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Note 8 - Stock-based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Text Block]

8. STOCK-BASED COMPENSATION

Under our stock-based employee compensation plan, referred to as the Fuel Tech, Inc. 2014 Long-Term Incentive Plan (Incentive Plan), 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 Plan 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 5,600,676 shares that may be issued or reserved for awards to participants under the Incentive Plan which includes 1,200,000 additional shares as a result of an amendment to the Incentive Plan approved by our stockholders in May 2018. At December 31, 2021, we had 2,603,801 equity awards available for issuance under the Incentive Plan.

We did not record any excess tax benefits within income tax expense for the years ended December 31, 2021 and 2020. 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, 2021 and 2020 were as follows:

	For the Year Ended December 31,
	2021		2020
Stock options and restricted stock units, net of forfeited	$	82	$	290
After-tax effect of stock based compensation	$	82	$	290

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, 2021 and 2020.

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

	2021					2020
	Number of Options			Weighted-Average Exercise Price		Number of Options			Weighted-Average Exercise Price
Outstanding at beginning of year		484,500		$	3.57		747,500		$	3.33
Granted		—			—		—			—
Exercised		—			—		(183,000	)		1.61
Expired or forfeited		(50,000	)		8.16		(80,000	)		5.79
Outstanding at end of year		434,500		$	3.05		484,500		$	3.57
Exercisable at end of year		434,500		$	3.05		484,500		$	3.57
Weighted-Average Remaining Contractual Life (years)					3.08					3.70
Aggregate Intrinsic Value				$	38				$	488

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $1.40 as of December 31, 2021, 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, 2021:

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		88,000		5.9	$	0.97
$1.28 - $3.00		132,000		3.6		2.26
$3.01 - $4.54		120,000		1.0		3.72
$4.55 - $5.22		94,500		2.4		5.22
		434,500		3.1	$	3.05

As of and for the 12 months ended December 31, 2021, 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. Fuel Tech received proceeds of $0 and $296 from the exercise of stock options in the years ended December 31, 2021 and 2020, respectively. 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 and four years). Such time-vested RSUs are valued at the date of grant using the intrinsic value method based on the closing price of the common stock 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, the Company entered into a 2021 Executive Performance RSU Award Agreement with certain officers, including its President and Chief Executive Officer pursuant to which each 2021 Participating Executive will have the opportunity to earn a specified amount of RSUs. The amount of RSUs awarded, if any, will be based on the Company’s achievement of varying levels of operating income before the impact of incentive pay (but including adjustments to reflect the payment of sales commissions) in fiscal 2021, as determined by the Company, in its sole discretion. Nevertheless, no Participating Executive will be entitled to any such RSUs unless the Company achieves a minimum of $1 million in Operating income in 2021. If awarded, such RSUs will vest in equal amounts (i.e., 1/3, 1/3 and 1/3) over three years commencing one year after the grant date based on continued service. Such RSUs are valued at the date of grant based on the closing price of the Company’s common stock on the grant date. No RSUs were issued and no expense reflected in the financial statements for these awards as the achievement was not achieved.

During the years ended December 31, 2021 and 2020, there were 50,002 and 605,630 restricted stock units that vested with a grant date fair value of $75 and $658, respectively. As of December 31, 2021, there was $18 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 0.2 years.

A summary of restricted stock unit activity for the years ended December 31, 2021 and 2020 is as follows:

	*Shares*			*Weighted Average Grant Date Fair Value*
Unvested restricted stock units at December 31, 2019		775,635		$	1.47
Forfeited		(70,000	)		1.03
Vested		(605,630	)		1.09
Unvested restricted stock units at December 31, 2020		100,005			1.50
Forfeited		(5,000	)		0.97
Vested		(50,002	)		1.50
Unvested restricted stock units at December 31, 2021		45,003		$	1.51

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 2021 and 2020, there was no stock-based compensation expense under the Deferred Plan.