Skye Bioscience, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Skye is a preclinical pharmaceutical company developing cannabinoid-based drug candidates. It had no revenue from planned operations.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0 reported | $0 reported | $0 reported | $0 reported |
| Research and development expense | $1.43 million | $0.88 million | $2.69 million | $1.49 million |
| General and administrative expense | $1.79 million | $0.95 million | $3.41 million | $2.08 million |
| Operating loss | $3.22 million | $1.83 million | $6.11 million | $3.57 million |
| Net loss | $3.42 million | $2.02 million | $6.46 million | $4.18 million |
| Loss per share, basic and diluted | $0.01 | $0.01 | $0.01 | $0.01 |
At June 30, 2022, cash was $2.93 million, down from $8.98 million at December 31, 2021. Working capital was negative $0.46 million; total liabilities were $5.27 million, and stockholders’ deficit was $0.30 million. Accumulated deficit was $53.72 million. Operating cash use was $5.82 million for the first half, compared with $3.02 million in 2021; investing cash use was $0.09 million and financing cash use was $0.15 million. The company reported no operating revenue, so operating margins are not meaningful.
Related-party credit advances totaled $2.465 million in principal, bear 7% interest, and mature October 5, 2022. The credit line was closed to further advances. The balance sheet carries $2.290 million for these advances net of discounts and issuance costs. An additional $0.122 million remained payable on an insurance-premium loan at quarter-end.
Changes and operating developments
- First-half net loss increased by $2.28 million year over year. R&D expense rose 81%, mainly from CRO and other research activity, specialized consultants, and added regulatory and development personnel.
- First-half G&A expense rose 64%, reflecting employee and board costs, professional fees including EHT acquisition diligence, software, and facilities.
- Cash used in operations increased as the company advanced clinical preparations and incurred acquisition-related costs. The 2021 comparative period included $5.73 million of warrant-exercise proceeds; there were no comparable common-warrant proceeds in the first half of 2022.
- Shares outstanding were 495.9 million at June 30, up from 476.1 million at year-end, primarily following exercise of 19.7 million pre-funded warrants for nominal cash proceeds.
Outlook, risks, and contingencies
- Going concern: Management reported substantial doubt about Skye’s ability to continue as a going concern within one year after issuance of the financial statements. It stated that additional funding was needed by the end of Q3 2022 to sustain clinical studies and meet obligations. Management was pursuing interim financing, managing vendor-payment timing, and seeking other funding, without assurance financing would be available.
- EHT acquisition: The proposed acquisition would exchange 1.95 Skye shares for each eligible EHT share; approximately 416.3 million Skye shares were expected to be issued based on the June 30 estimate. Closing remained subject to approvals and other conditions. The company expected a Q4 2022 closing, no earlier than October 15, with the outside date extended to November 15 if regulatory delays occurred. Management expected proceeds from EHT cash and asset liquidation to fund Skye at least through Q2 2023, but the amount and timing depend on closing and liquidation values.
- Clinical timing: SBI-100 OE Phase 1 enrollment in Australia was expected in Q4 2022. A cyberattack affecting the contract manufacturer delayed production and the anticipated trial start. COVID-19, supply-chain constraints, manufacturer dependence, and possible recruitment disruptions could further affect timelines.
- Debt and dilution: The Sciences credit advances were due in October 2022. Any equity financing could dilute existing shareholders; the proposed EHT exchange would also substantially increase the share count if completed.
- Legal matter: A former employee alleges wrongful termination. The matter was in discovery, and Skye said it could not estimate a possible loss.
- Skye expects significant losses and negative operating cash flow as it funds development. The filing describes research, regulatory, financing, counterparty, intellectual-property, and execution risks; actual outcomes may differ materially from forward-looking expectations.
Important facts for investors to verify
- Whether Skye obtained sufficient interim funding to bridge the period through the EHT transaction and repay or address the October 5, 2022 debt maturity.
- Whether the EHT acquisition closed, the final share consideration, and the cash and net realizable value of EHT assets available to fund operations.
- Whether SBI-100 OE manufacturing was completed and Phase 1 enrollment began, and any subsequent clinical or regulatory updates.
- Updated cash, operating burn, and runway relative to management’s Q2 2023 funding expectation.
- Any developments or estimable exposure in the former employee litigation.