What changed in this filing

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Item 1. Financial Statements

2020-08-11 compared with 2020-05-12 · 141 added, 113 removed, 424 unchanged (37% of the section changed)

18 unchanged sentences

Accounts payable

Current portion of long-term borrowings

Accrued liabilities:

5 unchanged sentences

Operating lease liabilities - non-current

Long-term borrowings, net of current portion

Deferred income taxes, net

16 unchanged sentences

Three Months Ended

Six Months Ended

Costs and expenses:

3 unchanged sentences

Research and development

Intangible assets abandonment

Operating loss from continuing operations

1 unchanged sentence

Interest income

Other income (expense), net

Loss from continuing operations before income taxes

1 unchanged sentence

Net loss from continuing operations

Loss from discontinued operations (net of income tax benefit of $0 in 2020 and 2019)

Loss from discontinued operations

Net loss per common share:

11 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income loss:

5 unchanged sentences

( in thousands of dollars or shares, as appropriate )

The following summarizes the changes in total stockholders' equity for the three months ended March 31, 2019 :

The following summarizes the changes in total stockholders' equity for the three and six months ended June 30, 2019 :

Paid-in Capital

11 unchanged sentences

Balance at March 31, 2019

The following summarizes the changes in total stockholders' equity for the three months ended March 31, 2020 :

Foreign currency translation adjustments

Stock compensation expense

Balance at June 30, 2019

The following summarizes the changes in total stockholders' equity for the three and six months ended June 30, 2020 :

Paid-in Capital

10 unchanged sentences

Balance at March 31, 2020

Foreign currency translation adjustments

Stock compensation expense

Common shares issued upon vesting of restricted stock units

Treasury shares withheld

Balance at June 30, 2020

See notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Operating Activities

2 unchanged sentences

Adjustments to reconcile net loss to net cash used in operating activities:

Loss (gain) on disposal of equipment

Provision for doubtful accounts, net of recoveries

Intangible assets abandonment

Stock-based compensation, net of forfeitures

9 unchanged sentences

Purchases of equipment and patents

Proceeds from the sale of equipment

Net cash used in investing activities

Financing Activities

Proceeds from borrowings

Taxes paid on behalf of equity award participants

7 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

June 30, 2020

(in thousands, except share and per-share data)

13 unchanged sentences

All significant intercompany transactions and balances have been eliminated.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 .

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 .

For further information, refer to the audited consolidated financial statements and footnotes thereto included in Fuel Tech’s Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission.

COVID-19 Pandemic

The emergence of the coronavirus (COVID-19) around the world presents significant risks to the Company, not all of which the Company is able to fully evaluate or even foresee at the current time.

While the COVID-19 pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s first fiscal quarter ended March 31, 2020, economic and health conditions in the United States and across most of the globe have changed rapidly.

The COVID-19 pandemic has affected the Company’s operations in the three and six months ended June 30, 2020, although the impact of the pandemic is difficult to quantify, and may continue to do so indefinitely thereafter.

The Company has experienced, and may continue to experience, reductions in demand for certain of our products as several accounts remained offline due to soft electric demand and unplanned outage activities and due to the delay or abandonment of ongoing or anticipated projects due to our customers’, suppliers’ and other third parties’ financial distress or concern regarding the volatility of global markets.

Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales and marketing channels and supply chain, and as a result, the ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments.

Such effects could exist for an extended period of time even after the pandemic might end.

Summary of Significant Accounting Policies

Restricted cash

Restricted cash as of March 31, 2020 represents funds that are restricted to satisfy any amount borrowed against the Company's Cash Collateral Security agreement with BMO Harris Bank N.A.

The balance of restricted cash totaling $3,133 is comprised of $2,771 in current assets relating to existing standby letters of credit with varying maturity dates and expire no later than March 31, 2021 and $362 in long-term assets will remain through the expiration dates of the underlying standby letter of credits (the latest maturity date is February 1, 2023) with BMO Harris Bank N.A.

Restricted cash as of June 30, 2020 represents funds that are restricted to satisfy any amount borrowed against the Company's Cash Collateral Security agreement with BMO Harris Bank N.A.

The balance of restricted cash totaling $3,003 is comprised of $2,639 in current assets relating to existing standby letters of credit with varying maturity dates and expire no later than June 30, 2021 and $364 in long-term assets will remain through the expiration dates of the underlying standby letter of credits (the latest maturity date is February 1, 2023) with BMO Harris Bank N.A.

Refer to Note 9 Debt Financing for further information on the Cash Collateral Security agreement with BMO Harris Bank N.A.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheet that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:

Cash and cash equivalents

2 unchanged sentences

Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows

On January 1, 2019, we adopted ASC 842 using the modified retrospective method outlined in ASU 2018-11, “Leases (Topic 842) Targeted Improvements.” Refer to Note 11 for further details regarding the effect of adoption.

We determine if an arrangement is a lease at inception.

The Company applies the provisions of Accounting Standards Codification ("ASC") 842, Leases.

The Company determines if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset.

Right-of-use ("ROU") assets and lease liabilities are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.

Operating ROU assets also include the impact of any lease incentives.

Operating leases are included in right-of-use ("ROU") operating lease assets, operating lease liabilities - current, and operating lease liabilities - non-current on our Consolidated Balance Sheets.

4 unchanged sentences

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which we elected the practical expedient to not separate lease and non-lease components for the majority of our leases.

We have lease agreements with lease and non-lease components, and we elected the practical expedient to not separate lease and non-lease components for the majority of our leases.

For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component.

32 unchanged sentences

Three Months Ended

Six Months Ended

Air Pollution Control

7 unchanged sentences

Three Months Ended

Six Months Ended

United States

6 unchanged sentences

Three Months Ended

Six Months Ended

Products transferred at a point in time

6 unchanged sentences

These assets are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.

At March 31, 2020 and December 31, 2019 , contract assets were approximately $1,886 and $1,857 , respectively, and are included in accounts receivable on the consolidated balance sheets.

At June 30, 2020 and December 31, 2019 , contract assets were approximately $1,763 and $1,857 , respectively, and are included in accounts receivable on the consolidated balance sheets.

However, the Company will periodically bill in advance of costs incurred before revenue is recognized, resulting in contract liabilities.

These liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.

Contract liabilities were $497 and $712 , at March 31, 2020 and December 31, 2019 , respectively, and are included in other accrued liabilities on the consolidated balance sheets.

Changes in the contract asset and liability balances during the three month period ended March 31, 2020 , were not materially impacted by any other items other than amounts billed and revenue recognized as described previously.

Revenue recognized that was included in the contract liability balance at the beginning of the period was $248 for the three months ended March 31, 2020 and $224 for three months ended March 31, 2019 , respectively, which represented primarily revenue from progress towards completion of our Air Pollution Control technology contracts.

As of March 31, 2020 , we had three construction contracts in progress that were identified as loss contracts and a provision for losses of $29 was recorded in other accrued liabilities on the consolidated balance sheet.

Contract liabilities were $1,168 and $712 , at June 30, 2020 and December 31, 2019 , respectively, and are included in other accrued liabilities on the consolidated balance sheets.

Changes in the contract asset and liability balances during the six month period ended June 30, 2020 , were not materially impacted by any other items other than amounts billed and revenue recognized as described previously.

Revenue recognized that was included in the contract liability balance at the beginning of the period was $210 and $458 for the three and six months ended June 30, 2020 , respectively and $707 and $926 for three and six months ended June 30, 2019 , respectively, which represented primarily revenue from progress towards completion of our Air Pollution Control technology contracts.

As of June 30, 2020 , we had three construction contracts in progress that were identified as loss contracts and a provision for losses of $16 was recorded in other accrued liabilities on the consolidated balance sheet.

Refer to Footnote 13 for an accrual related to certain non-conformance issues with a U.S.

3 unchanged sentences

Remaining performance obligations, represents the transaction price of Air Pollution Control technology booked orders for which work has not been performed.

As of March 31, 2020 , the aggregate amount of the transaction price allocated to remaining performance obligations was $9,192 .

As of June 30, 2020 , the aggregate amount of the transaction price allocated to remaining performance obligations was $8,321 .

The Company expects to recognize revenue on approximately $4,845 of the remaining performance obligations over the next 12 months with the remaining recognized thereafter.

1 unchanged sentence

The components of accounts receivable are as follows:

March 31, 2020

June 30, 2020

December 31, 2019

7 unchanged sentences

This action is part of Fuel Tech’s ongoing operational improvement initiatives designed to prioritize resource allocation, reduce costs, and drive profitability for the Company on a global basis.

The transition associated with the suspension of the APC business which has taken place through March 31, 2020 includes staff rationalization and reduction, supplier and partner engagement, and the monetization of certain assets.

The transition associated with the suspension of the APC business which has taken place through June 30, 2020 includes staff rationalization and reduction, supplier and partner engagement, and the monetization of certain assets.

The remaining transition activities include the execution of the remaining activities to satisfy the requirements for the remaining APC projects in China (with a backlog totaling approximately $29 ) in addition to collection efforts for the remaining accounts receivable.

The following table presents our revenues and net loss (which includes the Restructuring charge line item within the Condensed Statements of Operations for 2019 in China as follows:

The following table presents our revenues and net loss (which includes the Restructuring charge line item within the Condensed Statements of Operations for 2020 and 2019 in China as follows:

Three Months Ended

Six Months Ended

Total revenues

3 unchanged sentences

The following table presents net assets in China as follows:

March 31, 2020

June 30, 2020

December 31, 2019

1 unchanged sentence

Total net assets

The Company has incurred $0 and $532 during the three months ending March 31, 2020 and 2019 for severance costs related to the suspension of the APC business in China.

On January 23, 2019, the Company notified the landlord of our intention to early terminate the lease on July 22, 2019.

The Company incurred an early termination penalty of $63 during the first quarter of 2019.

There is no liability for the three months ending March 31, 2020 .

The following is a reconciliation of the accrual for the workforce reduction that is included within the "Accrued Liabilities - Employee Compensation" line of the consolidated balance sheets for the three months ending March 31, 2020 and 2019 :

Three Months Ended March 31,

The Company incurred $0 in the three and six month periods ending June 30, 2020 and $30 and $625 during the three and six month periods ending June 30, 2019 for severance and lease cancellation costs related to the suspension of the APC business in China.

There is no liability for restructuring activities for the three and six months ending June 30, 2020 .

Three Months Ended June 30,

Six Months Ended June 30,

Restructuring liability at beginning of period

3 unchanged sentences

The changes in accumulated other comprehensive loss by component were as follows:

Three months ended March 31,

Three months ended June 30,

Six Months Ended

Foreign currency translation

5 unchanged sentences

Treasury Stock

Common stock held in treasury totaled 807,273 and 796,090 with a cost of $1,617 and $1,612 at March 31, 2020 and December 31, 2019 , respectively.

Common stock held in treasury totaled 808,139 and 796,090 with a cost of $1,618 and $1,612 at June 30, 2020 and December 31, 2019 , respectively.

These shares were withheld from employees to settle personal tax withholding obligations that arose as a result of restricted stock units that vested in the periods presented.

3 unchanged sentences

Out-of-money stock options are excluded from diluted earnings per share because they are anti-dilutive.

For the three months ended March 31, 2020 and 2019, basic earnings per share is equal to diluted earnings per share because all outstanding stock awards and convertible loan notes are considered anti-dilutive during periods of net loss.

The following table sets forth the weighted-average shares used in calculating the earnings per share for the three months ended March 31, 2020 and 2019 .

For the three and six months ended June 30, 2020 and 2019, basic earnings per share is equal to diluted earnings per share because all outstanding stock awards and convertible loan notes are considered anti-dilutive during periods of net loss.

The following table sets forth the weighted-average shares used in calculating the earnings per share for the three and six months ended June 30, 2020 and 2019 .

Three Months Ended

Six Months Ended

Basic weighted-average shares

2 unchanged sentences

Diluted weighted-average shares

Fuel Tech had 605,000 and 1,280,000 weighted average equity awards outstanding at March 31, 2020 and 2019 , respectively, that were not dilutive for the purposes of inclusion in the calculation of diluted earnings per share but could potentially become dilutive in future periods.

Fuel Tech had 553,000 and 1,515,000 weighted average equity awards outstanding at June 30, 2020 and 2019 , respectively, that were not dilutive for the purposes of inclusion in the calculation of diluted earnings per share but could potentially become dilutive in future periods.

Stock-Based Compensation

3 unchanged sentences

There are a maximum of 5,600,676 shares that may be issued or reserved for awards to participants under the Incentive Plan.

As of March 31, 2020 , Fuel Tech had 2,267,565 shares available for share-based awards under the 2014 Plan.

We did not record any excess tax benefits within income tax expense for the three months ended March 31, 2020 .

Given the Company has a full valuation allowance on its deferred tax assets, there were no excess tax benefits to record for the three months ended March 31, 2020 .

As of June 30, 2020 , Fuel Tech had 2,284,333 shares available for share-based awards under the 2014 Plan.

We did not record any excess tax benefits within income tax expense for the three and six months ended June 30, 2020 .

Given the Company has a full valuation allowance on its deferred tax assets, there were no excess tax benefits to record for the three and six months ended June 30, 2020 .

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 for the three months ended March 31, 2020 and 2019 were as follows:

The components of stock-based compensation for the three and six months ended June 30, 2020 and 2019 were as follows:

Three Months Ended

Six Months Ended June 30,

Stock options and restricted stock units, net of forfeited

12 unchanged sentences

and (3) expected life of the option – an estimate based on historical experience including the effect of employee terminations.

Stock option activity for Fuel Tech’s Incentive Plans for the three months ended March 31, 2020 was as follows:

Stock option activity for Fuel Tech’s Incentive Plans for the six months ended June 30, 2020 was as follows:

Exercise Price

2 unchanged sentences

Expired or forfeited

Outstanding on March 31, 2020

Exercisable on March 31, 2020

As of March 31, 2020 , there was no unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans.

Outstanding on June 30, 2020

Exercisable on June 30, 2020

As of June 30, 2020 , there was no unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans.

Restricted Stock Units

3 unchanged sentences

In addition to the time vested RSUs, the Company entered into a 2020 Executive Performance RSU Award Agreement (the “2020 Agreement”) with certain officers, including its President and Chief Executive Officer pursuant to which each 2020 Participating Executive will have the opportunity to earn a specified amount of restricted stock units (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 2020 (“Operating Income”), as determined by the Company, in its sole discretion.

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 2020 (“Operating Income”), 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 2020.

1 unchanged sentence

Such RSUs are valued at the date of grant using the intrinsic value method based on the closing price of the Company’s common stock on the grant date.

At March 31, 2020 , there is $277 of unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plan.

At June 30, 2020 , there is $208 of 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 1.32 years.

A summary of restricted stock unit activity for the three months ended March 31, 2020 is as follows:

A summary of restricted stock unit activity for the six months ended June 30, 2020 is as follows:

Weighted Average

Unvested restricted stock units at January 1, 2020

Unvested restricted stock units at March 31, 2020

The fair value of restricted stock that vested during the three month period ending March 31, 2020 was $82 .

Unvested restricted stock units at June 30, 2020

The fair value of restricted stock that vested during the six month period ending June 30, 2020 was $190 .

Deferred Directors Fees

In addition to the Incentive Plans, Fuel Tech has a Deferred Compensation Plans for Directors (Deferred Plan).

In addition to the Incentive Plans, 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.

During the three month periods ended March 31, 2020 and 2019 , Fuel Tech recorded no stock-based compensation expense under the Deferred Plan.

During the six month periods ended June 30, 2020 and 2019 , Fuel Tech recorded no stock-based compensation expense under the Deferred Plan.

Debt Financing

On April 17, 2020, the Company received $1,556 in loan proceeds from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S.

Small Business Administration (“SBA”).

The unsecured loan is evidenced by a promissory note of the Company dated April 15, 2020 (the “Note”) in the principal amount of $1,556 , issued to BMO Harris Bank N.A.

(the “Bank”), the lender.

Under the terms of the Note, interest will accrue on the outstanding principal at the rate of 1.0% per annum.

The term of the Note is two years , though it may be payable sooner in connection with an event of default under the Note.

To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning seven months from the date of the Note, until the maturity date.

The Note contains covenants by the Company, including obtaining the written consent of the Bank prior to material changes in the management or ownership of the Company.

On June 19, 2019, the Company entered into a Cash Collateral Security agreement with BMO Harris Bank, N.A.

3 unchanged sentences

There are no financial covenants set forth in the BMO Harris agreement.

At March 31, 2020 and December 31, 2019, respectively, the Company had outstanding standby letters of credit totaling approximately $2,984 and $2,461 under the BMO Harris agreement.

As of March 31, 2020 and December 31 2019 respectively, the Company held $3,133 and $2,584 in a separate restricted use designated BMO Harris Bank N.A.

At June 30, 2020 and December 31, 2019, respectively, the Company had outstanding standby letters of credit totaling approximately $2,860 and $2,461 under the BMO Harris agreement.

As of June 30, 2020 and December 31, 2019 respectively, the Company held $3,003 and $2,584 in a separate restricted use designated BMO Harris Bank N.A.

deposit account.

20 unchanged sentences

Information about reporting segment net sales and gross margin from continuing operations are provided below:

Three months ended March 31, 2020

Three months ended June 30, 2020

Air Pollution

4 unchanged sentences

Research and development

Operating (loss) income from continuing operations

Three months ended June 30, 2019

Air Pollution

Control Segment

Revenues from external customers

Cost of sales

Selling, general and administrative

Restructuring Charge

Research and development

Intangible assets abandonment

Operating income (loss) from continuing operations

Three months ended March 31, 2019

Six months ended June 30, 2020

Air Pollution

3 unchanged sentences

Selling, general and administrative

Research and development

Operating (loss) income from continuing operations

Six months ended June 30, 2019

Air Pollution

Control Segment

Revenues from external customers

Cost of sales

Selling, general and administrative

Restructuring Charge

Research and development

Intangible assets abandonment

Operating income (loss) from continuing operations

4 unchanged sentences

Three Months Ended

Six Months Ended June 30,

United States

1 unchanged sentence

We have seven total operating leases which relate to both office space locations and certain office equipment.

Our leases have remaining lease terms of 1 month to 6 years.

Our leases have remaining lease terms of 11 months to 5 years.

Our leases do not contain any material residual value guarantees or material restricted covenants and we currently have no material sublease arrangements.

We have no financing leases as defined under ASC 842.

Total operating lease expense for the three months ended March 31, 2020 is as follows:

For the Three Months ended March 31, 2020

For the Three Months ended March 31, 2019

Total operating lease expense for the three and six months ended June 30, 2020 and 2019 is as follows:

Three Months Ended

Six Months Ended

Operating lease cost

1 unchanged sentence

Total lease cost

The weighted average remaining lease term was 4.39 years as of March 31, 2020 .

The weighted average discount rate was 3.66% as of March 31, 2020 .

Remaining maturities of our existing lease liabilities as of March 31, 2020 were as follows:

The weighted average remaining lease term was 4.20 years as of June 30, 2020 .

The weighted average discount rate was 3.62% as of June 30, 2020 .

Remaining maturities of our existing lease liabilities as of June 30, 2020 were as follows:

Year Ending December 31,

Operating Leases

2020 (excluding the three months ended March 31, 2020)

2020 (excluding the six months ended June 30, 2020)

Total lease payments

Less imputed interest

The following is the balance sheet classification of our existing lease liabilities as of March 31, 2020 :

March 31, 2020

The following is the balance sheet classification of our existing lease liabilities as of June 30, 2020 :

June 30, 2020

December 31, 2019

3 unchanged sentences

Supplemental cash flow information related to leases was as follows:

For the Three Months ended March 31, 2020

For the Three Months ended March 31, 2019

Three Months Ended

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities

2 unchanged sentences

The components of other accrued liabilities are as follows:

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Total other accrued liabilities

Contingencies

Commitments and Contingencies

Fuel Tech is subject to various claims and contingencies related to, among other things, workers compensation, general liability (including product liability), and lawsuits.

7 unchanged sentences

customer associated with equipment that requires remedy under the warranty provision of the contract.

The Company is in the process of remedying the non-conformance issues.

As of March 31, 2020 and December 31, 2019, we have a total accrued liability associated with the completion of the non-conformance issues of $146 in the other accrued liabilities line of the Consolidated Balance Sheets.

During the second quarter of 2020 a charge of $1,150 to remedy this non-conformance issue was incurred.

Offsetting this amount was a reversal of $499 of expense to reduce the allowance of doubtful accounts that had been previously reserved.

The Company has completed all work associated with this issue.

As of June 30, 2020 and December 31, 2019, we have $0 and $146 of accrued liability associated with the completion of the non-conformance issues in the other accrued liabilities line of the Consolidated Balance Sheets.

Fuel Tech issues a standard product warranty with the sale of its products to customers.

1 unchanged sentence

This approach provides an aggregate warranty accrual that is historically aligned with actual warranty claims experienced.

There was no change in the warranty liability balance included in the other accrued liabilities line of the Consolidated Balance Sheets during the three months ended March 31, 2020 and 2019 .

The warranty liability balance was $159 at March 31, 2020 and 2019 .

The Company’s effective tax rate is approximately 5% and 0% for the three -month periods ended March 31, 2020 and 2019 , respectively.

The Company's effective tax rate differs from the statutory federal tax rate of 21% for the three month period ended March 31, 2020 primarily due to a full valuation allowance recorded on our United States, China and Italy deferred tax assets since we cannot anticipate when or if we will have sufficient taxable income to utilize the deferred tax assets in the future.

There was no change in the warranty liability balance included in the other accrued liabilities line of the Consolidated Balance Sheets during the six months ended June 30, 2020 and 2019 .

The warranty liability balance was $159 at June 30, 2020 and 2019 .

The Company’s effective tax rate is approximately 3% and 0% for the six-month period ended June 30, 2020 and 2019 , respectively.

The Company's effective tax rate differs from the statutory federal tax rate of 21% for the six month period ended June 30, 2020 primarily due to a full valuation allowance recorded on our United States, China and Italy deferred tax assets since we cannot anticipate when or if we will have sufficient taxable income to utilize the deferred tax assets in the future.

Further, our effective tax rate differs from the statutory federal tax rate due to state taxes, differences between U.S.

and foreign tax rates, foreign losses incurred with no related tax benefit, non-deductible commissions, and non-deductible meals and entertainment expenses for the three month periods ended March 31, 2020 and 2019 .

On April 3, 2019, the Company received notice from the Internal Revenue Service that our U.S.

income tax return for the year ended December 31, 2016 is currently under audit.

Fuel Tech had no unrecognized tax benefits as of March 31, 2020 and December 31, 2019 .

and foreign tax rates, foreign losses incurred with no related tax benefit, non-deductible commissions, and non-deductible meals and entertainment expenses for the six month periods ended June 30, 2020 and 2019 .

Fuel Tech had no unrecognized tax benefits as of June 30, 2020 and December 31, 2019 .

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (H.R.

9 unchanged sentences

There is no goodwill associated with our APC segment.

At both March 31, 2020 and December 31, 2019 , our entire goodwill balance of $2,116 was allocated to the FUEL CHEM ® technology segment.

At both June 30, 2020 and December 31, 2019 , our entire goodwill balance of $2,116 was allocated to the FUEL CHEM ® technology segment.

Goodwill is allocated to each of our reporting units after considering the nature of the net assets giving rise to the goodwill and how each reporting unit would enjoy the benefits and synergies of the net assets acquired.

There were no indications of goodwill impairment in the three months ended March 31, 2020 and 2019 .

There were no indications of goodwill impairment in the six months ended June 30, 2020 and 2019 .

Fuel Tech reviews other intangible assets, which include patent assets, for impairment on a recurring basis or when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

1 unchanged sentence

Management considers historical experience and all available information at the time the estimates of future cash flows are made, however, the actual cash values that could be realized may differ from those that are estimated.

There were no indications of intangible asset impairments for the three month periods ended March 31, 2020 and March 31, 2019.

There were no indications of intangible asset impairments for the six month periods ended June 30, 2020 and 2019 .

Subsequent Events

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements except for the transaction described below.

In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China.

COVID-19 has since spread to over 100 countries, including the United States.

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.

With infections reported throughout the world, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic.

Additional, more restrictive proclamations and/or directives may be issued in the future.

We have temporarily closed our offices and shifted our workforce to remote operations to ensure the safety of our employees.

The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows.

Further, the COVID-19 pandemic has caused severe disruptions in the U.S.

and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.

In particular, the Company has global locations, suppliers, and customers.

Therefore, COVID-19, as well as measures taken by governmental authorities and private actors to limit the spread of this virus, may interfere with the ability of our employees, suppliers and other business providers to carry out their assigned tasks or supply services at ordinary levels of performance relative to the conduct of our business.

This has not yet caused, but may cause, us to materially curtail certain of our business operations, and have an adverse effect on our results of operations and cash flow.

The ultimate effect that the COVID-19 pandemic may have on our business, financial condition or results of operations is not presently known to us or may present unanticipated risks that cannot be determined at this time.

On April 15, 2020, the Company received $1,556 in loan proceeds from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S.

Small Business Administration (“SBA”).

The unsecured loan is evidenced by a promissory note of the Company dated April 15, 2020 (the “Note”) in the principal amount of $1,556 , issued to BMO Harris Bank N.A.

(the “Bank”), the lender.

Under the terms of the Note, interest will accrue on the outstanding principal at the rate of 1.0% per annum.

The term of the Note is two years , though it may be payable sooner in connection with an event of default under the Agreement or the Note.

To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning six months from the date of the Note, until the maturity date.

The Note contains covenants by the Company, including obtaining the written consent of the Bank prior to material changes in the management or ownership of the Company.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed.

Under the PPP, the Company may apply for and be granted forgiveness for all or part of the PPP Loan.

The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the eight-week period after the loan origination for certain purposes including payroll costs, rent payments on certain leases, and certain qualified utility payments, provided that at least 75% of the loan amount is used for eligible payroll costs;

maintaining or rehiring employees and maintaining salaries at certain levels;

and other factors.

Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered eight-week period will qualify for forgiveness.

The Company intends to use the entire PPP Loan amount for qualifying expenses, though no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

The Note may be prepaid in part or in full, at any time, without penalty.

The Note provides for certain customary events of default, including, but not limited to, failing to make a payment when due under the Note, failure to take actions required by the Note, the Company defaulting under certain agreements in favor of any third party, making false statements, the Company’s insolvency, and the commencement of creditor or forfeiture proceedings against the Company.

Upon the occurrence of an event of default, the Bank has customary remedies and may, among other things, require immediate payment of all amounts owed under the Note, collect all amounts owing from the Company, and file suit and obtain judgment against the Company.

We continue to monitor our liquidity needs and in response to our continued losses have taken measures to reduce expenses and

11 unchanged sentences

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What changed 10-Q

Item 1. Financial Statements