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Stock Options and Restricted Stock Units

9 Months Ended

Sep. 30, 2022

Stock Options and Restricted Stock Units

Stock Options and Restricted Stock Units

5. Stock Options and Restricted Stock Units

A summary of option activity under the Innodata Inc. 2013 Stock Plan, as amended and restated effective June 7, 2016 (the “2013 Plan”) and changes during each of the nine-month periods ended September 30, 2022 and 2021 are presented below:


		Weighted - Average		Weighted-Average
	Number of	Exercise		Remaining Contractual	Aggregate
	Options	Price		Term (years)	Intrinsic Value
Outstanding at January 1, 2021	5,906,884	$	1.61
Granted	750,000		6.76
Exercised	(1,546,288)		2.01
Forfeited/Expired	(20,000)		1.38
Outstanding at September 30, 2021	5,090,596	$	2.05	7.49	$	37,037,015

Exercisable at September 30, 2021	3,468,912	$	1.73	7.03	$	27,069,483

Vested and Expected to Vest at September 30, 2021	5,090,596	$	2.05	7.49	$	37,037,015


				Weighted-Average
	Number of	Weighted - Average		Remaining Contractual	Aggregate
	Options	Exercise Price		Term (years)	Intrinsic Value
Outstanding at January 1, 2022	5,536,896	$	2.66
Granted*	1,479,558		5.21
Exercised	(210,429)		1.28
Forfeited/Expired	(261,101)		6.50
Outstanding at September 30, 2022	6,544,924	$	3.13	7.33	$	6,265,207

Exercisable at September 30, 2022	4,264,408	$	2.08	6.40	$	5,792,971

Vested and Expected to Vest at September 30, 2022	6,544,924	$	3.13	7.33	$	6,265,207

*Includes 110,000 stock options granted by the Company to a non-employee director of the Company during the nine months ended September 30, 2022. The stock option fully vests on January 1, 2025.

A summary of option activity under the Innodata Inc. 2021 Equity Compensation Plan, as amended and restated effective as of April 11, 2022 (the “2021 Plan”) and changes during the nine-month period ended September 30, 2022 are presented below:


				Weighted-Average
	Number of	Weighted - Average		Remaining Contractual	Aggregate Intrinsic
	Options	Exercise Price		Term (years)	Value
Outstanding at January 1, 2022	-	$	-
Granted*	182,000		3.67
Exercised	-		-
Forfeited/Expired	-		-
Outstanding at September 30, 2022	182,000	$	3.67	9.91	$	-

Exercisable at September 30, 2022	6,250	$	6.40

Vested and Expected to Vest at September 30, 2022	182,000	$	3.67	9.91	$	-

*During the nine months ended September 30, 2022, the Company granted 132,000 stock options to non-employee directors of the Company which vest on the first anniversary of the date of grant. In addition, during the nine months ended September 30, 2022 the Company granted 50,000 stock options to non-employee members of the Company’s advisory board in lieu of cash compensation. The stock options vest in 12 monthly installments from the date of grant.

During the nine months ended September 30, 2022, a total of 210,429 options were exercised at an average price of $1.28.

The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average fair value of the options granted, and weighted-average assumptions were as follows:


	For the Nine Months Ended September 30,
	2022		2021
Weighted average fair value of options granted	$	3.00	$	3.56
Risk-free interest rate		1.94%-3.54%		0.22%-0.82%
Expected term (years)		3.0-6.42		3-6
Expected volatility factor		62% -79%		58% - 68%
Expected dividends		-		-

A summary of restricted stock units issued under the 2013 Plan and the 2021 Plan (collectively, the “Equity Plans”) is presented below:

In March 2022, the Company granted restricted stock units (“RSU”) to key executives, pursuant to the Equity Plans. Each RSU has vesting conditions based on both the achievement of performance-based metrics and the continuation of employment over a defined period. The level of performance determines the number of RSUs that performance-vest, and performance vested RSUs must also time-vest in order to be fully vested. Each fully vested RSU represents the right to receive one share of the Company’s common stock or the fair market value of one share of common stock, at the Company’s discretion, and is classified as an equity award. Each RSU vests pursuant to the vesting schedule found in the respective RSU agreement. RSUs are generally subject to graduated vesting schedules and stock-based compensation expense is computed by tranche and recognized on a straight-line basis over the tranches’ applicable vesting period based on the expected achievement level. The fair value of restricted stock units is estimated on the date of grant using the Binomial option pricing model.

Restricted stock unit activity during the nine months ended September 30, 2022 was as follows:


	Number of Restricted	Weighted-Average Grant
	Stock Awards	Date Fair Value
Unvested at January 1, 2022	25,000	$	1.38
Granted	-		-
Vested	(25,000)		1.38
Forfeited/Expired	-		-
Unvested at September 30, 2022	-	$	-


	Number of	Weighted-Average
	Restricted Stock	Grant Date
	Units	Fair Value
Unvested at January 1, 2022	-	$	-
Granted*	700,000		5.59
Vested	-		-
Forfeited/Expired	-
Unvested at September 30, 2022	700,000	$	5.59

* 200,000 RSUs were issued under the 2013 Plan and 500,000 RSUs were issued under the 2021 Plan

The compensation cost related to non-vested stock options not yet recognized as of September 30, 2022 totaled approximately $5.9 million. The weighted-average period over which these costs will be recognized is 24 months.

During the nine months ended September 30, 2022, 700,000 performance-based restricted stock units were granted and remain non-vested at September 30, 2022. Vesting of the performance-based restricted stock units is contingent on the achievement of certain financial performance goals and service vesting conditions. There were no restricted stock units granted during the three months ended September 30, 2022.

The compensation cost related to non-vested restricted stock units not yet recognized as of September 30, 2022 totaled approximately $2.8 million. The weighted-average period over which these costs will be recognized is 22 months.

The stock-based compensation expense related to the Equity Plans were allocated as follows (in thousands):


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Direct operating costs	$	46	$	21	$	154	$	96
Selling and administrative expenses		759		482		2,216		1,021
Total stock-based compensation	$	805	$	503	$	2,370	$	1,117

Subsequent Event

On October 7, 2022, the Company granted 1,143,000 stock options to Company’s executive officers and certain employees. 295,000 stock options were granted pursuant to the 2013 Plan and 848,000 stock options were granted pursuant to the 2021 Plan. The stock options have an exercise price of $3.41, a term of ten years from the date of grant, vest in three equal annual installments from the date of grant and have a grant date fair value of approximately $2.5 million.