Note 7—Stock-Based Compensation

The OncoSec Medical Incorporated 2011 Stock Incentive Plan (as amended and approved by the Company’s stockholders (the “2011 Plan”)), authorizes the Company’s Board of Directors to grant equity awards, including stock options and restricted stock units, to employees, directors and consultants. The 2011 Plan authorizes a total of 3,350,000 shares for issuance. Under the 2011 Plan, incentive stock options are to be granted at a price that is no less than 100% of the fair value of the Company’s common stock at the date of grant. Stock options vest over a period specified in the individual option agreements entered into with grantees and are exercisable for a maximum period of 10 years after the date of grant. Stock options granted to stockholders who own more than 10% of the outstanding stock of the Company at the time of grant must be issued at an exercise price of no less than 110% of the fair value of the Company’s common stock on the date of grant.

Modification of Stock Option Awards

During the three months ended October 31, 2020, the compensation committee approved the accelerated vesting of 791,019 and 91,666 previously granted time-vesting awards for employees and directors, respectively. The Company accounted for the effects of the stock option modifications described above under the guidance of ASC 718 as follows:

Stock Options

During the three months ended October 31, 2020, the Company granted options to purchase 726,576, 125,000 and 25,000 shares of its common stock to employees, directors and a consultant under the 2011 Plan, respectively. The stock options issued to employees have a 10-year term, vest over three years and have exercise prices ranging from $3.43 to $3.82. The stock options issued to directors have a 10-year term, vest over one year and have an exercise price of $3.43. The stock options issued to the consultant have a 10-year term, vest over one year and have an exercise price of $3.82.

During the three months ended October 31, 2020, the Company granted options to purchase 300,000 shares of its common stock to an employee outside the 2011 Plan. The stock options issued to the employee have a 10-year term, vest over one year and have an exercise price of $3.56.

During the three months ended October 31, 2019, the Company granted options to purchase 4,900 shares of its common stock to employees under the 2011 Plan. The stock options issued to employees have a 10-year term, vest over three years and have exercise prices ranging from $1.89 and $2.21.

The Company accounts for stock-based compensation based on the fair value of the stock-based awards granted and records forfeitures as they occur. As such, the Company recognizes stock-based compensation cost only for those stock-based awards that vest over their requisite service period, based on the vesting provisions of the individual grants. The service period is generally the vesting period, with the exception of stock options granted pursuant to a consulting agreement, in which case the stock option vesting period and the service period are defined pursuant to the terms of the consulting agreement.

The following assumptions were used for the Black-Scholes calculation of the fair value of stock-based compensation related to stock options granted during the periods presented:

The Company’s expected volatility is derived from the historical daily change in the market price of its common stock. The Company uses the simplified method to calculate the expected term of options issued to employees, non-employees and directors. The risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield in effect at the time of grant, commensurate with the expected term. For the expected dividend yield used in the Black-Scholes calculation, the Company has never paid any dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future.

The following is a summary of the Company’s 2011 Plan and non-Plan stock option activity for the three months ended October 31, 2020:

As of October 31, 2020, the total intrinsic value of options outstanding and exercisable was $3.2 million and $2.9 million, respectively. As of October 31, 2020, the Company has approximately $2.5 million in unrecognized stock-based compensation expense attributable to the outstanding options, which will be amortized over a period of approximately 2.17 years.

Stock-based compensation expense recorded in the Company’s condensed consolidated statements of operations for the three months ended October 31, 2020 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $1.9 million, which included approximately $1.3 million related to the accelerated vesting of time-vesting options. Of the total expense, $1.0 million was recorded to research and development and $0.9 million was recorded in general and administrative in the Company’s condensed consolidated statements of operations for the three months ended October 31, 2020.

Stock-based compensation expense recorded in the Company’s condensed consolidated statements of operations for the three months ended October 31, 2019 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $0.5 million. Of this balance, $0.2 million was recorded to research and development and $0.3 million was recorded in general and administrative in the Company’s condensed consolidated statements of operations for the three months ended October 31, 2019.

The weighted-average grant date fair value of stock options granted during the three months ended October 31, 2020 and 2019 was $2.58 and $1.34, respectively.

Restricted Stock Units (“RSUs”)

For the three months ended October 31, 2020, the Company recorded approximately $27,000 in stock-based compensation related to RSUs, which is reflected in the condensed consolidated statements of operations.

As of October 31, 2020, there were 25,873 restricted stock units (“RSUs”) outstanding. During the three months ended October 31, 2020, 6,541 RSU’s vested.

For the three months ended October 31, 2019, the Company recorded $0.1 million in stock-based compensation related to RSUs, which is reflected in the condensed consolidated statements of operations.

Shares Issued to Consultants

During the three months ended October 31, 2020, 25,000 shares of common stock valued at approximately $0.1 million were issued to a consultant for services. The common stock share values were based on the date the shares were granted. The Company recorded compensation expense relating to the share issuances of approximately $0.1 million during the three months ended October 31, 2020.

During the three months ended October 31, 2019, 35,687 shares of common stock valued at approximately $0.2 million were issued to consultants for services. The common stock share values were based on the dates the shares were granted. The Company recorded compensation expense relating to the share issuances of approximately $0.2 million during three months ended October 31, 2019.

2015 Employee Stock Purchase Plan

Under the Company’s 2015 Employee Stock Purchase Plan (“ESPP”), the Company is authorized to issue 50,000 shares of the Company’s common stock. At October 31, 2020, there were 33,409 shares remaining available for issuance under the ESPP.

The ESPP is considered a Type B plan under FASB ASC Topic 718 because the number of shares a participant is permitted to purchase is not fixed based on the stock price at the beginning of the offering period and the expected withholdings. The ESPP enables the participant to “buy-up” to the plan’s share limit, if the stock price is lower on the purchase date. As a result, the fair value of the awards granted under the ESPP is calculated at the beginning of each offering period as the sum of:

The fair market value of the six-month call and six-month put are based on the Black-Scholes option valuation model. For the six-month offering period ended January 31, 2021, the following assumptions were used: six-month maturity, 0.1% risk free interest, 122.84% volatility, 0% forfeitures and $0 dividends. For the six-month offering period ended January 31, 2020, the following assumptions were used: six-month maturity, 2.04% risk free interest, 90.64% volatility, 0% forfeitures and $0 dividends.

Approximately $4,100 and $2,700 was recorded as stock-based compensation during the three months ended October 31, 2020 and 2019, respectively.

Common Stock Reserved for Future Issuance

The following table summarizes all common stock reserved for future issuance at October 31, 2020: