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Stock-based Compensation

12 Months Ended

Dec. 31, 2023

Note 10. Stock-Based Compensation

The 2013 Equity Incentive Plan (the “2013 Plan”) authorizes the issuance of nonqualified stock options and restricted stock units. Payment for the shares may be made in cash, shares of the Company’s common stock or a combination thereof. Under the terms of the 2013 Plan, incentive stock options and non-qualified stock options are granted at a minimum of 100% of fair market value on the date of grant and may be exercised at various times depending upon the terms of the option. All existing options expire 10 years from the date of grant or one year from the date of death. The grants require an acceleration of vesting upon a change of control in the Company.

Under the 2013 Plan, the Company is authorized to issue up to 600,000 shares through stock options and awards such as restricted stock or restricted stock units. As of December 31, 2023, under the 2013 Plan, 25,000 shares had been issued, options to purchase an aggregate of 175,000 shares were outstanding, of which options to purchase 95,000 shares were exercisable. During 2023, the Company also granted 105,000 restricted stock units. There are 295,000 additional shares available for issuance pursuant to awards that may be granted under the plan in the future.

Under the 1997 Plan, the Company was authorized to grant options to purchase up to 450,000 shares of its common stock. As of December 31, 2023, there were no options to purchase shares outstanding under the 1997 Plan. The board terminated the plan in 2014, but there were 7,500 outstanding options on that date that remained outstanding until they were exercised in 2022.

Stock Options

In 2023, the Company granted 25,000 non-qualified stock options each to its Chief Executive Officer and to three of its four non-employee board members. The options vest 20% on the grant date, with an additional 20% vesting annually thereafter. There were no options granted during the year ended December 31, 2022.

The assumptions made in estimating the fair value of the options on the grant date based upon the BSM option-pricing model for the year ended December 31, 2023 are as follows:

Dividend Yield		0.00%
Expected Volatility		25.56%
Risk Free Interest Rate		4.35%
Expected Life		6 Years

The Company calculates expected volatility for stock options and other awards using the Company's historical volatility as the Company believes the expected volatility will approximate historical volatility.

There were no options exercised during the year ended December 31, 2023. There were 32,500 options exercised during the year ended December 31, 2022. The Company had 225,000 options expire during the year ended December 31, 2023.

The following table summarizes the activity for outstanding incentive stock options under the 2013 Plan and 1997 Plan:

	Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value

Balance at December 31, 2021		332,500		$	4.30		2.6
Granted		0
Exercised		(32,500	)		3.76		3.4
Expired		0
Balance at December 31, 2022		300,000			4.35		1.4
Granted		100,000			4.25		9.7
Exercised		0
Expired		(225,000	)		4.57		0.0
Balance at December 31, 2023		175,000		$	4.06		6.8	$	20
Vested and exercisable as of December 31, 2023		95,000		$	3.84			$	20

As of December 31, 2023, the unrecognized compensation expense related to outstanding stock options is $111, which the Company expects to recognize over a period of four years. To the extent the forfeiture rate is different than we have anticipated, stock-based compensation related to the awards will be different from our expectations. The Company recognized compensation expense in connection with the vesting of options of approximately $38 and $3 during the years ended December 31, 2023 and 2022, respectively.

ELECTRO-SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2023 AND 2022

(in thousands except share and per share amounts)

Restricted stock units

The 2013 Plan authorizes the issuance of restricted stock units. Stock-based compensation expense is determined on the grant date based on the closing market value of our common stock. The amount of expense is calculated based on an estimate of the number of awards expected to vest at the end of each vesting period and is expensed evenly over the vesting period. In connection with the time of vesting and issuance of shares, an eligible recipient of common stock may elect to have some shares withheld by the Company to satisfy any requirement for withholding taxes.

In 2023, the Company granted 35,000 restricted stock units to its Chief Executive Officer and 17,500 restricted stock units to each of its four non-employee board members. The restricted stock units vest 20% on the first anniversary of the grant and 20% annually thereafter.

The following table summarizes restricted stock unit activity for the year ended December 31, 2023:

	Unvested Restricted Stock Units
	Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested as of December 31, 2022	0	$	0.00
Granted	105,000		4.11
Vested	0		0.00
Forfeited/canceled	0		0.00
Unvested as of December 31, 2023	105,000	$	4.11

As of December 31, 2023, the unrecognized compensation expense related to outstanding restricted stock units is $403, which the Company expects to recognize over a period of five years. The Company recognized compensation expense in connection with the vesting of restricted stock units of approximately $29 for year ended December 31, 2023.