Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

v3.22.0.1
STOCK-BASED COMPENSATION
9 Months Ended
Jan. 31, 2022
Share-based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION

 

6. 

STOCK-BASED COMPENSATION

 

2016 Stock Incentive Plan

 

On April 30, 2016, the Company’s stockholders 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 Common Stock to be offered to the Company’s directors, officers, employees, and consultants. On March 1, 2019, the Company’s stockholders 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 Company’s board of directors (the “Board”) 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 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 date of 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 Common Stock from its authorized shares instead of settling such obligations with cash payments. 

 

A summary of stock option activity for the nine months ended January 31, 2022, 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     (1,750,000 )     1,750,000     $ 2.9171                  
Options exercised     -       (3,000,000 )   $ 0.0004                  
Options cancelled/forfeited     300,000       (300,000 )   $ 1.5000                  
Balance at January 31, 2022     9,000,000       18,000,000     $ 0.9826       6.00     $ 13,118,800  
Options vested and expected to vest at January 31, 2022             16,000,000     $ 1.0418       6.41     $ 1 0,529,200  
Options exercisable at January 31, 2022             13,460,519     $ 0.7891       5.87     $ 9,806,358  

 

 

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.

 

 

Stock Options Granted to Employees and Consultants

 

The estimated fair value of stock options granted to employees and consultants during the nine months ended January 31, 2022 and 2021, were calculated using the Black-Scholes option-pricing model using the following assumptions:

 

    For the Nine Months Ended January 31,
    2022   2021
Expected term (in years)   3.506.25   6.25
Volatility   85.53% - 87.10%   100.10%
Risk-free interest rate   1.01% – 1.07%   0.51%
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 only has a limited 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 nine months ended January 31, 2022 and 2021 were $3.2 million and $1.7 million, respectively.

 

Performance Contingent Stock Options Granted to Employee

 

In November 2018, the Board granted 2,000,000 performance-based 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 of 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 January 31, 2022, 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 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 of 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 January 31, 2022, 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 Consultants - TAMM Net

 

On March 23, 2021, the Company issued performance-based stock options to the certain team members at TAMM Net, Inc. to purchase an aggregate of 450,000 shares of Common Stock at a per share exercise price of $1.50 per share, of which 50% vest upon the completion of Phase I clinical trial for AL001 by March 31, 2022 and the remaining 50% vest upon completion of Phase I clinical trial for AL002 by December 31, 2022. The Company retained TAMM Net, Inc., a consulting firm based in Georgia for project management experienced with good manufacturing practices to lead, develop and manage the Company’s preclinical and clinical efforts, extending from the current status of each product candidate through the exit or commercialization of the technologies that the Company has licensed.

 

 

As of January 31, 2022, the Company believes the performance goal of completing Phase I clinical trial of AL001 will be achieved. The Company is recognizing stock compensation related to the completion of Phase I clinical trial 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 January 31, 2022, 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.

 

Performance Contingent Stock Options Granted to Consultants -Other Consultants

 

On October 14, 2021, the Company issued performance-based stock options to two consultants to purchase an aggregate of 200,000 shares of Common Stock with an exercise price of $2.42 per share, of which 50,000 vest upon completion of each of the Phase II clinical trials of AL001 for a Bipolar indication, AL001 for a PTSD indication, AL001 for a depression indication and AL002 for an Alzheimer’s indication.

 

As of January 31, 2022, 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 Phase II of AL001 and AL002.

 

 Stock-Based Compensation Expense

 

The Company’s results of operations include expenses relating to stock-based compensation for the three and nine months ended January 31, 2022 and 2021, was comprised as follows:

 

    For the Three Months Ended
January 31,
    For the Nine Months Ended
January 31,
 
    2022     2021     2022     2021  
 Research and development   $ 106,102     $ 21,813     $ 359,286     $ 65,439  
 General and administrative     1,024,693       553,314       2,791,515       1,670,058  
 Total   $ 1,130,795     $ 575,127     $ 3,150,801     $ 1,735,497  

 

As of January 31, 2022, total unamortized stock-based compensation expense related to unvested employee and non-employee awards that are expected to vest was $5.2 million. The weighted-average period over which such stock-based compensation expense will be recognized is approximately 1.9 years.