Skye Bioscience, Inc. — Q1 2022 Form 10-Q
Business context and reporting period
Reports the three months ended March 31, 2022, compared with Q1 2021. Skye is a preclinical pharmaceutical company developing cannabinoid-derived drug candidates, including SBI-100 for ocular disease and SBI-200. It has not generated revenue from its planned principal operations.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $1.27 million | $0.61 million |
| General and administrative expense | $1.62 million | $1.13 million |
| Operating loss | $2.89 million | $1.74 million |
| Net loss | $3.04 million | $2.16 million |
| Net loss per share | $0.01 | $0.01 |
| Net cash used in operating activities | $2.91 million | $1.35 million |
| Cash and restricted cash at period-end | $6.01 million | $8.99 million at Dec. 31, 2021 |
| Working capital at period-end | $2.81 million | Not stated for comparison |
| Total liabilities at period-end | $4.24 million | $3.99 million at Dec. 31, 2021 |
| Accumulated deficit at period-end | $50.30 million | $47.26 million at Dec. 31, 2021 |
Operating expenses increased 66% year over year. R&D rose 108%, primarily from increased contract research, specialized consultants, and compensation; G&A rose 44%, mainly from payroll and professional fees. No meaningful revenue or gross margin is reported. Investing cash use was $2,000; financing cash use was $59,000, versus $4.04 million of financing inflows in Q1 2021, principally from warrant exercises.
At March 31, 2022, the related-party credit agreement had $2.465 million of outstanding principal, bears 7% interest, and matures October 5, 2022. Its carrying value was $2.130 million. The $450,000 non-convertible portion and $2.015 million convertible portion are included in the principal balance. The credit facility’s drawdown line was closed in September 2021 and is no longer a source of liquidity.
Material changes, outlook, and risks
- Management expects significant losses and negative operating cash flows through 2022 and beyond. It states that additional funding is needed and that, absent funding by Q3 2022, the company expects insufficient funds to continue clinical studies and repay related-party debt. The filing concludes substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements.
- Management expected SBI-100 first-in-human studies in Australia to begin in Q2 2022, following delays associated with COVID-19. The filing describes clinical-enabling work, including formulation, toxicology, assay validation, and study preparations; it provides no financial guidance or quantified cash-runway estimate.
- COVID-19 may disrupt clinical-trial recruitment, vendors, staffing, and sourcing of formulation materials. Management says the ultimate operational and financial impact cannot be estimated.
- A former employee’s wrongful-termination claim is in early discovery. A loss is reasonably possible, but the company cannot estimate the amount; legal costs are expensed as incurred.
- Skye relies on University of Mississippi licenses, third-party manufacturers and research organizations, and future financing. Equity financing could dilute shareholders. The company reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether sufficient financing was obtained by Q3 2022 and whether the October 5, 2022 related-party debt was repaid, converted, or otherwise addressed.
- Whether the SBI-100 Phase 1 study began as expected and how trial progress, recruitment, and COVID-related supply risks evolved.
- Cash use and financing needs relative to the reported $6.01 million cash and restricted cash balance; the filing gives no clear cash-runway estimate.
- Potential outcome and financial exposure from the former employee litigation.
- Share-count and dilution implications: 495.9 million common shares were outstanding at March 31, 2022, and 495.9 million at May 5, 2022; warrants, options, and convertible debt may add further shares.