Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.3.0.814
Stock-Based Compensation
12 Months Ended
Jul. 31, 2015
Stock-Based Compensation  
Stock-Based Compensation

Note 9 — Stock-Based Compensation

 

In May 2011, the Company’s Board of Directors adopted the OncoSec Medical Incorporated 2011 Stock Incentive Plan (as amended, the “2011 Plan”).  The 2011 Plan was approved by the Company’s stockholders in March 2012 and originally authorized the Board of Directors to grant equity awards to employees, directors, and consultants for up to 260,000 shares of common stock.  On April 15, 2013, the Company’s stockholders approved an amendment to the 2011 Plan to authorize the issuance of an additional 190,000 shares of common stock under the 2011 Plan, increasing the total number of shares reserved for issuance under the 2011 Plan to 450,000 shares. On July 18, 2014, the Company’s stockholders approved an amendment to the 2011 Plan to authorize the issuance of an additional 800,000 shares of common stock under the 2011 Plan, increasing the total number of shares reserved for issuance under the 2011 Plan to 1,250,000 shares. In addition, the stockholders approved an automatic increase of the share reserve available under the 2011 Plan on the first business day of each calendar year by the lesser of 3% of the shares of common stock outstanding as of the last day of the immediately preceeding calendar year, 500,000 shares, or such lesser amount of shares as determined by the Board of Directors. On January 2, 2015, the shares reserved for issuance under the 2011 Plan was increased by 370,278. On July 31, 2015, the Company’s stockholders approved an amendment to the 2011 Plan to authorize the issuance of an additional 1,879,722 shares of common stock under the 2011 Plan, increasing the total number of shares reserved for issuance under the 2011 Plan to 3,500,000 shares. In addition, the annual fiscal year per-individual grant limitation was increased to 500,000 shares. Incentive stock options are to be granted at a price that is no less than 100% of the fair value of the stock at the date of grant.  Options vest over a period specified in individual option agreements entered into with grantees, and are exercisable for a maximum period of ten years after the date of grant.  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 no less than 110% of the fair value of the stock on the date of grant.

 

During the year ended July 31, 2015, the Company granted options to purchase 491,001, 37,500 and 80,000 shares of the Company’s common stock to employees, directors and consultants under the 2011 Plan, respectively. The options issued to employees under the 2011 Plan have a ten-year term, vest over a range of one to three years, and have exercise prices ranging from $5.60 to $10.60. The options issued to directors have a ten-year term, vest quarterly in equal increments over one year and have an exercise price of $7.60. The options issued to consultants have one- to three-year terms, vest in accordance with the terms of the applicable consulting agreement, and have exercise prices ranging from $6.01 to $7.80.

 

During the year ended July 31, 2014, the Company granted options to purchase 90,500, 37,500 and 38,000 shares of the Company’s common stock to employees, directors and consultants, respectively, under the 2011 Plan.  During the year ended July 31, 2014, the Company granted options to purchase 260,000 and 25,000 shares of the Company’s common stock to employees and consultants, respectively, outside of the 2011 Plan. The options issued to employees both within the 2011 Plan and outside of the 2011 Plan have a ten-year term, vest over a range of two to three years, and have exercise prices ranging from $6.20 to $16.10.  The options issued to directors have a ten-year term, vest quarterly in equal increments over one year, and have an exercise price of $16.10. The options issued to consultants both within the 2011 Plan and outside of the 2011 Plan have one- to ten-year terms, vest in accordance with the terms of the applicable consulting agreement, and have exercise prices ranging from $5.20 to $16.10.

 

During the year ended July 31, 2013, the Company granted options to purchase 34,250 and 15,000 shares of the Company’s common stock to employees and directors, respectively, under the 2011 Plan.  The options issued to employees have a ten-year term, vest over a range of two to three years, and have exercise prices ranging from $4.00 to $8.40.  The options issued to directors have a ten-year term, vest quarterly in equal increments over one year and have an exercise price of $5.00.  During the year ended July 31, 2013, the Company also granted options to purchase 101,500 shares of the Company’s common stock to consultants under the 2011 Plan. The options issued to consultants have three to ten year terms, vest in accordance with the terms of the applicable consulting agreement, and have exercise prices ranging from $3.60 to $7.00.

 

The following assumptions were used to calculate the fair value of stock-based compensation during the years ended:

 

 

 

July 31, 2015

 

July 31, 2014

 

July 31, 2013

 

Expected volatility

 

86.02% - 117.50%

 

83.62% - 93.27%

 

80.32% - 97.85%

 

Risk-free interest rate

 

0.36% - 2.13%

 

0.10% - 2.78%

 

0.31% - 1.97%

 

Expected forfeiture rate

 

0.00% 

 

0.00% 

 

0.00% 

 

Expected dividend yield

 

 

 

 

Expected term

 

1.6 – 6.5 years

 

1 - 10 years

 

3 - 10 years

 

 

Expected price volatility is the measure by which the Company’s stock price is expected to fluctuate during the expected term of an option.  The Company exited shell status on March 24, 2011 and its stock became available for trading on April 8, 2011.  In situations where a public entity has limited historical data on the price of its publicly traded shares and no other traded financial instruments, authoritative guidance is provided on estimating this assumption by basing its expected volatility on the historical, expected, or implied volatility of similar entities whose share option prices are publicly available.  In making the determination as to similarity, the guidance recommends the consideration of industry, stage of life cycle, size and financial leverage of such other entities.  The Company’s expected volatility is derived from the historical daily change in the market price of its common stock since its stock became available for trading, as well as the historical daily changes in the market price of its peer group, based on weighting, as determined by the Company.

 

The expected term of the options represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in ASC Topic 718, which averages an award’s weighted-average vesting period and contractual term for share options and warrants. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with ASC Topic 718, as amended by SAB 110. For the expected term of options issued to employees and directors, the Company used the simplified method.  The Company expects to continually evaluate its historical data as a basis for determining the expected terms of options granted under the 2011 Plan. The Company’s estimation of the expected term for stock options granted to parties other than employees or directors is the contractual term of the option award.

 

For the purposes of estimating the fair value of stock option awards, the risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield.  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.

 

Stock-based compensation expense recognized in the Company’s statements of operations is based on awards ultimately expected to vest, reduced for estimated forfeitures.  Authoritative guidance requires forfeitures to be estimated at the time of grant, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Because the Company records stock-based compensation monthly and utilizes cliff vesting and/or monthly vesting, the Company has estimated the forfeiture rate of its outstanding stock options as zero since the Company can adjust stock-based compensation due to terminations in the month of termination.

 

Stock-based compensation expense recorded in the Company’s statement of operations for the years ended July 31, 2015, 2014 and 2013, respectively, resulting from stock options awarded to company’s employees, directors and consultants was approximately $2,548,000, $1,816,000 and $452,000, respectively.  Of these balances during the years ended July 31, 2015, 2014 and 2013, approximately $946,000, $666,000 and $41,000, respectively, was recorded to research and development, and approximately $1,346,000, $1,150,000 and $411,000, respectively, was recorded in general and administrative in the Company’s statement of operations. See Note 11, Commitments and Contingencies, regarding the impact of stock option modifications (due to a separation package) on stock-based compensation expense for the year ended July 31, 2015. During the years ended July 31, 2015, 2014 and 2013, the Company recorded approximately $58,000, $118,000 and $11,000 respectively, in research and development expense and $198,000, $119,000 and $289,000, respectively, in general and administrative expense for stock options granted to non-employees.

 

A summary of the Company’s stock option activity for the years ended July 31, 2015, 2014 and 2013 is as follows:

 

 

 

Option Shares
Outstanding (1)

 

Weighted-Average
Exercise Price (1)

 

Aggregate Intrinsic
Value ($000’s)

 

Balance at July 31, 2012

 

158,750

 

$

4.80

 

$

24

 

Granted

 

150,750

 

4.40

 

232

 

Exercised

 

(38,325

)

3.60

 

52

 

Forfeited / Cancelled / Expired

 

(13,675

)

6.60

 

9

 

 

 

 

 

 

 

 

 

Balance at July 31, 2013

 

257,500

 

4.60

 

372

 

Granted

 

451,000

 

13.20

 

1

 

Exercised

 

(89,999

)

4.20

 

846

 

Forfeited / Cancelled / Expired

 

(30,456

)

5.20

 

65

 

 

 

 

 

 

 

 

 

Balance at July 31, 2014

 

588,045

 

11.20

 

844

 

Granted

 

608,501

 

7.45

 

1

 

Exercised

 

(308

)

5.60

 

1

 

Forfeited / Cancelled / Expired

 

(47,474

)

12.29

 

46

 

 

 

 

 

 

 

 

 

Balance at July 31, 2015

 

1,148,764

 

9.20

 

216

 

 

 

 

 

 

 

 

 

Exercisable at July 31, 2015

 

616,511

 

$

9.81

 

$

206

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Recast to reflect the 1-for-20 reverse stock split effected May 2015

 

Range of Exercise Prices (1)

 

Number of
Shares
Outstanding

 

Weighted
Average
Contractual Life
(in years)

 

Number
Of Shares
Exercisable

 

Weighted
Average
Remaining
Contractual
Life (in years)

 

$

3.60 -16.10

 

1,148,764 

 

8.2 

 

$

616,511 

 

7.3 

 

 

The weighted-average grant date fair value of stock options granted during the years ended July 31, 2015, 2014 and 2013 was $5.57, $9.40 and $2.80, respectively.  As of July 31, 2015, there was approximately $3.4 million of unrecognized non-cash compensation cost related to unvested options, which will be recognized over a weighted average period of 1.9 years. The weighted-average fair value of stock options vested during the years ended July 31, 2015, 2014 and 2013 was $7.12, $6.60 and $3.00.

 

Common Stock Reserved for Future Issuance

 

The following table summarizes common stock reserved for future issuance at July 31, 2015:

 

Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan)

 

1,148,764 

 

Common Stock warrants

 

1,895,102 

 

Common Stock options authorized for future grant under the 2011 Plan

 

2,652,434 

 

 

 

5,696,300