
Nevada						45-0692882
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

Title of each class

Trading Symbol(s)

Name of each exchange
on which registered

None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange
on which registered

Common Stock, par value $0.001

SKYE

OTCQB

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of ~~November 8, 2021,~~May 5, 2022, there were ~~476,108,455~~495,925,112 shares of the issuer’s $0.001 par value common stock issued and outstanding.

Statements in this Quarterly Report on Form 10-Q ~~that are not descriptions of historical facts are~~contain forward-looking statements that are based on management’s current expectations and assumptions and information currently available to management and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially and negatively affected. In some cases, you can identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth in the section below titled “Risk Factors,” including, without limitation, risks relating to:

•the results of our research and development activities, including uncertainties relating to the discovery of potential product candidates and the preclinical and clinical testing of our product ~~candidates;~~candidates;

•the early stage of our product candidates presently under ~~development;~~development;

•our need for substantial additional funds in order to continue our operations, and the uncertainty of whether we will be able to obtain the funding we need;

•our ability to obtain and, if obtained, maintain regulatory approval of our current product candidates, and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate;

•our ability to retain or hire key scientific or management personnel;

•our ability to protect our intellectual property rights that are valuable to our business, including patent and other intellectual property rights;

•our dependence on University of Mississippi, third party manufacturers, suppliers, research organizations, testing laboratories and other potential collaborators;

•our ability to develop successful sales and marketing capabilities in the future as ~~needed;~~needed;

•the size and growth of the potential markets for any of our approved product candidates, and the rate and degree of market acceptance of any of our approved product ~~candidates;~~candidates;

•competition in our ~~industry;~~industry;

•the duration and impact of the novel coronavirus ~~(“COVID-19”~~("COVID-19") ~~pandemic;~~pandemic, or responses to the pandemic on our business, clinical trials or personnel; and

•regulatory developments in the United States and foreign countries.

We operate in a rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

See accompanying notes to the condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

See accompanying notes to the condensed consolidated financial statements.

For the Nine Months Ended
September 30,
2021 2020
Cash flows from operating activities:
Net loss $ (6,009,362) $ (5,058,592)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 9,412 1,096
Stock-based compensation expense 747,252 241,216
Change in fair value of derivative liabilities 169,349 (433,688)
Amortization of debt discount 439,053 402,624
Gain on forgiveness of PPP loan (117,953) —
Changes in assets and liabilities:
Prepaid expenses and other current assets (131,088) 40,686
Prepaid expenses - related party (18,125) —
Other asset (8,309) —
Accounts payable (72,719) 601,823
Accounts payable - related parties 2,968 11,400
Accrued interest - related party 86,737 81,813
Accrued payroll liabilities 201,334 —
Other current liabilities 201,861 (156,576)
Operating lease liability (6,442) —
Net cash used in operating activities (4,506,032) (4,268,198)
Cash flows from investing activities:
Purchase of property and equipment (36,828) —
Net cash used in investing activities (36,828) —
Cash flows from financing activities:
Proceeds from multi-draw credit agreement – related party, net of $0 and $9,301 issuance costs for the September 30, 2021 and September 30, 2020 periods, respectively — 450,000
Proceeds from PPP loan — 116,700
Proceeds from the sale of common stock and warrants – net of $851,538 and $854,078 issuance costs for the September 30, 2021 and September 30, 2020 periods, respectively 6,146,496 6,085,589
Proceeds from common stock warrant exercises 6,999,999 —
Proceeds from pre-funded warrant exercises 11,800 10,533
Proceeds from stock option exercises 4,783 —
Net cash provided by financing activities 13,163,078 6,662,822
Net increase in cash and restricted cash 8,620,218 2,394,624
Cash and restricted cash, beginning of period
$ 2,473,976 $ 1,834,515
Cash and restricted cash, end of period $ 11,094,194 $ 4,229,139

Cash and restricted cash, beginning of period

Common Stock Additional
Paid-In
Capital Accumulated
Deficit Total
Stockholders’
Equity (Deficit)
Shares Amounts
Balance, January 1, 2020 182,895,247 $ 182,895 $ 32,538,445 $ (32,173,282) $ 548,058
Stock-based compensation expense — — 64,142 — 64,142
Series B warrant exercises 312,500 313 26,250 — 26,563
Net loss for the three months ended March 31, 2020 — — — (2,341,660) (2,341,660)
Balance, March 31, 2020 183,207,747 $ 183,208 $ 32,628,837 $ (34,514,942) $ (1,702,897)
Stock-based compensation expense — — 28,709 — 28,709
Net loss for the three months ended June 30, 2020 — — — (1,420,236) (1,420,236)
Balance, June 30, 2020 183,207,747 $ 183,208 $ 32,657,546 $ (35,935,178) $ (3,094,424)
Stock-based compensation expense — — 148,365 — 148,365
Common stock and warrants issued

56,333,334 56,333 6,029,256 — 6,085,589
Exercise of pre-funded warrants

10,533,334 10,533 — — 10,533
Net loss for the three months ended September 30, 2020 — — — (1,296,696) (1,296,696)
Balance, September 30, 2020 250,074,415 $ 250,074 $ 38,835,167 $ (37,231,874) $ 1,853,367


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amounts
Balance, January 1, 2022	476,108,445	$	476,108	$	52,644,221	$	(47,256,163)	$	5,864,166

Stock-based compensation expense	150,000	150		150,208		—		150,358

Exercise of pre-funded warrants	19,666,667	19,667		(17,700)		—		1,967

Net loss for the three months ended March 31, 2022	—	—		—		(3,043,399)		(3,043,399)

Balance, March 31, 2022	495,925,112	$	495,925	$	52,776,729	$	(50,299,562)	$	2,973,092

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	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amounts
Balance, Balance, January 1, 2021	288,074,415	$	288,074	$	38,896,693	$	(38,733,981)	$	450,786

Stock-based compensation expense	600,000	600		145,980		—		146,580

Exercise of common stock warrants	67,166,667	67,167		3,962,833		—		4,030,000

Exercise of pre-funded warrants	11,800,000	11,800		—		—		11,800

Net loss for the three months ended March 31, 2021	—	—		—		(2,160,517)		(2,160,517)

Balance, March 31, 2021	367,641,082	$	367,641	$	43,005,506	$	(40,894,498)	$	2,478,649

Common Stock Additional
Paid-In
Capital Accumulated
Deficit Total
Stockholders’
Equity
Shares Amounts
Balance, January 1, 2021 288,074,415 $ 288,074 $ 38,896,693 $ (38,733,981) $ 450,786
Stock-based compensation expense 600,000 600 145,980 — 146,580
Exercise of common stock warrants 67,166,667 67,167 3,962,833 — 4,030,000
Exercise of pre-funded warrants 11,800,000 11,800 — — 11,800
Net loss for the three months ended March 31, 2021 — — — (2,160,517) (2,160,517)
Balance, March 31, 2021 367,641,082 $ 367,641 $ 43,005,506 $ (40,894,498) $ 2,478,649
Stock-based compensation expense — — 111,699 — 111,699
Exercise of common stock options 106,250 107 4,676 — 4,783
Exercise of common stock warrants 28,333,334 28,333 1,671,667 — 1,700,000
Net loss for the three months ended June 30, 2021 — — — (2,024,027) (2,024,027)
Balance, June 30, 2021 396,080,666 $ 396,081 $ 44,793,548 $ (42,918,525) $ 2,271,104
Stock-based compensation expense 750,000 750 484,973 — 485,723
Common stock and warrants issued 58,111,112 58,111 6,004,663 — 6,062,774
Exercise of common stock warrants 21,166,667 21,166 1,248,833 — 1,269,999
Net loss for the three months ended September 30, 2021 — — — (1,824,818) (1,824,818)
Balance, September 30, 2021 476,108,445 $ 476,108 $ 52,532,017 $ (44,743,343) $ 8,264,782

See accompanying notes to the condensed consolidated financial statements.

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SKYE BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Nature of Operations and Business Activities

Nature of Operations

Skye Bioscience, Inc. (the “Company”) was initially incorporated in Nevada on March 16, 2011 as Load Guard Logistics, Inc. On October 31, 2014, the Company closed a reverse merger transaction (the “Merger”) pursuant to which Nemus, a California corporation (“Nemus Sub”), became the Company’s wholly owned subsidiary, and the Company assumed the operations of Nemus Sub. Nemus Sub was incorporated in the State of California on July 17, 2012. On November 3, 2014, the Company changed its name to Nemus Bioscience, Inc. by merging with Nemus Sub to form a Nevada company.

Effective March 25, 2019, the Company changed its name from Nemus Bioscience, Inc. to Emerald Bioscience, Inc. Effective January 19, 2021, the Company changed its name from Emerald Bioscience, Inc. to Skye Bioscience, Inc.

In August 2019, the Company formed a new subsidiary in Australia, SKYE Bioscience Pty Ltd. (formerly "EMBI Australia Pty Ltd."), an Australian proprietary limited company (“("SKYE Bioscience ~~Australia”~~Australia"), in order to qualify for the Australian government’s research and development tax credit for research and development dollars spent in Australia. The primary purpose of SKYE Bioscience Australia is to conduct clinical trials for the Company’s product candidates.

The Company is a ~~biopharmaceutical~~pre-clinical pharmaceutical company located in San Diego, California that researches, ~~and~~ develops and plans to commercialize ~~therapeutics derived from cannabinoids~~cannabinoid derivatives through its own directed research efforts and through several license agreements with the University of Mississippi ~~(“UM”~~("UM"). ~~UM is federally permitted and licensed to cultivate cannabis for research purposes in the United States.~~

As of ~~September 30, 2021,~~March 31, 2022, the Company has devoted substantially all its efforts to securing product licenses, carrying out its own research and development, 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 ~~September 30, 2021,~~March 31, 2022, had an accumulated deficit of ~~$44,743,343.~~$50,299,562. As of ~~September 30, 2021,~~March 31, 2022, the Company had unrestricted cash in the amount of ~~$11,089,624.~~$6,006,869. For the three months ended March 31, 2022 and 2021, the Company incurred losses from operations of $2,888,021 and $1,737,262, respectively. For the three months ended March 31, 2022 and 2021, the Company incurred net losses of $3,043,399 and $2,160,517, respectively. The Company expects to continue to incur significant losses through 2022 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. As the Company approaches its first clinical trial in the second quarter of 2022, it ~~expects to ramp up~~has increased research and development spending, ~~and to~~resulting in an increase in cash used in operating activities. However, based on the Company’s expected cash requirements, without obtaining additional funding by ~~September~~the third quarter of 2022, management believes that the Company will not have enough funds to continue clinical studies and pay down its related party debt. These conditions 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.

On October 5, 2018, the Company entered into a Multi-Draw Credit Agreement (the “Credit Agreement”) with Emerald Health Sciences ("Sciences"), a related party (Note 8). On April 29, 2020, the Company entered into an Amended and Restated Multi-Draw Credit Agreement (the “Amended Credit Agreement”) with Sciences. As of ~~September 30, 2021,~~March 31, 2022, the Company had an outstanding principal balance of $2,464,500 under the Amended Credit Agreement. Effective September 15, 2021, the disbursement line under the Amended Credit Agreement was closed and it no longer serves as a potential source of liquidity to the Company. The outstanding advances plus accrued interest under the Amended Credit Agreement are due on October 5, 2022 (See Note 4).

On April 22, 2020, the Company entered into a Paycheck Protection Program Promissory Note in the principal amount of $116,700 (the “PPP Loan”) from City National Bank (the “PPP Loan Lender”). The PPP Loan was obtained pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). During the nine months ended September 30, 2021, the full amount of principal and accrued interest was forgiven and the Company realized a gain of $117,953 (Note 4).

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~~During the nine months ended September 30, 2021, the Company received proceeds of $7,011,799 from the exercise of warrants (Note 5).~~

On September 29, 2021, the Company closed the September 2021 Financing (Note 5), pursuant to which the Company sold 58,111,112 shares of common stock, 19,666,667 pre-funded warrants and 77,777,779 common stock warrants in a registered public offering. The net proceeds from the transaction were $6,062,774. The common stock warrants and pre-funded warrants have an exercise price of $0.09 and $0.0001, respectively. The term of the common stock warrants is five years, and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full. The Company intends to use the net proceeds of the offering for general corporate purposes, including working capital and the repayment of the Amended Credit Agreement, if necessary.

The Company plans to continue to pursue funding through public equity financings, licensing arrangements, government grants or other strategic arrangements. 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.

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In December 2019, a novel strain of coronavirus ~~(“COVID-19”~~("COVID-19") emerged in Wuhan, China. Since then, it has spread to the United States, ~~and infections have been reported around~~ the ~~world. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread around the world and throughout the United States~~European Union, and Australia, where the Company has operations and conducts laboratory research and clinical studies. The effects of COVID-19 could impact the Company's ability to operate as a going concern and maintain sufficient liquidity to continue operations. The impact of COVID-19 on companies is evolving rapidly and its future effects are uncertain. It is possible that the Company may encounter issues relating to the current situation that will need to be considered by management 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 has made adjustments to its operations designed to keep its employees safe and comply with federal, state, and local guidelines. The extent to which COVID-19 may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence. In response to ~~the outbreak, federal and state authorities in~~COVID-19, the United States ~~have introduced various recommendations~~government has passed legislation and ~~measures~~taken other actions to ~~try~~provide financial relief to ~~limit~~companies and other organizations affected by the pandemic, including travel restrictions, border closures, nonessential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and significant economic disruptions to the global financial markets. These disruptions could impact the Company’s ability to raise additional capital and obtain the necessary funds.pandemic.

Notably, the Company relies on third party manufacturers to produce its product candidates. The manufacturing of ~~THCVHS~~SBI-100 is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but can rely on regulatory-accepted excipients that can be sourced from countries outside the United States. In connection with the COVID-19 pandemic, there could possibly be an impact on sourcing materials that are part of the eye drop formulation, as well as impacting volunteer and/or patient recruitment in Australia for clinical studies. The location of the clinical trial ~~are clinical sites~~site is in Australia and since the COVID-19 outbreak in that country, ~~the~~ multiple cities have experienced health emergency lockdowns which have had a negative impact on the conduct and timelines of the clinical studies. Therefore, the Company has shifted its first-in-human studies of ~~THCVHS~~SBI-100 to the second quarter of 2022.

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.

2. Summary of Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying Unaudited Interim Condensed Consolidated Financial Statements have been prepared on a consistent basis with the Company’s Audited Consolidated Financial Statements as of and for the year ended December 31, ~~2020,~~2021, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and therefore, omit certain information and footnote disclosures necessary to present the financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).

The results of operations for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2021~~2022 or any future periods. The Condensed Consolidated Balance Sheet as of December 31, ~~2020~~2021 was derived from the Company’s audited financial statements as of December 31, ~~2020,~~2021, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March ~~1, 2021.~~28, 2022. The ~~unaudited financial statements~~Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the ~~audited consolidated financial~~

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~~statements~~Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which includes a broader discussion of the Company’s business and the risks inherent therein.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries SKYE Bioscience Australia and Nemus Sub. All intercompany accounts and transaction have been eliminated in consolidation.

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Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates and judgements as to the appropriate carrying values of equity instruments, derivative liabilities, debt with embedded features, and the valuation of stock based compensation awards, which are not readily apparent from other sources.

Risks and Uncertainties

The Company’s operations are subject to a number of risks and uncertainties, including but not limited to, changes in the general economy, the size and growth of the potential markets for any of the Company’s product candidates, uncertainties related to the impact of COVID-19 (Note 1), results of research and development activities, uncertainties surrounding regulatory developments in the United States, the European Union and Australia, and the Company’s ability to attract new funding.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable, and the last is considered unobservable, is used to measure fair value:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of the Company’s financial instruments, with the exception of the Amended Credit Agreement and derivative liabilities, ~~including, cash, prepaid expenses, accounts payable and other current liabilities~~ approximate their fair value due to ~~the~~their short ~~maturities of these financial instruments.~~maturities. The derivative liabilities are valued on a recurring basis utilizing Level 3 inputs (Note 3).

As of December 31, 2020, the Company estimated that the fair value of the Amended Credit Agreement was materially consistent with the fair value estimate as of December 31, 2019 of $1,877,938, plus the non-convertible advances made in 2020. This determination was based on the following considerations: (i) the Company has not experienced any significant change in its credit worthiness or operations year over year, (ii) there have been no repayments or convertible draws, (iii) the facility is closer to maturity, and (iv) the embedded conversion feature on the convertible advances is out-of-the-money at the reporting date. As of September 30, 2021, the Company estimated that the fair value of the Amended Credit Agreement, including the non-convertible advances was ~~$2,501,632.~~$2,484,768. As of March 31, 2022, the Company estimated that the fair value of the Amended Credit Agreement, including the non-convertible advances was $2,559,549. As of March 31, 2022 and December 31, 2021, the carrying value of the Amended Credit Agreement was $2,129,741 and $1,974,905, respectively. Information pertinent to estimating the fair value of the Amended Credit Agreement includes valuing the embedded conversion feature using Level 3 inputs and considering the discounted cash flows of the interest and principal payments through maturity (Note 4).

Convertible Instruments

The Company accounts for hybrid contracts with embedded conversion features in accordance with ASC 815, Derivatives and Hedging Activities (“ASC 815”) which requires companies to bifurcate conversion options from their host instruments and

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account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

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The Company accounts for convertible debt instruments with embedded conversion features in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) if it is determined that the conversion feature should not be bifurcated from their host instruments. Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the difference between the fair value of the underlying common stock at the commitment date and the embedded effective conversion price. When the Company determines that the embedded conversion option should be bifurcated from its host instrument, the embedded feature is accounted for in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract is allocated to the fair value of the derivative. The derivative is subsequently recorded at fair value at each reporting date based on current fair value, with the changes in fair value reported in the results of operations.

The Company also follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) when evaluating the accounting for its hybrid instruments. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception (for example, a payable settled with a variable number of the issuer’s equity shares); (b) variations in something other than the fair value of the issuer’s equity shares (for example, a financial instrument indexed to the Standard and Poor’s S&P 500 Index and settled with a variable number of the issuer’s equity shares); or (c) variations inversely related to changes in the fair value of the issuer’s equity shares (for example, a written put option that could be net share settled). Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with a re-measurement reported in other expense (income), net in the accompanying Condensed Consolidated Statements of Comprehensive Loss.

When determining the short-term vs. long-term classification of derivative liabilities, the Company first evaluates the instruments’ exercise provisions. Generally, if a derivative is a liability and exercisable within one year, it will be classified as short-term. However, because of the unique provisions and circumstances that may impact the accounting for derivative instruments, the Company carefully evaluates all factors that could potentially restrict the instrument from being exercised or create a situation where exercise would be considered remote. The Company re-evaluates its derivative liabilities at each reporting period end and makes updates for any changes in facts and circumstances that may impact classification.

Warrants Issued in Connection with Financings

The Company generally accounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that the Company may need to settle the warrants in cash. For warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement, the Company records the fair value of the warrants as a liability at each balance sheet date and records changes in fair value in other expense (income), net in the Condensed Consolidated Statements of Comprehensive Loss.

Debt Issuance Costs and Interest

Discounts related to bifurcated derivatives, freestanding instruments issued in bundled transactions, and issuance costs are recorded as a reduction to the carrying value of the debt and amortized over the life of the debt using the effective interest method. The Company makes changes to the effective interest rate, as necessary, on a prospective basis. For debt facilities that provide for multiple advances, the Company initially defers any issuance costs until the first advance is made and then amortizes the costs over the life of the facility.

Research and Development Expenses and Licensed Technology

Research and development costs are expensed when incurred. These costs may consist of external research and development expenses incurred under agreements with third party contract research organizations and investigative sites, third party manufacturing organizations and consultants; license fees; employee-related expenses, which include salaries and benefits for

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the personnel involved in the Company’s preclinical ~~and clinical~~ drug development ~~activities; facilities expense, and~~activities, other ~~expenses;~~expenses and equipment and laboratory supplies.

Costs incurred for the rights to use licensed technologies in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where there is an identified alternative future use. ~~No cost~~None of the costs associated with the use of licensed technologies ~~has~~have been capitalized to date.

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Stock-Based Compensation Expense

Stock-based compensation expense is estimated at the grant date based on the fair value of the award, and the fair value is recognized as expense ratably over the vesting period with forfeitures accounted for as they occur. Upon the exercise of stock option awards, the Company's policy is to issue new shares of its common stock. The Company uses the ~~Black Scholes~~Black-Scholes valuation method for estimating the grant date fair value of stock options using the following assumptions:

•Volatility - Expected volatility is estimated using the historical stock price performance over the expected term of the award.

•Expected term - The expected term is based on a simplified method which defines the life as the weighted average of the contractual term of the options and the vesting period for each award.

•Risk-free rate - The risk-free interest rate for the expected term of the option is based on the average market rate on U.S. Treasury securities in effect during the period in which the awards were granted.

•Dividends - The dividend yield assumption is based on the Company’s history and expectation of paying no dividends in the foreseeable future.

Loss Per Common Share

The Company applies ASC No. 260, Earnings per Share in calculating its basic and diluted loss per common share. Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. ~~The diluted~~Diluted loss per share of common stock is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, options to purchase common stock, restricted stock subject to vesting, warrants to purchase common stock and common shares underlying convertible debt instruments are considered to be common stock equivalents.

The computations of basic and diluted ~~net~~ loss per common share are as follows:

Three Months Ended
September 30, (Unaudited) Nine Months Ended
September 30, (Unaudited)
2021 2020 2021 2020
Basic net loss per share:
Net loss $ (1,824,818) $ (1,296,696) $ (6,009,362) $ (5,058,592)
Weighted average common shares outstanding – basic 413,489,603 256,758,472 376,547,498 207,536,173
Net loss per share - basic $ — $ (0.01) $ (0.02) $ (0.02)
Diluted net loss per share:
Net loss (as adjusted) $ (1,704,980) $ (1,720,835) $ (6,009,362) $ (5,401,484)
Weighted average common shares outstanding – diluted 414,461,032 257,255,653 376,547,498 208,434,966
Net loss per share - diluted $ — $ (0.01) $ (0.02) $ (0.03)


	Three Months Ended March 31, (Unaudited)
	2022		2021
Basic and diluted loss per share:
Net loss	$	(3,043,399)	$	(2,160,517)
Weighted average common shares outstanding – basic and diluted	495,823,445		336,883,489
Loss per share - basic and diluted	$	(0.01)	$	(0.01)

The following outstanding shares of common stock equivalents were excluded from the computation of diluted ~~net~~ loss per share of common stock for the periods presented because including them would have been anti-dilutive:

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Three Months Ended
September 30, (Unaudited) Nine Months Ended
September 30, (Unaudited)
2021 2020 2021 2020
Stock options 23,490,000 25,000,678 23,490,000 25,000,678
Common shares underlying convertible debt 5,303,591 5,215,457 5,303,591 5,215,457
Warrants 133,945,796 145,336,155 134,917,225 22,304,750

~~Leases~~

~~In February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-02,~~ ~~Leases~~ ~~(Topic 842), to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted the standard effective January 1, 2019.~~

At the inception of an arrangement, the Company determines whether the arrangement is, or contains, a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contract is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

Lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the Condensed Consolidated Balance Sheets as operating lease right-of-use assets, operating lease liability, current portion and operating lease liability, net of current portion.


	Three Months Ended March 31, (Unaudited)
	2022	2021
Stock options	34,365,000	21,560,000
Common shares underlying convertible debt	5,124,384	5,124,384
Warrants	134,187,225	78,546,668
Unvested restricted stock units	4,000,000	—

Recent Accounting Pronouncements

In August 2020, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after

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December 15, 2023 and interim periods within those annual periods and early adoption is permitted in fiscal periods ending after December 15, 2020. Upon implementation, the Company may use either a modified retrospective or full retrospective method of adoption. The adoption of ASU 2020-06 will impact the way the Company calculates its ~~loss~~(loss) earnings per ~~common~~ share, result in expanded disclosures around convertible instruments and remove the requirement to assess and record beneficial conversion features. ~~The impact from adoption will depend on whether the Company elects to early adopt this ASU.~~ The Company currently plans to adopt the provisions of this ASU on the effective date. However, it reserves the right to early adopt these provisions.

Recently Adopted Accounting Pronouncements

In ~~May~~November 2021, the FASB issued ASU ~~2021-04,~~2021-10, ~~Earnings Per Share~~Government Assistance (Topic ~~260)~~832), ~~Debt—Modifications and Extinguishments~~ ~~(Subtopic 470-50),~~ ~~Compensation—Stock Compensation~~ ~~(Topic 718),~~ ~~and Derivatives and Hedging—Contracts in Entity’s Own Equity~~ ~~(Subtopic 815-40):~~ ~~Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options~~Disclosures by Business Entities about Government Assistance. The aim of ASU ~~2021-04~~2021-10 is to ~~clarify and reduce diversity in~~increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an ~~issuer's~~entity’s accounting for ~~modifications or exchanges~~the assistance, and (3) the effect of ~~freestanding equity-classified written call options that remain equity classified~~the assistance on an entity’s financial statements. Diversity currently exists in the recognition, measurement, presentation, and disclosure of government assistance received by business entities because of the lack of specific authoritative guidance in GAAP. The ASU will be effective for annual reporting periods after ~~modification or exchange. The Company has elected to early adopt this guidance as of July 1,~~December 15, 2021, and ~~has applied~~early adoption is permitted. Upon implementation, the ~~guidance as~~Company may use either a prospective or retrospective method of ~~January 1, 2021, in accordance with~~adoption when adopting the ASU. The adoption of ASU 2021-10 impacts the disclosures related to the rebates that the Company receives from the Australian Taxation Office ("ATO") against research and development activities for its Phase 1 clinical trials in Australia. The Company adopted the provisions of this ~~guidance had no impact~~ASU on the ~~interim~~effective date using a prospective adoption method as rebates from the ATO in prior periods ~~in 2021 prior~~were not material to the date of adoption. Upon implementation, the new guidance was applied to the July 2021 Inducement (Note 5), which resulted in recording the value attributable to the Inducement Warrants as an equity issuance cost. Because this amendment provided clarification where there was a lack of GAAP, management has determined that there was no resulting impact from the adoption of this standard to theCompany's financial statements.

3. Warrants and Derivative Liabilities

There are significant judgements and estimates inherent in the determination of the fair value of the Company’s warrants and derivative liabilities. These judgements and estimates include assumptions regarding the Company’s future operating performance, the time to completing a liquidity event, if applicable, and the determination of the appropriate valuation methods.

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If the Company had made different assumptions, the fair value of the warrants and derivative liabilities could have been significantly different (See Note 2).

Warrants

Warrants vested and outstanding as of ~~September 30, 2021~~March 31, 2022 are summarized as follows:

Source Exercise
Price Term
(Years) Number of
Warrants
Vested and
Outstanding
Pre 2015 Common Stock Warrants $ 1.00 10 1,110,000
2015 Common Stock Warrants 5.00 10 100,000
2016 Common Stock Warrants to Service Providers 1.15 10 40,000
2016 Series C Common Stock Warrants to Placement Agent 0.40 5 125,000
2017 Series D Common Stock Warrants to Placement Agent 0.25 5 480,000
2017 Common Stock Warrants to Service Provider 0.41 5 125,000
2018 Emerald Financing Warrants 0.10 5 3,400,000
Emerald Multi-Draw Credit Agreement Warrants 0.50 5 7,500,000
2019 Common Stock Warrants 0.35 5 8,000,000
2020 Common Stock Warrants to Placement Agent 0.08 4.99 8,166,667
2021 Inducement Warrants 0.15 5 21,166,667
2021 Inducement Warrants to Placement Agent 0.19 5 1,481,667
2021 Common Stock Warrants 0.09 5 77,777,779
2021 Pre-Funded Warrants — Indefinite 19,666,667
2021 Common Stock Warrants to Placement Agent 0.11 5 5,444,445
Total warrants vested and outstanding as of September 30, 2021 154,583,892

~~July 2021 Inducement Warrants and September 2021 Financing Warrants~~

In connection with the July 2021 Inducement (Note 5), the Company issued 21,166,667 common stock warrants and 1,481,667 warrants to the placement agent. The warrants were equity classified at issuance and the Company recorded the fair value of the common stock warrants and placement agent warrants of $2,790,884 and $192,224, respectively, as equity issuance costs related to the September 2021 Financing within equity. The warrants were vested at issuance and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions:

Common Stock
Warrants Placement Agent
Warrants
Dividend yield 0.00 % 0.00 %
Volatility factor 137.87 % 137.87 %
Risk-free interest rate 0.73 % 0.73 %
Expected term (years) 5 5
Underlying common stock price $ 0.15 $ 0.15

In connection with the September 2021 Financing (Note 5), the Company issued 77,777,779 common stock warrants, 19,666,667 pre-funded warrants, and 5,444,445 common stock warrants to the placement agent. The warrants were equity classified at issuance and the Company allocated $3,265,676 and $943,489 of the gross proceeds to the common stock warrants and pre-funded warrants on a relative fair value basis, respectively. The common stock warrants issued to the placement agent were valued at $421,522 and recorded as equity issuance costs within equity. The warrants vested immediately and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions:


Source	Exercise Price		Term (Years)	Number of Warrants Vested and Outstanding
Pre 2015 Common Stock Warrants	$	1.00	10	1,110,000
2015 Common Stock Warrants	5.00		10	100,000
2016 Common Stock Warrants to Service Providers	1.15		10	40,000
2018 Emerald Financing Warrants	0.10		5	3,400,000
Emerald Multi-Draw Credit Agreement Warrants	0.50		5	7,500,000
2019 Common Stock Warrants	0.35		5	8,000,000
2020 Common Stock Warrants to Placement Agent	0.08		5	8,166,667
2021 Inducement Warrants	0.15		5	21,166,667
2021 Inducement Warrants to Placement Agent	0.19		5	1,481,667
2021 Common Stock Warrants	0.09		5	77,777,779

2021 Common Stock Warrants to Placement Agent	0.11		5	5,444,445
Total warrants vested and outstanding as of March 31, 2022				134,187,225

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Common Stock
Warrants Pre-funded
Warrants Placement Agent
Warrants
Dividend yield 0.00 % 0.00 % 0.00 %
Volatility factor 136.02 % 135.06 % 136.02 %
Risk-free interest rate 1.01 % 1.55 % 1.01 %
Expected term (years) 5 10 5
Underlying common stock price $ 0.09 $ 0.09 $ 0.09

Derivative Liabilities

The following tables summarize the activity of the derivative ~~liabilities~~liability for the periods indicated:


		Nine Months Ended September 30, 2021											Three Months Ended March 31, 2022
		December 31, 2020 Fair Value of Derivative Liabilities		Fair Value of Derivative Liabilities Issued		Change in Fair Value of Derivative Liabilities		Reclassification of Derivatives to Equity		September 30, 2021 Fair Value of Derivative Liabilities			December 31, 2021 Fair Value of Derivative Liability		Fair Value of Derivative Liability		Change in Fair Value of Derivative Liability		Reclassification of Derivative to Equity		March 31, 2022 Fair Value of Derivative Liability
Emerald Financing - warrant liability (1)	Emerald Financing - warrant liability (1)	$	38,567	$	—	$	169,349	$	—	$	207,916	Emerald Financing - warrant liability (1)	$	59,732	$	—	$	(43,655)	$	—	$	16,077
Current balance of derivative liabilities	Current balance of derivative liabilities	$	38,567	$	—	$	169,349	$	—	$	207,916	Current balance of derivative liabilities	$	59,732	$	—	$	(43,655)	$	—	$	16,077

Nine Months Ended September 30, 2020
December 31, 2019
Fair
Value of Derivative Liabilities
Fair
Value of
Derivative
Liabilities
Issued Change in
Fair
Value of
Derivative
Liabilities Reclassification
of Derivatives
to Equity
September 30, 2020
Fair
Value of Derivative Liabilities
Emerald Multi Draw Credit Agreement - compound derivative liability (2)
$ 90,797 $ — $ (90,797) $ — $ —
Emerald Financing - warrant liability (1)
276,024 — (234,875) — 41,149
Series B - warrant liability(3)
134,579 — (108,016) (26,563) —
Total derivative liabilities $ 501,400 $ — $ (433,688) $ (26,563) $ 41,149
Less, noncurrent portion of derivative liabilities (90,797) —
Current balance of derivative liabilities $ 410,603 $ 41,149


	Three Months Ended March 31, 2021
	December 31, 2020 Fair Value of Derivative Liability		Fair Value of Derivative Liability		Change in Fair Value of Derivative Liability		Reclassification of Derivative to Equity		March 31, 2021 Fair Value of Derivative Liability
Emerald Financing - warrant liability (1)	$	38,567	$	—	$	238,350	$	—	$	276,917
Total derivative liabilities	$	38,567	$	—	$	238,350	$	—	$	276,917

Emerald Financing Warrant Liability (1)

The Emerald Financing Warrants were issued during 2018 in connection with the Emerald Financing, and originally contained a price protection feature. In connection with the August 2020 Financing, the exercise price ~~of the warrants~~ was permanently set to $0.10. The warrants contain a contingent put option if the Company undergoes a subsequent financing that results in a change in control. The warrant ~~holder~~holders also ~~has~~have the right to participate in certain subsequent financing transactions on an as-if converted basis.

The Company reviewed the warrants for liability or equity classification under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the warrants should be classified as a liability and re-measured to fair value at the end of each reporting period. The Company also reviewed the warrants under ASC 815, Derivatives and Hedging/Contracts in Entity’s Own Equity, and determined that the warrants also meet the definition of a derivative. With the assistance of a third party valuation specialist, the Company valued the warrant liabilities utilizing the Monte Carlo valuation method pursuant to the accounting guidance of ASC 820-10,Fair Value ~~Measurement~~Measurementss.. Beginning March 31 2021, the Company changed its valuation ~~approach~~model for the Emerald Financing Warrant Liability to a ~~Black Scholes~~Black-Scholes valuation method, as it was determined that a more simplistic model such as the ~~Black Scholes~~Black-Scholes valuation method yields a substantially similar result as a Monte Carlo simulation due to the Company's current assumptions.

The warrant liability is valued at the balance sheet dates using the following assumptions:

September 30,
2021 December 31,
2020
Dividend yield 0.00% 0.00%
Volatility factor 134.8% 90.9%
Risk-free interest rate 0.16% 0.14%
Expected term (years) 1.38 2.13
Underlying common stock price $ 0.11 $ 0.04

~~Emerald Multi-Draw Credit Agreement Compound Derivative Liability (2)~~


	March 31, 2022			December 31, 2021
Dividend yield	—		%	—		%
Volatility factor	103.3		%	126.5		%
Risk-free interest rate	1.49		%	0.43		%
Expected term (years)	0.88			1.13
Underlying common stock price	$	0.04		$	0.05

~~On April 29, 2020, the Company entered into the Amended Credit Agreement which removed the change in control provision as an event~~

Table of default for advances before and after the amendment. As a result of the modification, the contingent interest feature component of the compound derivative is no longer required to be bifurcated as a derivative liability.

Contents

~~Series B Warrant Liability (3)~~

During the nine months ended September 30, 2020, 312,500 Series B Common Stock Warrants with an intrinsic value of $26,563 were exercised for no consideration per share, which resulted in the issuance of 312,500 shares of common stock. Prior to exercise, these Series B Warrants were adjusted to fair value using a Black Scholes valuation method which considered the closing trading price on the exercise dates. Because the exercise price of these options had been reset to $0.00, the fair value derived from the valuation model approximated the market value of the Company’s common stock on the exercise dates.

4. Debt

Multi-Draw Credit Agreement- Related Party

The Company’s Debt with Sciences consists of the following:


		Conversion Price		As of September 30, 2021		As of December 31, 2020			Conversion Price		As of March 31, 2022		As of December 31, 2021
Total principal value of convertible debt—related party	Total principal value of convertible debt—related party	$	0.40	$	2,014,500	$	2,014,500	Total principal value of convertible debt—related party	$	0.40	$	2,014,500	$	2,014,500
Unamortized debt discount	Unamortized debt discount			(641,987)		(1,079,821)		Unamortized debt discount			(333,260)		(487,668)
Unamortized debt issuance costs	Unamortized debt issuance costs			(2,357)		(3,576)		Unamortized debt issuance costs			(1,499)		(1,927)
Carrying value of total convertible debt - related party	Carrying value of total convertible debt - related party			1,370,156		931,103		Carrying value of total convertible debt - related party			1,679,741		1,524,905
Total principal value of non-convertible debt—related party	Total principal value of non-convertible debt—related party	n/a		450,000		450,000		Total principal value of non-convertible debt—related party	n/a		450,000		450,000
Total carrying value of advances under the multi-draw credit agreement	Total carrying value of advances under the multi-draw credit agreement			$	1,820,156	$	1,381,103	Total carrying value of advances under the multi-draw credit agreement			$	2,129,741	$	1,974,905

On October 5, 2018, the Company entered into the Credit Agreement with Sciences, a related party (See Note 8). On April 29, 2020, the Company entered into the Amended Credit Agreement with Sciences, which amends and restates the Credit Agreement. For all pre-existing and new advances, the Amended Credit Agreement removed the change in control as an event of default. The amendments to the pre-existing advances were accounted for as a modification. For all advances made after the Credit Agreement was amended, advances will be convertible at a reduced conversion price of $0.25 per share of Common Stock, unless Sciences provides notice that the advance will not be convertible.

On March 29, 2021, the Company amended the Amended Credit Agreement to defer interest payments through the earlier of maturity or prepayment of the principal balance. On September 15, 2021, the Company further amended the Amended Credit Agreement to close the disbursement line. The amendments were considered a modification for accounting purposes.

Advances under the Amended Credit Agreement are unsecured, and bear interest at an annual rate of 7% and mature on October 5, 2022. At Sciences’ election, convertible advances and unpaid interest may be converted into common stock at the applicable fixed conversion price of the underlying advance, subject to customary adjustments for stock splits, stock dividends, recapitalizations, etc.

The Amended Credit Agreement provides for customary events of default which may result in the acceleration of the maturity of the advances in addition to, but not limited to, cross acceleration to certain other indebtedness of the Company. In the case of an event of default arising from specified events of bankruptcy or insolvency or reorganization, all outstanding advances will become due and payable immediately without further action or notice. If any other event of default under the Amended Credit Agreement occurs or is continuing, Sciences may, by written notice, terminate its commitment to make any advances and/or declare all the advances, including accrued interest, payable due immediately. If any amount under the Amended Credit Agreement is not paid when due, such overdue amount shall bear interest at an annual default interest rate of the applicable rate plus 10%, until such amount is paid in full.

In connection with each advance under the Amended Credit Agreement, the Company has agreed to issue to Sciences warrants to purchase shares of common stock in an amount equal to 50% of the number of shares of common stock that each advance may be converted into. The warrants have a term of five years and are immediately exercisable upon issuance. Under the Amended Credit Agreement, Sciences may issue notice that no warrants will be granted at the time of the advance request. The warrants issued under the Credit Agreement have an exercise price of $0.50 per ~~share and any future warrants issued under the Amended Credit Agreement will have a reduced exercise price of $0.35 per~~ share. The exercise prices are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events or upon any distributions of assets, including cash, stock or other property to the Company’s stockholders (See Note 3).

As of ~~September 30, 2021,~~March 31, 2022, the unamortized debt discount on the convertible advances will be amortized over a remaining period of approximately ~~1.01~~0.52 years. As of ~~September 30, 2021,~~March 31, 2022, the fair value of the shares underlying the convertible advances under the Amended Credit Agreement was ~~$528,806.~~$191,378. As of ~~September 30, 2021,~~March 31, 2022, the if-converted value did not exceed the principal balance.

~~PPP Loan~~Insurance premium loan payable

On ~~April 24, 2020,~~February 28, 2022, the Company ~~received funding from the PPP Loan Lender pursuant to the PPP of the CARES Act administered by the SBA~~entered into an annual financing arrangement for a ~~principal amount~~portion of ~~$116,700. The PPP Loan had an interest rate of 1.00% per year~~its Directors and funds from the PPP Loan could only be used by the Company for payroll costs, costs for continuing group healthcare benefits, mortgage interest payments, rent, utility and interest on any other debt obligations that were incurred before October 9, 2020.

On April 5, 2021, the Company submitted an application for the full forgiveness of the PPP Loan to the PPP Loan Lender for the full amount of the loan. On May 20, 2021, the Company received notification that the application was accepted and that the full amount of the PPP Loan including accrued interest was forgiven. During the nine months ended September 30, 2021, the Company has recorded a gain on forgiveness of the PPP loanOfficers Insurance Policy (the “D&O Insurance”) with Marsh & McLennan in an amount of ~~$117,953.~~$275,537. The loan is payable in equal monthly installments of $31,149, matures on October 28, 2022 and bears interest at a rate 4.17% per annum. As of March 31, 2022, a total of $287,017 and $214,307, remains financed in prepaid expenses and loans payable, respectively.

The Company’s interest expense consists of the following:

5. Stockholders’ Equity and Capitalization

~~Increase to Authorized Shares of Capital Stock~~

During the ~~nine~~three months ended ~~September 30, 2021, 11,800,000~~March 31, 2022, 19,666,667 pre-funded warrants with an intrinsic value of ~~$460,200~~$1,178,033 were exercised in exchange for ~~11,800,000~~19,666,667 shares of common stock for gross proceeds of ~~$11,800. As of September 30, 2021 all of the pre-funded warrants have been exercised.~~

~~July 2021 Inducement and September 2021 Financing~~Common Stock Issuance

6. Stock-Based Compensation

Stock Incentive Plan

On October 31, 2014, after the closing of the Merger, the Board of Directors approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”). The share reserve under the 2014 Plan equals 10% of the number of issued and outstanding shares of common stock of the ~~Company.~~Company on an evergreen basis. In August 2020, the Company approved Amendment No. 2 to the 2014 Plan, which increased the share reserve by an additional 7,876,835 shares over the 10% of the number of issued and outstanding shares of common stock, and removed certain restrictions on the number of shares of common stock and the amount of cash-based awards up to which participants of the 2014 Plan can receive in a calendar year. The 2014 Plan authorizes the issuance of awards including stock options, stock appreciation rights, restricted stock, stock units and performance units to employees, directors, and consultants of the Company. As of ~~September 30, 2021,~~March 31, 2022, the Company had ~~30,047,929~~17,154,595 shares available for future grant under the 2014 Plan.

The following is a summary of option activities under the Company’s 2014 Plan for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

~~During~~Restricted Stock Units

On December 14, 2021, the ~~nine months ended September 30, 2021, 106,250~~Company granted restricted stock ~~options with an intrinsic value of $13,281 were exercised for gross proceeds of $4,783.~~

units (“RSUs”) to its executive management team. The ~~fair value of each stock option grant was estimated~~RSUs cliff vest 33% per year on the anniversary of the grant date over a three year period. As of ~~grant using the Black-Scholes option-pricing model using the following assumptions:~~


			For the Nine Months Ended September 30, 2021
~~Dividend yield~~			~~0.00%~~
~~Volatility factor~~			~~119.1 - 124.2%~~
~~Risk-free interest rate~~			~~0.82 - 1.11%~~
~~Expected term (years)~~			~~5.27 - 6.13~~

~~For the nine months ended September 30, 2021, the~~March 31, 2022, 4,000,000 RSUs with a weighted average grant date fair value of ~~options granted was $0.14~~$0.06 per ~~share.~~

In connection with the termination of Dr. Avtar Dhillon's Independent Contractor Agreement on October 14, 2021 (Note 8), the Company modified Dr. Dhillon's option awards to accelerate the vesting of 1,650,000 unvested stock options and, extend the post-termination exercise period from 30 days to five years for all of his outstanding awards. The approval of the modification and receipt of notice to terminate the Independent Contractor Agreement on September 14, 2021, resulted in the recognition of $309,487 in stock compensation expense for the three and nine months ended September 30, 2021.share remain unvested.

Awards Granted Outside the 2014 Plan

During the nine months ended September 30, 2021, the Company granted 1,200,000 and 300,000 restricted shares of common stock to a non-employee consultant for investor relations services under 2 successive six month service contracts. Half of the shares will be issued within the first month of entering each service contact and the remaining half will be issued within thirty days from contract completion.

The following is a summary of restricted stock activity outside of the Company’s 2014 Plan during the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

Number of
Shares Weighted
Average
Grant
Date Fair
Value
Unvested, December 31, 2020 — $ —
Granted 1,500,000 0.12
Released (1,350,000) 0.12
Unvested, September 30, 2021 150,000 $ 0.13


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested, December 31, 2021	150,000	$	0.13


Released	(150,000)	0.13
Unvested, March 31, 2022	—	$	—

Stock-Based Compensation Expense

The Company recognizes stock-based compensation expense using the straight-line method over the requisite service period. ~~Stock-based~~The Company recognized stock-based compensation ~~is included~~expense, including compensation expense for RSUs discussed above, in ~~the~~its Condensed Consolidated Statements of Comprehensive Loss in general and administrative or research and development, depending upon the nature of services provided. Stock-based compensation expense (including compensation expense for restricted stock awards discussed above) was as follows:

The total amount of unrecognized compensation cost was ~~$860,985~~$1,428,815 as of ~~September 30, 2021.~~March 31, 2022. This amount will be recognized over a weighted average period of ~~2.76~~3.00 years.

7. Significant Contracts - University of Mississippi

UM 5050 and UM 8930 License Agreements

In July 2018, the Company renewed its ocular licenses for UM 5050 ~~a prodrug of tetrahydrocannabinol (“THC”),~~ and UM ~~8930, an analog of cannabidiol (“CBD”).~~8930. On May 24, 2019, the ocular delivery licenses were replaced by “all fields of use” licenses for both UM 5050 and UM 8930 (collectively, the “License Agreements”). Pursuant to the License Agreements, UM granted the Company an exclusive, perpetual license, including, with the prior written consent of UM, not to be unreasonably withheld, the right to sublicense, the intellectual property related to UM 5050 and UM 8930 for all fields of use.

The License Agreements contain certain milestone payments, royalty and sublicensing fees payable by the Company, as defined therein. Each License Agreement provides for an annual maintenance fee of $75,000 payable on the anniversary of the effective date. The Company made upfront payments for UM 5050 and UM 8930 of $100,000 and $200,000, respectively. In addition, in March 2020, the Company was notified by the United States Patent and Trademark Office, that a notice of allowance was issued for the proprietary analog of cannabidiol, CBDVHS, under the UM 8930 License Agreement. As a result, the Company paid UM a fee of $200,000. The milestone payments payable for each license are as follows:

The royalty percentage due on net sales under each License Agreement is in the mid-single digits. The Company must also pay to UM a portion of all licensing fees received from any sublicensees, subject to a minimum royalty on net sales, and the Company is required to reimburse patent costs incurred by UM related to the licensed products. The royalty obligations apply by country and by licensed product, and end upon the later of the date that no valid claim of a licensed patent covers a licensed product in a given country, or ten years after the first commercial sale of such licensed product in such country.

Each License Agreement continues, unless terminated, until the later of the expiration of the last to expire of the patents or patent applications within the licensed technology, and the expiration of the Company’s payment obligations under such License Agreement. UM may terminate each License Agreement, by giving written notice of termination, upon the Company’s material breach of such License Agreement, including failure to make payments or satisfy covenants, representations or warranties without cure, noncompliance, a bankruptcy event, the Company’s dissolution or cessation of operations, the Company’s failure to make reasonable efforts to commercialize at least one product or failure to keep at least one product on the market after the first commercial sale for a continuous period of one year, other than for reasons outside the Company’s control, or the Company’s failure to meet certain pre-established development milestones. The Company may terminate each License Agreement upon 60 days’ written notice to UM.

As of ~~September 30, 2021,~~March 31, 2022, with the exception of the fee due for the notice of patent allowance for CBDVHS, none of the other milestones under these license agreements have been met.

UM 5070 License Agreement

In January 2017, the Company entered into a license agreement with UM pursuant to which UM granted the Company an exclusive, perpetual license, including the right to sublicense, to intellectual property related to a platform of cannabinoid-based molecules (“("UM ~~5070”~~5070"), to research, develop and commercialize products for the treatment of infectious diseases.

The Company paid UM an upfront license fee of $65,000 under the license agreement. Under the license agreement, the Company is also responsible for annual maintenance fees of $25,000 that will be credited against any royalties incurred, contingent milestone payments upon achievement of development and regulatory milestones, and royalties on net sales of licensed products sold for commercial use. The aggregate milestone payments due under the license agreement if all the milestones are achieved is $700,000 and the royalty percentage due on net sales is in the mid-single digits. The Company must

also pay to UM a percentage of all licensing fees it receives from any sublicensees, subject to a minimum royalty on net sales by such sublicensees. The Company’s royalty obligations apply on a country by country and licensed product by licensed product basis, and end upon the later of the date that no valid claim of a licensed patent covers a licensed product in a given country, and ten years after first commercial sale of such licensed product in such country.

The license agreement continues, unless terminated, until the later of the expiration of the last to expire of the patents or patent applications within the licensed technology, and expiration of the Company’s payment obligations under the license. UM may terminate the license agreement, effective with the giving of notice, if: (a) the Company fails to pay any material amount payable to UM under the license agreement and does not cure such failure within 60 days after UM notifies the Company of such failure, (b) the Company materially breaches any covenant, representation or warranty in the license agreement and does not cure such breach within 60 days after UM notifies us of such failure, (b) the Company materially breaches any covenant, representation or warranty in the license agreement and does not cure such breach within 60 days after UM notifies the Company of such breach, (c) the Company fails to comply in any material respect with the terms of the license and do not cure such noncompliance within 60 days after UM notifies the Company of such failure, (d) the Company is subject to a bankruptcy event, (e) the Company dissolves or ceases operations or (f) if after the first commercial sale of a product during the term of the license agreement, the Company materially fails to make reasonable efforts to commercialize at least one product or fails to keep at least one product on the market after the first commercial sale for a continuous period of one year, other than for reasons outside of the Company’s control. The Company may terminate the license agreement upon 60 days’ written notice to UM.

As of ~~September 30, 2021,~~March 31, 2022, none of the milestones under this license agreement have been met ~~(Note 10).~~and the agreement was terminated effective January 8, 2022 pursuant to a termination notice provided to UM by the Company on November 9, 2021.

8. Related Party Matters

Emerald Health Sciences

In January 2018, the Company entered into a securities purchase agreement with Sciences pursuant to which Sciences purchased a majority of the equity interest in the Company, resulting in a change in control ~~transaction.~~(the "Emerald Financing"). While Sciences no

longer maintains a controlling interest in the Company, it holds a significant equity interest as of March 31, 2022 and has provided the Company with financing under the Amended Credit Agreement (Note 4).

On December 19, 2019, the Company entered into an Independent Contractor Services Agreement with Dr. Avtar Dhillon, a member of Sciences Board of Directors and its CEO, pursuant to which Dr. Dhillon ~~provides~~provided ongoing corporate finance and strategic business advisory services to the Company. In exchange for his services, Dr. Dhillon received a monthly fee of $10,000, per month for his services.

No expenses were incurred under this agreement during the three months ended March 31, 2022. Under ~~the Independent Contractor Agreement,~~this agreement, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021, the Company incurred fees of $30,000 and $90,000, respectively. For the three and nine months ended September 30, 2020, the Company incurred fees of $31,000 and $97,387, respectively. As of September 30, 2021 and December 31, 2020, the Company has accrued $20,000 of consulting fees and $7,032 in expense related to the Independent Contractor Services Agreement, respectively.$30,000. On September 14, 2021, Dr. Dhillon provided his notice to terminate the Independent Contractor Services Agreement, with an effective termination date of October 14, 2021. As of October 14, 2021, the Company no longer has any obligations or business relationship with Dr. ~~Dhillon (Note 6).~~Dhillon.

~~In addition, the Board Observer Agreement in place with Sciences was amended in September 2021 to allow any board member or officer of Sciences to act~~VivaCell Biotechnology España, S.L.U (formerly known as ~~a representative of Sciences on a non-voting observer basis in meetings of the Board.~~

~~Emerald Health Pharmaceuticals, Inc.~~

On April 30, 2021, the Company entered into a month-to-month lease agreement with Emerald Health Pharmaceuticals, an affiliate of the Company with a significant common shareholder, as the sublessor and the Company as the sublessee. The Company shared the same office location as Emerald Health Pharmaceuticals in San Diego, California until the termination of the sublease on August 31, 2021. Under the sublease agreement, the Company paid monthly base rent of $4,000 in addition to its share of common area expenses and utilities. For the three and nine months ended September 30, 2021, the Company recognized $8,830 and $15,453, respectively, in expense under the sublease.

Emerald Health Biotechnology España, S.L.U.)

In January 2021 and April 2021, the Company entered into 2 separate Collaborative Research Agreements pursuant to a Master Services Agreement with ~~Emerald Health~~VivaCell Biotechnology España, S.L.U ("~~EHBE"~~VivaCell"), a research and development entity with substantial expertise in cannabinoid science and a subsidiary of Emerald Health Research, Inc. which is 100% owned by Sciences. Under the ~~agreements, Emerald Health Biotechnology España, S.L.U.~~Collaborative Research Agreements, VivaCell will provide research and development services pursuant to agreed upon project plans for the research and development of ~~CBDVHS~~SBI-200 and the preclinical development services for novel ~~analogues.~~derivatives. The term of each agreement is initially for a one-year period. The agreements will terminate upon delivery and acceptance of the final deliverables under the project plans or if either party is in breach of the terms of the contract and such breach remains uncured for 45 days. Payment for services are based on the negotiated amounts for the completion of agreed upon objectives as provided in the Collaborative Research Agreements. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, the Company incurred ~~$62,940~~$39,018 and ~~$206,218,~~$69,600, respectively, in expenses under the Collaborative Research Agreements. As of ~~September 30,~~March 31, 2022 and December 31, 2021, the Company has recognized prepaid asset in the amount of ~~$18,125~~$48,908 and $8,056, respectively, to be offset against future research and development costs under the Collaborative Research ~~Agreements (Note 10).~~Agreements.

On October 11, 2021, the Company entered into an Exclusive Sponsored Research Agreement (the “ESRA”) with VivaCell to fund certain research and development programs which are of mutual interest to both the Company and VivaCell. The Company will have the right to use all data, products, and information, including intellectual property which are generated in the performance of the research under each and all projects funded by the Company pursuant to the ESRA, and VivaCell assigns and agrees to assign, to the Company all rights to any intellectual property created or reduced-to-practice under, or as a part of, a project funded by the Company pursuant to the ESRA.

The Company has agreed to pay to VivaCell a royalty based on any and all licensing revenue or other consideration paid to the Company by a third-party licensee, assignee or purchaser of intellectual property rights created under the ESRA. In addition, upon a change of control transaction the Company has agreed to pay an amount equal to the royalty percentage multiplied by the fair value of the intellectual property created under the ESRA. Pursuant to the ESRA, VivaCell will provide a budget to be approved by the Company for each project, and the Company will make payments in accordance with the approved budget and pay an annual retainer to VivaCell of $200,000 per year. For the three months ended March 31, 2022, the Company incurred $50,000 in research and development expenses related to the retainer under the ESRA. As of March 31, 2022 and December 31, 2021, the Company has recognized a prepaid expense in the amount of $0 and $5,376, respectively, related to the retainer under the ESRA.

The initial term of the agreement is one year, with automatic renewal for successive one-year terms unless either party terminates upon 60 days' prior written notice to the other party pursuant to the ESRA.

On March 1, 2022, the Company entered into a research project with VivaCell under the ESRA Agreement for the screening platform for anteroposterior ocular diseases. The project budget is $190,500. For the three months ended March 31, 2022, the Company incurred $16,086 of research and development expenses under the ESRA.

As of ~~September 30, 2021,~~March 31, 2022, Jim Heppell and Punit Dhillon are board members of the Company and Emerald Health Pharmaceuticals, Inc., a subsidiary of Sciences. Sciences owns 23% and 48% of the Company and Emerald Health Pharmaceuticals, Inc., respectively. As of ~~September 30, 2021,~~March 31, 2022, Jim Heppell is also a board member and the CEO of ~~Sciences and Emerald Health Biotechnology España, S.L.U.~~Sciences. Jim Heppell also served on VivaCell's board until he tendered his resignation on January 10, 2022. The Company’s CEO, Punit Dhillon also served as a board member of Sciences and ~~Emerald Health Biotechnology España, S.L.U.~~VivaCell until he tendered his resignation from such boards on August 10, 2020 and September 22, 2021, respectively.

Related Party Contractor

On February 28, 2022, the Company entered into a standard consulting agreement with the CEO's brother. Compensation under the agreement is for a rate of approximately $78 per hour. The consulting agreement may be terminated by either party upon providing 15 days of advance notice. For the three months ended March 31, 2022, the Company incurred $8,595 of consulting expenses in general and administrative expenses under this agreement.

The Company leases office space for its corporate headquarters, located at ~~1250~~11250 El Camino Real, Suite 100 San Diego, California 92130. The lease is effective from September 1, 2021 through October 31, ~~2022~~2023 and contains a renewal option for a two-year extension after the current expiration date. The Company does not expect that the renewal option will be exercised, and has therefore excluded the option from the calculation of the right of use asset and lease liability. The lease provides for two months of rent


	~~September 30, 2021~~March 31, 2022
Weighted-average remaining term – operating lease (in years)	~~2.08~~1.58
Weighted-average discount rate – operating lease	12	%


Operating lease liability	$	~~63,581~~85,601
Operating lease liability, net of current portion	~~100,583~~55,906
Total lease liability	$	~~164,164~~141,507

General Litigation and Disputes

From time to time, in the normal course of operations, the Company may be a party to litigation and other dispute matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable outcome to any legal matter, if material, could have a materially adverse effect on the Company’s operations or financial position, liquidity or results of operations.

As of ~~September 30, 2021,~~March 31, 2022, the Company is party to a legal proceeding with a former employee alleging wrongful termination. While there ~~were no pending or threatened lawsuits or claims~~is a reasonable possibility that ~~could reasonably be expected~~a loss may have been incurred, due to ~~have a material effect on~~ the ~~Company’s financial position or results~~stage of ~~operations.~~the proceedings as of March 31, 2022, the Company is unable to make an estimate as to the amount of the contingency, as the legal proceeding is in the early stage of discovery. The Company is expensing the legal costs related to this proceeding as incurred.

10. Subsequent Events

~~Stock option grant~~Warrants granted to a service provider

On ~~October 4, 2021,~~April 1, 2022, the Company granted ~~1,600,000 stock options~~2,000,000 warrants to ~~the Company's Chief Financial Officer. The options have~~a service provider at an exercise price of ~~$0.09~~$0.04 per ~~share~~share. The warrants vest ratably over one year and ~~10% of the options vest~~expire on the grant date with the remainder vesting in semi-annual installments over four years. In the event of a change of control of the Company (as defined in the award documents), the options shall become vested in full.April 1, 2024.

~~Exclusive Sponsored Research Agreement~~

On October 11, 2021, the Company entered into an Exclusive Sponsored Research Agreement (the “ESRA”) with EHBE to fund certain research and development programs which are of mutual interest to both the Company and EHBE. The Company

will have the right to use all data, products, and information, including intellectual property which are generated in the performance of the research under each and all projects funded by the Company pursuant to the ESRA, and EHBE assigns and agrees to assign, to the Company all rights to any intellectual property created or reduced-to-practice under, or as a part of, a project funded by the Company pursuant to the ESRA.

The Company has agreed to pay to EHBE a royalty based on any and all licensing revenue or other consideration paid to the Company by a third-party licensee, assignee or purchaser of intellectual property rights created under the ESRA. In addition, upon a change of control transaction the Company has agreed to pay an amount equal to the royalty percentage multiplied by the fair value of the intellectual property created under the ESRA. Pursuant to the ESRA, EHBE will provide a budget to be approved by the Company for each project, and the Company will make payments in accordance with the approved budget and pay an annual retainer to EHBE of $200,000 per year.

~~Termination of UM 5070 License Agreement~~

~~On November 9, 2021, the Company provided its 60 day notice of termination to UM to terminate the UM 5070 license agreement effective January 8, 2022.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (unaudited) and the year ended December 31, ~~2020~~2021 together with the notes thereto. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Unless otherwise provided in this Quarterly Report, references to “we,” “us,” “our” and “Skye Bioscience” in this discussion and analysis refer to Skye Bioscience, Inc., a Nevada corporation formerly known as Emerald Bioscience, Inc., together with its wholly owned subsidiaries, Nemus, a California corporation, and SKYE Bioscience Pty Ltd. (formerly known as "EMBI Australia Pty Ltd."), an Australian proprietary limited company.

About Skye Bioscience, Inc.

We were incorporated in the State of Nevada on March 16, 2011. We are a ~~biopharmaceutical~~preclinical pharmaceutical company ~~targeting~~focused on the discovery, development and commercialization of a novel class of ~~therapeutics that~~cannabinoid derivatives to modulate the endocannabinoid system, ~~(ECS)~~ which has been shown to play a vital role in overall human health and, ~~specifically, ECS mediated signaling plays a role~~notably, in multiple ocular indications. We are ~~also~~ developing novel ~~cannabinoid-based therapeutics~~cannabinoid derivatives through our own directed research efforts and ~~through a number of~~multiple license agreements with the University of Mississippi (“UM”). We continue to be a development and commercialization partner of UM working to bring UM’s proprietary cannabinoid molecules through the development process.

Effective ~~March 25, 2019, we changed our name from Nemus Bioscience, Inc. to Emerald Bioscience, Inc. and effective~~ January 19, 2021, we changed our name from Emerald Bioscience, Inc. to Skye Bioscience, Inc. Our common stock is quoted on the OTCQB, under the symbol ~~“SKYE”~~"SKYE". Previously, it traded under the symbol ~~“EMBI”~~"EMBI".

In August 2019, we formed a new subsidiary in Australia, SKYE Bioscience Australia, in order to qualify for the Australian government’s research and development tax credit for research and development dollars spent in Australia. The primary purpose of SKYE Bioscience Australia is to conduct clinical trials for our drug product candidates.

Our Product Candidates and Significant ~~Contracts.~~Contracts

UM 5050 and UM 8930 License Agreements

~~In July 2018, we renewed our ocular licenses~~We hold license agreements with University of Mississippi ("UM") for ~~UM 5050, a prodrug of THC, and UM 8930, an analog of CBD. In May 2019, the ocular licenses were replaced by “all fields of use” licenses for both~~ UM 5050 and UM 8930 for "all fields of use" (collectively, the “License Agreements”). Pursuant to the License Agreements, UM granted us an exclusive perpetual license including, with the prior written consent of UM, the right to sublicense the intellectual property related to UM 5050 and UM 8930 for all fields of use. All fields of use means that we may develop UM 5050 and UM 8930 to treat any disease through any form of ~~delivery.~~delivery under the License Agreements.

The exclusive license for ~~THCVHS,~~SBI-100, a ~~proprietary prodrug of THC,~~cannabinoid receptor type 1 ("CBR1") agonist, under UM 5050 is expected to allow us to explore related uses for the active moiety of ~~the prodrug, namely THC.~~SBI-100. Independent in vitro and in vivo studies have demonstrated the potential use of ~~THC~~SBI-100 in a variety of potential indications based on the ability of ~~the cannabinoid~~CBR1 agonists to act as an anti-inflammatory, anti-fibrotic, and/or inhibitor of neovascularization. The Company has generated data related to these effects using an ex vivo human tissue model of the eye. ~~The prodrug approach employed in THCVHS~~SBI-100 is designed to enhance the ~~pharmacokinetic~~pharmacokinetics and pharmacodynamics of the active part of the molecule once introduced into the body through various routes of administration being considered by the development team.

The exclusive license of ~~CBDVHS, an analog of CBD,~~SBI-200, a novel cannabinoid receptor ("CBR") modulator, under UM 8930, is expected to ~~permit~~allow us to ~~expand~~explore uses in ophthalmic disorders as well as expanded research and development into organ systems outside of the ocular space. CBDVHS has demonstrated pharmacology different than CBD, while also exhibiting improved pharmacokinetics and bioavailability. As a result, CBDVHS will allow us to broaden our target diseases.ophthalmology. Potential therapeutic areas beyond ophthalmic indications for ~~CBDVHS~~SBI-200 may include the central nervous system, the gastrointestinal tract, the endocrine/metabolic system, reproductive system diseases, or as yet unrecognized opportunities. ~~Moreover, the determination by the DEA that CBDVHS is not a controlled substance permits us to avoid additional regulatory scrutiny from the DEA throughout the development of the drug.~~ We have developed strategic collaborations to identify and advance these applications.

~~UM 5070 License Agreement~~

In January 2017, we entered into a license agreement with UM pursuant to which UM granted us an exclusive, perpetual license, including the right to sublicense, the intellectual property related to a combination of cannabinoid molecules (i.e. "cannabinoid cocktail"), to research, develop and commercialize products for the treatment of infectious diseases. On November 9, 2021, we provided our notice of termination to UM to terminate the UM 5070 license agreement effective January 8, 2022.SBI-100

Our ~~Product Candidates~~

Cannabinoids are a class of chemically diverse compounds that are mainly found in extracts from the cannabis plant. The human body also produces cannabinoids, called endocannabinoids, to regulate a number of biological pathways. These compounds express their physiological response by binding to cannabinoid receptors (CB1 and CB2) and certain other receptors found throughout the human body. Some cannabinoids have been observed to exert multiple effects on the human body, including, but not limited to impacting the immune response, nervous system function and repair, gastrointestinal maintenance and motility, motor function in muscles, pancreatic functionality, tissue repair, blood sugar regulation, and integrity of function in the eye (including the optic nerve). Cannabis and specific cannabinoids have been studied widely and the results suggest that there is potential for these compounds to prevent, treat and/or alleviate symptoms of multiple diseases and disorders.

We are focused on the development of proprietary, synthetic cannabinoid-derived molecules that have been bioengineered to improve the solubility, bioavailability and pharmacology of natural cannabinoids, while also providing the Company with strong intellectual property protection. The following table summarizes certain information regarding our cannabinoid product candidates, along with a proprietary cannabinoid cocktail:

~~Product Candidate~~

~~Indication~~

~~Development Status~~

~~THCVHS~~

~~Glaucoma~~

~~Preclinical~~

~~CBDVHS~~

~~Multiple Targets~~

~~Preclinical~~

~~Cannabinoid Cocktail~~

~~Anti-infective~~

~~Research~~

~~Our~~ lead compound, ~~THCVHS,~~SBI-100, is initially being developed to treat ocular disease. The first-in-human Phase 1 trials are expected to be conducted in healthy volunteers in Australia (the “Clinical Trial”) to evaluate the safety, tolerability, pharmacokinetics

and pharmacodynamics of ~~THCVHS.~~SBI-100. We are eligible under the AusIndustry research and development tax incentive program to obtain a cash incentive from the Australian Taxation Office. The tax incentive is available to us based on specific criteria with which we must comply and is based on our eligible research and development spend in Australia. The Company may be eligible for either a 43.5% refundable tax offset if it has aggregate turnover of less than $20 million per annum or a 38.5% non-refundable tax ~~offset. Prior~~offset of eligible research and development expenditure up to ~~August 2020, we executed several agreements, and the work underlying those agreements was subsequently delayed to the second quarter~~$100 million if it has annual turnover of ~~2022. Since August 2020, we have been~~$20 million or more per annum.

We are focused on clinical enabling activities, notably:


			•			formulation and manufacturing of drug product to supply for our ~~GLP toxicology studies and~~ first-in-human Phase 1 clinical trial;
			•			initiating and completing GLP toxicology studies to support our first-in-human Phase 1 clinical trial;
			•			initiating and completing validation of a pharmacokinetic assay for both animal and human samples to support our pre-clinical and clinical studies; and
			•			engaging our vendors and contractors to support the finalization of study-related materials for our Phase 1 study, including the finalization of the clinical study ~~protocol.~~protocol and investigator's brochure.

The manufacturing of ~~THCVHS~~SBI-100 Ophthalmic Emulsion is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but we rely on ~~regulatory-accepted~~compendial excipients that can be sourced from countries outside the United States, such as China. ~~In connection with~~Due to the ~~recent~~continuing effects of the COVID-19 pandemic, ~~of COVID-19~~ there could possibly be ana negative impact on ~~sourcing~~our ability to source materials that are part of the eye drop formulation, as well as negative impacts to our volunteer and/or patient recruitment in Australia for clinical studies.

Subsequent to the initiation of the Phase 1 study, we intend to file an investigational new drug ("IND") application with the United States Food and Drug Administration ("FDA") to study SBI-100 ophthalmic emulsion in a Phase 2 randomized, controlled, double-masked clinical trial in patients with glaucoma or ocular hypertension to obtain additional data to determine whether the topical delivery of SBI-100 ophthalmic emulsion is safe and well-tolerated, and whether the IOP is markedly different between SBI-100 and placebo. Design of the Phase 2 clinical trial will be dependent upon the advice of our clinical advisory board, the FDA and other regulatory bodies.

We have initiated research activities to explore the utility of different formulations of ~~CBDVHS, our proprietary CBD analog.~~SBI-200. Early studies of ~~CBDVHS~~SBI-200 demonstrated analgesic, anti-inflammation, anti-fibrotic and anti-seizure properties, including the potential treatment and management of several eye diseases, such as uveitis, dry eye syndrome, macular degeneration and diabetic retinopathy. Data we presented at the American Association of Pharmaceutical Scientists ~~(“AAPS”~~("AAPS") meeting held in November 2017 revealed that an ocular formulation of ~~CBDVHS~~SBI-200 was able to penetrate multiple compartments of the eye, including reaching the retina and the optic nerve. Further testing will ~~need to~~ be conducted to further evaluate the possible utility of this compound as a therapeutic agent and we continue to advance our research studies related to ~~CBDVHS~~SBI-200 to explore different therapeutic applications.

~~Cannabinoid Cocktail~~

Cannabinoid molecules have previously been shown through in vitro studies conducted by third parties to possess anti-infective activity against a variety of bacterial strains. We entered into a research agreement with UM to explore this area in 2015 and have tested a variety of cannabinoids in various strengths, combinations, and delivery systems against a variety of bacterial species found in community, healthcare, and institutional settings such as nursing homes, correctional facilities, and military quarters.

General Trends and Outlook

The evolving COVID-19 pandemic has prompted governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of business, quarantines, and shelter-in-place orders. The COVID-19 pandemic has significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. The COVID-19 pandemic and the measures taken by many countries in response have affected, and could in the future, materially impact the Company's business, results of operations, financial condition and stock price.

As we approach the start of our Phase 1 Clinical study in Australia, the ultimate impact on us is unknown. However, we expect that our contract research organizations ("CROs") could experience setbacks during clinical trials from reduced capacity for safety monitoring due to on-site social distancing, reductions in the participant pool or staffing due to vaccination requirements or patients testing positive for COVID-19 prior to enrollment or dosing in the study. To mitigate operational risk our CRO has a COVID Emergency Management Committee in place to assess the various health and government recommendations, advice, potential risks, and impacts so that proactive measures may be taken, as needed, such as remote patient monitoring.

The majority of our workforce continues to be and was remote prior to the COVID-19 pandemic, and therefore our employees have seen little disruption as a result of the COVID-19 pandemic. However, employee safety and well-being is of paramount importance to us in any year and continues to be of particular focus in 2022 and 2021 in light of the continuing and evolving

COVID-19 pandemic. In response to the pandemic, we have supported our employees and government efforts to curb the COVID-19 pandemic through safety and communication efforts and investments, which include:

•Aligning onsite policies to local guidelines and regulation;

•Continuing to provide and promote flexibility for onsite employees to reduce density at our facility;

•Implementing weekly COVID-19 testing for all onsite employees;

•Increased cleaning protocols;

•Provision of masks to all onsite employees and masking requirements aligned to state and local guidelines; and

•Limited domestic and international non-essential travel for all employees.

The full extent of the future impact of the COVID-19 pandemic on the Company's operational and financial performance is currently uncertain and will depend on many factors outside of our control, including, without limitation, the timing, extent, trajectory, and the duration of the pandemic; the availability, distribution, acceptance and effectiveness of ~~vaccines;~~vaccines, particularly against new variants; the imposition of protecting public safety measures, and the impact of the pandemic on any local operations across the United States, European Union, and Australia, where we have operations and conduct laboratory research and clinical studies.

The ~~ultimate impact on us and~~ overall potential delay in our drug product research and development is unknown, but our operations and financial condition will likely continue to suffer in the event of continued business interruptions, supply chain issues, delayed clinical trials, production or a lack of laboratory resources due to the pandemic. As of the date of this filing, we are aware of the impact on our business as a result of COVID-19 but uncertain as to the extent of this impact on our ~~Condensed Consolidated Financial Statements.~~consolidated financial statements. There is uncertainty as to the duration and hence the ~~potential~~ultimate impact. As a result, we are unable to estimate the potential impact on our business as of the date of this filing.

We have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as we continue development activities to support our product candidates through clinical trials. As a result, we expect to continue to incur operating losses and negative cash flows until our product candidates gain market acceptance and generate significant revenues.

Our net losses for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 were ~~$1,824,818 and $6,009,362, respectively,~~ $3,043,399 as compared to net losses of ~~$1,296,696 and $5,058,592, respectively,~~$2,160,517 for the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021. As of ~~September 30, 2021,~~March 31, 2022, we had an accumulated deficit of ~~$44,743,343~~$50,299,562 and negative cash flows from operations of ~~$4,506,032.~~$2,914,875. As of ~~September 30, 2021,~~March 31, 2022, we had unrestricted cash of ~~$11,089,624~~$6,006,869 as compared to ~~$2,469,410~~$8,983,007 December 31, ~~2020.~~2021.

Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgements, including those related to accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgements on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates and judgements as to the appropriate carrying values of our equity instruments, derivative ~~liabilities,~~liability, debt with embedded features and the valuation of our stock based compensation awards, which are not readily apparent from other sources. We consider certain accounting policies related to fair value measurements, convertible instruments, warrants issued in connection with financings, stock-based compensation expense, and earnings per share to be critical accounting policies that require the use of significant judgements and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions.

Management assessed the critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 and determined that there were no changes to our critical accounting policies and estimates during the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022.

See Note 2 to the accompanying Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on recently issued accounting pronouncements and recently adopted accounting pronouncements. While we expect certain recently adopted accounting pronouncements to impact our estimates in future periods, the impact upon adoption was not significant to our current estimates and operations.

Results of Operations

Our results of operations have fluctuated from period to period and may continue to fluctuate in the future, based upon the progress of our clinical trials, our research and development efforts, variations in the level of expenditures related to investor relations and seeking new sources of capital, debt service obligations during any given period, and the uncertainty as to the extent and magnitude of the impact from the COVID-19 pandemic. Results of operations for any period may be unrelated to results of operations for any other period. In addition, historical results should not be viewed as indicative of future operating results. In particular, to the extent our medical affairs personnel and clinical trial subjects are subject to varying levels of restriction on accessing hospitals due to COVID-19, and to the extent government authorities and healthcare providers are continuing to limit elective surgeries, we expect our progress towards executing our clinical trials to be adversely affected.

Three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

Research and Development Expenses

Research and development expenses included the following:


			•			employee-related expenses, which include salaries, benefits and stock-based compensation;


			•			payments to third party contract research organizations and investigative sites; and


			•			payments to third party manufacturing organizations and consultants.

We expect to incur future research and development expenditures to support our preclinical and clinical studies. Preclinical activities include, laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess safety and efficacy. Subject to the submission and approval by the FDA of our IND, clinical trials may commence and will involve the administration of the investigational new drug candidate to human subjects.

Below is a summary of our research and development expenses during the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Three Months Ended September 30,
2021 2020 $ Change
2021 vs. 2020 % Change
2021 vs. 2020
Research and development expenses $ 327,731 $ 346,217 $ (18,486) (5) %


	Three Months Ended March 31,
	2022		2021		$ Change 2022 vs. 2021		% Change 2022 vs. 2021
Research and development expenses	$	1,265,653	$	609,656	$	655,997	108	%

Research and development expenses for the three months ended ~~September 30, 2021 remained relatively consistent~~March 31, 2022 increased by $655,997 as compared to the three months ended ~~September 30, 2020. During both periods~~March 31, 2021. The increase in research and development ~~costs included manufacturing, employee related~~ expenses ~~formulation~~was primarily due to an increase in contract research and ~~product costs and~~development activities of approximately $292,000, an increase in our use of ~~consultants.~~specialized consultants of approximately $159,000 and an increase in compensation cost of approximately $234,000 due to bonus expense, and additional headcount from the addition of regulatory and development personnel.

General and Administrative Expenses

General and administrative expenses consisted primarily of salaries, benefits, stock compensation expense, general legal, and patent related fees. Other significant expenses included investor relations, professional and consulting fees related to the Company’s fundraising efforts and regulatory filings.

~~Total~~Below is a summary of general and administrative expenses for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020, were as follows:~~2021:

Three Months Ended September 30,
2021 2020 $ Change
2021 vs. 2020 % Change
2021 vs. 2020
General and administrative expenses $ 1,491,378 $ 1,192,003 $ 299,375 25 %


	Three Months Ended March 31,
	2022		2021		$ Change 2022 vs. 2021		% Change 2022 vs. 2021
General and administrative expenses	$	1,622,368	$	1,127,606	$	494,762	44	%

General and administrative expenses for the three months ended ~~September 30, 2021~~March 31, 2022 increased by $494,762 as compared to the three months ended ~~September 30, 2020. Within~~March 31, 2021. The increase in general and administrative expenses ~~there were increases~~was primarily due to an increase in ~~investor~~employee wages of approximately $134,000 related to the hiring of our chief financial officer, an increase in professional fees of approximately $387,000 related to finance and ~~public relations~~legal expenses, an increase in ~~stock compenstaion~~software expense ~~due to the modification~~ of ~~stock options,~~approximately $32,000, an increase in facilities and ~~payments to recruiters. These increases were~~rent expense of approximately $34,000, and an increase in travel expenses of approximately $23,000. The aggregate increase was offset by decreases of approximately $91,000 and $39,000 in ~~costs related to finance~~investor relations expenses and ~~accounting services, severance,~~ consulting ~~insurance, and marketing.~~expenses, respectively.


PART I-FINANCIAL INFORMATION

Item 1.	Financial Statements:	54
	Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 (Unaudited) and December 31, ~~2020~~2021	54
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31 , 2022 and 202 ~~Nine~~1 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended ~~September~~March 31 , 2022 ~~30, 2021~~ and ~~2020~~202 1 (Unaudited)	7
	Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity for the Three ~~Nine~~Months Ended ~~September~~March 31 , 202 2 ~~30, 2021~~ and ~~2020~~202 1 (Unaudited)	8
	~~Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and~~ ~~Nine~~ ~~Months Ended~~ ~~September~~ ~~30, 2021 and 2020 (Unaudited)~~	10
	Notes to the Unaudited Condensed Consolidated Financial Statements	129
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2923
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3729
Item 4.	Controls and Procedures	3729

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	3830
Item 1A.	Risk Factors	3830
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3830
Item 3.	Defaults Upon Senior Securities	3830
Item 4.	Mine Safety Disclosures	3830
Item 5.	Other Information	3830
Item 6.	Exhibits	3830


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(Unaudited)		(Note 2)			(Unaudited)		(Note 2)
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash	Cash	$	11,089,624	$	2,469,410	Cash	$	6,006,869	$	8,983,007
Restricted cash	Restricted cash	4,570		4,566		Restricted cash	4,572		4,571
Prepaid expenses and other current assets		321,497		190,409
Prepaid expenses						Prepaid expenses	822,541		554,217
Prepaid expenses - related party	Prepaid expenses - related party	18,125		—		Prepaid expenses - related party	48,908		13,432
Other current assets						Other current assets	109,750		56,870
Total current assets	Total current assets	11,433,816		2,664,385		Total current assets	6,992,640		9,612,097

Property and equipment, net	Property and equipment, net	80,297		7,341		Property and equipment, net	80,768		87,710
Operating lease right-of-use asset	Operating lease right-of-use asset	164,673		—		Operating lease right-of-use asset	128,935		146,972
Other asset	Other asset	8,309		—		Other asset	8,309		8,309
Total assets	Total assets	$	11,687,095	$	2,671,726	Total assets	$	7,210,652	$	9,855,088

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	318,982	$	364,340	Accounts payable	$	878,720	$	897,880
Accounts payable - related party		20,000		17,032
Accounts payable - related parties						Accounts payable - related parties	24,026		2,130
Accrued interest - related party	Accrued interest - related party	130,824		44,087		Accrued interest - related party	218,039		174,911
Accrued payroll liabilities	Accrued payroll liabilities	262,881		61,547		Accrued payroll liabilities	237,037		344,450
PPP loan current		—		64,062
Insurance premium loan payable						Insurance premium loan payable	214,307		—
Other current liabilities	Other current liabilities	497,390		197,564		Other current liabilities	378,106		375,842
Derivative liabilities		207,916		38,567
Derivative liability						Derivative liability	16,077		59,732
Multi-draw credit agreement - related party						Multi-draw credit agreement - related party	450,000		450,000
Convertible multi-draw credit agreement - related party, net of discount						Convertible multi-draw credit agreement - related party, net of discount	1,679,741		1,524,905
Operating lease liability, current portion	Operating lease liability, current portion	63,581		—		Operating lease liability, current portion	85,601		82,372
Total current liabilities	Total current liabilities	1,501,574		787,199		Total current liabilities	4,181,654		3,912,222

Non-current liabilities	Non-current liabilities					Non-current liabilities
PPP loan non-current		—		52,638
Multi-draw credit agreement - related party		450,000		450,000
Convertible multi-draw credit agreement - related party, net of discount		1,370,156		931,103
Operating lease liability, net of current portion	Operating lease liability, net of current portion	100,583		—		Operating lease liability, net of current portion	55,906		78,700
Total liabilities	Total liabilities	3,422,313		2,220,940		Total liabilities	4,237,560		3,990,922


Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)	0		0		Commitments and contingencies (Note 9)	0		0

Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock, $0.001 par value; 50,000,000 and 20,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding at September 30, 2021 and December 31, 2020		—		—
Common stock, $0.001 par value; 5,000,000,000 and 500,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 476,108,455 and 288,074,415 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		476,108		288,074
Preferred stock, $0.001 par value; 50,000,000 shares authorized at March 31, 2022 and December 31, 2021; no shares issued and outstanding at March 31, 2022 and December 31, 2021						Preferred stock, $0.001 par value; 50,000,000 shares authorized at March 31, 2022 and December 31, 2021; no shares issued and outstanding at March 31, 2022 and December 31, 2021	—		—
Common stock, $0.001 par value; 5,000,000,000 shares authorized at March 31, 2022 and December 31, 2021; 495,925,112 and 476,108,445 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively						Common stock, $0.001 par value; 5,000,000,000 shares authorized at March 31, 2022 and December 31, 2021; 495,925,112 and 476,108,445 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	495,925		476,108
Additional paid-in-capital	Additional paid-in-capital	52,532,017		38,896,693		Additional paid-in-capital	52,776,729		52,644,221
Accumulated deficit	Accumulated deficit	(44,743,343)		(38,733,981)		Accumulated deficit	(50,299,562)		(47,256,163)
Total stockholders’ equity	Total stockholders’ equity	8,264,782		450,786		Total stockholders’ equity	2,973,092		5,864,166
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	11,687,095	$	2,671,726	Total liabilities and stockholders’ equity	$	7,210,652	$	9,855,088


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Related party interest expense – stated rate	Related party interest expense – stated rate	$	44,086	$	44,087	$	130,824	$	117,459	Related party interest expense – stated rate	$	43,128	$	43,129
Insurance premium loan payable - stated rate										Insurance premium loan payable - stated rate	1,069		—
PPP loan interest expense – stated rate	PPP loan interest expense – stated rate	—		294		445		511		PPP loan interest expense – stated rate	—		286
Non-cash interest expense:	Non-cash interest expense:									Non-cash interest expense:
Amortization of debt discount	Amortization of debt discount	150,852		137,849		437,834		401,507		Amortization of debt discount	154,406		141,097
Amortization of transaction costs	Amortization of transaction costs	420		384		1,219		1,117		Amortization of transaction costs	430		393
		$	195,358	$	182,614	$	570,322	$	520,594		$	199,033	$	184,905


		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding, December 31, 2020		22,050,000	$	0.06	9.52
Outstanding, December 31, 2021						Outstanding, December 31, 2021	35,405,000	$	0.07	9.08	$	134,750

Granted	Granted	2,475,000	0.14			Granted	—	—
Exercised	Exercised	(106,250)	0.05			Exercised	—	—
Cancelled	Cancelled	(40,000)	0.05			Cancelled	(215,000)	0.07
Forfeited	Forfeited	(888,750)	0.05			Forfeited	(825,000)	0.10
Outstanding, September 30, 2021		23,490,000	$	0.07	8.88
Exercisable, September 30, 2021		8,690,000	$	0.09	8.61
Outstanding, March 31, 2022						Outstanding, March 31, 2022	34,365,000	$	0.07	8.82	$	—
Exercisable, March 31, 2022						Exercisable, March 31, 2022	11,331,250	$	0.08	8.82	$	—
Exercisable, Vested and expected to vest, March 31, 2022						Exercisable, Vested and expected to vest, March 31, 2022	34,365,000	$	0.07	8.82	$	—


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
Operating expenses	Operating expenses										Operating expenses
Research and development	Research and development	$	327,731	$	346,217	$	1,818,059	$	1,574,357		Research and development	$	1,265,653	$	609,656
General and administrative	General and administrative	1,491,378		1,192,003		3,567,985		3,395,729			General and administrative	1,622,368		1,127,606
Total operating expenses	Total operating expenses	1,819,109		1,538,220		5,386,044		4,970,086			Total operating expenses	2,888,021		1,737,262

Operating loss	Operating loss	(1,819,109)		(1,538,220)		(5,386,044)		(4,970,086)			Operating loss	(2,888,021)		(1,737,262)

Other expense (income)	Other expense (income)										Other expense (income)
Change in fair value of derivative liabilities	Change in fair value of derivative liabilities	(189,649)		(424,138)		169,349		(433,688)			Change in fair value of derivative liabilities	(43,655)		238,350
Interest expense	Interest expense	195,358		182,614		570,322		520,594			Interest expense	199,033		184,905
Gain on forgiveness of PPP loan		—		—		(117,953)		—

Total other expense, net	Total other expense, net	5,709		(241,524)		621,718		86,906			Total other expense, net	155,378		423,255

Loss before income taxes	Loss before income taxes	(1,824,818)		(1,296,696)		(6,007,762)		(5,056,992)			Loss before income taxes	(3,043,399)		(2,160,517)

Provision for income taxes		—		—		1,600		1,600

Net loss and comprehensive loss	Net loss and comprehensive loss	$	(1,824,818)	$	(1,296,696)	$	(6,009,362)	$	(5,058,592)		Net loss and comprehensive loss	$	(3,043,399)	$	(2,160,517)

Loss per common share:	Loss per common share:										Loss per common share:
Basic	Basic	$	—	$	(0.01)	$	(0.02)	$	(0.02)		Basic	$	(0.01)	$	(0.01)
Diluted	Diluted	$	—	$	(0.01)	$	(0.02)	$	(0.03)		Diluted	$	(0.01)	$	(0.01)

Weighted average shares of common stock outstanding used to compute earnings per share:	Weighted average shares of common stock outstanding used to compute earnings per share:										Weighted average shares of common stock outstanding used to compute earnings per share:
Basic	Basic	413,489,603		256,758,472		376,547,498		207,536,173			Basic	495,823,445		336,883,489
Diluted	Diluted	414,461,032		257,255,653		376,547,498		208,434,966			Diluted	495,823,445		336,883,489


	Three Months Ended September 30, (Unaudited)				Nine Months Ended September 30, (Unaudited)
	2021		2020		2021		2020
Basic net loss per share:
Net loss	$	(1,824,818)	$	(1,296,696)	$	(6,009,362)	$	(5,058,592)
Weighted average common shares outstanding – basic	413,489,603		256,758,472		376,547,498		207,536,173
Net loss per share - basic	$	—	$	(0.01)	$	(0.02)	$	(0.02)

Diluted net loss per share:
Net loss (as adjusted)	$	(1,704,980)	$	(1,720,835)	$	(6,009,362)	$	(5,401,484)
Weighted average common shares outstanding – diluted	414,461,032		257,255,653		376,547,498		208,434,966
Net loss per share - diluted	$	—	$	(0.01)	$	(0.02)	$	(0.03)


	Common Stock Warrants			Placement Agent Warrants
Dividend yield	0.00		%	0.00		%
Volatility factor	137.87		%	137.87		%
Risk-free interest rate	0.73		%	0.73		%
Expected term (years)	5			5
Underlying common stock price	$	0.15		$	0.15


	Common Stock Warrants			Pre-funded Warrants			Placement Agent Warrants
Dividend yield	0.00		%	0.00		%	0.00		%
Volatility factor	136.02		%	135.06		%	136.02		%
Risk-free interest rate	1.01		%	1.55		%	1.01		%
Expected term (years)	5			10			5
Underlying common stock price	$	0.09		$	0.09		$	0.09


	Nine Months Ended September 30, 2020
	December 31, 2019 Fair Value of Derivative Liabilities		Fair Value of Derivative Liabilities Issued		Change in Fair Value of Derivative Liabilities		Reclassification of Derivatives to Equity		September 30, 2020 Fair Value of Derivative Liabilities
Emerald Multi Draw Credit Agreement - compound derivative liability (2)	$	90,797	$	—	$	(90,797)	$	—	$	—
Emerald Financing - warrant liability (1)	276,024		—		(234,875)		—		41,149
Series B - warrant liability(3)	134,579		—		(108,016)		(26,563)		—
Total derivative liabilities	$	501,400	$	—	$	(433,688)	$	(26,563)	$	41,149
Less, noncurrent portion of derivative liabilities	(90,797)								—
Current balance of derivative liabilities	$	410,603							$	41,149


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested, December 31, 2020	—	$	—

Granted	1,500,000	0.12
Released	(1,350,000)	0.12
Unvested, September 30, 2021	150,000	$	0.13


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Research and development	Research and development	$	17,986	$	44,010	$	37,350	$	82,463	Research and development	$	18,585	$	74,429
General and administrative	General and administrative	470,987		104,355		709,902		158,753		General and administrative	118,773		72,151
		$	488,973	$	148,365	$	747,252	$	241,216		$	137,358	$	146,580


Year:	Year:			Year:
2021 (remaining three months)		$	8,067
2022		97,291

2022 (remaining nine months)				2022 (remaining nine months)	73,089
2023	2023	83,093		2023	83,093
Total future minimum lease payments:	Total future minimum lease payments:	188,451		Total future minimum lease payments:	156,182
Less imputed interest	Less imputed interest	(24,287)		Less imputed interest	(14,675)
Total	Total	$	164,164	Total	$	141,507


	Nine Months Ended September 30,
	2021		2020		$ Change 2021 vs. 2020		% Change 2021 vs. 2020
Research and development expenses	$	1,818,059	$	1,574,357	$	243,702	15	%


3.1~~(1)~~			Articles of Incorporation of Registrant, as amended (incorporated by reference to Exhibit 3.1 to our Report on Form 10-K filed on March 2, 2021)
3.2~~(2)~~			Amended and Restated Bylaws of Registrant
~~4.1(3)~~			(incorporated by reference to Exhibit 3.2 to our Report on Form ~~of Series A Warrant~~
~~4.2(3)~~			~~Form of Pre-Funded Warrant~~
~~4.3(3)~~			~~Form of Placement Agent Warrant~~
~~10.1(4)~~			~~Form of Letter Agreement~~
~~10.2(4)~~			~~Form of New Warrant~~
~~10.3(3)~~			~~Form of Securities Purchase Agreement~~
~~10.4(3)~~			~~Form of Lock-up Agreement~~10-K filed on March 2, 2021)
31.1*			Certification of Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
31.2*			Certification of Principal Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
32.1*			Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*			Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following materials from the Skye Biosciences, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets (Unaudited), (ii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited), (iii) Condensed Consolidated Statements of Cash Flows (Unaudited), (iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited), and (v) related Notes to the Unaudited Condensed Consolidated Financial Statements.
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)


	Skye Bioscience, Inc., a Nevada corporation

~~November 10, 2021~~May 6, 2022	By:	/s/ Punit Dhillon
		Punit Dhillon
	Its:	Chief Executive Officer, Secretary, Chairman of the Board, and Director (Principal Executive Officer)

~~November 10, 2021~~May 6, 2022	By:	/s/ Kaitlyn Arsenault
		Kaitlyn Arsenault
	Its:	Chief Financial Officer (Principal Financial and Accounting Officer)