determined that there was minimal systemic exposure of the active metabolite of SBI-100 OE, THC, thus resulting in little to no side effects related to THC intoxication.

Moreover, it was determined that after multiple days of dosing we saw minimal hyperaemia (i.e.

redness of the eyes) following administration of SBI-100 OE.

In preclinical experiments using SBI-100 OE we have demonstrated statistically superior IOP lowering compared to the prostaglandin-based therapy, latanoprost, the current standard-of-care for treating glaucoma.

Statistical significance was reached across multiple time points during a seven-day course of dosing using a validated rabbit normotensive ocular model and SBI-100 exerted pharmacologic activity consistent with once-daily to twice-daily dosing.

We believe that both of our drug candidates are differentiated in their respective markets and target indications with a large unmet need.

Because the modulation of the ECS through CB1 has been shown to play a role in both glaucoma and obesity, we believe that both our products are strong candidates for marketing authorization as either first or second-line therapies.

In January 2024 and March 2024, we completed two private placement equity transactions with institutional investors, in which we raised combined net aggregate proceeds of approximately $83,500,000.

The capital from the January and March PIPE financings will allow us to fund both of our planned clinical trials for glaucoma and obesity through top line Phase 2 data.

On September 6, 2023, we filed a Certificate of Change and Certificate of Correction with the Secretary of State of the State of Nevada, which effected a reverse stock split, at a ratio of one-for-250, of the Company’s issued and outstanding shares of common ctock (the "Reverse Split").

The Reverse Split was effective on September 8, 2023.

As a result of the Reverse Split, each two-hundred fifty (250) shares of common stock was combined into one (1) share of common stock and the total number of shares of common stock authorized was reduced from 5,000,000,000 to 20,000,000 and the number of shares of common stock issued and outstanding was reduced from 3,078,137,871 shares of common stock to 12,312,551 shares of common stock.

Subsequently, on November 6, 2023, we increased our authorized shares of common stock to 100,000,000.

Unless otherwise provided in this Annual Report, 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.

We are a clinical stage biotechnology company pioneering next-generation molecules that modulate G-protein-coupled receptors ("GPCRs") to treat obesity, overweight, and related conditions.

Our lead candidate, nimacimab, is a peripherally restricted negative allosteric modulating antibody targeting cannabinoid receptor 1 ("CB1")—a key GPCR involved in metabolic regulation that is administered as a subcutaneous injectable initially for the treatment of obesity and overweight.

In August of 2024, we commenced our Phase 2a clinical trial, CBeyond TM , for nimacimab.

The CBeyond TM clinical trial includes 136 patients, 16 clinical trial sites and an exploratory combination arm with a GLP-1 receptor agonist to assess differences in weight loss, body composition, and other attributes.

The CBeyond TM clinical trial is 100% enrolled and we expect to provide topline data near the end of the third quarter or the beginning of the four quarter 2025.

On August 18, 2023, we completed a strategic transaction to acquire a clinical asset pursuant to an Agreement and Plan of Merger and Reorganization, dated as of August 15, 2023, by and among the Company, Bird Rock Bio, Inc.

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

We were incorporated under the laws of the State of Nevada on March 16, 2011 and are based in San Diego, CA.

The Reverse Split was effective on September 8, 2023.

Subsequently, on November 6, 2023, we increased our authorized shares of common stock to 100,000,000.

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 proceeds raised from the January and March PIPE Financings, along with the reallocation of funds from the elimination of our ocular program (as described below) will allow us to fund our clinical trial of nimacimab for obesity through top-line Phase 2a data, complete process intensification manufacturing activities along with drug substance and product manufacturing work needed for our phase 2b study and enable us to expand upon our metabolic program with our other research and development efforts.

Our cash runway currently excludes the Phase 2b clinical study or manufacturing activities necessary to supply a Phase 3 clinical study.

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.

We have not issued 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 OE.

In August of 2024, the Convertible Note (as defined in Note 6 to the accompanying consolidated financial statements).

with a principal value of $5,000,000, was converted into 968,973 shares of our common stock.

During the fourth quarter of 2024, we were successful in our appeal in the Ninth Circuit Court of Appeals (the "Ninth Circuit") of the judgment of a material litigation matter, which has been remanded to the District Court for a new trial, and the bond related to the judgement was exonerated, allowing us to recover $9,000,000 in restricted cash.

Additionally, in a related case with our insurance carrier, we collected $2,000,000 during the fourth quarter of 2024.

The recovered funds have been reallocated to further our clinical pipeline and extended our cash runway.

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.

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To date, we have not generated any revenue.

We do not expect to receive any revenue from any drug candidates that we develop unless and until we obtain regulatory approval for, and commercialize, our drug candidates or generate revenue from collaborative agreements with third parties.

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, our drug candidates or generate revenue from collaborative agreements with third parties.

Research and Development Expenses

During the year ended December 31, 2023, we incurred $5,819,461 in research and development expenses primarily related to our efforts in conducting the Phase 1 and Phase 2a SBI-100 OE clinical trials.

During the year ended December 31, 2022, we incurred $6,011,805 in research and development expense primarily related to our efforts in conducting the Phase 1 SBI-100 clinical trial and the manufacturing of the API required for the Phase 1 and Phase 2a SBI-100 clinical studies.

We expect that our ongoing research and development expenses will consist of costs incurred for the development of our drug candidates, including, but not limited to:

• license fees;

During the year ended December 31, 2024, we incurred $18,701,694 in research and development expenses primarily related to our efforts in conducting the Phase 2a clinical trial of nimacimab for obesity, manufacturing and residual costs from our legacy Phase 2a SBI-100 OE clinical trial.

During the year ended December 31, 2023, we incurred $5,819,461 in research and development expense primarily related to our efforts in conducting the Phase 1 SBI-100 clinical trial and the manufacturing of the API required for the Phase 1 and Phase 2a SBI-100 OE clinical studies.

We expect that our ongoing research and development expenses will consist of costs incurred for the development of our drug candidate, nimacimab, or any future drug candidates, including, but not limited to:

• employee-related expenses, which include salaries, benefits and stock-based compensation;

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• payments to third party manufacturing organizations and consultants;

We expect to incur future research and development expenditures to support our nonclinical and clinical studies.

Nonclinical activities include, laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess safety and efficacy.

Subject to the submission and approval by the FDA of our IND, clinical trials may commence and will involve the administration of the investigational new drug candidate to human subjects.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming and the successful development of our drug candidates is highly uncertain.

Our future research and development expenses will depend on the clinical success of each of our 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.

• payments to third parties related to our discovery research and development efforts to build our pipeline.

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 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 whether nimacimab or any future 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.

Cost to acquire IPR&D Asset

Cost to Acquire In-Process Research and Development ("IPR&D") Asset

During the year ended December 31, 2023, we incurred a one-time non-cash charge of $21,215,214 related to the acquisition of our lead clinical asset, nimacimab.

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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 re-position our company.

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, legal and accounting related to operating as a public company.

To incentivize our employees and be competitive to retain strong talent we issued additional equity awards in 2023, which have resulted in increased stock-based compensation expense.

We expect that our general and administrative expenses will continue to increase in the future in order to support our expected increase in research and development activities, including increased salaries and other related costs, stock-based compensation and consulting fees for executive, finance, accounting and business development functions.

We also expect general and administrative expenses to increase as a result of additional costs associated with being a public company, including expenses related to compliance with the rules and regulations of the SEC, additional insurance expenses, investor relations activities and other administration and professional services.

Other significant costs are expected to include legal fees relating to patent and corporate matters, facility costs and fees for accounting and other consulting services.

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, the Financial Industry Regulatory Authority ("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 2024 and 2023, 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.

Estimated Legal Contingency

The estimated legal contingency relates to a wrongful termination suit brought against the former management team that is currently being appealed.

As of December 31, 2023, the maximum amount of the liability is known and we have posted an appellate bond that is collateralized by an irrevocable letter of credit equal to, $9,080,202, approximately 150% of the liability recorded on our balance sheet.

The estimated legal contingency relates to a material litigation matter that was related to our former management team.

As of December 31, 2023, we had posted an appellate bond that was collateralized by an irrevocable letter of credit equal to, $9,080,202, approximately 150% of the liability recorded on our balance sheet.

As of December 31, 2024, we were successful in our appeal of the judgement in the Ninth Circuit and the case was remanded back to the District Court for a new trial, as a result of which we adjusted the estimated legal contingency based on new key assumptions.

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

We believe that it is at least reasonably possible that the estimated amount of the potential loss may change in the near term.

See Note 11 to the accompanying consolidated financial statements for more information.

Other Expense

Other expense primarily includes interest expense incurred from our short term convertible debt, a loss related to the divestiture of an asset from our 2022 acquisition and an inducement charge from the conversion of debt.

In both 2023 and 2022 we also reported wind-down costs from our 2022 acquisition of EHT which we do not expect to incur in future periods.

Other expense primarily includes a gain from the sale of the Avalite Sciences, Inc.

("AVI") building (the "AVI building") (see Note 3 to the accompanying consolidated financial statements), and interest expense.

In 2023, we also reported wind-down costs from our 2022 acquisition of EHT which we did not incur in 2024.

These expenses are offset by interest income earned on our cash balances.

Critical Accounting Estimates

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

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

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

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The most significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.

These accounting estimates are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in this Annual Report on Form 10-K.

These accounting estimates are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in this Annual Report.

We believe that the following accounting estimates are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements.

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However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material or the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation.

Accrued Legal Contingencies and Related Expenses

We follow Accounting Standards Codification ("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 2 to the accompanying consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for information on recently issued accounting pronouncements and recently adopted accounting pronouncements.

See Note 2 to the accompanying consolidated financial statements 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.

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Research and development expenses $ 18,701,694 $ 5,819,461 $ 12,882,233 221 %

Research and development expenses for the year ended December 31, 2023 decreased by $192,344 when compared to the year ended December 31, 2022.

The decrease in research and development expenses was primarily due to a slight delay starting our Phase 2a glaucoma study that we experienced during the second half of 2023.

In addition, the decrease in contract manufacturing costs during 2023 was due to the efficient management of sufficient reserves of clinical trial material from our Phase 1 trial to administer the Phase 2a clinical study for glaucoma.

The overall decline included a decrease of $422,939 and $210,270 in clinical contract costs and consulting, respectively.

Additionally, license fees decreased by $105,356 as the Company achieved a one time milestone payment under our UM 5050 license agreement which was offset by the cancellation of UM 5070.

The decreases were offset by increases of $481,411 and $65,296 in research and development salaries and benefits and general business expenses, respectively, due to the expansion of our clinical and R&D team during 2023.

Research and development expenses for the year ended December 31, 2024 increased by $12,882,233 when compared to the year ended December 31, 2023.

The increase in research and development e xpenses was primarily due to the following increases:

• Clinical study costs increased by $7,721,375 due to the planning and launch of the CBeyond TM study in August of 2024, which achieved 50% enrollment by the end of 2024.

During 2024, we also completed our Phase 2a SBI-100 trial for glaucoma.

• Contract manufacturing costs increased by $1,234,445 due to nimacimab process intensification and drug resupply manufacturing runs which will allow us to seamlessly transition to a Phase 2b and build a scalable manufacturing process for future studies.

• Consulting costs increased by $691,185 to support our nimacimab program.

• Discovery research and development costs increased by $348,313 from non-clinical studies related to the development of a diet induced obesity model to demonstrate proof of concept and mechanism of action studies related to nimacimab.

• Salaries and stock-based compensation increased by $2,184,420 due to increased headcount to support our metabolic pipeline and organizational expertise.

• General business expenses increased by $459,054 due to increased travel and the write off of non-refundable deposits related to our glaucoma program.

• In addition, we recognized additional depreciation of $156,628 on specialized manufacturing equipment that was purchased in 2024 to support manufacturing activities.

Cost to acquire IPR&D asset

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Cost to acquire IPR&D asset $ — $ 21,215,214 $ (21,215,214) (100) %

Cost to acquire the IPR&D asset for the December 31, 2023, increased by $21,215,214 as compared to the year ended December 31, 2022.

The increase is due to the cost to acquire nimacimab in the BRB Acquisition.

Cost to acquire the IPR&D asset for the December 31, 2024, decreased by $21,215,214 as compared to the year ended December 31, 2023.

The decrease is due to the cost to acquire nimacimab in the BRB Acquisition, which occurred in 2023.

General and Administrative Expenses

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General and administrative expenses for the year ended December 31, 2024 increased by $9,873,401 as compared to the year ended December 31, 2023.

The increase in general and administrative expenses was primarily due to an increase in employee wages and board fees of $516,854 related to the addition of three board members and board incentive compensation.

Additionally, there were increases in professional and legal fees of $942,336 related primarily to transaction costs associated with the BRB Acquisition, additional regulatory filings, the reverse stock split and ongoing litigation.

There was also an increase of $282,447 in general business expenditures due to higher investor relations and travel expenses related to the publicity of our repositioning in 2023 to highlight nimacimab as our lead asset for obesity.

Estimated legal contingency

The increase in general and administrative expenses was primarily due to the following:

• Salaries and stock-based compensation increased by $6,980,398 due to 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 members of the board of directors of the Company.

We also had an increase of $148,497 in human resources related fees to attract new talent.

• Legal, professional fees and consulting advisory increased by $1,397,512 due to one time services provided under a financial advisory agreement, professional services related to the registration of the resale of shares issued in the BRB Acquisition and the August 2023 PIPE Financing, the January and March 2024 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.

• General business expenses increased by $912,725 primarily due to increased insurance costs and regulatory fees associated with our uplisting to Nasdaq and the filing of our registration statements in connection with the January and March PIPE Financings.

Other increases related to investments in building internal infrastructure and hosting internal and external corporate events.

• Travel and entertainment along with investor relations, marketing and public relations increased by $350,401, from increased activity to drive awareness for nimacimab.

Change in Estimate for Legal Contingency

Below is a summary of the estimated legal contingency during the years ended December 31, 2024 and 2023:

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2023 % Change

Estimated legal contingency $ (151,842) $ 6,205,310 $ (6,357,152) N/A

Estimated legal contingency for the year ended December 31, 2023 decreased by $6,357,152 as compared to the year ended December 31, 2022 .

The adjustment to the estimated legal contingency of $151,842 in 2023 was due to the court's determination to decrease the aggregate legal fees owed to the plaintiff in the Cunning Lawsuit .

Other Expense

Below is a summary of other expense during the years ended December 31, 2023 and 2022:

Change in estimate for legal contingency $ (4,234,717) $ (151,842) $ (4,082,875) 2689 %

The change in estimate for legal contingency decreased by $4,082,875 for the year ended December 31, 2024, as compared to the year ended December 31, 2023 .

The adjustment of $4,234,717 was due to a change in managements estimate related to the total liability due in the Cunning Lawsuit.

For additional information regarding the adjustment to the legal contingency, see Note 11 to the accompanying consolidated financial statements.

Income from Insurance Recovery

Below is a summary of the income from insurance recovery during the years ended December 31, 2024 and 2023:

Year Ended December 31,

2024 2023 $ Change

Change in fair value of derivative liability $ (3) $ (59,729) $ 59,726 (100) %

2023 % Change

Income from insurance recovery

$ (2,000,000) $ — $ (2,000,000) 100 %

The change in the income from insurance recovery increased by $2,000,000 for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The increase is due to the Company reaching a settlement with its former D&O carrier for coverage related to the Cunning Lawsuit.

Other Expense (Income)

Below is a summary of other expense (income) during the years ended December 31, 2024 and 2023:

Year Ended December 31,

2024 2023 $ Change

Interest expense 749,308 906,270 (156,962) (17) %

Interest income (3,028,762) (99,974) (2,928,788) 2930 %

Finance charge — 120,228 (120,228) (100) %

Loss from asset sale 307,086 — 307,086 N/A

Debt conversion inducement expense 1,383,285 — 1,383,285 N/A

Wind-down costs — 409,347 (409,347) (100) %

Total other expense, net $ 2,906,011 $ 1,163,129 $ 1,742,882 150 %

For the year ended December 31, 2023, we had net other expense of $2,906,011 primarily related to interest expense of $906,270 (including cash and non-cash interest), a non-cash charge of $1,383,285 related to the induced conversion of our Amended Credit Facility, $409,347 in wind down costs associated with the EHT Acquisition and a $307,086 loss from the divestiture of VDL.

(Gain) loss from asset sale (1,358,412) 307,086 (1,665,498) (542) %

Debt conversion inducement expense — 1,383,285 (1,383,285) (100) %

Other expense (income) 2,200 (3) 2,203 (73433) %

Total other expense (income), net $ (3,635,666) $ 2,906,011 $ (6,541,677) (225) %

For the year ended December 31, 2024, we had net other income of $3,635,666, which was primarily related to interest income of $3,028,762 and a gain from the divestiture of the AVI real estate and collections from Verdelite Sciences, Inc.

("VDL") related to its sale in 2023.

Income was offset by interest expense of $749,308 (including cash and non-cash interest).

For the year ended December 31, 2023, we had net other expense of $2,906,011 primarily related to interest expense of $906,270 (including cash and non-cash interest), a non-cash charge of $1,383,285 related to the induced conversion of our multi-draw credit agreement with Emerald Health Sciences, Inc.

(“Sciences”), dated October 5, 2018, as amended between April 29, 2020 and March 29, 2021 (the "Amended Credit Facility"), $409,347 in wind down costs associated with the EHT Acquisition (as defined below) and a $307,086 loss from the divestiture of VDL.

The increase was offset by interest income of 99,974.

For the year ended December 31, 2022, we had net other expense of $1,163,129 primarily related to interest expense of $665,133 related to the Amended Credit Agreement and wind down costs of $456,508 associated with the EHT Acquisition.

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

Liquidity, Going Concern and Capital Resources

The Company has incurred operating losses and negative cash flows from operations since inception and as of December 31, 2023, had a working capital deficit of $2,250,156 and an accumulated deficit of $104,382,549.

As of December 31, 2023, the Company had unrestricted cash in the amount of $1,256,453.

Liquidity and Capital Resources

We have incurred operating losses and negative cash flows from operations since inception and as of December 31, 2024, had working capital of $66,488,360 and an accumulated deficit of $130,949,672.

As of December 31, 2024, the Company had cash and cash equivalents in the amount of $68,415,741.

For the years ended December 31, 2024 and 2023, the Company incurred losses from operations of $30,192,718 and $34,735,173, respectively.

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The Company expects to continue to incur significant losses and negative cash flows from operations through 2025 and expects to incur significant losses and negative cash flows from operations in the future.

Historically, the Company has funded its operations through convertible debt, public equity financings, asset acquisitions and private investments in public equity.

On August 18, 2023, the Company entered into the Convertible Note Financing, the August PIPE Financing and BRB Acquisition which provided the Company with the necessary funds to continue operations, post an appeal bond to stay the execution of the judgment in the Cunning Lawsuit and reposition the Company to focus on nimacimab as its lead clinical asset for obesity.

Following the August 2023 transactions, the Company executed a 1:250 reverse stock split and increased its authorized shares outstanding.

In January 2024 and March 2024, we completed two private placement equity transactions with institutional investors, in which we raised combined net aggregate proceeds of approximately $83,500,000.

The capital from the January and March PIPE financings will allow us to fund both of our planned clinical trials for glaucoma and obesity through top line Phase 2 data.

In January 2024 and March 2024, we completed the January and March PIPE Financings with institutional accredited investors, in which we raised combined net aggregate proceeds of $83,556,563.

The net proceeds raised from the January and March PIPE Financings, along with the reallocation of funds from the elimination of our ocular program, will allow us to fund our clinical trial for obesity through top-line Phase 2a data, complete process intensification manufacturing activities along with drug substance and product manufacturing work needed for future studies, plan for our Phase 2b dose ranging study and provide us with the ability to expand upon our metabolic program with our other research and development efforts.

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 make any sales of the shares under the ATM Agreement.

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 7 to the accompanying 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.

During the fourth quarter of 2024, we were successful in our appeal in the Ninth Circuit of the judgment of a material litigation matter, which has been remanded to the District Court for a new trial, and the bond related to the judgement was exonerated, allowing us to recover $9,000,000 in restricted cash.

Additionally, in a related case with our insurance carrier, we collected $2,000,000 during the fourth quarter of 2024.

The recovered funds have been reallocated to further our clinical pipeline and extend our cash runway.

The Company’s consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months.

Based on its current operational requirements, the Company believes that its current cash will be sufficient to fund its projected operations for at least 12 months from the date of the issuance of these consolidated financial statements.

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

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 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;

• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.

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

Year Ended December 31,

Net cash and restricted cash provided by (used in):

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

Operating activities $ (25,237,480) $ (13,952,178)

1 unchanged sentence

Financing activities 83,562,181 16,443,270

Net increase (decrease) in cash and restricted cash

Net increase in cash and cash equivalents and restricted cash

$ 58,079,086 $ 9,087,548

Cash Flows from Operating Activities

The primary use of cash for our operating activities during these periods was to fund research and development activities for our clinical product candidates, nimacimab and SBI-100 OE, along with 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 expense, non-cash interest expense related to the amortization of debt discounts on our convertible debt instruments, a charge to induce the conversion of the Amended Credit Agreement during February 2023 and the expense related to the acquisition of our lead asset for obesity, nimacimab.

Cash used in operating activities of $13,952,178 during the year ended December 31, 2023, reflected a net loss of $37,644,784, the loss was adjusted by aggregate non-cash charges of $24,161,912 and included a $469,306 decrease in our operating assets and liabilities.

The primary use of cash and cash equivalents for our operating activities during the years ended December 31, 2024 and 2023 was to fund research and development activities for our clinical product candidates, nimacimab and SBI-100 OE, along with general and administrative activities.

Our cash and cash equivalents used in operating activities also reflected changes in our working capital, net of adjustments for non-cash charges, such as, stock-based compensation expense, non-cash interest expense related to the amortization of debt discounts on our convertible debt, a charge to induce the conversion of the Amended Credit Agreement in February 2023 and the expense related to the acquisition of our lead asset for obesity, nimacimab.

Cash and cash equivalents used in operating activities of $25,237,480 during the year ended December 31, 2024, reflected a net loss of $26,567,123, the loss was adjusted by aggregate non-cash charges of $3,958,401 and included a $2,628,758 decrease in our operating assets and liabilities.

Non-cash charges included $298,640 of depreciation and amortization, $325,610 in vendor deposit write offs, $8,317,480 for stock-based compensation expense, $599,006 in non-cash interest expense from the amortization of the debt discount on our convertible debt, a gain of $4,234,717 from our change in estimate related to our legal contingency for the Cunning Lawsuit, $1,358,412 for a non-cash gain on the sale of an asset.

The net change in our operating assets and liabilities included a $1,422,928 increase in our prepaid expenses and other current assets, a decrease in accounts payable of $586,533, and a $573,696 decrease in our accrued expense and other current liabilities.

Cash used in operating activities of $13,952,178 during the year ended December 31, 2023, reflected a net loss of $37,644,784, adjusted by aggregate non-cash charges of $24,161,913 and included a $469,307 decrease in our operating assets and liabilities.

Non-cash charges included $124,251 of depreciation and amortization, $987,510 for stock-based compensation expense, $329,890 in non-cash interest expense from the amortization of the debt discount on our convertible debt, a gain of $151,842 from the courts decision to reduce the legal fees due to the plaintiff in the Cunning Lawsuit, $307,086 for a non-cash loss on the divestiture of VDL, a debt conversion inducement charge of $1,383,285 related to the conversion of the multi-draw credit agreement and in-process research and development expenses of $21,215,214 related to the acquisition of our lead asset, nimacimab.

The net change in our operating assets and liabilities included a $306,442 increase in our prepaid expense and other current assets, a decrease in accounts payable of $701,285, and a $74,464 decrease in our accrued expense and other current liabilities.

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

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

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

Cash Flows from Investing Activities

Cash provided from investing activities of $6,596,456 during the year ended December 31, 2023 consisted of our capital expenditures in relation to the purchase of property plant and equipment of $12,550, cash divested net of proceeds received from the sale of VDL of $5,532,266 and cash proceeds received from the BRB Acquisition of $1,076,740.

During the year ended December 31, 2022, the Company purchased $28,060 of machinery and office equipment, cash divested net of proceeds received from the sale of an asset of $66,458 and cash proceeds received from the EHT Acquisition of $5,308,913.

Cash and cash equivalents used in investing activities of $245,615 during the year ended December 31, 2024 consisted of our capital expenditures from the purchase of property and equipment of $1,604,027 offset by the proceeds from the sale of AVI of $1,358,412.

Cash provided from investing activities of $6,596,456 during the year ended December 31, 2023 consisted of our capital expenditures in relation to the purchase of property and equipment of $12,550, cash divested net of proceeds received from the sale of VDL of $5,532,266 and cash proceeds received from the BRB Acquisition of $1,076,740.

Cash Flows from Financing Activities

During the year ended December 31, 2023, cash provided by financing activities included $11,734,947 in net proceeds received from the August 2023 PIPE Financing, $4,973,684 in net proceeds from the issuance of a convertible note, offset by $259,335 in repayments on our insurance premium financing.

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

During the year ended December 31, 2024, cash and cash equivalents provided by financing activities included $83,556,563 in net proceeds received from the January and March 2024 PIPE Financings.

During the year ended December 31, 2023, cash provided by financing activities included $11,734,947 in net proceeds received from the Company’s issuance on August 18, 2023 of an aggregate of 2,989,981 shares of common stock and accompanying warrants to purchase up to 2,325,537 shares of common stock pursuant to a PIPE financing arrangement (the "August 2023 PIPE Financing"), $4,973,684 in net proceeds from the issuance of a convertible note, offset by $259,335 in repayments on our insurance premium financing.

Off-Balance Sheet Arrangements

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What changed 10-K

Item 7. Management’s Discussion and Analysis