Nature of Operations and Business Activities |
6 Months Ended |
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Jun. 30, 2023 | |
| Accounting Policies [Abstract] | |
| Nature of Operations and Business Activities | Nature of Operations and Business Activities Nature of Operations
Skye Bioscience, Inc. (the “Company” or “Skye”) was incorporated in Nevada on March 16, 2011. The Company is a clinical stage pharmaceutical company focused on the discovery, development and commercialization of novel classes of therapeutic drugs to modulate the endocannabinoid system, which has been shown to play a vital role in overall human health and, notably, in multiple ocular indications. We are developing drugs with novel mechanisms of action through our own research efforts and multiple license agreements.
On May 11, 2022, the Company entered into an Arrangement Agreement, as amended on June 14, 2022, July 15, 2022 and October 14, 2022 (the “Arrangement Agreement”) with Emerald Health Therapeutics, Inc., a corporation existing under the laws of the Province of British Columbia, Canada (“EHT”), pursuant to a plan of arrangement under the Business Corporations Act (British Columbia) (the “Acquisition”) (Note 3). On November 10, 2022, the Company completed the Acquisition. Each share of EHT common stock outstanding immediately prior to the effective time of the Acquisition was transferred to the Company in exchange for 1.95 shares of Company common stock (the “Exchange Ratio”).
In addition, on November 10, 2022, EHT entered into a share purchase agreement with a third party for the sale of EHT's subsidiary, Verdélite Sciences, Inc. ("VDL") for an aggregate purchase price of $9,451,233, subject to certain adjustments (the “Verdélite SPA"). The sale of VDL closed on February 9, 2023 and completes the divestiture of EHT's most significant asset (Note 3).
As of June 30, 2023, the Company has devoted substantially all its efforts to securing product licenses, carrying out its own research and development, preparing for and conducting clinical trials, building infrastructure and raising capital. The Company has not yet realized revenue from its planned principal operations and is a number of years away from potentially being able to do so.
Liquidity and Going Concern
The Company has incurred operating losses and negative cash flows from operations since inception and as of June 30, 2023, had a working capital deficit of $7,923,867 and an accumulated deficit of $75,016,785. As of June 30, 2023, the Company had unrestricted cash in the amount of $553,443. For the three and six months ended June 30, 2023 and 2022, the Company incurred losses from operations of $2,842,997 and $3,218,360, and $5,943,155 and $6,106,382, respectively. For the three and six months ended June 30, 2023 and 2022, the Company incurred net losses of $3,111,500 and $3,419,278, and $8,279,020 and $6,462,677, respectively. The Company expects to continue to incur significant losses through the end of 2023 and expects to incur significant losses and negative cash flows from operations in the future.
The Company’s continued existence is dependent on its ability to raise sufficient additional funding to cover operating expenses and to carry out its research and development activities. During the six months ended June 30, 2023, management has implemented cost cutting measures to extend its cash runway while searching for additional financing. These measures have included the deferral of payments to employees, the postponement of certain nonclinical studies, a hold on non-essential travel and hiring, and the deferral of certain operational contracts. Based on the Company’s expected cash requirements, without obtaining immediate near term funding, it will not have enough funds to continue clinical studies or operations. These conditions, including the uncertainty of our ability to successfully resolve our litigation with Cunning (as described below), give rise to substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
During the quarter ended June 30, 2023, the Company met its operational funding requirements through its cost cutting measures, including the termination of consulting agreements. In 2023, the Company will continue with the liquidation of EHT's assets, including the sale of the real-estate held by Avalite Sciences, Inc. ("AVI") and explore additional financing options. However, the Company cannot provide any assurances that such additional funds will be available on reasonable terms in sufficient time for us to continue operations, or at all. If the Company raises additional funds by issuing equity securities, dilution to existing stockholders would result.
Further, in January 2023, the Company was subject to an unfavorable outcome in a lawsuit with a former employee which resulted in the recognition of an estimated legal contingency of $6,205,310. The Company strongly believes that this case was incorrectly decided as to liability, the amount of compensatory damages, and the appropriateness and amount of punitive damages. The Company intends to vigorously challenge the verdict in the trial court and appeal and pursue reimbursement under its existing insurance policies. However, the outcome of the litigation and the amount recoverable under its existing insurance policies, if any, is inherently uncertain (Note 12). The legal contingency that the Company recorded in connection with the jury verdict has had a significant negative effect on our business, including our ability to obtain funding. If the Company is unable to reduce the verdict prior to the rendering of a final judgment by the court or to reach a reasonable settlement with Ms. Cunning, the Company would be liable to pay substantial damages in excess of the Company's liquid assets. In addition, in connection with certain post-trial motions and an appeal, the court granted the Company's request for a stay of enforcement of the judgment pending post-trial motions and appeal conditioned on the Company posting a bond in the amount of $9,080,202 by August 10, 2023. For a further description of this litigation, see Note 12, "General Litigation and Disputes - Wendy Cunning vs. Skye Bioscience, Inc." to the accompanying Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Concurrent with the Cunning Lawsuit, the Company brought a lawsuit against its D&O carrier, Partner RE, challenging the previous denial of coverage and seeking damages and an order that Partner RE is obligated to reimburse the Company for the defense fees and costs incurred in the defense of the Cunning Lawsuit and requiring Partner RE to indemnify the Company for any settlement or judgment in the Cunning Lawsuit. On April 17, 2023, PartnerRe filed a motion to dismiss the Company's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). On June 20, 2023, the judge issued a final ruling in favor of the Company and denied Partner Re's motion to dismiss the lawsuit. In the ruling, the Court rejected Partner Re's primary basis for denying coverage. Based on this outcome, the Company is pursuing up to $5,000,000 in coverage less the deductible, to cover legal expenses incurred and the final verdict or settlement. For a further description of this litigation, see Note 12, "General Litigation and Disputes - Skye Bioscience, Inc. vs. Partner Re Ireland Insurance" to the accompanying Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
On February 16, 2023, Emerald Health Sciences ("Sciences"), a related party (Note 11) exercised all of its outstanding warrants and agreed to offset the remaining principal balance plus accrued interest outstanding under the Amended and Restated Multi-Draw Credit Agreement (the “Amended Credit Agreement”) by the aggregate exercise price of $282,905 before converting the remaining balance of the Amended Credit Agreement in the amount of $1,597,236 (Notes 5 & 6). As of June 30, 2023, Sciences has no outstanding warrants or debt with the Company.
Subsequent to the period ended June 30, 2023, on July 24, 2023, the Company entered into a loan agreement in the principal amount of $250,000 (the “Bridge Loan”) with MFDI, LLC. The Bridge Loan was obtained in order to provide bridge financing for the business to secure additional strategic financing (Note 13). The bridge loan bears interest at a rate of 9.5% per annum and is payable in 30 days.
It is possible that the Company may encounter issues relating to supply chain inefficiencies, a lack of production or laboratory resources, global economic and political conditions, pandemics or cyberattacks that could cause business disruptions and clinical trial delays which will need to be managed in the future. The factors to take into account in going concern judgements and financial projections include travel bans, restrictions, government assistance and potential sources of replacement financing, financial health of service providers and the general economy.
The Company does not believe that inflation has had a material impact on its operating results during the periods presented. However, inflation, led by supply chain constraints, federal stimulus funding, increases to household savings, and the sudden macroeconomic shift in activity levels arising from the loosening or removal of many government restrictions and the broader availability of COVID-19 vaccines has had and may continue to have an impact on general and administrative costs such as professional fees, employee costs and travel costs, and may in the future adversely affect the Company's operating results. In addition, increased inflation has had and may continue to have an effect on interest rates. Increased interest rates may adversely affect the terms under which the Company can obtain any potential additional funding.
Notably, the Company relies on third party manufacturers to produce its product candidates. The manufacturing of SBI-100 OE is conducted in the United States and Europe. Formulation of the eye drop for clinical trials is being conducted in Europe and relies on regulatory-accepted excipients that can be sourced from countries outside the United States. Since the COVID-19 pandemic, global supply chain disruptions have become more common and the Company may encounter future issues related to sourcing materials that are part of the eye drop formulation or manufacturing process, as well as impacting volunteer and/or patient recruitment for clinical studies. After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying Unaudited Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
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