Note 15 - Stock-based Compensation Plan

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(15)  STOCK-BASED COMPENSATION PLAN

At December 31, 2022, we have unvested restricted stock awards and stock options outstanding which were granted under the inTEST Corporation Third Amended and Restated 2014 Stock Plan, as amended (the "2014 Stock Plan"). The 2014 Stock Plan was originally approved at our annual meeting of stockholders held on June 25, 2014 and permitted the granting of stock options, restricted stock, stock appreciation rights or restricted stock units for up to 500,000 shares of our common stock to directors, officers, other key employees and consultants. Increases in the number of shares of common stock that may be delivered pursuant to awards granted under the 2014 Stock Plan have been approved at subsequent annual meetings of stockholders, the most recent of which occurred on June 22, 2022 when our stockholders approved the amendment and restatement of the 2014 Stock Plan to increase the number of shares of common stock that may be delivered pursuant to awards granted under the 2014 Stock Plan from 2,000,000 to 2,500,000 shares. At December 31, 2022, there were 931,119 aggregate shares available to grant under the 2014 Plan.

Our unvested restricted stock awards and stock options are accounted for based on their grant date fair value. At December 31, 2022, total compensation expense to be recognized in future periods is $2,892. The weighted average period over which this expense is expected to be recognized is 2.2 years.

The following table summarizes the compensation expense we recorded during 2022 and 2021 related to unvested shares of restricted stock and stock options:

	Years Ended December 31,
	2022		2021
Cost of revenues	$	62	$	26
Selling expense		32		22
Engineering and product development expense		51		62
General and administrative expense		1,642		1,340
	$	1,787	$	1,450

There was no compensation expense capitalized in 2022 or 2021. 

Stock Options

We record compensation expense for stock options based on the fair market value of the options as of the grant date. No option may be granted with an exercise period in excess of ten years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value of our stock on the date of grant and will vest over four years.

The fair value for stock options granted during 2022 and 2021 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2022			2021
Risk-free interest rate		2.05	%		1.03	%
Dividend yield		0.00	%		0.00	%
Expected common stock market price volatility factor		.55			.50
Weighted average expected life of stock options (years)		6.25			6.25

The per share weighted average fair value of stock options issued during 2022 and 2021 was $4.53 and $5.70, respectively.

The following table summarizes the activity related to stock options for the two years ended December 31, 2022:

	Number of Shares			Weighted Average Exercise Price
Options outstanding, January 1, 2021		438,200		$	6.25
Granted		282,404			11.77
Exercised		(231,185	)		6.85
Canceled		(80,550	)		9.55
Options outstanding, December 31, 2021 (59,195 exercisable)		408,869			9.07
Granted		202,540			8.45
Exercised		(8,060	)		4.74
Canceled		(22,930	)		9.10
Options outstanding, December 31, 2022 (167,886 exercisable)		580,419			8.91

Restricted Stock Awards

We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. Restricted stock awards generally vest over four years for employees and over one year for our independent directors (25% at each of March 31, June 30, September 30, and December 31 of the year in which they were granted).

Since August 2020, we have increasingly granted performance-based restricted stock awards where the ultimate number of shares that vest can vary between 0% and 150% of the amount of the original award and is based on the achievement of specified performance metrics. Vesting for these awards is generally cliff vesting at the end of the period over which the performance metrics are measured. Compensation expense for these awards is recorded on a straight-line basis over the vesting period and is based on the expected final vesting percentage, which is re-assessed at the end of each reporting period and adjusted with a catch-up adjustment, as needed. Our initial assumption at the grant date of these awards is that the award will vest at the 100% level.

On August 24, 2020, our new President and Chief Executive Officer ("CEO") received two restricted stock awards totaling 141,610 shares valued at $650 as of the date of grant, which was also his hire date. Of the total shares awarded, 66,448 shares vest over 4 years (25% at each anniversary) and 75,162 shares vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on August 24, 2020. The final vesting percentage will be based on the achievement of certain performance metrics, including revenue compound annual growth rate and diluted earnings per share excluding amortization of intangibles, for specified time periods as determined by the Compensation Committee of our Board of Directors. At December 31, 2022, we have estimated that these shares will vest at 150% of the original amount based on our assessment of the probable achievement against the relevant performance metrics.

On March 10, 2021, we issued restricted stock awards totaling 18,000 shares to members of the senior management within our operating segments. These shares will vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on March 10, 2021. The final vesting percentage will be based on the achievement of certain performance metrics related to the operating results of the business units for which these members of management are responsible. At December 31, 2022, we have estimated that 12,000 these shares will vest at 100% of the original amount and that the remaining 6,000 will not vest based on our assessment of the probable achievement against the relevant performance metrics.

On June 14, 2021, our new CFO received two restricted stock awards totaling 7,941 shares valued at $133 as of the date of grant, which was also his hire date. Of the total shares awarded, 1,988 shares vest over 4 years (25% at each anniversary) and 5,953 shares vest on August 24, 2023 at a vesting percentage that could range from 0% to 150% of the number of shares awarded on June 14, 2021. The final vesting percentage will be based on the achievement of certain performance metrics, including revenue compound annual growth rate and diluted earnings per share excluding amortization of intangibles, for specified time periods as determined by the Compensation Committee of our Board of Directors. At December 31, 2022, we have estimated that these shares will vest at 150% of the original amount based on our assessment of the probable achievement against the relevant performance metrics. 

On October 1, 2021, we issued restricted stock awards totaling 5,000 shares to a member of senior management. These shares will vest on January 1, 2025 at a vesting percentage that could range from 0% to 150% of the number of shares awarded on October 1, 2021. The final vesting percentage will be based on the achievement of certain performance metrics related to our consolidated operating results. At December 31, 2022, we have estimated that these shares will vest at 100% of the original amount based on our assessment of the probable achievement against the relevant performance metrics.

On March 9, 2022, our CEO and CFO received restricted stock awards totaling 20,493 shares valued at $200 as of the date of grant. These shares vest on the third anniversary of the grant date at a vesting percentage that could range from 0% to 150% of the number of shares awarded on March 9, 2022. The final vesting percentage will be based on the achievement of certain performance metrics, including revenue compound annual growth rate and diluted earnings per share excluding amortization of intangibles, for specified time periods as determined by the Compensation Committee of our Board of Directors. At December 31, 2022, we have estimated that these shares will vest at 100% of the original amount based on our assessment of the probable achievement against the relevant performance metrics.

The following table summarizes the activity related to unvested restricted stock awards for the two years ended December 31, 2022:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested shares outstanding, January 1, 2021		237,155		$	4.93
Granted		131,209			11.74
Vested		(87,706	)		7.59
Forfeited		(18,125	)		9.02
Unvested shares outstanding, December 31, 2021		262,533			7.16
Granted		123,533			9.21
Vested		(91,672	)		8.04
Forfeited		(5,944	)		9.16
Unvested shares outstanding, December 31, 2022		288,450			7.80

The total fair value of the restricted stock awards that vested during the years ended December 31, 2022 and 2021 was $643 and $1,101, respectively, as of the vesting dates of these awards.