Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.5.0.2
Stock-Based Compensation
12 Months Ended
Jul. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation

Note 7 — Stock-Based Compensation

 

2011 Stock Incentive Plan (as amended)

 

The OncoSec Medical Incorporated 2011 Stock Incentive Plan (as amended and approved by the Company’s stockholders), (or 2011 Plan), authorizes the Board of Directors to grant equity awards, inclusive of stock options and restricted stock units, to employees, directors, and consultants for up to 4,000,000 shares of common stock. The 2011 Plan includes an automatic increase of its available share reserve on the first business day of each calendar year by the lesser of 3% of the shares of the Company’s common stock outstanding as of the last day of the immediately preceding calendar year, 500,000 shares, or such lesser number of shares as determined by the Board of Directors and the 2011Plan allows for an annual fiscal year per-individual grant of up to 500,000 shares. 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 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 Company’s stock on the date of grant.

 

Stock Options

 

During the fiscal year ended July 31, 2016, the Company granted options to purchase 1,995,750, 655,500 and 78,000 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 three years, and have exercise prices ranging from $1.64 to $6.21. The options issued to directors have a ten-year term, vest quarterly in equal increments over one year and have exercise prices ranging from $2.02 to $5.76. 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 $2.02 to $5.76.

 

During the fiscal 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.

 

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

 

    July 31, 2016     July 31, 2015  
Expected volatility     83.57% - 98.23 %     86.02% - 117.50 %
Risk-free interest rate     0.71% - 2.01     0.36% - 2.13
Expected forfeiture rate     0.00 %     0.00 %
Expected dividend yield            
Expected term     2.08 – 10 years       1.6 – 6.5 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 (resulting from stock options awarded) recorded in the Company’s statement of operations for the years ended July 31, 2016 and 2015, respectively, was approximately $6.1 million and $2.7 million, respectively. During the fiscal years ended July 31, 2016 and 2015, approximately $1.0 million and $1.1 million of this amount, respectively, was recorded to research and development, and approximately $5.1 and $1.6 million, respectively, was recorded in general and administrative in the Company’s statement of operations. See Note 9, 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.

 

A summary of the Company’s stock option activity for the years ended July 31, 2016 and 2015 is as follows:

 

    Option Shares
Outstanding
    Weighted-Average
Exercise Price
    Aggregate Intrinsic
Value ($000’s)
 
Balance at July 31, 2014 (1)     588,045     $ 11.20     $ 844  
Granted (1)     608,501       7.45       1  
Exercised (1)     (308 )     5.60       1  
Forfeited / Cancelled / Expired (1)     (47,474 )     12.29       46  
Balance at July 31, 2015     1,148,764     $ 9.20     $ 216  
Granted     2,729,250       4.84        
Exercised                  
Forfeited / Cancelled / Expired     (614,554 )     7.49       33  
Balance at July 31, 2016     3,263,460       5.88       9  
Exercisable at July 31, 2016     1,824,862     $ 6.60     $ 3  

 

 

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

 

Range of Exercise Prices     Number of
Shares
Outstanding
    Weighted
Average
Contractual Life
(in years)
    Number
Of Shares
Exercisable
    Weighted
Average
Remaining
Contractual
Life (in years)
 
$ 1.64 - $16.10 (1)       3,263,460       8.6       1,824,862       8.3  
                                     

 

 

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

 

The weighted-average grant date fair value of stock options granted during the years ended July 31, 2016 and 2015 was $3.45 and $5.57, respectively. As of July 31, 2016, there was approximately $5.0 million of unrecognized non-cash compensation cost related to unvested options, which will be recognized over a weighted average period of 1.8 years. The weighted-average fair value of stock options vested during the years ended July 31, 2016 and 2015 was $5.69 and $7.12.

 

Restricted Stock Unit Awards

 

In March 2016, the Company granted 555,000, 100,000 and 25,000 restricted stock unit awards (or, RSUs) to motivate and retain certain employees, directors and consultants, respectively, under the 2011 Plan. All RSUs vest in full 3 years following the date of grant. The Company’s closing common stock price on the date of issue was $2.02 per share, which is the RSUs fair market value per unit. Stock-based compensation expense related to RSUs for the year end period ended July 31, 2016 was approximately $184,000, approximately $41,000 of which was recorded to research and development and $143,000 was recorded to general and administrative. As of July 31, 2016, 655,000 RSUs are outstanding.

 

2015 Employee Stock Purchase Plan

 

The Company’s 2015 ESPP is authorized to issue 500,000 shares of the Company stock. The first offering period of the 2015 ESPP closed at the end of July 2016 and 17,789 shares were purchased by participants at a purchase price of $1.44, which represented a 15% discount off of the Company’s closing stock price at the beginning of the offering period. At July 31, 2016, 482,211 shares are available for issuance under the 2015 ESPP.

 

Common Stock Reserved for Future Issuance

 

The following table summarizes common stock reserved for future issuance at July 31, 2016:

 

Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan)     3,263,460  
Common Stock reserved for restricted stock unit release     655,000  
Common Stock authorized for future grant under the 2011 Plan     330,408  
Common Stock reserved for warrant exercise     12,859,286  
Commons Stock reserved for future ESSP issuance     482,211  
Total common stock reserved for future issuance     17,590,365