Employee Incentive Plans

12 Months Ended

Dec. 31, 2021

Employee Incentive Plans

Employee Incentive Plans

10. Employee Incentive Plans

We account for equity-based compensation in accordance with ASC 718, Compensation – Stock Compensation, which requires that compensation related to all equity-based awards be recognized in the consolidated financial statements. Equity-based compensation cost is valued at fair value at the date of grant, and the grant date fair value is recognized as expense over each award’s requisite service period with a corresponding increase to equity or liability based on the terms of each award and the appropriate accounting treatment under ASC 718.

We had three stock-based compensation plans at December 31, 2021 and two stock-based compensation plans at December 31, 2020. These plans which are described below, were developed to retain and attract key employees and directors. As of December 31, 2021, we recognized stock option expense of $985,000 in addition to $275,000 in expense relating to restricted stock awards. Total compensation expense in operating expense on the statement of operations of $1,260,000 and $322,000 during the years ended December 31, 2021 and 2020, respectively.

The 2021 Omnibus Incentive Plan (the “2021 Plan”)

During 2021, the Company added a new incentive 2021 Omnibus Incentive Plan (the “2021 Plan”). The purpose of the 2021 Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors of the Company can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders.

The 2021 Plan is administered by the Compensation Committee of our Board of Directors and permits the grant of cash and equity-based awards, which may be awarded in the form of stock options, stock appreciation rights, restricted stock awards, performance awards, other stock-based awards and other cash-based awards.

The aggregate number of shares of Common Stock that may be issued or used for reference purposes or with respect to which Awards may be granted under the 2021 Plan shall not exceed 2,500,000 shares and is subject to any increase or decrease, which shares may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company or both. As of December 31, 2021, Restricted Stock Awards and Stock Option Awards were granted under this plan.

Restricted Stock Awards

During the year ended December 31, 2021, the Company issued new Restricted Stock Awards (RSAs) under the 2021 Plan in the amount of $925,000 in value of restricted stock to each of the Company’s outside directors and certain members of management, with a valuation to be based on the closing price of the Company’s common stock on the Nasdaq Capital Market (the “2021 RSA Awards”). Accordingly, 174,811 shares were granted. 79,488 of which are expected to fully vest in one year on the anniversary of the grant date, 17,401 shares are expected to fully vest in two years and the remaining 77,922 shares and are expected to fully vest in three years on the anniversary of the grant date.

The following table summarizes the activities for the Company’s unvested RSAs in Intrusion Inc. stock for the year ended December 31, 2021:

	Unvested Restricted Stock Awards
	Number of Shares (in thousands)			Weighted-Average Grant-Date Fair Value
Unvested as of December 31, 2020	–		$	–
Granted	175			5.29
Vested	–			–
Forfeited/canceled	(26	)		3.85
Unvested as of December 31, 2021	149		$	5.54

The Company recognized compensation expense related to its RSAs of $275,000 during the year ended December 31, 2021. As of December 31, 2021, there was $550,000 of unrecognized compensation cost related to unvested RSAs. This amount is expected to be recognized over a weighted-average period of 1.52 years.

Stock Option Awards

The Company also granted new option awards under the 2021 Plan to its employees with the option price for each option set at the closing price for the Company’s Common Stock on the Nasdaq Capital Market on the grant date (the “2021 Option Awards”) during the year ended December 31, 2021. Accordingly, 541,000 options were granted under this plan during the year ended December 31, 2021. A summary of the Company’s Stock Option Awards from all plans is provided below.

With recent employee resignations, terminations, and departures, a number of unexercised and unvested options were forfeited resulting in an addition of 315,000 option shares and 25,974 RSA shares during the year ended December 31, 2021, that are now available for re-granting under this plan.

The 2015 Stock Incentive Plan (“the “2015 Plan”)

On March 19, 2015, the Board approved the 2015 Stock Incentive Plan (the “2015 Plan”), which was approved by the stockholders on May 14, 2015. The 2015 Plan serves as a replacement for the 2005 Plan which expired by its terms on June 14, 2015. The approval of the 2015 Plan had no effect on the 2005 Plan or any options granted pursuant to the plan. All options will continue with their existing terms and will be subject to the 2005 Plan. Further, the Company will not be able to re-issue any option which is cancelled or terminated under the 2005 Plan. The 2015 Plan provided for the issuance of up to 600,000 shares of common stock upon exercise of options granted pursuant to the 2015 Plan.

The 2015 Plan consists of three separate equity incentive programs: the Discretionary Option Grant Program; the Stock Issuance Program; and the Automatic Option Grant Program for non-employee Board members. Officers and employees, non-employee Board members and independent contractors are eligible to participate in the Discretionary Option Grant and Stock Issuance Programs. Participation in the Automatic Option Grant Program is limited to non-employee members of the Board. Each non-employee Board member will receive an option grant for 10,000 shares of common stock upon initial election or appointment to the Board, provided that such individual has not previously been employed by the Company in the preceding three (3) months. In addition, on the date of each annual stockholders meeting, each Board member will automatically be granted an option to purchase 10,000 shares of common stock, provided he or she has served as a non-employee Board member for at least three months. At December 31, 2021, 70,000 options had been exercised and options to purchase a total of 131,000 shares of common stock were outstanding. A total of 622,000 options had been granted under the 2015 Plan, 421,000 options have been cancelled, and options for 399,000 shares remained available for future grant. No shares have been issued pursuant to the Stock Issuance Program.

During the year ended December 31, 2021, the Board of Directors (“Board”) approved a new clause to the 2015 Plan, to accelerate the vesting of any unvested equity grants held by outside directors upon their retirement from the Board. Pursuant to the approval of the acceleration clause, during the second quarter of 2021, the equity awards held by two outside board members who retired from the Board in May 2021 became fully vested. The Company accounts for the acceleration of the related stock options as a modification of the option award under ASC 718. Accordingly, the Company recognized incremental stock compensation expense of approximately $237,000 during the year ended December 31, 2021.

The 2005 Stock Incentive Plan (the “2005 Plan”)

On March 17, 2005, the Board approved the 2005 Stock Incentive Plan (the “2005 Plan”), which was approved by the stockholders on June 14, 2005. The 2005 Plan provided for the issuance of up to 750,000 shares of common stock upon exercise of options granted pursuant to the 2005 Plan. On May 30, 2007, the stockholders approved an Amendment to the 2005 Plan that increased this amount by 750,000 for a total of 1,500,000 shares of common stock that may be issued upon the exercise of options granted pursuant to the 2005 Plan. On May 29, 2008 and May 21, 2009, the stockholders approved an increase of 500,000 shares, respectively, of common stock that may be issued pursuant to the 2005 Plan for a total of 2,500,000 shares. On May 20, 2010, the stockholders approved an additional increase of 500,000 shares of common stock that may be issued pursuant to the 2005 Plan for a total of 3,000,000 shares. On May 19, 2011, the stockholders approved an additional increase of 400,000 shares of common stock that may be issued pursuant to the 2005 Plan for a total of 3,400,000 shares. Finally, on May 17, 2012, the stockholders approved an additional increase of 300,000 shares of common stock that may be issued pursuant to the 2005 Plan for a total of 3,700,000 shares. At December 31, 2021, 2,093,062 had been exercised and options to purchase a total of 260,273 shares of common stock were outstanding. A total of 3,892,000 options had been granted under the 2005 Plan, of which 1,538,665 have been cancelled. The 2005 Plan expired on June 14, 2015, and no options remain for grant.

Stock Incentive Plan Summary

A summary of our stock option activity and related information for the years ended December 31, 2021 and 2020 is as follows: 

	2021					2020
	Number of Options (in thousands)			Weighted Average Exercise Price		Number of Options (in thousands)			Weighted Average Exercise Price
Outstanding at beginning of year		1,035		$	2.87		975		$	0.96
Granted at price – market value		606			12.99		403			5.56
Exercised		(257	)		0.97		(343	)		0.61
Forfeited		(634	)		9.81		–			–
Expired		(133	)		2.82		–			–
Outstanding at end of year		617		$	6.47		1,035		$	2.87
Options exercisable at end of year		317		$	1.56		601		$	1.03

Stock Options Outstanding and Exercisable

Information related to stock options outstanding at December 31, 2021, is summarized below: 

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Outstanding at 12/31/21 (in thousands)	Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price	Exercisable at 12/31/21 (in thousands)		Weighted Average Exercise Price
$0.40 - $0.65	183	0.96	$	0.55	183	$	0.55
$1.15 - $1.725	8	6.38	$	1.15	8	$	1.15
$1.80 - $2.70	93	2.23	$	1.84	93	$	1.84
$3.78 - $5.67	88	8.92	$	4.07	21	$	4.43
$8.72 - $13.08	215	9.29	$	12.31	12	$	10.23
$23.52 - $35.28	30	9.17	$	23.52	–	$	–
	617	5.65	$	6.47	317	$	1.56

Summarized information about outstanding stock options as of December 31, 2021, that are fully vested and those that are expected to vest in the future as well as stock options that are fully vested and currently exercisable, are as follows: 

	Outstanding Stock Options (Fully Vested and Expected to Vest)		Options that are Exercisable
As of December 31, 2021
Number of outstanding options (in thousands)		617		317
Weighted average remaining contractual life		5.65		2.19
Weighted average exercise price per share	$	6.47	$	1.56
Intrinsic value (in thousands)	$	733	$	733

Common shares reserved for future issuance, including outstanding options, unvested RSAs and options available for future grant under all of the stock option plans totaled 3,290,000 shares at December 31, 2021 as follows, in thousands: 

(In thousands)	Common Shares Reserved for Future Issuance
2021 Plan		2,500
2015 Plan		530
2005 Plan		260
Total		3,290

The Compensation Committee of our Board of Directors determines for all employee options, the term of each option, option exercise price within limits set forth in the plans, number of shares for which each option is granted and the rate at which each option is exercisable (generally ratably over one, three or five years from grant date). However, the exercise price of any incentive stock option may not be less than the fair market value of the shares on the date granted (or less than 110% of the fair market value in the case of optionees holding more than 10% of our voting stock of the Company), and the term cannot exceed ten years (five years for incentive stock options granted to holders of more than 10% of our voting stock).

As of December 31, 2021, the total unrecognized compensation cost related to non-vested options not yet recognized in the statement of operations totaled approximately $1,220,000 million and the weighted average period over which these awards are expected to vest was 2.30 years.