S-1/A: Skye Bioscience Files Amendment to S-1 Registration Statement to Correct Auditor's Report

Skye Bioscience files an amendment to its S-1 registration statement to correct a scrivener's error in the auditor's report regarding the date of the original report.

Summary

• Skye Bioscience, Inc. filed Amendment No. 1 to its Form S-1 registration statement to correct a scrivener's error in the Marcum LLP auditor's report.
• The error concerned the date of the original auditor's report, which incorrectly referenced March 27, 2024, instead of March 21, 2024.
• No other changes were made to the auditor's report, and the prospectus remains unchanged.
• The amendment does not reflect events occurring after the original filing date or modify any amounts or disclosures within the financial statements.
• The company had unrestricted cash of $1,256,453 as of December 31, 2023.
• The company incurred a net loss of $37,644,784 for the year ended December 31, 2023.
• The company expects to continue to incur significant losses and negative cash flows from operations through 2024 and in the future.
• The company completed two private placement equity transactions in January and March 2024, raising approximately $83,500,000.
• The company acquired Bird Rock Bio Sub, Inc. on August 18, 2023, issuing 5,436,378 shares of common stock valued at $21,609,586.
• The company is involved in a legal proceeding with a former employee, Wendy Cunning, and has recorded a legal contingency expense of $6,053,468 plus accrued interest of $234,750.
• The company obtained a stay on enforcement of the judgment in the Cunning Lawsuit by posting an appeal bond in the amount of $9,080,202.
• The company is pursuing reimbursement under its existing insurance policies for the Cunning Lawsuit.
• On January 15, 2024, the company closed the sale of real estate held by AVI for $1,139,572.

Sentiment

Score: 4

Explanation: The document presents a mixed sentiment. While the company has secured significant funding through private placements, it continues to face substantial financial challenges, including ongoing losses and a legal contingency. The company's future success depends on the successful development and commercialization of its drug candidates.

Positives

• The company successfully raised approximately $83.5 million through private placements in January and March 2024.
• The company obtained a stay on enforcement of the judgment in the Cunning Lawsuit by posting an appeal bond.
• The company is pursuing reimbursement under its existing insurance policies for the Cunning Lawsuit.
• The company closed the sale of real estate held by AVI for $1,139,572.

Negatives

• The company incurred a significant net loss of $37,644,784 for the year ended December 31, 2023.
• The company expects to continue to incur significant losses and negative cash flows from operations through 2024 and in the future.
• The company has a legal contingency expense of $6,053,468 plus accrued interest of $234,750 related to the Cunning Lawsuit.

Risks

• The company expects to continue to incur significant losses and negative cash flows from operations through 2024 and in the future.
• The company is involved in a legal proceeding with a former employee, Wendy Cunning, which could have a material adverse effect on the company's financial position.
• The company's ability to utilize its deferred tax assets is subject to a valuation allowance.
• The company may encounter supply chain issues related to global economic and political conditions that could cause business disruptions and clinical trial delays.
• There may also be significant uncertainty resulting from the impact of other geopolitical and macroeconomic factors, including global pandemics, inflation, supply chain issues, rising interest rates, future bank failures, increased geopolitical tensions between the U.S. and China and the impact of the Russia/Ukraine conflict and the Israel-Hamas war.

Future Outlook

The Company expects to continue to incur significant losses and negative cash flows from operations through 2024 and in the future. The capital from the January and March financings will allow the Company to fund its planned Phase 2 clinical trials for glaucoma and obesity through top line data.

Industry Context

Skye Bioscience is operating in the competitive pharmaceutical industry, focused on developing novel therapeutic drugs targeting the endocannabinoid system. The company's focus on CB1 receptor modulation for conditions like glaucoma and obesity aligns with growing interest in cannabinoid-based therapies. However, the company faces significant challenges, including the need for substantial funding, regulatory hurdles, and competition from established pharmaceutical companies.

Comparison to Industry Standards

• Skye Bioscience's financial situation, with significant operating losses and reliance on external funding, is not uncommon for clinical-stage pharmaceutical companies.
• Comparable companies in the biotechnology sector often exhibit similar financial profiles during the development phase.
• For example, companies like Cassava Sciences and CorMedix have also faced scrutiny and volatility related to their clinical trial results and regulatory pathways.
• The success of Skye Bioscience will depend on the successful completion of clinical trials, regulatory approvals, and commercialization of its drug candidates, particularly nimacimab for obesity and SBI-100 OE for glaucoma.
• The company's ability to secure additional funding and manage its legal liabilities will also be critical for its long-term viability.

Legal Proceedings

• The Company is a party to a legal proceeding with a former employee alleging, among other things, wrongful termination, violation of whistleblower protections under the Sarbanes-Oxley Act of 2002, and retaliation under California law against the Company relating to certain actions and events that occurred with the Company's former management during the employee's employment term from March 2018 to July 2019.
• The case, entitled Wendy Cunning vs Skye Bioscience, Inc., was filed in U.S. District Court (the District Court) for the Central District of California (the Cunning Lawsuit).
• On January 18, 2023, a jury rendered a verdict in favor of Ms. Cunning and awarded her $512,500 in economic damages (e.g., lost earnings, future earnings and interest), $840,960 in non-economic damages (e.g., emotional distress) and $3,500,000 in punitive damages.
• On February 13, 2023, the Company received the final judgment on the special verdict (the Final Judgment) from the District Court.
• On August 2, 2023, the District Court ruled on the plaintiff's motion for attorney fees and awarded the plaintiff $1,200,008.
• Immediately prior to the closing of the PIPE Financing, on August 17, 2023, the Company obtained a stay on enforcement of the judgment in the Cunning Lawsuit by posting an appeal bond in the amount of $9,080,202.
• On October 19, 2023, the Company received the final orders from the District Court denying the post-trial motions that the Company filed with the District Court in March 2023 seeking judgment as a matter of law, a new trial, and/or a reduction of the judgment.
• Additionally, in March of 2023, the Company appealed the judgment in the Cunning Lawsuit with the Ninth District Court of Appeals, which is moving forward now that the District Court has ruled on the post-trial motions.
• In March 2024, the Company filed the opening brief for the appeal with the Ninth District Court of Appeals.
• In February 2023, the Company brought a suit against the Company's D&O carrier, Partner Re Ireland Insurance DAC (Partner Re), bringing claims for (a) breach of contract, (2) tortious breach of the implied covenant of good faith and fair dealing and (3) declaratory relief that Partner Re is obligated to reimburse the Company for the defense fees and costs incurred in defense of the Cunning Lawsuit and must indemnify the Company for any settlement or judgment in the Cunning Lawsuit.
• The case, entitled Skye Bioscience, Inc., v. Partner Re Ireland Insurance DAC, was filed in the United Stated District Court for the Central District of California.
• On April 17, 2023, Partner Re 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 Company's lawsuit.

Related Party Transactions

• On August 15, 2023, the Company entered into a Secured Note and Warrant Purchase Agreement with MFDI, LLC (MFDI), pursuant to which the Company issued to MFDI a $5,000,000 secured convertible promissory note (the Convertible Note) and a warrant to purchase 340,000 shares of common stock on August 18, 2023 (the Convertible Note Financing).
• On July 24, 2023, the Company entered into a loan agreement in the principal amount of $250,000 (the Bridge Loan) with MFDI, LLC.
• On October 5, 2018, the Company entered into the Credit Agreement with Sciences, a related party.
• In 2021, the Company entered into two separate Agreements pursuant to a Master Services Agreement with VivaCell Biotechnology Espaa, S.L.U (VivaCell), a subsidiary of Emerald Health Research, Inc., which is 100%-owned by Sciences.
• In 2021, the Company entered into an Exclusive Sponsored Research Agreement (the ESRA) with VivaCell to fund certain research and development programs.
• On February 28, 2022, the Company entered into a standard consulting agreement with the CEO's brother to assist with diligence on the EHT Acquisition due to his knowledge and expertise as a former executive of EHT.

Stakeholder Impact

• Shareholders: The company's financial performance and legal proceedings could impact shareholder value.
• Employees: The company's ability to secure funding and manage its operations will impact employee job security.
• Customers: The company's success in developing and commercializing its drug candidates will impact patients in need of new therapies.
• Suppliers: The company's financial stability will impact its ability to meet its obligations to suppliers.
• Creditors: The company's ability to repay its debts will depend on its financial performance and ability to secure additional funding.

Next Steps

• The company plans to use the capital from the January and March financings to fund its planned Phase 2 clinical trials for glaucoma and obesity through top line data.
• The company is challenging the verdict in the Cunning Lawsuit in the Ninth District Court of Appeals and is pursuing reimbursement under its existing insurance policies.

Key Dates

Keywords

Skye Bioscience, S-1 Amendment, Auditor's Report, Financial Statements, Net Loss, Private Placement, Legal Contingency, Bird Rock Bio, Nimacimab, Going Concern, Convertible Note, Warrants, PIPE Financing, Reverse Stock Split, Emerald Health Therapeutics, AVI, VDL, EHTC, Cunning Lawsuit, Appeal Bond, Real Estate Sale, Stock-Based Compensation, Research and Development, Operating Lease, Related Party Transactions, Subsequent Events, Risk Factors, COVID-19, Ukraine, Israel, Hamas