Skye Bioscience, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 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 six months ended June 30, 2025 and 2024, 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, 2024, which was filed with the Securities and Exchange Commission (SEC) on March 20, 2025. This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1943, as amended (the "Exchange Act") that involve substantial risks and uncertainties. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “may,” “will,” “should,” “could,” “target,” “strategy,” “intend,” “project,” “guidance,” “likely,” “usually,” “potential,” or the negative of these words or variations of such words, similar expressions, or comparable terminology are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. A further list and description of risks, uncertainties and other factors that could cause actual results or events to differ materially from the forward-looking statements that we make is included in the cautionary statements herein and in our other filings with the SEC, including those set forth under Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this quarterly report, and we assume no obligation to update any such forward-looking statements, other than as required by law. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we, in the future, may file with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Solely for convenience, certain trademark and service marks (the “marks”) referred to in this Quarterly Report on Form 10-Q appear without the ® or ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these marks. 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 consolidated subsidiaries. Overview We are a clinical stage biotechnology company developing 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 the CB1 receptor—a key GPCR involved in metabolic regulation. We are conducting CBeyond TM , a Phase 2a proof-of-concept clinical trial of nimacimab administered as a subcutaneous injectable for the treatment of obesity and overweight in the United States. The CBeyond study is also assessing the combination of nimacimab and a GLP-1 receptor agonist. We anticipate providing a top-line readout from the CBeyond study late in the third quarter or early in the fourth quarter of 2025. To obtain 52 weeks of treatment data, we are enrolling a Phase 2a trial extension that increases the originally planned 26 weeks of treatment in the CBeyond study to provide a longer-term assessment of safety, tolerability and efficacy. The protocol extension provides for continued assessment of nimacimab as a monotherapy and in combination with a GLP-1 receptor agonist. The Data Safety Monitoring Committee for the CBeyond study has completed four regularly scheduled reviews and has recommended that the CBeyond study continue in accordance with the study protocol. We recently shared new data from a preclinical diet induced obesity (DIO) mouse model which provides further evidence for the potential combination of nimacimab with incretins and demonstrated the potential durability of response with nimacimab as a monotherapy or maintenance therapy post-incretin treatment. The preclinical DIO study demonstrated that at day 25 the combination of nimacimab and a suboptimal tirzepatide dose (3nmol/kg daily) yielded 44% vehicle-adjusted weight loss 15 (29.6% weight loss with an average of 30g mice). The combination outperformed either agent alone with nimacimab demonstrating 21.5% vehicle-adjusted weight loss (7.1% weight loss with an average of 40g mice) and the suboptimal tirzepatide dose demonstrating 29.7% vehicle-adjusted weight loss (15.4% weight loss with an average of 36g mice). The combination efficacy also exceeded an optimal dose of tirzepatide (10 nmol/kg), which resulted in 38.9% vehicle-adjusted weight loss (24.6% weight loss with 32g mice). The preclinical DIO study also demonstrated that, when used as a monotherapy, nimacimab-driven weight loss persisted for about 20 days after treatment cessation, while mice treated with tirzepatide alone regained most of their lost weight within a week post-treatment. Lastly, the preclinical DIO study demonstrated that when nimacimab alone was used after an initial tirzepatide or combination treatment in the preclinical DIO mouse model, it reduced rebound weight gain in these groups of mice. 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 administrative 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 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 and six months ended June 30, 2025, we incurred $14,337,753 and $21,535,010 in research and development expenses primarily related to our Phase 2a clinical trial of nimacimab for obesity and the manufacturing costs associated with future trials. During the three and six months ended June 30, 2024, we incurred $4,078,751 and $6,025,201 in research and development expense primarily related to our efforts in conducting our Phase 2a clinical trial for SBI-100 OE and costs related to our Phase 2a clinical trial for nimacimab for obesity. 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; • payments to third party contract research organizations and investigative sites; • payments to third party manufacturing organizations and consultants; and • 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. 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, the Financial Industry Regulatory Authority ("FINRA") and Nasdaq. Other significant costs are expected to include 16 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 2025 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. Estimate for Legal Contingencies and Related Expenses The estimate for legal contingencies and related expenses relates to a litigation matter that related to a former employee of the Company. 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 Court of Appeals and the case was remanded back to the District Court for a new trial, as a result of which we reduced 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. As of June 30, 2025, the estimated legal contingency, including accrued legal expenses, is $1,806,065. Other (Income) Expense Other expense primarily includes a gain from the sale of the Avalite Sciences, Inc. ("AVI") building (the "AVI building") in the first quarter of 2024, and interest expense. These expenses are offset by interest income earned on our cash balances and investments. 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, 2024 , e xcept, for the addition of our critical accounting estimate related to the estimate for accrued legal contingencies and related expenses and loss recoveries. 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 disclosures in future periods, the impact upon adoption was not significant to our current estimates and operations. Results of Operations For the three months ended June 30, 2025 and 2024 Research and Development Expenses Below is a summary of our research and development expenses during the three months ended June 30, 2025 and for the same period in 2024: Three Months Ended June 30, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 Research and development expenses $ 14,337,753 $ 4,078,751 $ 10,259,002 252 % Research and development expenses for the three months ended June 30, 2025, increased by $10,259,002 as compared to the same period in 2024 . The net increase in research and development expenses was primarily due to: • Clinical trial costs increased by $2,358,832 due to increased site and patient costs related to our Nimacimab Phase 2a clinical study, offset by a decrease in costs to complete our glaucoma study. • Contract manufacturing costs increased by $6,617,742 from drug substance, product, labeling and packaging costs related to resupplying our extended Phase 2a study for nimacimab, manufacturing in anticipation for our Phase 2b clinical study for nimacimab, and process intensification and dose optimization work. • Discovery research and development increased $721,676 from increased work to interrogate nimacimab's mechanism of action and for life cycle management. 17 • Salaries and stock-based compensation increased by $563,161 due to increased headcount. • General business expenses decreased by $263,555 due to the non-recurrence of fees associated with eliminating our glaucoma program. • Consulting costs increased by $142,092 to support our nimacimab program. • Depreciation expense on equipment increased by $94,809 due to the depreciation of manufacturing equipment. General and Administrative Expenses Below is a summary of our general and administrative expenses during the three months ended June 30, 2025, and for the same period in 2024: Three Months Ended June 30, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 General and administrative expenses $ 3,906,172 $ 4,326,820 $ (420,648) (10) % General and administrative expenses for the three months ended June 30, 2025, decreased by $420,648 as compared to the same period in 2024 . The decrease in general and administrative expenses was primarily due to: • Salaries, benefits and other direct employee related costs increased by $289,007 primarily due to higher headcount. • Consulting and advisory fees increased by $276,812 from the use of finance consultants and board member compensation. • Investor relations, marketing and communications expenses increased by $191,519 primarily due to to a market evaluation study for nimacimab and increased investor outreach activities. • General business expenses decreased by $371,633 primarily due to the one time cost of uplisting to Nasdaq in the prior period. • Legal and professional fees decreased by $854,783 due to decreases in litigation, one-time fees related to filings with the SEC in the prior period, and decreases in external legal costs and decreased financial advisory services. Other (Income) Expense Below is a summary of our other (income) expense for the three months ended June 30, 2025 and for the same period in 2024: Three Months Ended June 30, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 Interest expense $ — $ 450,052 $ (450,052) (100) % Interest and other income, net (533,090) (961,237) 428,147 (45) % (Gain) loss from asset sale (89,363) — (89,363) (100) % Other (income) expense — 359 (359) (100) % Total other (income) expense $ (622,453) $ (510,826) $ (111,627) 22 % For the three months ended June 30, 2025, we had an increase of other (income) expense of $111,627 as compared to the same period in 2024 primarily due to: • Increased gain from the sale of asset of $89,363 during the period ended June 30, 2025 from the collection of amounts due from the sale of real estate. • Decreased interest expense of $450,052 due to the reduction of debt. • Decreases in interest income and other income of $428,147 due to decreased interest from our cash equivalents and short-term investments yields as a result of the decrease in cash equivalents and short-term investments on hand. For the six months ended June 30, 2025 and 2024 18 Research and Development Expenses Below is a summary of our research and development expenses during the six months ended June 30, 2025 and for the same period in 2024: Six Months Ended June 30, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 Research and development expenses $ 21,535,010 $ 6,025,201 $ 15,509,809 257 % Research and development expenses for the six months ended June 30, 2025 , increased by $15,509,809 as compared to the same period in 2024 . The net increase in research and development expenses was primarily due to: • Clinical trial costs increased by $3,625,342 due to increased site and patient costs related to our extended Nimacimab Phase 2a clinical study, offset by a decrease in costs to complete our glaucoma study. • Contract manufacturing costs increased by $9,149,873 from drug substance, product, labeling and packaging costs related to resupplying our extended Phase 2a clinical study of nimacimab, manufacturing in anticipation for our Phase 2b clinical study for nimacimab, and process intensification and dose optimization work. • Discovery research and development increased $1,344,695 from increased work to interrogate nimacimab's mechanism of action, potency and for life cycle management. • Salaries, benefits and stock-based compensation increased by $1,089,121 due to increased headcount. • Consulting costs increased by $292,071 to support our nimacimab program. • General business expenses decreased by $262,745 due to the non-recurrence of fees associated with eliminating our glaucoma program. • Depreciation expense on equipment increased by $189,844 due to the depreciation of manufacturing equipment. • Travel and entertainment expenses increased by $61,417. General and Administrative Expenses Below is a summary of our general and administrative expenses during the six months ended June 30, 2025, and for the same period in 2024: Six Months Ended June 30, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 General and administrative expenses $ 8,468,477 $ 8,532,620 $ (64,143) (1) % General and administrative expenses for the six months ended June 30, 2025 , decreased by $64,143 as compared to the same period in 2024 . The decrease in general and administrative expenses was primarily due to: • Salaries, benefits and other direct employee related costs increased by $152,870 primarily due to higher headcount. • Travel and entertainment expenses increased by $81,760. • Consulting and advisory fees increased by $378,083 from the use of finance consultants, and fees associated with the Company's annual general meeting of stockholders. • Human resources related expenses increased by $52,764 due to increased hiring activity. • Investor relations, marketing and communications expenses increased by $565,089 due to primarily to a market evaluation study for nimacimab and increased investor communications activities. • General business expenses decreased by $358,592 due to the one time cost of uplisting to Nasdaq in the prior period and one-time fees related to SEC filings in the prior period offset by increased software costs. • Legal and professional fees decreased by $862,862 due to decreases in litigation, one-time fees related to SEC filings in the prior period, decreases in external legal costs and decreased financial advisory services. 19 Other (Income) Expense Below is a summary of our other (income) expense for the six months ended June 30, 2025 and for the same period in 2024: Six Months Ended June 30, 2025 2024 $ Change 2025 vs. 2024 % Change 2025 vs. 2024 Interest expense $ — $ 886,988 (886,988) (100) % Interest and other income, net (1,191,333) (1,388,791) 197,458 (14) % (Gain) loss from asset sale (89,363) (1,145,141) 1,055,778 (92) % Other (income) expense — 1,399 (1,399) (100) % Total other (income) expense $ (1,280,696) $ (1,645,545) $ 364,849 (22) % For the six months ended June 30, 2025 , we had a reduction of other (income) expense of $364,849 as compared to the same period in 2024 primarily due to: • Gain on sale of asset decreased by $1,055,645, due to the one-time sale of real estate. • Decreased interest expense of $886,988 due to the reduction of debt. • Decreased interest income and other income of $197,458 due to the decreased interest from our cash equivalents and short-term investments yields as a result of the decrease in cash equivalents and short-term investments on hand. Liquidity and Capital Resources Liquidity We have incurred operating losses and negative cash flows from operations since our inception, and as of June 30, 2025, we had working capital of $42,270,810, an accumulated deficit of $159,677,863, and stockholders’ equity of $43,676,709. We had unrestricted cash and cash equivalents and short-term investments in the amount of $48,585,283 as of June 30, 2025, as compared to $68,415,741 as of December 31, 2024. For the six months ended June 30, 2025 and 2024, the Company incurred losses from operations of $30,003,487 and $14,557,821, respectively. For the six months ended June 30, 2025 and 2024, the Company incurred net losses of $28,728,191 and $12,922,347, respectively. In January 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. We expect that the net proceeds raised from the January and March PIPE Financings, will continue to allow us to fund our clinical trial of nimacimab for obesity through top-line Phase 2a data and the extension study, work on formulation development activities, manufacture drug substance to commence and plan for our Phase 2b dose ranging study of nimacimab for obesity and provide us with the ability to expand upon our metabolic program with our other research and development efforts. We expect that the top-line data for our Phase 2a study will inform the size and magnitude of the Phase 2b dose ranging study, including the capital necessary to move forward. Accordingly, we may need to seek additional funds sooner than planned, including through public or private equity or debt financings, other sources, or through strategic collaborations. In May 2024 we entered into an Equity Distribution Agreement (the "ATM Agreement") with Piper Sandler & Co., as the sales agent (the "Sales Agent") 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 August 2024, the holder of a secured promissory 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. 20 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. Accordingly, we may need to seek additional funds sooner than planned, including through public or private equity or debt financings, other sources, or through strategic collaborations. 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, both in the U.S. and internationally; • 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 results of the new trial in the litigation matter discussed above under "--Financial Overview — Estimated Legal Contingency"; and • the impact of any of the foregoing of macroeconomic events, including inflation, fluctuating interest and exchange rates, and market volatility as a result of trade, fiscal and regulatory policies, including tariffs. 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: Six Months Ended June 30, 2025 2024 Net cash used in operating activities $ (19,931,667) $ (11,801,659) Net cash (used in) provided by investing activities (24,663,988) 1,109,497 Net cash provided by financing activities 18,158 83,556,563 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 candidate 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 on sale of asset. Cash used in operating activities of $19,931,667 during the six months ended June 30, 2025 , reflected a net loss of $28,728,191, partially offset by aggregate non-cash charges of $4,510,100 and included a $4,286,424 net cash outflow in our operating assets and liabilities. 21 Non-cash charges included $4,235,018 for stock-based compensation expense primarily attributable to the recognition of current period expense on prior grants and $364,445 in depreciation and amortization. The net change in our operating assets and liabilities included a $414,271 cash inflow from the decrease in our prepaid expenses and other current assets, a $1,287,646 net cash inflow from increase in our accrued expenses and other current liabilities and a $2,584,507 cash inflow from the increase of our accounts payable. Cash used in operating activities of $11,801,659 during the six months ended June 30, 2024, reflected a net loss of $12,922,347, partially offset by aggregate non-cash charges of $3,963,183 and included a $2,842,495 net change in our operating assets and liabilities. Cash Flows from Investing Activities During the six months ended June 30, 2025, our cash used in investing activities related primarily to the purchase of $24,747,039 in short-term investments and $89,363 in net proceeds from the sale of the AVI building. During the six months ended June 30, 2024, the Company purchased $35,644 in machinery and office equipment and recognized $1,145,141 in net proceeds from the sale of the AVI building. Cash Flows from Financing Activities Cash flows from financing activities primarily reflect proceeds from the sale of our securities. During the six months ended June 30, 2025, cash provided by financing activities included $18,158 in proceeds from the purchase under employee stock purchase plan. During the six months ended June 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. 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.