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

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Stock Incentive Plan

On October 31, 2014, 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 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. On June 14, 2022, in connection with the Acquisition, the 2014 Plan was further amended to comply with Canadian securities rules and is subject to shareholder approval. 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 June 30, 2022, the Company had 13,764,595 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 six months ended June 30, 2022:


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

Granted	4,350,000	0.04
Exercised	—	—
Cancelled	(321,250)	0.06
Forfeited	(1,678,750)	0.08
Outstanding, June 30, 2022	37,755,000	$	0.07	8.7	$	—
Exercisable, June 30, 2022	12,066,250	$	0.08	8.02	$	—

The weighted-average grant-date fair value of stock options granted during the three and six months ended June 30, 2022 was $0.04.

The fair value of the Company's stock option grants were estimated on the date of grant using the Black-Scholes option-pricing model under the following assumptions:


	Six Months Ended June 30, 2022
Dividend yield	—	%
Volatility factor	126.3 - 132.6%
Risk-free interest rate	2.89 - 3.60%
Expected term (years)	5.00 - 6.08

Stock Option Awards with Performance and Other Conditions

During the three and six months ended June 30, 2022, the Company granted 4,000,000 stock options with an exercise price of $0.04 which include a combination of performance vesting conditions and other vesting conditions pursuant to a consulting agreement entered with Mr. Jim Heppell, a former director of Skye and related party of the Company (Note 9). The vesting conditions of the stock option award provide that 50% of the options are vested upon grant and the remaining 50% will vest upon the sale of a real estate asset held by EHT at an amount greater than or equal to an amount specified in the agreement. None of the options are exercisable until the Acquisition is consummated, which is not deemed probable as of June 30, 2022, (Note 3). The conditions related to the sale of EHT's real estate are considered other conditions and the condition related to the closing of the Acquisition is considered a performance condition. When a performance condition is deemed to be probable of achievement, time-based vesting and recognition of stock-based compensation expense commences.

As a result, no share-based compensation expense will be recognized for these stock options until the performance condition is considered to be probable. As of June 30, 2022, the Company has determined that the closing of the Acquisition is not deemed probable, as the consummation of the Acquisition is not solely within the control of the Company.

As of June 30, 2022, the Company has included $73,368 related to the first tranche of these awards in total unrecognized stock-based compensation expense below. The Company has evaluated the second tranche and has determined that due to the other conditions contained in these awards that they will be recorded as liability options once the Acquisition is deemed probable and will be remeasured through their settlement date or cancellation.

Restricted Stock Units

On December 14, 2021, the Company granted restricted stock units (“RSUs”) to its executive management team. The RSUs cliff vest 33% per year on the anniversary of the grant date over a three year period. As of June 30, 2022, 4,000,000 RSUs with a weighted average grant date fair value of $0.06 per share remain unvested.

Awards Granted Outside the 2014 Plan

The following is a summary of restricted stock activity outside of the Company’s 2014 Plan during the six months ended June 30, 2022:


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


Released	(150,000)	0.13
Unvested, June 30, 2022	—	$	—

Stock-Based Compensation Expense

The Company recognizes stock-based compensation expense using the straight-line method over the requisite service period. The Company recognized stock-based compensation expense, including compensation expense for warrants with vesting provisions issued to a service provider (Note 4), and the RSUs discussed above, in its Condensed Consolidated Statements of Comprehensive Loss as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	21,955	$	13,612	$	40,541	$	19,363
General and administrative	122,409		98,087		241,181		238,916
	$	144,364	$	111,699	$	281,722	$	258,279

The total amount of unrecognized compensation cost was $1,381,837 as of June 30, 2022. This amount will be recognized over a weighted average period of 2.73 years.

2022 Employee Stock Purchase PlanIn June 2022, the Company's board of directors approved the 2022 Employee Stock Purchase Plan (the "ESPP"). Under which the Company will 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 is currently awaiting shareholder approval.