Stock-based Compensation

12 Months Ended

Dec. 31, 2022

Stock-based Compensation

Stock-based Compensation

13. Stock-based Compensation

Stock Award Plans

The Company maintains a 2016 Equity Incentive Plan (the “2016 Plan”), which provides for the issuance of incentive share awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance-based stock awards. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. Stock options expire no later than ten years from the date of grant and generally vest and typically become exercisable over a four-year period following the date of grant. Under the 2016 Plan, the number of shares authorized for issuance automatically increases annually beginning January 1, 2017 and through January 1, 2026.

The Company has issued restricted stock awards (“RSAs”) under certain legacy option plan that generally vest over two to four years based on service conditions. The RSAs began vesting in May 2019, and no additional awards will be issued under this legacy plan.

Stock-based Compensation

The Company estimates the fair value of stock options with performance and service conditions using the Black-Scholes valuation model. Compensation expense related to stock options granted is measured at the grant date based on the estimated fair value of the award and is recognized on the accelerated attribution method over the requisite service period.

The assumptions used in the Black-Scholes model for options granted during the year ended December 31, 2022 and 2021 are presented below:

	Year ended
	December 31, 2022	December 31, 2021
Risk-free interest rate	2.65% - 4.20%	0.73% - 1.29%
Expected volatility	81.81% - 85.86%	84.07% - 93.37%
Expected term (in years)	5.50 - 7.00	5.50 - 7.00
Expected dividend yield	0%	0%

The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatility is based on an analysis of the historical volatility of Armata and peer companies’ common stock. The expected term represents the period that the Company expects its stock options to be outstanding. The expected term assumption is estimated using the simplified method set forth in the U.S. Securities and Exchange Commission Staff Accounting Bulletin 110, which is the mid-point between the option vesting date and the expiration date. For stock options granted to parties other than employees or directors, the Company elects, on a grant by grant basis, to use the expected term or the contractual term of the option award. The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur.

The tables below summarize the total stock-based compensation expense included in the Company’s consolidated statements of operations for the periods presented:

	Year Ended December 31,
	2022		2021
Research and development	$	1,794,000	$	1,505,000
General and administrative		1,311,000		1,377,000
Total stock-based compensation	$	3,105,000	$	2,882,000

Stock option transactions during the year ended December 31, 2022 are presented below:

	Options Outstanding
				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
		Exercise		Term	Intrinsic
	Shares	Price		(Years)	Value
Outstanding at December 31, 2021	2,409,682	$	5.64	8.00		—
Granted	1,254,500		4.95			—
Exercised	(38,287)		3.29		$	44,000
Forfeited/Cancelled	(273,092)		6.94			—
Outstanding at December 31, 2022	3,352,803	$	5.32	7.80	$	—
Vested and expected to vest at December 31, 2022	3,352,803	$	5.32	7.80	$	—
Exercisable at December 31, 2022	1,438,123	$	6.17	6.67	$	—

Restricted stock award transactions under the Assumed 2016 Plan and restricted stock unit award transactions during the year ended December 31, 2022 are presented below:

		Weighted Avg
		Grant Date
	Shares	Fair Value
Outstanding at December 31, 2021	154,018	$	27.49
Granted	—		—
Forfeited/Cancelled	(369)		31.85
Vested and Issued as Common Stock	(23,983)		32.88
Outstanding at December 31, 2022	129,666	$	27.11

The aggregate intrinsic value of options at December 31, 2022 is based on the Company’s closing stock price on that date of $1.24 per share. As of December 31, 2022, there was $3.2 million of total unrecognized compensation expense related to unvested stock options and RSAs, excluding unvested RSAs with performance conditions deemed to be improbable for the period ended December 31, 2022, which the Company expects to recognize over the weighted average remaining period of 1.8 years.

Shares Reserved For Future Issuance

As of December 31, 2022, the Company had reserved shares of its common stock for future issuance as follows:

	Shares Reserved
Stock options outstanding	3,352,803
Unvested restricted stock units	30,000
Employee stock purchase plan	9,748
Available for future grants under the 2016 Plan	570,570
Warrants outstanding	20,549,338
Total shares reserved	24,512,459