Skye Bioscience, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

Stock-Based Compensation

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

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. 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, the Company had 30,047,929 shares available for future grant under the 2014 Plan.

Stock Options

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


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding, December 31, 2020	22,050,000	$	0.06	9.52

Granted	2,475,000	0.14
Exercised	(106,250)	0.05
Cancelled	(40,000)	0.05
Forfeited	(888,750)	0.05
Outstanding, September 30, 2021	23,490,000	$	0.07	8.88
Exercisable, September 30, 2021	8,690,000	$	0.09	8.61

During the nine months ended September 30, 2021, 106,250 stock options with an intrinsic value of $13,281 were exercised for gross proceeds of $4,783.

The fair value of each stock option grant was estimated on the date 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 weighted average grant date fair value of options granted was $0.14 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.

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 two 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 months ended September 30, 2021:


	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

Stock-Based Compensation Expense

The Company recognizes compensation expense using the straight-line method over the requisite service period. Stock-based compensation is included in the 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:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Research and development	$	17,986	$	44,010	$	37,350	$	82,463
General and administrative	470,987		104,355		709,902		158,753
	$	488,973	$	148,365	$	747,252	$	241,216

The total amount of unrecognized compensation cost was $860,985 as of September 30, 2021. This amount will be recognized over a weighted average period of 2.76 years.