Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

9. Stock-Based Compensation

The Company accounts 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.

The Company had three stock-based compensation plans on December 31, 2022, and 2021. These plans which are described below, were developed to retain, and attract key employees and directors.

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

During 2021, the Company added a new incentive 2021 Omnibus Incentive 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 the Company’s 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.

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.

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 $0.2 million 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.

The Compensation Committee of the Company’s 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 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 its 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 the Company’s voting stock).

Common shares reserved for future issuance, including outstanding options, unvested restricted stock and shares available for future grant under all the stock options plans are as follows:

(In thousands)	Common Shares Reserved for Future Issuance
2021 Plan		2,403
2015 Plan		530
2005 Plan		162
Total		3,095

Total compensation expense in operating expense on the statement of operations of $1.5 and $1.3 million during the years ended December 31, 2022, and 2021, respectively.

Restricted Stock Awards

During the year ended December 31, 2022, the Company issued new Restricted Stock Awards (RSAs) under the 2021 Plan in the amount of $0.4 million 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. Accordingly, 131,580 shares were granted and are expected to fully vest in one year 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, 2022:

	Unvested Restricted Stock Awards
	Number of Shares (in thousands)			Weighted-Average Grant-Date Fair Value
Unvested as of December 31, 2021	149		$	5.54
Granted	132			2.66
Vested	(97	)		6.41
Forfeited/canceled	(26	)		3.85
Unvested as of December 31, 2022	158		$	2.88

The Company recognized compensation expense related to its RSAs of $0.6 million during the year ended December 31, 2022. As of December 31, 2022, there was $0.2 million of unrecognized compensation cost related to unvested RSAs. This amount is expected to be recognized over a weighted-average period of 0.7 years.

Stock Option Awards

The Company also granted option awards under the 2015 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 during the year ended December 31, 2022.

A summary of the Company’s stock option activity and related information for the years ended December 31, 2022, and 2021 is as follows: 

	2022					2021
	Number of Options (in thousands)			Weighted Average Exercise Price		Number of Options (in thousands)			Weighted Average Exercise Price
Outstanding at beginning of year		617		$	6.47		1,035		$	2.87
Granted		334			3.63		606			12.99
Exercised		(99	)		0.67		(257	)		0.97
Forfeited		(156	)		8.16		(634	)		9.81
Expired		(28	)		13.47		(133	)		2.82
Outstanding at end of year		668		$	5.22		617		$	6.47
Options exercisable at end of year		281		$	4.13		317		$	1.56

Information related to stock options outstanding on December 31, 2022, 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 - $0.48	88	0.81	$	.47	88	$	.47
$1.15 - $2.80	98	1.57	$	1.78	98	$	1.78
$3.45 - $4.75	331	9.17	$	3.72	35	$	4.38
$8.72 - $12.71	135	8.27	$	12.21	53	$	11.87
$23.52 - $23.52	17	8.17	$	23.52	7	$	23.52
$0.40 - $23.52 (all)	668	6.73	$	5.22	281	$	4.13

Summarized information about outstanding stock options as of December 31, 2022, 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 (Expected to Vest)		Options that are Exercisable
As of December 31, 2022
Number of outstanding options (in thousands)		688		281
Weighted average remaining contractual life		6.73 years		3.39 years
Weighted average exercise price per share	$	5.22	$	4.13
Intrinsic value (in thousands)	$	372	$	372

The fair values of option awards were estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions for fiscal years ended December 31, 2022, and 2021, respectively: 

	2022		2021
Weighted average grant date fair value	$	3.32	$	8.09
Weighted average assumptions used:
Expected dividend yield		0.00%		0.00%
Risk-free interest rate		2.17%		0.70%
Expected volatility		129.54%		66.72%
Expected life (in years)		6.76		4.29

Expected volatility is based on historical volatility and in part on implied volatility. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award.

The Company recognized compensation expense related to its stock options of $0.9 million during the year ended December 31, 2022. As of December 31, 2022, the total unrecognized compensation cost related to non-vested options not yet recognized in the statement of operations totaled approximately $0.8 million and the weighted average period over which these awards are expected to vest was 2.12 years.