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Stock-Based Compensation

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

6. Stock-Based Compensation

Oncocyte had a 2010 Stock Option Plan (the “2010 Plan”) under which 5,200,000 shares of common stock were authorized for the grant of stock options or the sale of restricted stock. On August 27, 2018, Oncocyte shareholders approved a new Equity Incentive Plan (the “2018 Incentive Plan”) to replace the 2010 Plan. In adopting the 2018 Incentive Plan, Oncocyte terminated the 2010 Plan and will not grant any additional stock options or sell any stock under restricted stock purchase agreements under the 2010 Plan; however, stock options issued under the 2010 Plan will continue in effect in accordance with their terms and the terms of the 2010 Plan until the exercise or expiration of the individual options.

In 2018, under the 2010 Plan, Oncocyte granted certain stock options with exercise prices ranging from $2.30 per share to $3.15 per share, that will vest in increments upon the attainment of specified performance conditions related to the development of DetermaDx™ and obtaining Medicare reimbursement coverage for that test (“Performance-Based Options”). The Medicare reimbursement conditions will not be met as Oncocyte has determined not to pursue commercialization of DetermaDx™. Approximately 125,000 stock options granted in May 2018 contain a hybrid vesting condition which vest on the earlier to occur of three years of service from the grant date or achieving a defined Performance-Based Option milestone with respect to DetermaDx™ local decision coverage. These stock options are considered to be service-based awards for financial accounting purposes with the fair value of the options being recognized in stock-based compensation expense over an effective three-year service period.

During the three and nine months ended September 30, 2021, no stock-based compensation expense was recorded with regard to the Performance-Based Options due to the discontinuation of development of DetermaDx™. During the three months ended September 30, 2020, none of the vesting conditions were met and, accordingly, no stock-based compensation expense was recorded during those periods. During the nine months ended September 30, 2020, certain performance conditions required for vesting were met, and, accordingly, 265,000 shares vested and $466,000 of stock-based compensation expense was recorded with regard to the Performance-Based Options during this period. As of September 30, 2021, there were no Performance-Based Options outstanding.

A summary of Oncocyte’s 2010 Plan activity and related information follows (in thousands except weighted average exercise price):

Summary of Stock Option Activity

	Shares		Number			Weighted Average
	Available		of Options			Exercise
Options	for Grant		Outstanding			Price

Balance at December 31, 2020		-		1,218		$	3.55
Options exercised		-		(159	)	$	2.26
Options forfeited, cancelled and expired		-		8		$	3.15
Balance at September 30, 2021		-		1,067		$	3.71
Exercisable at September 30, 2021				1,067		$	3.71

As of September 30, 2021, 21,000,000 shares of common stock were reserved under the 2018 Incentive Plan for the grant of stock options or the sale of restricted stock or for the settlement of hypothetical units issued with reference to common stock (“RSUs”). Oncocyte may also grant stock appreciation rights under the 2018 Incentive Plan.

A summary of Oncocyte’s 2018 Incentive Plan activity and related information follows (in thousands except weighted average exercise price):

Summary of Stock Option Activity

	Shares			Number			Number			Weighted
	Available			of Options			of RSUs			Average
	for Grant			Outstanding			Outstanding			Exercise Price

Balance at December 31, 2020		3,346			7,212			201		$	2.60
RSUs vested		-			-			(201	)		n/a
RSUs granted		(96	)		-			96		$	-
Options increase from Plan Amendment		10,000			-			-			n/a
Options granted		(4,745	)		4,745			-		$	5.01
Options exercised		-			(727	)		-		$	2.99
Options forfeited/cancelled		592			(592	)		-		$	3.26
Balance at September 30, 2021		9,097			10,638			96		$	3.63
Options exercisable at September 30, 2021					3,354					$	2.59

Oncocyte recorded stock-based compensation expense in the following categories on the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 (unaudited and in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Cost of revenues	$	70	$	38	$	166	$	60
Research and development		387		462		1,023		1,070
Sales and marketing		412		153		953		400
General and administrative		981		1,131		2,994		2,551
Total stock-based compensation expense	$	1,850	$	1,784	$	5,136	$	4,081

The assumptions that were used to calculate the grant date fair value of Oncocyte’s employee and non-employee stock option grants for the nine months ended September 30, 2021 and 2020 were as follows:

	Nine Months Ended
	September 30,
	2021			2020
Expected life (in years)		6.00			6.00
Risk-free interest rates		0.99	%		1.14	%
Volatility		99.85	%		104.24	%
Dividend yield		-	%		-	%

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If Oncocyte had made different assumptions, its stock-based compensation expense and net loss for the three and nine months ended September 30, 2021 and 2020 may have been significantly different.

Oncocyte does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified disposition has occurred.