Skye Bioscience, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. Skye was a preclinical pharmaceutical company developing cannabinoid-derived drug candidates, with no revenue from planned principal operations. The financial statements exclude EHT, which Skye acquired after quarter-end on November 10, 2022.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None reported | |||
| Research and development expense | $1.78 million | $0.33 million | $4.47 million | $1.82 million |
| General and administrative expense | $1.14 million | $1.49 million | $4.55 million | $3.57 million |
| Operating loss | $2.92 million | $1.82 million | $9.03 million | $5.39 million |
| Net loss | $3.13 million | $1.82 million | $9.59 million | $6.01 million |
| Loss per share | $(0.01) | Less than $(0.01) | $(0.02) | $(0.02) |
Cash flow: Cash used in operating activities was $7.87 million for the first nine months of 2022, versus $4.51 million in 2021. Investing activities used $0.45 million, including $0.44 million of EHT acquisition costs; financing activities used $0.24 million. Cash and restricted cash fell by $8.57 million to $0.42 million, including unrestricted cash of $0.42 million.
Balance sheet at September 30, 2022: Total assets were $2.87 million; total liabilities were $6.15 million; and stockholders’ deficit was $3.28 million. Working capital deficit was $3.46 million and accumulated deficit was $56.85 million. The company had $2.46 million of related-party credit agreement principal outstanding, plus $0.31 million of accrued related-party interest. The principal and accrued interest were due October 5, 2022, subject to a 30-business-day grace period. No meaningful revenue-based margin measure is available.
Material changes versus the prior comparable period
- Nine-month R&D expense rose 146%, principally from clinical-trial material and Phase 2 API manufacturing, Phase 1 site-initiation work, additional personnel costs, and a $100,000 University of Mississippi milestone payment.
- Nine-month G&A expense increased 28%, mainly due to employee and board costs, professional and legal fees including EHT diligence, software, and facilities costs. Q3 G&A declined 24%, partly because prior-year stock compensation had included modification-related expense.
- Nine-month operating cash use increased from $4.51 million to $7.87 million as losses and development spending grew, while cash financing proceeds were substantially lower than in 2021.
- Common shares outstanding were 495.9 million at September 30, compared with 476.1 million at year-end 2021. At November 11, 2022, the filing reported 912.2 million shares issued and outstanding, reflecting the subsequent EHT transaction.
Outlook, transactions, and risks
- Management stated that the company had substantial doubt about its ability to continue as a going concern within one year after issuance of the financial statements. Without additional funding, management expected insufficient resources to continue clinical studies beyond the second half of 2023.
- Skye completed its EHT acquisition on November 10, 2022, issuing 416,270,514 shares at an exchange ratio of 1.95 Skye shares per EHT share, plus replacement options and warrants. Management expected the acquired cash and asset-realization proceeds to fund operations into at least Q2 2023, enabling completion of Phase 1 and commencement of Phase 2; this does not eliminate the stated need for further funding.
- EHT’s sale of Verdélite was agreed after quarter-end for approximately $9.31 million, subject to adjustments and closing conditions. The stated consideration includes an upfront deposit, a closing payment, and three later installments; collection, timing, and ultimate liquidation proceeds remain uncertain.
- On October 17, 2022, EHT provided Skye a $700,000 unsecured working-capital loan. It accrues interest at 12% annually, reduced to 5% upon closing of the acquisition, and matures October 17, 2023.
- Skye expected to begin the SBI-100 OE Phase 1 trial in Australia in Q4 2022 and Phase 2 in the first half of 2023; it also planned to file an IND for SBI-100 by year-end 2022. These are forward-looking plans, not reported trial outcomes. A cyberattack at a contract manufacturer had delayed the Phase 1 timeline.
- Key risks include dependence on additional financing and potential shareholder dilution; early-stage drug development and regulatory uncertainty; third-party manufacturer and supply-chain dependence; possible clinical-trial delays; and uncertainty over EHT asset-sale proceeds and wind-down costs. The filing estimates EHT wind-down costs of $1.15 million, with additional expected annual operating costs of $425,000–$475,000 after closing.
- A former employee wrongful-termination proceeding was pending; Skye said it could not estimate the potential contingency. The filing reported no material off-balance-sheet arrangements and stated disclosure controls were effective.
Important facts for investors to verify
- Actual post-acquisition cash available, EHT wind-down costs, and whether the expected runway through Q2 2023 is achieved.
- Closing status, net proceeds, installment collectability, and any adjustments under the Verdélite sale agreement.
- Repayment or other resolution of the related-party credit agreement, including accrued interest and any grace-period consequences.
- Actual Phase 1 enrollment and results, IND timing, and whether Phase 2 starts as planned.
- Subsequent share count, replacement securities, and any further financing or dilution.
- Resolution and potential financial impact of the former employee litigation.