Nature of Operations and Business Activities |
3 Months Ended |
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Mar. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Nature of Operations and Business Activities | Nature of Operations and Business Activities Nature of Operations
Skye Bioscience, Inc. (the “Company”) was incorporated in Nevada on March 16, 2011. The Company is a clinical stage pharmaceutical company focused on the discovery, development and commercialization of a novel class of cannabinoid derivatives 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 novel cannabinoid derivatives 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. for an aggregate purchase price of $9,385,064, subject to certain adjustments (the "Verdélite SPA"). The sale of Verdélite Sciences, Inc. closed on February 9, 2023 and completes the divestiture of EHT's most significant former operating assets (Note 3).
As of March 31, 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 March 31, 2023, had a working capital deficit of $4,916,609 and an accumulated deficit of $71,905,285. As of March 31, 2023, the Company had unrestricted cash in the amount of $2,668,697. For the three months ended March 31, 2023 and 2022, the Company incurred losses from operations of $3,100,158 and $2,888,021, respectively. For the three months ended March 31, 2023 and 2022, the Company incurred net losses of $5,167,520 and $3,043,399, 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 three months ended March 31, 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 additional funding by the second half of 2023, it will not have enough funds to continue clinical studies. 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 March 31, 2023, the Company met its operational funding requirements by closing on the Verdélite SPA, which provided the Company with a gross proceeds of $5,532,266, net of legal costs and advisory fees at closing. In 2023, the Company will continue with the liquidation of EHT's assets, including initiating a search to find a buyer for 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, 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 we recorded in connection with the jury verdict has had a significant negative effect on our business, including our ability to obtain funding. If we are 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, we would be liable to pay substantial damages in excess of our liquid assets.
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 (See Notes 5 & 6). As of March 31, 2023, Sciences has no outstanding warrants or debt with the Company.
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 we 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 in Australia for clinical studies. The location of the Phase 1 clinical trial site is in Australia and since the COVID-19 outbreak in that country, multiple cities have experienced health emergency lockdowns which have had a negative impact on the conduct and timelines of the 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 Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
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