Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.21.2
Stock-Based Compensation
12 Months Ended
Jul. 31, 2021
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

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 4,600,000 shares of common stock 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. Incentive 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.

 

At the Company’s Annual Meeting of Stockholders on April 29, 2021, the Company’s stockholders approved an amendment to the 2011 Plan to increase the number of shares authorized under the 2011 Plan by 1,250,000 shares, from 3,350,000 shares to 4,600,000 shares.

 

Modification of Stock Option Awards

 

During the year ended July 31, 2021, the Compensation Committee of the Company’s Board of Directors approved the accelerated vesting of 791,019 and 91,666 previously granted time-vesting awards for all employees and four directors, respectively. The Company accounted for the effects of the stock option modifications described above under the guidance of ASC 718 as follows:

 

  The unamortized compensation costs associated with the time-vesting options was expensed on the date of acceleration, which was approximately $1.2 million and $0.1 million for the employees and directors, respectively.
     
   ● Upon modification, it is required under ASC 718 to analyze the fair value of the instruments, before and after the modification, recognizing additional compensation cost for any incremental value. The Company computed the fair value of the award immediately prior to the modification and compared the fair value to that of the modified award. Since the value of the awards were less after the modification as compared to immediately prior to the modification, no additional compensation expense was recorded.

 

During the year ended July 31, 2020, the Company cancelled 878,534 outstanding common stock option awards under the following terms:

 

  The Company entered into Stock Option Cancellation Agreements (the “Cancellation Agreements”) with certain executive officers, directors and other senior level employees of the Company, pursuant to which such individuals (the “Senior Level Option Holders”) agreed to the voluntary surrender and cancellation of certain previously granted stock options (the “Cancelled Options”) to purchase in the aggregate 699,140 shares of the Company’s common stock. Under the terms of the Cancellation Agreements, each Senior Level Option Holder and the Company acknowledged and agreed that the surrender and cancellation of the Cancelled Options was without any expectation on the part of each Senior Level Option Holder to receive, and without any obligation on the Company to pay or grant, any cash, equity awards or other consideration presently or in the future with respect to the Cancelled Options.
     
   ● The Company cancelled outstanding common stock options held by employees and consultants other than the Senior Level Option Holders, pursuant to which such individuals were previously granted stock options to purchase in the aggregate 179,394 shares of the Company’s common stock, for aggregate cash consideration of approximately $26,000.

 

The Company accounted for the effects of the stock option modifications described above under the guidance of ASC 718 as follows:

 

   ● A cancellation of an award that is not accompanied by the concurrent grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted for as a repurchase for no consideration. Accordingly, any previously unrecognized compensation is recognized at the cancellation date.
     
   ● The amount of cash paid to settle an equity-classified award is charged directly to equity as long as that amount is equal to or less than the fair-value-based measure of the award on the settlement date. To the extent that the settlement consideration exceeds the fair-value-based measure of the equity-classified award on the settlement date, that difference is recognized as additional compensation cost. The cash paid to settle employee and consultant equity-classified awards, other than the Senior Level Option Holders, was less than the fair-value-based measure of the award on the settlement date. The approximately $26,000 in cash paid to settle the equity-classified awards was charged directly to additional paid in capital.

 

Following the cancellation of the outstanding stock option awards described above, there were 15,000 stock option awards outstanding under the 2011 Plan. The Company recorded the previously unrecognized compensation cost related to the cancelled outstanding stock option awards of approximately $1.2 million on the date of cancellation.

 

Modification of Award

 

On October 2, 2019, the Company entered into an amendment to a consulting agreement with a consulting firm. Prior to the amendment, the Company was required to issue 3,000 shares of restricted common stock monthly for services through July 2, 2020. As per the terms of the amended agreement, starting October 2, 2019, the Company was required to issue 15,000 shares of restricted common stock monthly for services through July 2, 2020. Upon modification, it is required under ASC 718 to analyze the fair value of the instruments, before and after the modification, recognizing additional compensation cost for any incremental value. The Company computed the fair value of the award prior to the amendment and compared the fair value to that of the modified award. The incremental compensation cost of approximately $0.2 million resulting from the modification was recognized ratably over the remaining term of the consulting agreement.

 

Bonuses Paid in Common Stock

 

On March 11, 2020, the Compensation Committee of the Board of Directors approved the payment of discretionary bonuses to our Chief Executive Officer and seven other officers in an aggregate amount equal to $836,250 (the “2019 Incentive Bonuses”), in recognition of the Company’s achievement of certain operational and strategic objectives in 2019 and each individual’s ongoing contributions to the success of the Company.

 

In order to conserve cash and improve cash flow, the Compensation Committee determined that it would be in the Company’s best interests to pay one-half of the 2019 Incentive Bonuses, or $418,125, in cash, and one-half of the 2019 Incentive Bonuses in shares of our common stock (“Contingent Bonus Shares”), subject to approval by the Board of Directors and contingent on stockholder approval of the issuance of the Contingent Bonus Shares at the Company’s annual shareholder meeting (the “Annual Meeting”). On April 14, 2020, the Board of Directors approved the issuance of the Contingent Bonus Shares to the officers, contingent on stockholder approval at the Annual Meeting, and determined that the aggregate number of Contingent Bonus Shares would be 302,989 shares (the “Bonus Share Pool”), which was determined by dividing $418,125 by $1.38, the closing price of our common stock on March 11, 2020.

 

On May 29, 2020, the Company’s stockholders approved the Bonus Share Pool and the Contingent Bonus Shares were granted to the officers following the Annual Meeting. The Contingent Bonus Shares are subject to a six-month holding period requirement. The Company, using the net shares method, issued an aggregate of 185,003 shares of Company common stock to pay one-half of the discretionary bonuses. 117,986 shares of Company common stock were withheld at vesting to cover individual tax withholding obligations. The Company recorded compensation expense related to the Contingent Bonus Shares of $0.7 million during the year ended July 31, 2020, which was determined by multiplying the Bonus Share Pool, or 302,989, by $2.23, the closing price of our common stock on May 29, 2020.

 

Stock Options

 

During the year ended July 31, 2021, the Company granted options to purchase 1,360,826, 337,500 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 two to three years and have exercise prices ranging from $2.22 to $7.64. The stock options issued to directors have a 10-year term, vest over one year and have an exercise price of $3.16 to $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 year ended July 31, 2021, in accordance with Nasdaq Listing Rule 5635(c)(4), the Company granted inducement equity awards that consisted of options to purchase 590,000 shares of its common stock to employees outside the 2011 Plan. The stock options issued to the employee are nonqualified, have a 10-year term, vest over one to two years and have exercise prices ranging from $3.56 to $7.45.

 

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:

 

   

Year Ended

July 31, 2021

   

Year Ended

July 31, 2020

 
Expected term (years)     5.00–6.50 years       5.00–6.50 years  
Risk-free interest rate     0.27 -1.13 %     0.30 – 1.70 %
Volatility     85.31 – 89.08 %     80.93 –87.95 %
Dividend yield     0 %     0 %

 

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, as the Company does not have much stock option exercise history and thus does not have enough information on exercise behavior to calculate a refined expected term based on that information. 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 year ended July 31, 2021:

 

    Options     Weighted Average Exercise Price     Weighted -average Remaining Contract    

Aggregate Intrinsic Value

($000)

 
Outstanding - July 31, 2020     1,442,856     $ 1.65                  
Granted     2,313,326     $ 4.06                  
Exercised     (377,361 )   $ 1.69                  
Forfeited/Cancelled     (267,179 )   $ 3.58                  
Outstanding - July 31, 2021     3,111,642     $ 3.27       9.2     $ 639  
Exercisable - July 31, 2021     1,685,481     $ 2.66       8.9     $ 603  

 

The weighted-average grant date fair value of stock options granted during the years ended July 31, 2021 and 2020 was $2.85 and $1.67, respectively. The total intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was approximately $1.4 million and $0, respectively.

 

As of July 31, 2021, the Company has approximately $3.3 million in unrecognized stock-based compensation expense attributable to the outstanding options, which is expected to be recognized over a weighted-average period of 1.62 years. The total fair value of shares vested during the years ended July 31, 2021 and 2020 was approximately $3.5 million and $2.6 million, respectively.

 

Stock-based compensation expense recorded in the Company’s consolidated statements of operations for the year ended July 31, 2021 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $4.4 million. Of the total expense, $2.6 million was recorded to research and development and $1.8 million was recorded in general and administrative in the Company’s consolidated statements of operations for the year ended July 31, 2021.

 

Stock-based compensation expense recorded in the Company’s consolidated statements of operations for the year ended July 31, 2020 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $2.6 million, which included approximately $1.2 million related to the cancellation of certain stock option awards. Of the total expense, $1.3 million was recorded to research and development and $1.3 million was recorded in general and administrative in the Company’s consolidated statements of operations for the year ended July 31, 2020.

 

Restricted Stock Units (“RSUs”)

 

For the year ended July 31, 2021, the Company recorded $0.7 million, in stock-based compensation related to RSUs, which is reflected in the consolidated statements of operations. For the year ended July 31, 2020, the Company recorded $0.3 million in stock-based compensation related to RSUs, which is reflected in the consolidated statements of operations.

 

The following table summarize restricted stock units issued and outstanding:

 

    RSUs     Weighted Average Grant Date Fair Value  
Nonvested - July 31, 2020     34,914     $ 0.71  
Granted     588,875     $ 3.23  
Vested     (178,540 )   $ 2.73  
Forfeited/Cancelled     (2,500 )   $ 1.64  
Nonvested - July 31, 2021     442,749     $ 3.24  

 

As of July 31, 2021, there was approximately $1.4 million unrecognized compensation cost related to unvested RSUs. This amount is expected to be recognized over a weighted-average period of 1.9 years.

 

Shares Issued to Directors

 

In April 2020, the Company granted a director 12,500 shares of common stock under the 2011 Plan for services rendered. The shares vested immediately and the closing price of the Company’s common stock on the date of grant was $1.55 per share. The Company recorded compensation expense relating to the share issuance of approximately $19,000 during the year ended July 31, 2020.

 

Shares Issued to Consultants

 

During the year ended July 31, 2021, 137,500 shares of common stock valued at approximately $0.5 million were issued to consultants for services. The common stock share values were based on the dates the shares were granted.

 

During the year ended July 31, 2020, 184,499 shares of common stock valued at approximately $0.9 million, were issued to consultants for services. The common stock share values were based on the dates the shares were granted.

 

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. The eleventh offering period under the ESPP ended on July 31, 2021, with 2,257 shares purchased and distributed to employees and the tenth offering period under the ESPP ended on January 31, 2021, with 1,358 shares purchased and distributed to employees. The ninth offering period under the ESPP ended on July 31, 2020, with 1,358 shares purchased and distributed to employees, and the eighth offering period under the ESPP ended on January 31, 2020, with 2,841 shares purchased and distributed to employees. At July 31, 2021, there were 29,794 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:

 

  15% of the share price of an unvested share at the beginning of the offering period,
  85% of the fair market value of a six-month call on the unvested share aforementioned, and
  15% of the fair market value of a six-month put on the unvested share aforementioned.

 

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 July 31, 2021, the following assumptions were used: six-month maturity, 0.07% risk free interest, 88.03% volatility, 0% forfeitures and $0 dividends. 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 July 31, 2020, the following assumptions were used: six-month maturity, 1.54% risk free interest, 76.59% 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 $10,300 and $3,800 was recorded as stock-based compensation during the years ended July 31, 2021 and 2020, respectively.

 

Common Stock Reserved for Future Issuance

 

The following table summarizes all common stock reserved for future issuance at July 31, 2021:

 

Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan)     3,111,642  
Common Stock reserved for restricted stock unit release     442,749  
Common Stock authorized for future grant under the 2011 Plan     808,516  
Common Stock reserved for warrant exercise     1,706,190  
Shares issuable under CGP and Sirtex stock purchase agreements     1,924,001  
Commons Stock reserved for future ESPP issuance     29,794  
Total common stock reserved for future issuance     8,022,892