Skye Bioscience, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock Incentive Plan

On October 31, 2014, the Board approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan initially reserved 3,200,000 shares for future grants. In October 2018, the Company increased the share reserve under the 2014 Plan to equal 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. 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 December 31, 2021, the shares available for future grant under the 2014 Plan are as follows:


			Shares Available for Grant
Available as of December 31, 2020			12,790,775
Share pool increase			18,803,404
Cancelled			202,500
Forfeited			1,091,250
Granted			(18,755,000)
Available as of December 31, 2021			14,132,929

Stock Options

Options granted under the 2014 Plan expire no later than ten years from the date of grant. Options granted under the 2014 Plan may be either incentive or non-qualified stock options. For incentive and non-qualified stock option grants, the option price shall be at least 100% of the fair value on the date of grants, as determined by the Company’s Board of Directors. If at any time the Company grants an option, and the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, the option price shall be at least 110% of the fair value and shall not be exercisable more than five years after the date of grant.

Options granted under the 2014 Plan may be immediately exercisable if permitted in the specific grant approved by the Board of Directors and, if exercised early may be subject to repurchase provisions. The shares issued generally vest over a period of one to four years from the date of grant.

The following is a summary of option activities under the Company’s 2014 Plan for the year ended December 31, 2021:


	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	$	—

Granted	14,755,000	0.08
Exercised	(106,250)	0.05			13,281
Forfeited	(1,091,250)	0.05
Cancelled	(202,500)	0.05
Outstanding, December 31, 2021	35,405,000	$	0.07	9.08	$	134,750
Exercisable, December 31, 2021	9,122,500	$	0.09	8.41	$	49,963
Vested and expected to vest, December 31, 2021	35,405,000	$	0.07	9.08	$	134,750

*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 December 31, 2021 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options").

During the year ended December 31, 2021, the Company received gross proceeds of $4,783 from the exercise of stock options.

The weighted-average grant-date fair value of stock options granted for the years ended December 31, 2021 and 2020 was $0.07 and $0.04, respectively. The total fair value of the stock options that vested during the years ended December 31, 2021 and 2020 was $316,929 and $168,168, respectively.

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:


	Year Ended December 31,
	2021		2020
Dividend yield	0.00	%	0.00	%
Risk-free interest rate	0.01-1.11%		0.28-0.46%
Expected term (years)	5.27-6.13		5.65-6.13
Volatility	119.10-138.00%		92.51-107.87%

In connection with the termination of Dr. Avtar Dhillon's Independent Contractor Agreement on October 14, 2021 (Note 11), 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 year ended December 31, 2021.

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. The following is a summary of restricted stock unit activity during the year ended December 31, 2021:


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

Granted	4,000,000	0.06
Released	—	—
Unvested, December 31, 2021	4,000,000	$	0.06

There was no RSU activity under the Company’s 2014 Plan during the year ended December 31, 2020.

Awards Granted Outside the 2014 Plan

During the year ended December 31, 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 contract 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 year ended December 31, 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, December 31, 2021	150,000	$	0.13

*As of December 31, 2021, the Company has recorded a share issuance liability of $13,000, included in other current liabilities for the vested and unreleased portion of the restricted stock awards (Note 13).

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 RSUs discussed above, in its Consolidated Statements of Comprehensive Loss as follows:


	Year Ended December 31,
	2021		2020
Research and development	$	59,653	$	93,545
General and administrative	809,553		209,197
	$	869,206	$	302,742

The total amount of unrecognized compensation cost was $1,645,478 as of December 31, 2021. This amount will be recognized over a weighted-average period of 3.12 years.