Skye Bioscience, Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization, Basis of Presentation and Significant Accounting Policies

Nature of Operations

Skye Bioscience, Inc. (the “Company” or “Skye”) was incorporated in Nevada on March 16, 2011. The Company is a clinical stage biotechnology company developing next-generation molecules that modulate G-protein-coupled receptors ("GPCRs") to treat obesity, overweight, and related conditions.

As of March 31, 2026, the Company has devoted substantially all its efforts to securing its product pipeline, carrying out research and development, preparing for and conducting clinical trials, 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.

Impact of Geopolitical and Macroeconomic Factors

It is possible that the Company may encounter supply chain issues related to global economic and political conditions such as a lack of production or laboratory resources, pandemics or cyberattacks that could cause business disruptions and clinical trial delays which will need to be managed in the future. There may also be significant uncertainty resulting from the impact of other geopolitical and macroeconomic factors, including global pandemics, tariffs, inflation, supply chain issues, fluctuating interest rates, future bank failures and disruptions to the supply chain as a result of increased geopolitical tensions between the U.S. and its international trade partners, including China and Iran.

Liquidity

The Company has incurred operating losses and negative cash flows from operations since inception and as of March 31, 2026, had working capital of $8,162,037 and an accumulated deficit of $199,383,847. As of March 31, 2026, the Company had unrestricted cashand cash equiva lents and short-term investments in the amount of $17,108,629. For the three months ended March 31, 2026 and 2025, the Company incurred losses from operations of $12,674,366 and $11,759,562, respectively. For the three months ended March 31, 2026 and 2025, the Company incurred net losses of $12,509,361 and $11,103,319, respectively. The Company expects to continue to incur significant losses through the end of 2026 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 is continuing its clinical trials, it has increased research and development spending and increased cash used in operating activities. This factor, among others, has resulted in an overall increase in cash used in operating activities for the year ended December 31, 2025 and the three months ended March 31, 2026. As of the date that these financials are filed, management estimates that the Company has sufficient capital to continue its operations through the fourth quarter of 2026, excluding the anticipated clinical cost of a proposed Phase 2b study and additional anticipated drug manufacturing costs to supply any such Phase 2b study. However, the Company's continued operations beyond the fourth quarter of 2026 will depend on its ability to successfully raise additional capital through various potential sources, such as equity and/or debt financings, or strategic relationships. If adequate funds are not available to the Company when needed it will be required to curtail or perhaps cease operations which would, in turn, further raise substantial doubt about its ability to continue as a going concern. 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 these financial statements are issued.

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 these financial statements are issued. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company is a party to a legal proceeding with a former employee (see note 8). As of March 31, 2026, the estimated legal contingency, including accrued legal expenses, is $2,574,759.

The Company does not believe that inflation has had a material impact on its operating results during the periods presented. However, inflation has had, and may continue to have, an impact on general and administrative costs such as professional fees, employee costs and travel costs, and may in the future adversely affect the Company's operating results. In addition, increased inflation has had and may continue to have an effect on interest rates. Increased interest rates may adversely affect the terms under which the Company can obtain any potential additional funding.

Notably, the Company relies on third party manufacturers to produce its product candidates. The manufacturing of nimacimab is conducted in Europe. Formulation for clinical trial use relies on regulatory-accepted excipients that can be sourced from countries outside the United States.

Nasdaq Communications

As previously disclosed by the Company in its Current Report on Form 8-K filed with the SEC on March 19, 2026, on March 17, 2026, the Company received a notification letter (the “Deficiency Notice”) from the Nasdaq Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company’s common stock has been below the minimum $1.00 per share required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (Rule “5450(a)(1)”). The Deficiency Notice is a notice of deficiency, not delisting, and does not currently affect the listing or trading of the Company’s common stock on the Nasdaq Global Market. The Company's common stock continues to trade on the Nasdaq Global Market under the symbol “SKYE” at this time. The Company intends to actively monitor the closing bid price of its common stock and to consider plans for regaining compliance with Rule 5450(a)(1). While the Company plans to review all available options, there can be no assurance that it will be able to regain compliance with the applicable rules during the 180-day compliance period ending on September 14, 2026, any additional compliance period, or at all. Additional information regarding the Deficiency Notice can be found in the Company’s Current Report on Form 8-K filed with the SEC on March 19, 2026.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year, or any future periods.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, from which the prior year balance sheet information herein was derived.

Certain reclassifications have been made to the amounts in prior periods to conform to the current period’s presentation, including reclassifying discovery research and development expense amounts from external clinical development expenses into other research and development expenses, as described in Note 9, Segment Reporting. Such reclassifications did not have a material impact on the accompanying unaudited condensed consolidated financial statements.

During thethree months ended March 31, 2026, there were no changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires additional disclosure of the nature of expenses included in the income statement. The standard requires disclosures about specific types of expenses included in the expense captions presented in the income statement as well as disclosures about selling expenses. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The requirements should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-11 – Interim Reporting (“ASU 2025-11”) which is intended to improve the navigability of the guidance in ASC 270, Interim Reporting, and clarify when it applies. Under the amendments, an entity is subject to ASC 270 if it provides interim financial statements and notes in accordance with GAAP. ASU 2025-11 also addresses the form and content of such financial statements, interim disclosures requirements, and establishes a principle under which an entity must disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, and early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2025-11 may have on the Company’s consolidated financial statements and disclosures.

In December 2025, the FASB issued its final ASU which makes improvements to the Accounting Standards Codification ("ASC") in response to feedback from stakeholders. This standard, issued as ASU 2025-12, specifically updates the ASC for a broad range of topics arising from technical corrections, unintended application of the ASC, clarifications, and other minor improvements. This update is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. The Company is currently evaluating the effect of this guidance on its financial statements and related disclosures.

2. Fair Value Measurement

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:

3. Prepaid Expenses, Other Current Assets and Liabilities

Prepaid expenses consist of the following:

Other current assets consist of the following:

Other current liabilities consist of the following:

4. Warrants

There are significant judgments and estimates inherent in the determination of the fair value of the Company’s warrants. These judgments and estimates include assumptions regarding the Company’s future operating performance and the determination of the appropriate valuation methods.

Warrants

Warrants vested and outstanding as of March 31, 2026, are summarized as follows:

As of March 31, 2026, all of the Company's warrants are fully vested.

Warrant Exercises

Prefunded Warrant Exercise

On January 29, 2024, the Company entered into a Securities Purchase Agreement with certain institutional investors, pursuant to which on January 31, 2024, the Company issued an aggregate of 11,713,664 shares of common stock and 9,978,739 pre-funded warrants (the "Pre-Funded Warrants") to purchase up to 9,978,739 shares of common stock (the "January 2024 PIPE Financing") for an aggregate purchase price of $49,991,010. On March 11, 2026,1,750,000 Pre-Funded Warrants issued in the January 2024 PIPE Financing with an intrinsic value of $1,396,149 were exercised on a cashless basis, resulting in the issuance of 1,747,808 shares of Company's common stock.

5. Stock-Based Compensation

Stock Incentive Plan

On October 31, 2014, the Board of Directors of the Company (the "Board") approved the Company’s 2014 Omnibus Incentive Plan (the "2014 Omnibus Incentive Plan"). On June 14, 2022, the Board approved the 2014 Amended and Restated Omnibus Incentive Plan (the “2014 Amended and Restated Plan”) which replaced the 2014 Omnibus Incentive Plan in its entirety.

On September 29, 2023, the Board and holders of a majority of the voting power of the outstanding capital stock of the Company adopted and approved Amendment No. 1 to the 2014 Amended and Restated Plan. Amendment No. 1 to the 2014 Amended and Restated Plan became effective on November 6, 2023.

On October 22, 2024, the second amendment and restatement of the Company's 2014 Amended and Restated Plan was approved to increase the number of shares of the Company's common stock issuable to 1,535,655, extend the expiration date of the plan to September 10, 2034, update the name of the plan to the “Skye Bioscience, Inc. Amended and Restated Omnibus Incentive Plan” and make certain administrative amendments (as so amended and restated, the "Amended and Restated Plan").

As of March 31, 2026, the Company had 765,449 shares available for future grant under the Amended and Restated Plan.

2024 Inducement Equity Incentive Plan

On July 2, 2024, the Board adopted the Skye Bioscience, Inc. 2024 Inducement Equity Incentive Plan (the "Inducement Plan"). The Company has reserved 600,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan. As of March 31, 2026, the Company had 261,250 shares available for future grant under the Inducement Plan.

Stock Options

The following is a summary of option activity under the Company’s Amended and Restated Plan and the Inducement Plan, for the three months ended March 31, 2026:

*The aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the stock options at March 31, 2026 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options").

The weighted-average grant-date fair value of stock options granted during the three months ended March 31, 2026, was $0.73.

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model under the following assumptions:

On March 31, 2026, the Company effected a stock option repricing (the “Option Repricing”) of all outstanding stock options held by current full-time employees, including the Company's executive officers, that were granted prior to December 31, 2025 under either the Amended and Restated Plan or the Inducement Plan. Pursuant to the Option Repricing, the exercise price of each repriced option was reduced to $0.6146 per share, the closing price per share of the Company’s common stock on the repricing date. No additional changes were made to the repriced options other than a reduction in the applicable exercise price. This was deemed a type I modification (probable to probable). The total incremental expense was $339,063, of which $126,959 related to vested awards and recognized during the three months ended March 31, 2026 and $212,104 related to unvested awards with the expense to be recognized over the remaining service period.

Restricted Stock Units

The following is a summary of restricted stock unit ("RSU") activity during the three months ended March 31, 2026:

2022 Employee Stock Purchase Plan

In June 2022, the Board approved the 2022 Employee Stock Purchase Plan (the "ESPP"), under which the Company may offer eligible employees the option to purchase common stock at a 15% discount to the lower of the market value of the stock at the beginning or end of each participation period under the terms of the ESPP. Total individual purchases in any year are limited to 15% of compensation. The ESPP was approved by the Company's stockholders on September 30, 2022. As of March 31, 2026,18,461 shares were issued under the ESPP.

Stock-Based Compensation Expense

The Company recognizes stock-based compensation expense using the straight-line method over the requisite service period or derived service period. The Company recognized stock-based compensation expense for the stock options, ESPP, and the RSUs discussed above, in its unaudited condensed consolidated statements of operations as follows:

The total amount of unrecognized compensation cost was $9,620,002 as of March 31, 2026. This amount will be recognized over a weighted average period of 2.44 years.

6. Debt

Insurance premium loan payable

On February 1, 2026, the Company entered into an annual financing arrangement for a portion of its Directors and Officers Insurance Policy (the “D&O Insurance”) with First Insurance Funding whereby the Company borrowed $321,863. The loan is payable in equal monthly installments of $35,763, matures on October 13, 2026, and bears interest at a rate 4.10% per annum. As of March 31, 2026, a total of $300,027 and $250,338, remains financed in prepaid expenses and insurance premium loan payable, respectively.

7. Loss Per Share of Common Stock

The following tables are a reconciliation of the numerators and denominators used in the calculation of basic and diluted net loss per share computations:

** The denominator considers the outstanding pre-funded warrants as common stock equivalents in calculating weighted average common shares outstanding.

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:

8. Commitments and Contingencies

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.

Wendy Cunning vs Skye Bioscience, Inc.

The Company is a party to a legal proceeding with a former employee alleging, among other things, wrongful termination, violation of whistleblower protections under the Sarbanes-Oxley Act of 2002, and retaliation under California law against the Company relating to certain actions and events that occurred with the Company's former management during the employee's employment term from March 2018 to July 2019. The complaint seeks unspecified economic and non-economic losses, as well as attorneys’ fees. The case, entitled Wendy Cunning vs Skye Bioscience, Inc., was filed in U.S. District Court (the "District Court") for the Central District of California (the “Cunning Lawsuit”). On January 18, 2023, a jury rendered a verdict in favor of the plaintiff and awarded her $512,500 in economic damages (e.g., lost earnings, future earnings and interest), $840,960 in non-economic damages (e.g., emotional distress) and $3,500,000 in punitive damages. On August 2, 2023, the District Court ruled on the plaintiff's motion for attorney fees and awarded the plaintiff $1,200,008. Based on this order, the Company reduced the aggregate estimate for the legal contingency by $151,842, the difference between the attorney fees awarded by the District

Court and the Company's previous estimate. On August 17, 2023, the Company obtained a stay on enforcement of the judgment in the Cunning Lawsuit by posting an appeal bond in the amount of $9,080,202.

In March of 2023, the Company appealed the judgment in the Cunning Lawsuit to the United States Court of Appeals for the Ninth District (the "Ninth Circuit"). On October 22, 2024, the Ninth Circuit issued its decision in the Company's favor which vacated the judgment and remanded the case back to the District Court for a new trial. As a result, the Company recovered the $9,080,202 restriction on its cash related to the bond during the year ended December 31, 2024. The new trial is currently scheduled to be held in May 2026.

During the year ended December 31, 2024, management revised its assumptions related to its estimate of the legal contingency and the Company reversed the accrued interest on the original judgment and recognized a gain of $4,234,717 in change in estimate for legal contingencies. As of March 31, 2026, the estimated legal contingency, including accrued legal expenses, is $2,574,759.

In arriving at the conclusion that a significant portion of the estimated legal contingency should be reversed, the Company considered the following in revising its assumptions:

•advice from external advisors including its technical accounting advisors regarding the appropriate application of GAAP and legal counsel’s advice with regard to prior experience with similar cases,

•the damages and potential attorney fee awards if the case were to be retried, including the likelihood of a subsequent loss if the Company were to be unsuccessful, while giving consideration to the facts and circumstances that would be inadmissible due to the Ninth Circuit’s decision,

•the likelihood of settlement and information obtained during settlement discussions prior to the first trial,

•the Company’s possible defenses and counterclaims, and

•the case history and the amount of the prior judgment.

The final amount of the loss and loss recoveries remain uncertain. The ultimate amount of the potential loss may be significantly more or less than the amount of the revised legal contingency and there is no guarantee that the Company will be successful in its efforts to recover additional losses. The Company believes that it is at least reasonably possible that the estimated amount of the potential loss may change in the near term.

Securities Class Action and Derivative Lawsuit

A putative securities class action lawsuit was filed on November 17, 2025, in the United States District Court for the Southern District of California, captioned Stout v. Skye Bioscience, Inc., et al., Case No. 3:25-cv-03177-WQH. The complaint asserts that the Company and certain of the Company's executives violated Section 10(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and SEC Rule 10b-5, by making materially false or misleading statements related to the efficacy of and prospects for nimacimab between November 4, 2024 and October 3, 2025. The plaintiff also alleges that the Company's executives, whom they named as defendants, violated Section 20(a) of the Exchange Act. The plaintiff seeks class certification, an award of unspecified damages, an award of costs and expenses, including attorneys’ fees and expert fees, and further relief as the Court may deem just and proper. On January 16, 2026, two stockholders moved to be appointed lead plaintiff.

A putative derivative lawsuit was filed on January 29, 2026, in the United States District Court for the Southern District of California, captioned Domulot v. Dhillon et al., Case No. 3:26-cv-00600-WQH. The lawsuit asserts claims, purportedly on behalf of the Company, against certain officers and directors of the Company for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, violations of Sections 14(a) of the Exchange Act, and for contribution under Sections 10(b) and 21D of the Exchange Act based on the dissemination of allegedly false and misleading statements related to nimacimab. The plaintiff seeks unspecified damages, an award of costs and expenses, including attorneys’ fees and expert fees, and other relief, including corporate governance reforms. A substantially similar derivative lawsuit was subsequently filed on May 1, 2026, in the United States District Court for the Southern District of California, captioned White v. Dhillon et al., Case No. 3:26-cv-02776-H-MSB, asserting substantially the same claims against substantially the same defendants and seeking substantially the same relief.

License Agreement with Halozyme

On December 18, 2025, the Company entered into a Non-exclusive Collaboration and License Agreement (the “Halozyme License Agreement”) with Halozyme, Inc. (“Halozyme”).

Under the terms of the Halozyme License Agreement, Halozyme granted the Company a non-exclusive license to Halozyme’s ENHANZE® drug delivery technology for the development of a subcutaneous formulation of nimacimab (such combination, the “Product”). Halozyme will also be the Company’s exclusive supplier of clinical and commercial supplies of the API for Halozyme’s rHuPH20 bulk drug product.

Among other considerations, the Company will make milestone payments to Halozyme tied to achievement of certain development and commercialization milestone events with respect to the Product, as well as milestone payments based on achievement of certain net sales levels of the Product. The Company will also make mid-single digit royalty payments based on worldwide net sales of the Product. To date, none of such milestones has been achieved.

The Halozyme License Agreement became effective in December 2025 and, unless earlier terminated, will continue until the expiration of the royalty term for the applicable product in each country, which begins upon the first commercial sale of the product in such country and continues until the last valid patient claim covering the product in that country or the length of time specified in the Halozyme License Agreement. The Halozyme License Agreement also includes customary termination rights, representations and warranties, covenants and indemnification obligations for a transaction of this nature.

9. Segment Reporting

The Company operates inone business segment, which includes the business of research and development activities related to developing medicine for obesity and other metabolic diseases. The determination of a single business segment is consistent with the consolidated financial information regularly provided to the Company’s chief operating decision maker (“CODM”). The Company’s CODM is its Chief Executive Officer, who reviews and evaluates consolidated net loss for purposes of assessing performance, making operating decisions, allocating resources, and planning and forecasting for future periods.

In addition to the significant expense categories included within consolidated net loss presented on the Company's Consolidated Statements of Operations, see below for disaggregated amounts that comprise research and development expenses which are presented to the Company's CODM for review:

(1) External clinical development expenses include expenses for clinical trial costs and clinical manufacturing.

(2) Other research and development expenses include expenses for travel and entertainment, consulting and advisory, discovery research and development, and general business expenses.

The net book value of property and equipment in the US was equal to$39,143 and$55,488 for March 31, 2026, and December 31, 2025, respectively. The net book value of property and equipment outside of the US was equal to$716,934, and$843,442 for March 31, 2026, and December 31, 2025, respectively.