Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

v3.21.2
STOCK-BASED COMPENSATION
3 Months Ended
Jul. 31, 2021
Share-based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION

 

6. STOCK-BASED COMPENSATION

 

2016 Stock Incentive Plan

 

On April 30, 2016, the Company’s shareholders approved the Company’s 2016 Stock Incentive Plan (the “Plan”). The Plan provides for the issuance of a maximum of 12,500,000 shares of the Company’s Common Stock to be offered to the Company’s directors, officers, employees, and consultants. On March 1, 2019 the Company’s shareholders approved an additional 7,500,000 shares to be available for issuance under the Plan. Options granted under the Plan have an exercise price equal to or greater than the fair value of the underlying Common Stock at the date of grant and become exercisable based on a vesting schedule determined at the date of grant. The options expire between five and 10 years from the date of grant. Restricted stock awards granted under the Plan are subject to a vesting period determined at the date of grant.

 

2021 Stock Incentive Plan

 

In February 2021, the Board of Directors adopted, and the stockholders approved, the Alzamend Neuro, Inc. 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the grant to eligible individuals of (1) stock options (incentive and non-statutory), (2) restricted stock, (3) stock appreciation rights, or SARs, (4) restricted stock units, and (5) other stock-based compensation.

 

Stock Subject to the 2021 Plan. The maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan is 10,000,000 shares, which number will be increased to the extent that compensation granted under the 2021 Plan is forfeited, expires or is settled for cash (except as otherwise provided in the 2021 Plan). Substitute awards (awards made or shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company that the Company acquires or any subsidiary of the Company or with which the Company or any subsidiary combines) will not reduce the shares authorized for grant under the 2021 Plan, nor will shares subject to a substitute award be added to the shares available for issuance or transfer under the 2021 Plan.

 

All options that the Company grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. The Company has valued the options at their date of grant utilizing the Black Scholes option pricing model. As of the issuance of these options, there was not an active public market for the Company’s shares. Accordingly, the fair value of the underlying options was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options as calculated using the simplified method. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because the Company settles these obligations by issuing shares of the Company’s Common Stock from its authorized shares instead of settling such obligations with cash payments. 

  

A summary of stock option activity for the three months period from May 1, 2021 to July 31, 2021, is presented below: 

 

            Outstanding Options  
                              Weighted          
                      Weighted       Average          
      Shares               Average       Remaining       Aggregate  
      Available for       Number of       Exercise       Contractual       Intrinsic  
      Grant       Options       Price       Life (years)       Value  
Balance at April 30, 2021     10,450,000       19,550,000     $ 0.7195       5.92     $ 35,159,500  
Options granted     (1,500,000 )     1,500,000     $ 2.9167                  
Options exercised     -       (250,000 )   $ 0.0004                  
Options cancelled/forfeited     300,000       (300,000 )   $ 1.5000                  
Balance at July 31, 2021     9,250,000       20,500,000     $ 0.8812       6.03     $ 72,647,100  
Options vested and expected to vest at April 30, 2021             18,500     $ 0.8684       6.52     $ 65,797,100  
Options exercisable at April 30, 2021             13,460,519     $ 0.5298       5.84     $ 52,431,944  

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the estimated fair value on the respective date and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options. There have been 250,000 options exercised and 300,000 options cancelled, respectively, during the three months ended July 31, 2021.

 

 

Stock options granted to employees and consultants

 

The estimated fair value of stock options granted to employees and consultants during the three months ended July 31, 2021 and July 31, 2020, were calculated using the Black-Scholes option-pricing model using the following assumptions:

 

 

    For the Three Months Ended July 31,
    2021   2020
Expected term (in years)   2.50 - 5.00   2.50 - 6.25
Volatility   86.31%   65.80% -72.35%
Risk-free interest rate   1.01% -1.07%   1.52% -2.36%
Dividend yield   0.0%   0.0%

 

Expected Term: The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

 

Expected Volatility: The Company uses an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as the Company does not have trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

 

Risk-Free Interest Rate: The Company based the risk-free interest rate over the expected term of the options based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of the grant.

 

Expected Dividend: The Company has not paid and does not anticipate paying any dividends in the near future. Therefore, the expected dividend yield was zero.

 

Stock-based compensation to employees and consultants from stock option grants for the three months ended July 31, 2021 and July 31, 2020 were $740,000 and $591,000, respectively.

 

Performance-contingent stock options granted to employee

 

In November 2018, the Board of Directors granted 2,000,000 performance-contingent options under the Plan to the Chief Executive Officer. These options have an exercise price of $1.00 per share.

 

These options have two separate performance triggers for vesting based upon the therapies achieving certain Food and Drug Administration (“FDA”) approval milestones within a specified timeframe. By definition, the performance condition in these options can only be achieved after the performance condition of FDA approval has been achieved. As such, the requisite service period is based on the estimated period over which the market condition can be achieved. When a performance goal is deemed to be probable of achievement, time-based vesting and recognition of stock-based compensation expense commences. In the event any the milestones are not achieved by the specified timelines, such vesting award will terminate and no longer be exercisable with respect to that portion of the shares. The maximum potential expense associated with the performance-contingent awards is $1.2 million of general and administrative expense if all of the performance conditions are achieved as stated in the option agreement. Due to the significant risks and uncertainties associated with FDA approvals, as of July 31, 2021, the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards.

 

On November 26, 2019, the Board of Directors granted 4,250,000 performance- and market-contingent awards to certain key employees and a director. These grants were made outside of the Plan. These awards have an exercise price of $1.50 per share. These awards have multiple separate market triggers for vesting based upon either (i) the successful achievement of stepped target closing prices on a national securities exchange for 90 consecutive trading days later than 180 days after the Company’s IPO for its common stock, or (ii) stepped target prices for a change in control transaction. The target prices range from $15 per share to $40 per share. In the event any the stock price milestones are not achieved within three years, the unvested portion of the performance options will be reduced by 25%. Due to the significant risks and uncertainties associated with achieving the market-contingent awards, as of July 31, 2021, the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards.

 

 

Performance-contingent stock options granted to TAMM Net

 

On March 23, 2021, the Company issued performance-based stock options to the certain team members at Tamm Net to purchase an aggregate of 450,000 shares of the Company’s common stock at a per share exercise price of $1.50 per share, of which 50% vest upon the completion of Phase I of AL001 by March 31, 2022 and the remaining 50% shall vest upon completion of Phase I of AL002 by December 31, 2022.

 

As of July 31, 2021, the Company believes the performance goal of completing Phase I of AL001 will be achieved on or before March 31, 2022. The Company is recognizing stock compensation related to the completion of Phase I of AL001 by March 31, 2022 over the implied service period expected to complete this milestone. Due to the significant risks and uncertainties associated with achieving the completion of Phase I for AL002, as of July 31, 2021, the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards related to AL002.

 

Stock-based compensation expense

 

The Company’s results of operations include expenses relating to stock-based compensation as follows:

 

 

    For the Three Months Ended July 31,  
    2021     2020  
 Research and development   $ 141,917     $ 21,813  
 General and administrative     597,705       569,620  
 Total   $ 739,622     $ 591,433  

 

As of July 31, 2021, total unamortized stock-based compensation expense related to unvested employee and non-employee awards that are expected to vest was $6.5 million. The weighted-average period over which such stock-based compensation expense will be recognized is approximately 2.2 years.