Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.10.0.1
Stock-Based Compensation
12 Months Ended
Jul. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation

Note 7—Stock-Based Compensation

 

2011 Plan

 

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 7,500,000 for issuance thereunder, and includes an automatic increase of the number of shares of common stock reserved thereunder on the first business day of each calendar year by the lesser of: (i) 3% of the shares of the Company’s common stock outstanding as of the last day of the immediately preceding calendar year; (ii) 1,000,000 shares; or (iii) such lesser number of shares as determined by the Company’s Board of Directors. As of July 31, 2018, there were an aggregate of 8,500,000 shares of the Company’s common stock authorized for issuance pursuant to awards granted under the 2011 Plan. The 2011 Plan allows for an annual fiscal year per individual grant of up to 500,000 shares of its common stock. 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.

 

Stock Options

 

During the fiscal year ended July 31, 2018, the Company granted options to purchase 5,281,500, 300,000 and 705,000 shares of its common stock to employees, directors and consultants under the 2011 Plan, respectively. The stock options issued to employees have a ten-year term, vest over three years, and have exercise prices ranging from $0.92 to $1.86. The stock options issued to directors have a ten-year term, vest monthly in equal increments over one year and have exercise prices ranging from $0.979 to $1.94. The stock options issued to consultants have ten-year terms, vest in accordance with the terms of the applicable consulting agreement, and have exercise prices ranging from $1.00 to $1.88.

 

During the year ended July 31, 2018, the Company granted its President and Chief Executive Officer, Mr. Daniel J. O’Connor, options to purchase 2,500,000 shares of the Company’s common stock outside of the 2011 Plan. This grant was approved by stockholders at the Company’s annual meeting on January 12, 2018. Of the total grant, options on 1,000,000 shares vested upon stockholder approval and options on 1,000,000 shares will vest over a two-year period from the date of grant. Mr. O’Connor also received a performance stock option award to purchase up to 500,000 shares of the Company’s common stock, which is subject to vesting as to options on 250,000 shares on the date of the Company’s achievement of 100% enrollment in the first cohort of its PISCES/KEYNOTE-695 study and as to the remaining options on 250,000 shares in one installment on the one-year anniversary of the date of achievement of such enrollment.

 

During the fiscal year ended July 31, 2017, the Company granted options to purchase 1,841,037, 355,416 and 832,083 shares of its common stock to employees, directors and consultants under the 2011 Plan, respectively. The stock options issued to employees have a ten-year term, vest over three years, and have exercise prices ranging from $1.11 to $1.94. The stock options issued to directors have a ten-year term, vest monthly in equal increments over one year and have exercise prices ranging from $1.29 to $1.34. The stock options issued to consultants have three-year terms, vest in accordance with the terms of the applicable consulting agreement, and have exercise prices ranging from $1.29 to $2.00.

 

On December 14, 2016, the Company completed an offer (the “Exchange Offer”) to exchange certain stock options to purchase shares of its common stock for a lesser number of new stock options with a lower exercise price. Stock options with an exercise price greater than or equal to $3.00 and held by employees, directors, and consultants in continuous service for the Company through the completion of the Exchange Offer were eligible for exchange. In the Exchange Offer, an exchange rate of 2-for-1 applied to stock options with an exercise price from $3.00 to $9.99, and an exchange rate of 3-for-1 applied to stock options with an exercise price of $10.00 or more. Each new stock option granted in the Exchange Offer was granted pursuant to the 2011 Plan on the date the Exchange Offer closed and has an exercise price equal to the market price of the Company’s common stock on that date. At the closing of the Exchange Offer, 29 eligible participants had exchanged stock options to purchase 2,214,500 shares of the Company’s common stock for new stock options to purchase 1,070,536 shares of the Company’s common stock.

 

Stock-based compensation expense recognized in the accompanying consolidated statements of operations is based on awards ultimately expected to vest, reduced for estimated forfeitures. 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. Stock-based compensation expense related to stock options granted to consultants in which the options are not entirely vested at the grant date are generally re-measured each month.

 

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, 2018

   

Year Ended

July 31, 2017

 
Expected term (years)      5.00 – 6.50 years %      2.08 – 10 years %
Risk-free interest rate      1.66 - 2.90 %      0.82 – 2.52 %
Volatility      73.24 – 91.99 %      71.9 –124.5 %
Dividend yield     0 %     0 %

 

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 Company uses the simplified method to calculate the expected term of options issued to employees and directors, and 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. 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 years ended July 31, 2018 and 2017:

 

          Weighted  
          Average  
          Exercise  
    Options     Price  
Outstanding - July 31, 2016     3,263,460     $ 5.88  
Granted     3,028,536     $ 1.41  
Exercised     (7,500 )   $ 1.29  
Forfeited/Cancelled/Expired     (2,644,883 )   $ 6.21  
Outstanding - July 31, 2017     3,639,613     $ 1.94  
Granted     6,286,500     $ 1.38  
Exercised     (252,270 )   $ 1.27  
Forfeited/Cancelled     (761,123 )   $ 2.66  
Outstanding – July 31, 2018     8,912,720     $ 1.50  
Exercisable – July 31, 2018     5,674,496     $ 1.55  

 

As of July 31, 2018, the total intrinsic value of options outstanding and exercisable was approximately $65,500 and $37,000, respectively. As of July 31, 2018, the Company has approximately $3.9 million in unrecognized stock-based compensation expense attributable to the outstanding options, which will be amortized over a period of approximately1.59 years.

 

Stock-based compensation expense recorded in the Company’s consolidated statements of operations for the year ended July 31, 2018 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $6.2 million. Of this balance, $1.0 million was recorded to research and development and $5.2 million was recorded in general and administrative in the Company’s consolidated statements of operations for the year ended July 31, 2018.

 

Stock-based compensation expense recorded in the Company’s consolidated statements of operations for the year ended July 31, 2017 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $3.6 million. Of this balance, $1.1 million was recorded to research and development and $2.5 million was recorded in general and administrative in the Company’s consolidated statement of operations for the year ended July 31, 2017.

 

The weighted-average grant date fair value of stock options granted during the year ended July 31, 2018 was $1.24. The weighted-average grant date fair value of stock options granted during the year ended July 31, 2017 was $0.69.

 

Restricted Stock Units

 

In February 2018, the Company granted an aggregate of 300,000 restricted stock unit awards (“RSUs”) to two employees under the 2011 Plan. All RSUs vest in full three years following the date of grant. The closing price of the Company’s common stock on the date of grant was $1.64 per share, which is the fair market value per unit of the RSUs.

 

On February 8, 2018, the Company’s Board of Directors approved the accelerated vesting of outstanding restricted stock units (RSUs) held by certain executives and board members. The RSUs, the majority of which vested on the third anniversary of the grant date, were accelerated to vest on June 15, 2018, resulting in stock compensation expense of $1.1 million for the year ended July 31, 2018.

 

In May 2018, the Company granted 35,000 restricted stock unit awards (“RSUs”) to an employee under the 2011 Plan. All RSUs vest in full three years following the date of grant. The closing price of the Company’s common stock on the date of grant was $1.59 per share, which is the fair market value per unit of the RSUs.

 

In July 2018, the Company granted 625,000 restricted stock unit awards (“RSUs”) to the Company’s current CFO. The units vest as follows: 312,500 units vested on July 16, 2018, and the remaining 312,500 units vest in equal quarterly installments over the 24 months following the date of grant. The closing price of the Company’s common stock on the date of grant was $1.34 per share, which is the fair market value per unit of the RSUs.

 

For the year ended July 31, 2018, the Company recorded $2.0 million in stock-based compensation related to RSUs, which is reflected in the consolidated statements of operations.

 

As of July 31, 2018, there were 647,500 RSUs outstanding.

 

In March 2017, the Company granted 525,000 restricted stock unit awards (“RSUs”) to employees under the 2011 Plan. All RSUs vest in full three years following the date of grant. The closing price of the Company’s common stock on the date of grant was $1.34 per share, which is the fair market value per unit of the RSUs.

 

For the year ended July 31, 2017, the Company recorded $462,000 in stock-based compensation related to RSUs, which is reflected in the consolidated statements of operations.

 

As of July 31, 2017, there were 1,100,000 RSUs outstanding.

 

2015 Employee Stock Purchase Plan

 

Under the Company’s 2015 Employee Stock Purchase Plan (“ESPP”), the Company is authorized to issue 500,000 shares of the Company’s common stock. The first offering period under the ESPP ended on July 31, 2016, with 17,789 shares purchased and distributed to employees. The second offering period under the ESPP ended on January 31, 2017, with 18,631 shares purchased and distributed to employees, and the third offering period under the ESPP ended on July 31, 2017, with 21,646 shares purchased and distributed to employees. The fourth offering period under the ESPP ended on January 31, 2018, with 18,960 shares purchased and distributed to employees, and the fifth offering period under the ESPP ended on July 31, 2018, with 12,071 shares purchased and distributed to employees. At July 31, 2018, there were 410,903 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 January 31, 2018, the following assumptions were used: six-month maturity, 1.15% risk free interest, 62.6% volatility, 0% forfeitures and $0 dividends. For the six-month offering period ended July 31, 2018, the following assumptions were used: six-month maturity, 1.64% risk free interest, 97.86% volatility, 0% forfeitures and $0 dividends.

 

For the six-month offering period ended January 31, 2017, the following assumptions were used: six-month maturity, 0.40% risk free interest, 96.91% volatility, 0% forfeitures and $0 dividends. For the six-month offering period ended July 31, 2017, the following assumptions were used: six-month maturity, 0.65% risk free interest, 132.68% volatility, 0% forfeitures and $0 dividends.

 

Approximately $16,000 and $23,000 was recorded as stock-based compensation during the years ended July 31, 2018 and 2017, respectively.

 

Common Stock Reserved for Future Issuance

 

The following table summarizes all common stock reserved for future issuance at July 31, 2018:

 

Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan)     8,912,720  
Common Stock reserved for restricted stock unit release     647,500  
Common Stock authorized for future grant under the 2011 Plan     760,010  
Common Stock reserved for warrant exercise     8,958,059  
Commons Stock reserved for future ESPP issuance     410,903  
Total common stock reserved for future issuance     19,689,192