Equity Incentive Plans

6 Months Ended

Jun. 30, 2023

Equity Incentive Plans

Equity Incentive Plans

9. Equity Incentive Plans

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 plans that generally vest 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.

Share-based Compensation

The Company estimates the fair value of stock options with performance and service conditions using the Black-Scholes valuation model (“Black-Scholes”). 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 during the six months ended June 30, 2023 and 2022 are presented below.

	Six months ended
	June 30, 2023	June 30, 2022
Risk-free interest rate	3.54% - 4.20%	2.65% - 3.52%
Expected volatility	90.99% - 91.58%	84.81% - 85.67%
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 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 SEC 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 share-based compensation expense as they occur.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Research and development	$	259,000	$	489,000	$	804,000	$	679,000
General and administrative		2,000		460,000		314,000		763,000
Total share-based compensation	$	261,000	$	949,000	$	1,118,000	$	1,442,000

Stock option transactions during the six months ended June 30, 2023 are presented below:

	Options Outstanding
				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
		Exercise		Term	Intrinsic
	Shares	Price		(Years)	Value
Outstanding at December 31, 2022	3,352,803	$	5.32	7.8
Granted	17,500		2.36
Exercised	—		—		$	—
Forfeited/Cancelled	(168,374)		5.63
Outstanding at June 30, 2023	3,201,929	$	5.29	7.3	$	—
Vested and expected to vest at June 30, 2023	3,201,929	$	5.29	6.7	$	—
Exercisable at June 30, 2023	2,142,829	$	5.57	7.3	$	—

Restricted stock award transactions under the Assumed 2016 Plan and restricted stock unit award transactions during the six months ended June 30, 2023 are presented below:

		Weighted Avg
		Grant Date
	Shares	Fair Value
Outstanding at December 31, 2022	129,666	$	27.11
Granted	—		—
Forfeited/Cancelled	(3,699)		39.54
Vested and Issued as Common Stock	(54,901)		29.97
Outstanding at June 30, 2023	71,066	$	24.25

The aggregate intrinsic value of options at June 30, 2023 is based on the Company’s closing stock price on that date of $1.14 per share. As of June 30, 2023, there was $1.7 million of total unrecognized compensation expense related to unvested stock options and RSAs, which the Company expects to recognize over the weighted average remaining period of approximately 1.78 years.

Shares Reserved for Future Issuance

As of June 30, 2023, the Company had reserved shares of its Common Stock for future issuance as follows:

	Shares Reserved
Stock options outstanding	3,201,929
Unvested restricted stock units	71,066
Employee stock purchase plan	9,748
Available for future grants under the 2016 Plan	2,534,180
Warrants outstanding	20,549,338
Total shares reserved	26,366,261