Note 11 - Stock-based Compensation Plan

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(11)  STOCK-BASED COMPENSATION PLAN

As of September 30, 2023, we had unvested restricted stock awards and stock options granted under stock-based compensation plans that are described more fully in Note 15 to the consolidated financial statements in our 2022 Form 10-K. In addition, on June 21, 2023, our stockholders approved the inTEST Corporation 2023 Stock Incentive Plan (the “2023 Plan”) which replaces the Fourth Amended and Restated 2014 Stock Plan (the “2014 Plan”). No further awards can be granted under the 2014 Plan. The maximum number of shares of common stock available for grant and issuance under the 2023 Plan is (a) 350,000, plus (b) the number of shares of common stock available for issuance under the 2014 Plan on the date the 2023 Plan was approved by stockholders, plus (c) any shares of common stock that are subject to awards granted under the 2014 Plan that expire, are forfeited or canceled or terminate for any other reason on or after the date the 2023 Plan was approved by stockholders, without the issuance of shares. The number of shares available to be issued under the 2023 Plan as of the date of its approval was 1,117,942.

Our unvested restricted stock awards and stock options are accounted for based on their grant date fair value. As of September 30, 2023, total compensation expense to be recognized in future periods is $3,450. 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 the three and nine months ended September 30, 2023 and 2022 related to unvested shares of restricted stock and stock options:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023		2022
Cost of revenues	$	28		$	18	$	76	$	44
Selling expense		9			9		30		23
Engineering and product development expense		(1	)		6		18		43
General and administrative expense		508			417		1,499		1,263
	$	544		$	450	$	1,623	$	1,373

There was no compensation expense capitalized in the three and nine months ended September 30, 2023 or 2022. 

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 the nine months ended September 30, 2023 and 2022 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2023			2022
Risk-free interest rate		3.93	%		2.05	%
Dividend yield		0.00	%		0.00	%
Expected common stock market price volatility factor		.57			.55
Weighted average expected life of stock options (years)		6.25			6.25

The per share weighted average fair value of stock options issued during the nine months ended September 30, 2023 and 2022 was $9.43 and $4.53, respectively.

The following table summarizes the activity related to stock options for the nine months ended September 30, 2023:

	Number of Shares			Weighted Average Exercise Price
Options outstanding, January 1, 2023 (167,886 exercisable)		580,419			8.91
Granted		93,860			16.25
Exercised		(124,550	)		7.85
Canceled		(43,426	)		9.82
Options outstanding, September 30, 2023 (173,032 exercisable)		506,303			10.45

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. The awards granted prior to January 1, 2023 are discussed in more detail in Note 15 to the consolidated financial statement in our 2022 Form 10-K. There have been no significant changes to our assumptions related to the expected vesting percentages for any of these performance-based awards as of September 30, 2023.

On March 8, 2023, our Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and certain other members of our senior management received restricted stock awards totaling 18,888 shares valued at $303 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 of restricted stock awarded on March 8, 2023. The final vesting percentage will be based on the achievement of certain performance metrics related to consolidated revenue for specified time periods as determined by the Compensation Committee of our Board of Directors. As of September 30, 2023, we have estimated that these shares will vest at 100% of the original amount. On May 8, 2023 the newly appointed president of our Environmental Technologies segment received restricted stock awards totaling 5,081 shares valued at $108 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 of restricted stock awarded on May 8, 2023. The final vesting percentage will be based on the achievement of certain performance metrics including revenue and income from operations for specified time periods as determined by the Compensation Committee of our Board of Directors in consultation with our CEO and CFO. As of September 30, 2023, we have estimated that these shares will vest at 100% of the original amount.

During the third quarter of 2023, our CEO and CFO vested in restricted stock awards where the final vesting percentage was based on the achievement of specified performance metrics related to our consolidated results for the three-year period ended June 30, 2023. During the quarter ended June 30, 2022, we had adjusted our assessment of the probable final vesting percentage for these shares from 100% to 150% and the expense being recorded related to these shares was adjusted accordingly as of that date. On August 24, 2023, these shares vested at the 150% level, as expected, and, as a result, 40,557 additional shares of common stock were issued. At the original grant dates of these awards, shares totaling 100% of the respective awards were issued. These additional shares issued on August 24, 2023 represented the additional 50% that vested.

The following table summarizes the activity related to unvested restricted stock awards for the nine months ended September 30, 2023:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested shares outstanding, January 1, 2023		288,450			7.80
Granted		97,461			16.43
Vested		(169,636	)		7.79
Forfeited		(17,491	)		10.08
Unvested shares outstanding, September 30, 2023		198,784			11.72

The total fair value of the restricted stock awards that vested during the nine months ended September 30, 2023 and 2022 was $1,688 and $550, respectively, as of the vesting dates of these awards.