Note 8 - Stock-based Compensation

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

8.     STOCK-BASED COMPENSATION

Our stock-based employee compensation plan, referred to as the Fuel Tech, Inc. 2024 Long-Term Incentive Plan (2024 Plan), was adopted in June 2024 and replaced our prior incentive plan which was approved by our stockholders in 2014 (LTIP). No further grants will be made from the LTIP. The 2024 Plan and LTIP are referred to collectively as the Incentive Plans.

Under the Incentive Plans, awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, RSUs, Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof. Participants in the Incentive Plans may be our directors, officers, employees, consultants or advisors (except consultants or advisors in capital-raising transactions) as the directors determine are key to the success of our business. There are a maximum of 4,215,272 shares that may be issued or reserved for awards to participants under the Incentive Plans. At December 31, 2024, we had 2,957,150 equity awards available for issuance under the Incentive Plans.

We did not record any excess tax benefits within income tax expense for the years ended December 31, 2024 and 2023. Given the Company has a full valuation allowance on its deferred tax assets, there were no excess tax benefits to record. In addition, we account for forfeitures of awards based on an estimate of the number of awards expected to be forfeited and adjusting the estimate when it is no longer probable that the employee will fulfill the service condition.

Stock-based compensation is included in selling, general and administrative costs in our consolidated statements of operations. The components of stock-based compensation from continuing operations for the years ended December 31, 2024 and 2023 were as follows:

	For the Year Ended December 31,
	2024		2023
Stock options and restricted stock units, net of forfeitures	$	446	$	389
After-tax effect of stock based compensation	$	446	$	389

Stock Options

The stock options granted to employees under the Incentive Plan have a 10-year life and they vest as follows: 50% after the second anniversary of the award date, 25% after the third anniversary, and the final 25% after the fourth anniversary of the award date. Fuel Tech calculates stock compensation expense for employee option awards based on the grant date fair value of the award, less expected annual forfeitures, and recognizes expense on a straight-line basis over the four-year service period of the award. Stock options granted to members of our Board of Directors vest immediately. Stock compensation for these awards is based on the grant date fair value of the award and is recognized in expense immediately. 

Fuel Tech uses the Black-Scholes option pricing model to estimate the grant date fair value of employee stock options. The principal variable assumptions utilized in valuing options and the methodology for estimating such model inputs include: (1) risk-free interest rate – an estimate based on the yield of zero–coupon treasury securities with a maturity equal to the expected life of the option; (2) expected volatility – an estimate based on the historical volatility of Fuel Tech’s common stock for a period equal to the expected life of the option; and (3) expected life of the option – an estimate based on historical experience including the effect of employee terminations.

There were no stock options granted during the years ended December 31, 2024 and 2023.

The following table presents a summary of our stock option activity and related information for the years ended December 31:

	2024					2023
	Number of Options			Weighted-Average Exercise Price		Number of Options			Weighted-Average Exercise Price
Outstanding at beginning of year		270,500		$	3.09		384,500		$	2.98
Granted		—			—		—			—
Exercised		—			—		(44,000	)		0.96
Expired or forfeited		(94,500	)		5.22		(70,000	)		3.85
Outstanding at end of year		176,000		$	1.94		270,500		$	3.09
Exercisable at end of year		176,000		$	1.94		270,500		$	3.09
Weighted-Average Remaining Contractual Life (years)					1.18					1.56
Aggregate Intrinsic Value				$	4				$	4

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $1.05 as of December 31, 2024, which would have been received by the option holders had those options holders exercised their stock options as of that date. 

The following table summarizes information about stock options outstanding at December 31, 2024:

Options Outstanding and Exercisable
Range of Exercise Prices	Number of Options		Weighted-Average Remaining Contractual Life (years)		Weighted-Average Exercise Price
$0.96 - $1.27		44,000		2.9	$	0.97
$1.28 - $2.01		27,000		1.4		1.58
$2.02 - $2.44		105,000		0.4		2.44
		176,000		1.2	$	1.94

As of and for the 12 months ended December 31, 2024, there was no non-vested stock option activity and no total unrecognized compensation cost related to non-vested stock options granted under the Incentive Plan. There were no options exercised during the year ended December 31, 2024. Fuel Tech received proceeds of $42 from the exercise of stock options during the year ended December 31, 2023.  It is our policy to issue new shares upon option exercises, loan conversions, and vesting of restricted stock units. We have not used cash and do not anticipate any future use of cash to settle equity instruments granted under share-based payment arrangements. Shares received for exercise of stock options come from newly issued shares. 

Restricted Stock Units

RSUs granted to employees vest over time based on continued service (typically vesting over a period between two to four years), and RSUs granted to directors vest after a one year vesting period based on continued service. Such time-vested RSUs are valued at the date of grant based on the closing price of the Common Shares on the grant date. Compensation cost, adjusted for estimated forfeitures, is amortized on a straight-line basis over the requisite service period. 

In addition to the time vested RSUs, in 2023 the Company entered into an Executive Performance RSU Award Agreement (the “Agreement”) with certain officers, including its President and Chief Executive Officer, Chief Financial Officer and Senior Vice President, Sales (each a “Participating Executive”) pursuant to which each Participating Executive will have the opportunity to earn a specified amount of RSUs based on Fuel Tech’s performance in 2023 and 2024. The target amount of RSUs for each of four possible RSU award components is set for each Participating Executive for 2023 and 2024.

The Agreement provides for four possible RSU awards: “Look-Back RSUs,” “Total Revenue RSUs,” “New Business Growth RSUs,” and “Operating Income Growth” RSUs. If the Look-Back RSU’s are awarded, these RSUs will follow a vesting schedule that provides for vesting of one-third of the granted Look-Back RSUs after the first anniversary of the grant determination date, one-third after the second anniversary date and one-third after the third anniversary date. If the Total Revenue RSUs, New Business Growth RSUs, or Operating Income Growth RSUs targets are achieved, these RSU’s will follow a vesting schedule whereby 100% of the granted RSUs will vest one year following the grant determination date. All RSUs are valued at the date of grant based on the closing price of the Company’s common stock on the grant date.

There were 106,000 RSU awards granted to Participating Executives in 2024 based on the Company's performance during the year ended December 31, 2023. The amount, if any, of actual RSU awards to be issued for the year ended December 31, 2024 is contingent on performance by the Participating Executive and the Company in the performance areas and for the measurement periods set forth in the Agreement as determined by the Company.

During the years ended December 31, 2024 and 2023, there were 406,026 and 45,000 restricted stock units that vested with a grant date fair value of $536 and $62, respectively. As of December 31, 2024, there was $1,024 of total unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plan. That cost is expected to be recognized over the remaining requisite service period of 1.2 years.

A summary of restricted stock unit activity for the years ended December 31, 2024 and 2023 is as follows:

	Shares			Weighted Average Grant Date Fair Value
Unvested restricted stock units at December 31, 2022		767,048		$	1.32
Granted		1,040,200			1.26
Forfeited		—			—
Vested		(45,000	)		1.37
Unvested restricted stock units at December 31, 2023		1,762,248			1.29
Granted		151,000			1.09
Forfeited		(425,100	)		1.26
Vested		(406,026	)		1.32
Unvested restricted stock units at December 31, 2024		1,082,122		$	1.26

Deferred Directors Fees

In addition to the Incentive Plan, Fuel Tech has a Deferred Compensation Plan for Directors (Deferred Plan). Under the terms of the Deferred Plan, Directors can elect to defer Directors’ fees for shares of Fuel Tech common stock that are issuable at a future date as defined in the agreement. In accordance with ASC 718, Fuel Tech accounts for these awards as equity awards as opposed to liability awards. In 2024 and 2023, there was no stock-based compensation expense under the Deferred Plan.