What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-15 compared with 2020-03-12 · 272 added, 259 removed, 732 unchanged (42% of the section changed)

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We have audited the accompanying consolidated balance sheets of Fuel Tech, Inc.

(the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of goodwill

As described in Note 1 of the financial statements, goodwill is tested for impairment at least annually as of the first day of the Company’s fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.

The Company’s evaluation of goodwill impairment involves the comparison of the fair value of the Company’s reporting units to their carrying values.

The Company uses a discounted cash flow analysis to determine the current fair value of the Company’s FUEL CHEM reporting unit.

This requires management to make significant estimates and assumptions including estimates of future growth rates, operating margins and discount rates based on the estimated weighted average cost of capital for the business.

Changes in these assumptions could have a significant impact on the fair value, which could have an impact on the conclusion of impairment, if any.

The Company performed its impairment analysis as of October 1, 2020.

As part of the impairment assessment, the Company’s management determined that the fair value of the FUEL CHEM reporting unit exceeded its carrying value.

As a result, no impairment charge was recorded in the consolidated statement of operations for the year ended December 31, 2020.

Key financial assumptions used to determine the discounted cash flows of the reporting unit were developed my management.

We identified the evaluation of goodwill impairment as a critical audit matter because of the significant assumptions and judgments made by management within the discounted cash flow analysis used to determine the fair value of the Company’s FUEL CHEM reporting unit.

Auditing the reasonableness of management’s key assumptions, including revenue growth rates, operating margins, and discount rates involved a high degree of auditor judgment and an increased effort, including the use of our valuation specialists.

Our audit procedures related to revenue growth rates, operating margins, and discount rates used to evaluate the Company’s FUEL CHEM reporting unit for impairment included the following, among others:

With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate and tested the relevance and reliability of source information underlying the determination of the rate, tested the mathematical accuracy of the calculation, and developed a range of independent estimates and compared those to the rate selected by management.

We evaluated reasonableness of management’s forecasted revenue growth rates and operating margins by comparing to historical results and industry forecasts.

We evaluated management’s ability to accurately forecast revenue and operating margins by comparing management’s prior forecasts to actual results.

We evaluated the impact of changes to significant assumptions on the determination of whether impairment exists.

Impairment of long-lived assets

As described in Note 1 of the financial statements, the Company’s management reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

The Company’s evaluation of long-lived asset impairment includes determining the fair value of its asset groupings through a discounted cash flow model.

In addition, the Company’s evaluation includes determining the fair value of its patents through a relief from royalty model.

This requires management to make significant estimates and assumptions including estimates of future growth rates, discount rates, royalty rates and estimation period to perform the analysis.

Changes in these assumptions could have a significant impact on the fair value, which could have an impact on the impairment charge, if any.

Both the Company’s Air Pollution Control (APC) and FUEL CHEM asset groupings experienced a decline in revenue, and the APC asset grouping experienced an operating loss during the year ended December 31, 2020.

Company management determined that the carrying amount of the asset groupings may not be recoverable based on the operating performance.

Accordingly, the Company performed an impairment assessment on its asset groups as of December 31, 2020.

As part of its analysis, it determined that the fair value of the FUEL CHEM asset group exceeded its carrying value.

In addition, the Company determined that the fair value of the APC patents exceeded their carrying value.

We identified the testing of long-lived assets for impairment as a critical audit matter because of the significant assumptions and judgments made by management within the discounted cash flow analysis and the relief from royalty valuation model.

Auditing the reasonableness of management’s key assumptions, including revenue growth rates, discount rates, royalty rates and estimation period, involved a high degree of auditor judgment and an increased effort, including the use of our valuation specialists.

Our audit procedures related to revenue growth rates, discount rates, royalty rates and estimation period used to evaluate the FUEL CHEM asset group and the APC patents for impairment included the following, among others:

With the assistance of our fair value specialists, we evaluated the reasonableness of the discount and royalty rates and tested the relevance and reliability of source information underlying the determination of the rates, tested the mathematical accuracy of the calculation, and developed a range of independent estimates and compared those to the rates selected by management.

We evaluated the reasonableness of management’s forecasted revenue growth rates by comparing the forecasts to historical results, industry forecasts and existing backlog.

We evaluated the reasonableness of the estimation period by comparing to the weighted average remaining life of the related patents.

We evaluated management’s ability to accurately forecast revenue by comparing management’s prior forecasts to actual results.

We evaluated the impact of changes to significant assumptions on the recoverability of the asset group.

Revenue recognition

As described in Note 1 of the financial statements, revenue for the Company’s Air Pollution Control technology contracts is recognized based on the extent of progress towards completion of the contract compared to the estimated effort to complete the contract.

The Company uses a cost-to-cost input method of measuring progress on these contracts.

Under the cost-to-cost input measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation.

Revenues are recorded proportionally as costs are incurred.

We identified revenue recognition over time for the Company’s Air Pollution Control technology contracts as a critical audit matter because of certain significant assumptions management makes when measuring progress, including assumptions related to expected total costs to complete the contract.

Auditing these assumptions involved a high degree of auditor judgment and an increase in audit effort due to the impact these assumptions have on the amount of revenue recognized.

Our audit procedures related to the evaluation of management’s estimation of revenue recognized include the following, among others:

We evaluated management’s ability to accurately forecast project costs by comparing management’s prior forecasts of estimated costs to actual results.

We selected a sample of customer contracts and evaluated management’s calculation of revenue recognized over time by performing the following procedures:

Evaluating whether contract terms that may affect revenue recognition were identified and properly considered and performance obligations were appropriately identified

Obtaining and reviewing contracts with customers, including change orders to evaluate whether the transaction price was appropriately identified.

Testing management’s revenue recognition calculation model for mathematical accuracy.

Assessing the validity of data used in the model for completeness and accuracy by agreeing, on a sample basis, key data inputs to source documents, including job costing reports and project budgets.

/s/ RSM US LLP

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Right-of-use operating lease assets

Assets held for sale

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Operating lease liabilities - non-current

Long-term borrowings

Deferred income taxes

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Total liabilities

COMMITMENTS AND CONTINGENCIES (Note 9)

Stockholders’ equity:

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Treasury stock, at cost (Note 6)

Total shareholders’ equity

Total liabilities and shareholders’ equity

Total stockholders’ equity

Total liabilities and stockholders’ equity

See notes to consolidated financial statements.

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Research and development

Intangible assets abandonment and building impairment

Intangible assets abandonment and impairment

Total Costs and Expenses

Operating income (loss) from continuing operations

Interest income

Operating loss from continuing operations

Interest (expense) income

Foreign exchange gain

Other expense

Income (loss) from continuing operations before income taxes

Income tax benefit (expense)

Net income (loss) from continuing operations

Other income (loss)

Loss from continuing operations before income taxes

Income tax expense

Net loss from continuing operations

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

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Fuel Tech, Inc.

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Loss

( in thousands of dollars )

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Foreign currency translation adjustments

Unrealized losses from marketable securities, net of tax

Total other comprehensive income (loss)

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( in thousands of dollars or shares, as appropriate )

Paid-in Capital

Accumulated Deficit

Comprehensive

Income (Loss)

Perpetual Loan Notes

Treasury Stock

Balance at December 31, 2016

Foreign currency translation adjustments

Unrealized loss on marketable securities, net of tax

Stock compensation expense

Common shares issued upon vesting of restricted stock units

Treasury shares withheld

Additional Paid-in

Accumulated Other Comprehensive

Nil Coupon Perpetual Loan

Balance at December 31, 2018

Foreign currency translation adjustments

Unrealized loss on marketable securities, net of tax

Stock compensation expense

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Stock compensation expense

Exercise of stock Options

Common shares issued upon vesting of restricted stock units

Treasury shares withheld

Adoption of ASC 842

Balance at December 31, 2020

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Loss from discontinued operations

Net income (loss) from continuing operations

Adjustments to reconcile net income (loss) to net cash used in operating activities:

(Gain) loss on disposal of equipment

Net loss from continuing operations

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

Gain on disposal of equipment

Provision for doubtful accounts, net of recoveries

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Stock-based compensation, net of forfeitures

Intangible assets abandonment and building impairment

Intangible assets abandonment

Excess and obsolete inventory provision

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Accrued liabilities and other non-current liabilities

Net cash provided by (used in) operating activities - continuing operations

Net cash used in operating activities - continuing operations

Net cash used in operating activities - discontinued operations

Net cash provided by (used in) operating activities

Net cash used in operating activities

INVESTING ACTIVITIES

Purchases of equipment and patents

Proceeds from the sale of equipment

Net cash used in investing activities - continued operations

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FINANCING ACTIVITIES

Proceeds from Borrowings

Proceeds from Option Exercises

Taxes paid on behalf of equity award participants

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate fluctuations on cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

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Cash paid for:

Income taxes paid

See notes to consolidated financial statements.

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Our primary focus is on the worldwide marketing and sale of Air Pollution Control (APC) technologies as well as our FUEL CHEM program.

The Company’s NO x reduction technologies reduce nitrogen oxide emissions from boilers, furnaces and other stationary combustion sources.

The Company’s NOx reduction technologies reduce nitrogen oxide emissions from boilers, furnaces and other stationary combustion sources.

Our FUEL CHEM program is based on proprietary TIFI ® Targeted In-Furnace™ Injection technology, in combination with advanced Computational Fluid Dynamics (CFD) and Chemical Kinetics Modeling (CKM) boiler modeling, in the unique application of specialty chemicals to improve the efficiency, reliability and environmental status of combustion units by controlling slagging, fouling, corrosion, opacity and other sulfur trioxide-related issues in the boiler.

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Upon consolidation, the Company evaluates the differences in accounting principles and determines whether adjustments are necessary to convert the foreign financial statements to the accounting principles upon which the consolidated financial statements are based.

As a result of this evaluation no material adjustments were identified.

All intercompany transactions have been eliminated.

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.

The COVID-19 pandemic has affected the Company's operations during the twelve months ended December 31, 2020, although the impact of the pandemic is difficult to quantify, and may continue to be so indefinitely thereafter.

The Company has experienced, and may continue to experience, reductions in demand for certain of 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 chains, 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 comes to an end.

We have experienced continued declines in revenues and recurring losses.

As a result, we have evaluated our ongoing business needs, and considered the cash requirements of our base business of Air Pollution Control (APC) and Fuel Chem businesses.

As a result, we have evaluated our ongoing business needs, and considered the cash requirements of our Air Pollution Control (APC) and FUEL CHEM businesses.

This evaluation included consideration of the following:

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We continue to monitor our liquidity needs and have taken measures to reduce expenses and restructure operations which we feel are necessary to ensure we maintain sufficient working capital and liquidity to operate the business and invest in our future.

We believe our current cash position and net cash flows expected to be generated from operations are adequate to fund planned operations of the Company for the next 12 months.

In the event we determine we need to raise additional working capital, we may consider various financing alternatives which may include debt financing, common stock offerings, or financing involving convertible debt or other equity-linked securities;

however, such financing alternatives may not be available on acceptable terms or at all and any such additional financing could be dilutive to our shareholders.

On February 11, 2021, Fuel Tech entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors pursuant to which the Company agreed to issue and sell, in a private placement (the “Private Placement”), (i) 5,000,000 shares (the “Shares”) of Common Stock, (ii) and 2,500,000 warrants (the “Warrants”) exercisable for a total of 2,500,000 shares of Common Stock (the “Warrant Shares”) with an exercise price of $5.10 per Warrant Share, at a purchase price of $5.1625 per Share and associated warrant.

The gross proceeds to the Company from the Private Placement were approximately $25.8 million, before deducting placement agent fees and offering expenses.

The receipt of these funds strengthen our current cash position and in conjunction with our net cash flows expected to be generated from operations are adequate to fund planned operations of the Company for the next 12 months.

Use of Estimates

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Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable are reasonable estimates of their fair value due to their short-term nature.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and long-term borrowings are reasonable estimates of their fair value due to their short-term nature.

Cash, cash equivalents and restricted cash

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Restricted cash as of December 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 $2,587 is comprised of $2,080 in current assets relating to existing standby letters of credit with varying maturity dates and expire no later than December 31, 2020 and $507 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.

The balance of restricted cash totaling $1,966 is comprised of $ 1,595 in current assets relating to existing standby letters of credit with varying maturity dates and expire no later than December 31, 2020 and $ 371 in long-term assets will remain through the expiration dates of the underlying standby letters of credit (the latest maturity date is February 1, 2023) with BMO Harris Bank N.A.

Refer to Note 11 Debt Financing for further information on the Facility.

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Representatives of our management team review all past due accounts on a weekly basis to assess collectability.

At the end of each reporting period, the allowance for doubtful accounts balance is reviewed relative to management’s collectability assessment and is adjusted if deemed necessary through a corresponding charge or credit to bad debts expense, which is included in selling, general, and administrative expenses in the consolidated statements

of operations.

Bad debt write-offs are made when management believes it is probable a receivable will not be recovered.

The table below sets forth the components of the Allowance for Doubtful Accounts for the years ended December 31.

Provision charged

Balance at January 1

Provision charged to expense

Write-offs / Recoveries

Balance at December 31

Prepaid expenses and other current assets

Prepaid expenses and other current assets includes Chinese banker acceptances of $549 and $43 as of December 31, 2020 and 2019 .

These are short-term commitments of typically 30 to 60 days for future payments and can be redeemed at a discount or applied to future vendor payments.

These are short-term commitments of typically three to six months for future payments and can be redeemed at a discount or applied to future vendor payments.

Inventories consist primarily of spare parts and are stated at the lower of cost or net realizable value, using the weighted-average cost method.

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The table below sets forth the components of the Excess and Obsolete Inventory Reserve for the years ended December 31.

Provision charged

Balance at January 1

Provision charged to expense

Write-offs / Recoveries

Balance at December 31

Foreign Currency Translation and Transactions

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Gains or losses on foreign currency transactions and the related tax effects are reflected in net income.

The resulting translation adjustments are included in stockholders’ equity as part of accumulated other comprehensive income.

During the fourth quarter of 2019, the Company reclassified the cumulative foreign currency translation associated with Fuel Tech S.p.A (Chile) of $370 to net income given the substantial completion of the liquidation of that legal entity in accordance with ASC 830 Foreign Currency Matters.

The resulting translation adjustments are included in stockholders’ equity as part of accumulated other comprehensive loss.

During 2020 , the Company recorded a foreign currency adjustment of $408 to accumulated other comprehensive loss .

Accumulated Other Comprehensive Loss

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

Foreign currency translation

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Balance at end of period

Available-for-sale marketable securities

Balance at beginning of period

Other comprehensive (loss):

Net unrealized holding (loss) (2)

Balance at end of period

Total accumulated other comprehensive loss

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The adjustments reclassified to earnings in 2019 relate to the substantial completion of the liquidation of Fuel Tech S.p.A (Chile) during the fourth quarter of 2019.

In all periods presented, there were no realized holding gains or losses and therefore no amounts were reclassified to earnings.

Research and Development

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For the APC business segment, the Company used working capital as a proxy of fair value for the business segment given the on-going losses in that segment.

Fuel Tech performed its annual goodwill impairment analysis for each of its reporting units as of October 1, 2019 and determined that no impairment of goodwill existed within the FUEL CHEM technology segment.

Fuel Tech performed its annual goodwill impairment analysis for each of its reporting units as of October 1, 2020 and determined that no impairment of goodwill existed.

Goodwill is allocated to each of our reporting units, which is defined as an operating segment or one level below an operating segment, upon acquisition 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.

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There is no goodwill associated with our APC business technology segment.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

This ASU is meant to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.

The Company early adopted ASU 2017-04 on October 1, 2018 for the annual goodwill impairment test completed during the fourth quarter which simplified the test by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of goodwill and eliminating Step 2.

The Company utilizes ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment for the annual goodwill impairment test completed during the fourth quarter.

The entire goodwill balance of $2,116 was allocated to the FUEL CHEM technology segment as of December 31, 2020 and 2019 .

1 unchanged sentence

Other Intangible Assets

Management reviews other finite-lived intangible assets, which include customer lists and relationships, covenants not to compete, patent assets, trade names, and acquired technologies, for impairment when events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

Management reviews other finite-lived intangible assets, patent assets, trade names, and lease assets for impairment when events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable.

In the event that impairment indicators exist, a further analysis is performed and if the sum of the expected undiscounted future cash flows resulting from the use of the asset or asset group is less than the carrying amount of the asset or asset group, an impairment loss equal to the excess of the asset or asset group's carrying value over its fair value is recorded.

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.

During the year ended December 31, 2019 , the Company recorded an abandonment charge of $127 principally associated with the remaining patent assets in China which the Company elected to not maintain and abandon as a result of the planned suspension of the APC business operation in China.

During the year ended December 31, 2020 , the Company recorded an abandonment charge of $ 197 due to the Company's decision to no longer maintain and defend certain patents and trademarks which are no longer contributing to operations.

The abandonment charge was calculated by determining the net book values of the abandoned patent assets by deducting the accumulated amortization from the acquisition cost.

The abandonment charge is included in “Intangible assets abandonment and building impairment” line in the accompanying Consolidated Statements of Operations for the year then ended December 31, 2019.

The abandonment charge is included in “Intangible assets abandonment and impairment” line in the accompanying Consolidated Statements of Operations for the year then ended December 31, 2020 .

During the year ended December 31, 2019 , Fuel Tech recorded an abandonment charge of $ 127 associated with certain international patent assets which the Company elected to not maintain and abandon due to limited business opportunities in those regions.

The abandonment charge was calculated by determining the net book values of the abandoned patent assets by deducting the accumulated amortization from the acquisition cost.

The abandonment charge of $317 is included in “Intangible assets abandonment and building impairment” line in the accompanying Consolidated Statements of Operations for the year ended December 31, 2018.

The abandonment charge is included in “Intangible assets abandonment and impairment” line in the accompanying Consolidated Statements of Operations for the year ended December 31, 2019 .

Third-party costs related to the development of patents are included within other intangible assets on the consolidated balance sheets.

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Description of Other Intangibles

Amortization Period (years)

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Patent assets

The table below shows the estimated future amortization expense for intangible assets:

Estimated Amortization Expense

Property and Equipment

Property and equipment is stated at historical cost.

Property and equipment is stated at historical cost and does not include capital in process expenditures yet to be capitalized.

Provisions for depreciation are computed by the straight-line method, using estimated useful lives that range based on the nature of the asset.

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Description of Property and Equipment

Depreciable Life (years)

Building and leasehold improvements

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Furniture and fixtures

Construction in process

Less accumulated depreciation

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The discontinuation of a FUEL CHEM program at a customer site would most likely result in the re-deployment of all or most of the affected assets to another customer location rather than an impairment.

During the second quarter of 2017, we experienced a decrease in our stock price that caused our market capitalization to fall below the equity value on our consolidated balance sheet, which resulted in an indicator of impairment.

This, along with an overall slowdown in APC technology and corresponding downward adjustments to our financial forecasts, was considered during a detailed evaluation of the fair value of our reporting units.

As a result of these triggering events, Fuel Tech performed a long-lived asset impairment analysis for each of the reporting units as of April 1, 2017.

Based on this evaluation, we determined that our APC segment failed the first step of our impairment analysis because the estimated gross cash flows and fair value of the reporting unit was less than its carrying value, thus requiring additional analysis of the segment.

However, no impairment resulted as the fair values of the underlying patents and equipment equaled or exceeded their carrying values.

We evaluated the corporate asset group, which contains our corporate headquarters office building and land in Warrenville, Illinois, using the residual method and management determined that there was not adequate gross cash flows to support the carrying value.

After obtaining an appraisal from a third-party appraiser, management determined that the carrying value of the office building and land exceeded the fair value and recorded an impairment charge of $2,965 for the year ended December 31, 2017.

Revenue Recognition

On January 1, 2018, we adopted ASC 606 "Revenue from Contracts with Customers" ("ASC 606") using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our legacy accounting under Accounting Standards Codification Topic 605:

Revenue Recognition (ASC 605).

For the years ended prior to January 1, 2018

Revenues from the sales of chemical products are recorded when title transferred, either at the point of shipment or at the point of destination, depending on the contract with the customer in accordance with ASC 605.

We used the percentage of completion method of accounting for equipment construction, equipment supply and license contracts that are sold within the Air Pollution Control technology segment.

Under the percentage of completion method, revenues are recognized as work is performed based on the relationship between actual construction costs incurred and total estimated costs at completion.

Construction costs include all direct costs such as materials, labor, and subcontracting costs, and indirect costs allocable to the particular contract such as indirect labor, tools and equipment, and supplies.

Revisions in completion estimates and contract values are made in the period in which the facts giving rise to the revisions become known and can influence the timing of when revenues are recognized under the percentage of completion method of accounting.

Such revisions have historically not had a material effect on the amount of revenue recognized.

Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined.

Years beginning after January 1, 2018

The Company recognizes revenue when control of the promised goods or services is transferred to our customers, in amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The Company recognizes revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Fuel Tech’s sales of products to customers represent single performance obligations, which are not impacted upon the adoption of ASC 606.

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Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

Revenues from the sale of chemical products are recognized when control transfers to customer upon shipment or delivery of the product based on the applicable shipping terms.

We generally recognize revenue for these arrangements at a point in time based on our evaluation of when the customer obtains control of the promised goods or services.

Air Pollution Control Technology

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We believe that this test, combined with the accuracy of the modeling that is performed, enables revenue to be recognized prior to the receipt of formal customer acceptance.

Revenues from the sale of chemical products are recognized when control transfers to customer upon shipment or delivery of the product based on the applicable shipping terms.

We generally recognize revenue for these arrangements at a point in time based on our evaluation of when the customer obtains control of the promised goods or services.

On occasion, Fuel Tech will engineer and sell its chemical pumping equipment.

These projects are similar in nature to the APC projects described above and for those projects where control transfers over time, revenue is recognized based on the extent of progress towards completion of the single performance obligation.

For projects containing multiple performance obligations, the Company allocates the transaction price based on the estimated standalone selling price.

The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

The Company utilizes key assumptions to determine the stand-alone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs.

Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services.

For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The Company receives payments from its customers based on billing schedules established in each contract.

Up-front payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements.

Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Cost of Sales

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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.

We also elected the practical expedient to keep leases with an initial term of 12 months or less off of the consolidated balance sheet.

During the quarter ended September 30, 2020, an error was detected in the calculation of the adoption of ASC 842, "Leases" made on January 1, 2019.

The calculation included an incorrect lease amount associated with one of our leases.

This error did not correctly present the Right of Use asset and related Operating Lease Liability on the Company's balance sheet.

We evaluated the revision in accordance with Accounting Standards Codification (ASC) 250, Accounting Changes and Error Corrections and evaluated the materiality of the revision on prior periods' financial statements in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No.

108, Quantifying Financial Statement Errors.

We concluded that the revision was not material to any prior period and, therefore, amendments of previously filed reports are not required.

Periods not presented herein will be revised, as applicable, in future filings.

The revision did not have an impact on the net loss or earnings per share for the year ended December 31, 2019.

As Previously Reported Year Ended December 31, 2019

As Revised Year Ended December 31, 2019

Right of Use Operating Lease Asset

Operating Lease Liability - Current

Operating Lease Liability - Non Current

Stock-Based Compensation

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Diluted earnings per share includes the dilutive effect of the nil coupon non-redeemable convertible unsecured loan notes, RSUs, and unexercised in-the-money stock options, except in periods of net loss where the effect of these instruments is antidilutive.

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

At December 31, 2019, 2018 and 2017 , we had outstanding equity awards of 913,000 , 757,000 and 2,210,000 , respectively, which were antidilutive for the purpose of inclusion in the diluted earnings per share calculation because the exercise prices of the options were greater than the average market price of our common stock.

Out-of-the-money stock options are excluded from diluted earnings per share because they are unlikely to be exercised and would be anti-dilutive if they were exercised.

At December 31, 2020 and 2019 , we had outstanding equity awards of 584,505 and 913,000, respectively, which were antidilutive for the purpose of calculation of the diluted earnings per share.

As of December 31, 2020 and 2019 , respectively, we had an additional 547,000 and 728,000 equity awards that were antidilutive because of the net loss in the year then ended.

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However, management believes the Company is not exposed to significant credit risk due to the financial position of its primary depository institution where a significant portion of its deposits are held.

For the year ended December 31, 2019 , we had three customers which individually represented greater than 10% of revenues.

One customer contributed primarily to our APC technology segment and represented 19% of consolidated revenues.

The other two customers contributed to FUEL CHEM technology segment and each customer represented 11% of consolidated revenues.

We had no customers that accounted for greater than 10% of our current assets as of December 31, 2019 .

For the year ended December 31, 2020 , we had two customers which individually represented greater than 10% of revenues.

One customer contributed primarily to our APC technology segment and represented 27% of consolidated revenues.

The other customer contributed to our APC technology and FUEL CHEM technology segment and represented 13% of consolidated revenues.

Both customers contributed revenues to both product segments but were primarily concentrated in our FUEL CHEM technology segment and represented 28% of consolidated revenues.

We had no customers that accounted for greater than 10% of our current assets as of December 31, 2020 .

For the year ended December 31, 2017 , we had one customer which individually represented greater than 10% of revenues.

This customer contributed primarily to our FUEL CHEM technology segment and represented 10% of consolidated revenues.

For the year ended December 31, 2019 , we had three customers which individually represented greater than 10% of revenues.

One customer contributed primarily to our APC segment and represented 19% of consolidated revenues.

The other two customers contributed to the FUEL CHEM technology segment and each customer represented 11% of consolidated revenues.

We had no customers that accounted for greater than 10% of our current assets as of December 31, 2019 .

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Treasury Stock

We use the cost method to account for its common stock repurchases.

We use the cost method to account for common stock repurchases.

During the years ended December 31, 2020 and 2019 , we withheld 152,257 and 140,784 shares of our Common Shares, valued at approximately $570 and $128, respectively, to settle personal tax withholding obligations that arose as a result of restricted stock units that vested.

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During 2017, the Company suspended all operations associated with the Fuel Conversion business segment.

The components of the net assets of the Fuel Conversion discontinued operations in Assets held for sale (which consisted primarily of certain equipment) on the Consolidated Balance Sheets totaling $0 and $485 as of December 31, 2019 and 2018 , respectively.

The Company sold the remaining Fuel Conversion equipment within Assets held during the year ended December 31, 2019 for sales proceeds net of selling costs of $505, resulting in a gain on sale of $20 recorded in discontinued operations.

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The Fuel Conversion business segment had no other assets or liabilities associated with it.

In addition, accrued severance of $0 and $65 is included in the other accrued liabilities line of the Consolidated Balance Sheets as of December 31, 2019 and 2018 respectively.

The Company incurred $581 of severance costs relating to the suspension of the Fuel Conversion business segment, of which $205 was paid in 2017, $311 was paid in 2018 and $65 was paid in 2019.

The activity of the Fuel Conversion discontinued operations consisted of Research and Development, severance, an impairment charge and other costs for the years ended December 31, 2020 and 2019 , of $0 and $1, respectively.

The activity of the Fuel Conversion discontinued operations consisted primarily of storage costs for holding the equipment at a third-party location totaling $21 for the year ended December 31, 2019 and the gain on sale of $20 recorded in discontinued operations.

The loss from discontinued operations in the Consolidated Statement of Operations for the year ended December 31, 2018 includes an impairment charge related to the Carbonite patent assets of $56 during the second quarter of 2018 as a result of not being able to reach an agreement with a third-party to acquire or license the Carbonite technology in combination with the sale of certain equipment included in Assets held for sale.

The loss from discontinued operations in the Consolidated Statement of Operations for the year ended December 31, 2017 includes the severance charges associated with suspension of the Fuel Conversion business segment of $581 .

The loss from discontinued operations in the Consolidated Statement of Operations for the year ended December 31, 2017 includes an impairment charge related to the Carbonite intangible asset of $1,354 as a result of not being able to reach an agreement with a third-party to acquire or license the Carbonite technology.

Absent a third-party agreement, management determined there was not adequate gross cash flows to support the carrying value of the asset and recorded the impairment charge during the fourth quarter of 2017.

The Fuel Conversion business segment had no revenues associated with it.

REVENUE RECOGNITION

Adoption of ASC 606, "Revenue from Contracts with Customers"

On January 1, 2018, we adopted ASC 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

Revenue Recognition (ASC 605).

The cumulative effect of the changes made to our January 1, 2018 consolidated balance sheet for the adoption of ASC 606 were as follows:

Balance at December 31, 2017

Adjustments Upon Adoption of ASC 606

Balance at January 1, 2018

Other accrued liabilities

Accumulated deficit

The adjustment made to the January 1, 2018 consolidated balance sheet related to deferred revenue under ASC 605 for the license of standalone functional intellectual property to a customer in one of our foreign locations which is recognized at a point in time upon adoption of ASC 606.

Practical Expedients and Exemptions

We generally expense sales commissions on a ratable basis when incurred because the amortization period would have been one year or less.

These costs are recorded within selling, general and administrative expenses within the Consolidated Statements of Operations.

A practical expedient was elected to not recognize shipping and handling costs as a separate performance obligation under ASC 606.

Disaggregated Revenue by Product Technology

The following table presents our revenues disaggregated by product technology:

Twelve Months Ended

Twelve Months Ended December 31,

Air Pollution Control

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Total Revenues

(1) As noted above, 2017 amounts have not been adjusted under the modified retrospective method.

Disaggregated Revenue by Geography

The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers:

Twelve Months Ended

Twelve Months Ended December 31,

United States

Foreign Revenues

South America

Total Foreign Revenues

Total Revenues

(1) As noted above, 2017 amounts have not been adjusted under the modified retrospective method.

Timing of Revenue Recognition

The following table presents the timing of our revenue recognition:

Twelve Months Ended

Twelve Months Ended December 31,

Products transferred at a point in time

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Total Revenues

(1) As noted above, 2017 amounts have not been adjusted under the modified retrospective method.

Contract Balances

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Contract liabilities were $850 and $712 at December 31, 2020 and 2019 , respectively, and are included in other accrued liabilities on the consolidated balance sheets.

As of December 31, 2020 we had one construction contract in progress that was identified as a loss contract and a provision for losses of $176 was recorded in other accrued liabilities on the consolidated balance sheet.

As of December 31, 2019 , we had three construction contracts in progress that were identified as loss contracts and a provision for losses of $26 was recorded in other accrued liabilities on the consolidated balance sheet.

As of December 31, 2018 , we had five construction contracts in progress that were identified as loss contracts and a provision for losses of $123 was recorded in other accrued liabilities on the consolidated balance sheet.

Remaining Performance Obligations

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The Company expects to recognize revenue on approximately $2,981 of the remaining performance obligations over the next 12 months with the remaining recognized thereafter.

Practical Expedients and Exemptions

We generally expense sales commissions on a ratable basis when incurred because the amortization period would have been one year or less.

These costs are recorded within selling, general and administrative expenses within the Consolidated Statements of Operations.

A practical expedient was elected to not recognize shipping and handling costs as a separate performance obligation under ASC 606.

Accounts Receivable

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Total accounts receivable

On December 22, 2017, the United States (“U.S.”) enacted significant changes to the U.S.

tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”).

The Tax Act included significant changes to existing tax law, including a permanent reduction to the U.S.

federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), deductions, credits and business-related exclusions.

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No.

118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S.

legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law.

The Company did not record additional provisional income tax given the Company has full valuation allowances on its deferred tax assets and liabilities and the net operating loss generated in 2017.

Accordingly, the Company’s income tax provision as of December 31, 2018 and 2017 reflects (i) the current year impacts of the U.S.

Tax Act on the estimated annual effective tax rate and (ii) the following discrete items resulting directly from the enactment of the Tax Act based on the information available, prepared, or analyzed (including computations) in reasonable detail:

(a) The Tax Act reduced the U.S.

federal corporate tax rate from 35% to 21%.

The impact from the permanent reduction to the U.S.

federal corporate income tax rate from 35% to 21% is effective January 1, 2018.

The Company adjusted the deferred tax asset and liabilities and the corresponding valuation reserve as a result of the reduction in the U.S.

federal corporate tax rate.

The Tax Act created a new requirement that certain income (commonly referred to as “GILTI”) earned by controlled foreign corporations (CFC’s) must be included currently in the gross income of the CFC’s U.S.

GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on U.S.

inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”).

Our selection of an accounting policy of the new GILTI tax rules will depend on analyzing our global income to determine whether we expect to have future U.S.

inclusions in taxable income related to GILTI and, if so, what the impact is expected to be.

The Company has included an estimate of the GILTI tax in the Company’s annualized effective tax rate used to determine tax expense for the years ended December 31, 2019 and 2018.

Within the calculation of the Company’s annual effective tax rate, the Company has used assumptions and estimates that may change as a result of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, and the FASB and/or various other taxing jurisdictions.

For example, the Company anticipates that the state jurisdictions will continue to determine and announce their conformity to the Tax Act which could have an impact on the annual effective tax rate.

The components of income (loss) before taxes for the years ended December 31 are as follows:

For example, the Company anticipates that the state jurisdictions will continue to determine and announce their conformity to the U.S.

Tax Act which could have an impact on the annual effective tax rate.

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted which enacted the following relief among others;

Amended federal tax laws to permit 100% bonus depreciation for eligible qualified improvement property placed in service by the taxpayer after December 31, 2017 and before January 1, 2023.

Eliminated the 80% of taxable income limitations by allowing corporate entities to fully utilize Net Operating Losses (NOL) carryforwards to offset taxable income in 2018, 2019 or 2020.

The 80% limitation is reinstated for tax years after 2020.

Increased the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning January 1, 2019 and 2020.

Allowed taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the Tax Cuts and Jobs Act in 2017.

Allowed taxpayers the carryback of Net Operating Losses (NOL) as a result of tax years beginning after December 31, 2017, but before January 1, 2021 for the five prior years of the generated loss.

The components of loss before taxes for the years ended December 31 are as follows:

Origin of income before taxes

United States

Income (Loss) before income taxes

Loss before income taxes

Significant components of income tax benefit (expense) for the years ended December 31 are as follows:

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Total deferred

Income tax benefit (expense)

Income tax expense

A reconciliation between the provision for income taxes calculated at the U.S.

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Foreign tax rate differential

China Enterprise Tax

Valuation allowance

Federal tax rate change

Share based compensation shortfall

Other true up

Intangible assets impairment and other non-deductibles

Income tax benefit (expense) effective rate

State rate change

Income tax (expense) benefit effective rate

The deferred tax assets and liabilities at December 31 are as follows:

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The change in the valuation allowance for deferred tax assets for the years ended December 31 is as follows:

Charged to costs

Balance at January 1

Charged to costs and expenses

(Deductions)/Other

For the years ended December 31, 2019, 2018 and 2017 , there were no exercises of stock options.

Balance at December 31

For the years ended December 31, 2020 and 2019, there were exercises of stock options of $296 and $0, respectively.

As required by ASC 740, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

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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.

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

In May of 2020, the audit was successfully completed with no change required.

Management periodically estimates our probable tax obligations using historical experience in tax jurisdictions and informed judgments.

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A provision has not been established because it is not practicable to determine the amount of unrecognized deferred tax liability for such unremitted foreign earnings and because it is our present intention to reinvest the undistributed earnings indefinitely.

As of December 31, 2019 , the investment in Fuel Tech S.p.A (Chile) was no longer considered to be indefinite and a provision for deferred U.S income taxes was recorded.

The deferred income taxes associated with this investment are offset by a valuation allowance.

As required by ASC 740, a valuation allowance must be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized.

We have approximately $25,486 of US net operating loss carryforwards available to offset future US taxable income as of December 31, 2020.

The net operating loss carry-forwards related to tax losses generated in prior years in the US begin to expire in 2034.

The net operating loss carry-forwards related to tax losses generated in years ending December 31, 2017 and before in the US totaling $10,733 begin to expire in 2034.

Further, we have tax loss carry-forwards of approximately $6,246 available to offset future foreign income in Italy as of December 31, 2020.

We have recorded a full valuation allowance against the resulting $1,363 deferred tax asset because we cannot anticipate when or if this entity will have taxable income sufficient to utilize the net operating losses in the future.

We have recorded a full valuation allowance against the deferred tax asset because we cannot anticipate when or if this entity will have taxable income sufficient to utilize the net operating losses in the future.

There is no expiration of the net operating loss carry-forwards related to tax losses generated in prior years in Italy.

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The net operating loss carry-forwards related to tax losses generated in prior years in China expire in 2022.

As of December 31, 2019, the investment in Fuel Tech S.p.A (Chile) was no longer considered to be indefinite and a provision for deferred U.S income taxes of $155 was recorded.

As of December 31, 2020, Fuel Tech S.p.A (Chile) was still included in continuing operations, as a result an additional $15 was recorded, adjusting the total consideration to $170.

The deferred income taxes associated with this investment are offset by a valuation allowance of ($170).

COMMON SHARES

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They are repayable in the event of our dissolution and the holders do not have the option to cash-settle the notes.

Accordingly, they have been classified within stockholders’ equity in the accompanying balance sheet.

Accordingly, they have been classified within stockholders’ equity in the accompanying balance sheets.

The notes do not hold distribution or voting rights unless and until converted into common shares.

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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, 2019 , we had approximately 2,231,382 equity awards available for issuance under the Incentive Plan.

At December 31, 2020 , we had 2,533,639 equity awards available for issuance under the Incentive Plan.

Stock-based compensation is included in selling, general and administrative costs in our consolidated statements of operations.

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Stock compensation for these awards is based on the grant date fair value of the award and is recognized in expense immediately.

Forfeitures are recognized as they occur.

Fuel Tech uses the Black-Scholes option pricing model to estimate the grant date fair value of employee stock options.

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

Based on the results of the model, the weighted-average fair value of the stock options granted during the 12-month period ended December 31, 2017 were $0.68 per share using the following weighted average assumptions:

Expected dividend yield

Risk-free interest rate

Expected volatility

Expected life of option

There were no stock options granted during the year ended December 31, 2019 and 2018.

There were no stock options granted during the years ended December 31, 2020 and 2019 .

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

Exercise Price

Number of Options

Weighted-Average Exercise Price

Number of Options

Weighted-Average Exercise Price

Outstanding at beginning of year

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Weighted-average fair value of options granted during the year

Weighted-Average Remaining Contractual Life

Weighted-Average Remaining Contractual Life (years)

Aggregate Intrinsic Value

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Options Outstanding and Exercisable

Exercise Prices

Contractual Life

Exercise Price

Range of Exercise Prices

Number of Options

Weighted-Average Remaining Contractual Life (years)

Weighted-Average Exercise Price

$0.96 - $1.27

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As of and for the 12 months ended December 31, 2020 , there was no non-vested stock option activity and $0 of total unrecognized compensation cost related to non-vested stock options granted under the Incentive Plan.

Fuel Tech received no proceeds from the exercise of stock options in the years ended December 31, 2019, 2018 and 2017 , respectively.

Fuel Tech received proceeds of $296 from the exercise of stock options in the years ended December 31, 2020 , and $0 in 2019 , 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

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A summary of restricted stock unit activity for the years ended December 31, 2020 and 2019 is as follows:

Weighted Average

Unvested restricted stock units at December 31, 2016

Weighted Average Grant Date Fair Value

Unvested restricted stock units at December 31, 2018

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Unvested restricted stock units at December 31, 2020

(1) The increase in shares vested in 2017 is due to the accelerated time vesting of outstanding remaining restricted stock units approved by the Company's Board of Directors on June 28, 2017.

Deferred Directors Fees

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We do not believe we have any pending loss contingencies that are probable or reasonably possible of having a material impact on our consolidated financial position, results of operations or cash flows.

During the fourth quarter of 2018, we were notified of certain design non-conformances in a project with a U.S.

customer that required remedial warranty work under the contract.

For the year ended December 31, 2019 , we recognized remediation costs of $2,241 included within costs of sales in the Consolidated Statements of Operations.

The Company believes there are no ongoing remedial obligations to the customer.

In connection with this matter, in early 2019 we notified our errors and omission insurer of the claim and were issued a letter confirming coverage of the claim under the applicable policy.

Although we have periodically submitted expenses for reimbursement to our insurer, as of the filing date the insurer has not yet fully completed its

review of submitted reimbursement requests.

In light of the pending status of the settlement, the Company determined, in the exercise of its judgment as prescribed by ASC 450 Contingencies , to not reflect any benefits that might be realized from our insurer and will reflect such benefit at such time as settlement with our insurer becomes certain.

As of December 31, 2019, we have recorded no receivables from the insurance carrier and 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 third quarter of 2020, the Company was notified of an equipment component failure at a foreign customer location.

The failure will be remedied under the warranty provision of the contracts that are in place with the customer and supplier.

As of December 31, 2020 a charge of $176 was recorded in the accounts payable line of the Consolidated Balance Sheets.

In 2018, the Company was notified of a certain non-conformance issues with a U.S.

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

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 December 31, 2020 and December 31, 2019, we have $176 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.

During the third quarter of 2020, the Company settled an outstanding claim with our insurance provider for these remediation efforts and recorded a receivable in the amount of $2,589.

The settlement is recorded in the cost of sales line on the Consolidated Statement of Operations.

Collection of the funds was completed in October 2020.

Performance Guarantees

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As of December 31, 2020 , we had outstanding bank performance guarantees and letters of credit in the amount of $1,873 in support of equipment construction contracts that have not completed their final acceptance test or that are still operating under a warranty period.

The performance guarantees and letters of credit expire in dates ranging from May 2020 through February 2023.

The performance guarantees and letters of credit expire in dates ranging from December 2020 through February 2023.

Due to the timing of expiration and the actual release of commitment from our bank, as of December 31, 2020, $1,134 of performance guarantees have expired and are currently reflected in outstanding balance.

The expiration dates may be extended if the project completion dates are extended.

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

There was 0 changes in the warranty liability from continuing operations in 2019, 2018 and 2017 .

There were no changes in the warranty liability from continuing operations in 2020 and 2019 .

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

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The adjustment made to the January 1, 2019 consolidated balance sheet related to an accrued liability for lease escalation clauses in certain of our leases under ASC 840 which is a cumulative-effect adjustment to the opening balance of accumulated deficit upon the adoption of ASC 842.

The terms of the Company’s four primary office space lease arrangements are as follows:

The terms of the Company’s three primary office space lease arrangements are as follows:

The Gallarate, Italy building lease, for approximately 1,335 square feet, runs from May 1, 2019 to April 30, 2025.

This facility serves as the operating headquarters for our European operations.

The Westlake, Ohio building lease, for approximately 3,000 square feet, runs from May 1, 2017 to April 30, 2020.

This facility houses engineering operations.

The Aurora, IL warehouse lease, for approximately 11,000 square feet, runs from September 1, 2013 to December 31, 2020.

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We have no financing leases as defined under ASC 842.

We were party to a sublease agreement with American Bailey Corporation (ABC) that obligated ABC to reimburse us for its share of lease and lease-related expenses under our February 1, 2010 lease of executive offices in Stamford, Connecticut.

The Company did not renew the lease following its expiration on December 31, 2019.

Please refer to Note 12 to the consolidated financial statements for a discussion of our relationship with ABC.

Total operating lease expense for the year ended December 31, 2019 is as follows:

Total operating lease expense for the years ended December 31, 2020 is as follows:

Operating lease cost

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Total lease cost

Prior to the adoption of ASC 842, rent expense, net of related party sub-lease income, was approximately $745 and $902 for the years ended December 31, 2018 and 2017.

The weighted average remaining lease term was 3.04 years as of December 31, 2020 .

The weighted average discount rate was 4.68% as of December 31, 2020 .

An incremental borrowing rate of 5.25% was used for the properties in the United States and a rate of 2.67% for our lease in Italy.

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

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Less imputed interest

The following is the balance sheet classification of our existing lease liabilities as of December 31, 2019 :

The following is the balance sheet classification of our existing lease liabilities:

Operating lease liabilities - current

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Supplemental cash flow information related to leases was as follows:

For the Twelve Months ended December 31, 2019

For the Twelve Months ended

December 31, 2020

For the twelve months ended

December 31, 2019

Cash paid for amounts included in the measurement of lease liabilities

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The Facility was amended on several occasions during 2019 and 2018, most recently June 19, 2019, in order to amend the maximum availability under the Facility.

As of December 31, 2018, there were no outstanding borrowings under the Facility.

At December 31, 2018, we had outstanding standby letters of credit and bank guarantees totaling approximately $5,028 on our domestic credit facility in connection with contracts in process.

We were committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

At December 31, 2018, there were no cash borrowings under the domestic revolving credit facility and approximately $443 was available for future borrowings under the Facility.

We paid a commitment fee of 0.25% per year on the unused portion of the revolving credit facility.

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The Facility was secured by $520 in cash held by the Company in a separate restricted use designated JPM Chase deposit account.

The China Facility bears interest at a rate of 140% of the People’s Bank of China (PBOC) Base Rate, and is guaranteed by the Company.

Beijing Fuel Tech can use this facility for cash advances and bank guarantees.

As of December 31, 2018, Beijing Fuel Tech had no cash borrowings under the China Facility.

At December 31, 2018, we had no outstanding standby letters of credit and bank guarantees on its Beijing Fuel Tech revolving credit facility in connection with contracts in process.

At December 31, 2018, approximately $382 was available for future borrowings.

As a result of the announcement of the suspension of the Air Pollution Control business in Beijing, the Company did not renew the China Facility upon its expiration on June 30, 2019.

On April 17, 2020, the Company received loan proceeds in the amount of approximately $1,556 under the Paycheck Protection Program (“PPP”).

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.

The Company used the proceeds for purposes consistent with the PPP.

On January 8, 2021, the Small Business Administration informed the Company that its PPP loan had been forgiven in full.

The balance of the loan is reflected in the Long-term borrowing line of the balance sheet as of December 31, 2020.

RELATED PARTY TRANSACTIONS

Persons now or formerly associated with American Bailey Corporation (ABC) currently own approximately 27% of our outstanding Common Shares.

There are no material Related Party transactions to disclose.

The transaction with American Bailey Corp.

reported in the prior year Form 10-K for 2019 ended December 31, 2019.

As of December 31, 2019, persons now or formerly associated with American Bailey Corporation (ABC) owned approximately 27% of our outstanding Common Shares.

ABC was a sub-lessee under our February 1, 2010 lease of its offices in Stamford, Connecticut, which ran through December 31, 2019.

The Company did not renew the lease following its expiration on December 31, 2019.

ABC reimburses us for its share of lease and lease-related expenses under the sublease agreement.

The Stamford facility houses certain administrative functions.

The amounts earned from ABC related to the subleases for the years ended December 31, 2019, 2018 and 2017 , were $165 , $164 and $164 , respectively.

The amount due from ABC related to the sublease agreement was $27 and $40 at December 31, 2019 and 2018 respectively.

ABC reimbursed us for its share of lease and lease-related expenses under the sublease agreement.

The Stamford facility housed certain administrative functions.

The amounts earned from ABC related to the subleases for the year ended December 31, 2019 was $165.

The amount due from ABC related to the sublease agreement was $27 at December 31, 2019.

DEFINED CONTRIBUTION PLAN

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We segregate our financial results into two reportable segments representing two broad technology segments as follows:

The Air Pollution Control technology segment includes technologies to reduce NO x emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources.

These include Low and Ultra Low NO x Burners (LNB and ULNB), Over-Fire Air (OFA) systems, NO x OUT ® and HERT™ Selective Non-Catalytic Reduction (SNCR) systems, and Advanced Selective Catalytic Reduction (ASCR ™ ) systems.

Our ASCR systems include ULNB, OFA, and SNCR components, along with a downsized SCR catalyst, Ammonia Injection Grid (AIG), and Graduated Straightening Grid GSG™ systems to provide high NO x reductions at significantly lower capital and operating costs than conventional SCR systems.

The NO x OUT CASCADE ® and NO x OUT-SCR ® processes are more basic, using just SNCR and SCR catalyst components.

The Air Pollution Control technology segment includes technologies to reduce NOx emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources.

These include Low and Ultra Low NOx Burners (LNB and ULNB), Over-Fire Air (OFA) systems, NOxOUT ® and HERT™ Selective Non-Catalytic Reduction (SNCR) systems, and Advanced Selective Catalytic Reduction (ASCR ™ ) systems.

Our ASCR systems include ULNB, OFA, and SNCR components, along with a downsized SCR catalyst, Ammonia Injection Grid (AIG), and Graduated Straightening Grid GSG™ systems to provide high NOx reductions at significantly lower capital and operating costs than conventional SCR systems.

The NOxOUT CASCADE ® and NOxOUT-SCR ® processes are more basic, using just SNCR and SCR catalyst components.

ULTRA ® technology creates ammonia at a plant site using safe urea for use with any SCR application.

9 unchanged sentences

For the year ended December 31, 2020

Air Pollution

Control Segment

Air Pollution Control Segment

FUEL CHEM Segment

Revenues from external customers

6 unchanged sentences

For the year ended December 31, 2019

Air Pollution

Control Segment

Revenues from external customers

Cost of sales

Selling, general and administrative

Research and development

Intangible assets abandonment

Operating income (loss) from continuing operations

For the year ended December 31, 2017

Air Pollution

Control Segment

Air Pollution Control Segment

FUEL CHEM Segment

Revenues from external customers

3 unchanged sentences

Research and development

Building impairment

Intangible assets abandonment

Operating income (loss) from continuing operations

31 unchanged sentences

The Company recorded restructuring charges $625 for the twelve months ended December 31, 2019 associated with the suspension of its APC business operation in China.

The charge consisted primarily of one-time severance costs of $562 and the early termination penalty for our lease associated with the suspension of our APC business in China of $63 .

The charge consisted primarily of one-time severance costs of $562 and the early termination penalty for our lease in the amount of $63 associated with the suspension of our 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 resulting in the early termination penalty.

The Company recorded no restructuring charge for the twelve-months ending December 31, 2020.

The Company recorded a charge of approximately $700 in 2017 in connection with the workforce reduction.

This charge included $581 related to severance and benefit continuation costs due to the suspension of all operations associated with the Fuel Conversion business segment.

The following is a reconciliation of the accrual for the workforce reduction that is included within the "Accrued Liabilities" line of the consolidated balance sheets:

7 unchanged sentences

For the quarters ended

September 30,

Cost of sales

Net (loss) from continuing operations

Net (loss) income from continuing operations

Income (loss) from discontinued operations

Net income (loss)

Basic net income (loss) per common share:

Net (loss) income

Basic net (loss) income per common share:

Continuing operations

Discontinued operations

Basic net income (loss) per common share:

Diluted net income (loss) per common share:

Basic net (loss) income per common share:

Diluted net (loss) income per common share:

Continuing operations

Discontinued operations

Diluted net income (loss) per common share:

Diluted net (loss) income per common share:

Cost of sales

Net income (loss) from continuing operations

Net loss from continuing operations

Loss from discontinued operations

Net income (loss)

Basic net income (loss) per common share:

Basic net loss per common share:

Continuing operations

Discontinued operations

Basic net income (loss) per common share:

Diluted net income (loss) per common share:

Basic net loss per common share:

Diluted net loss per common share:

Continuing operations

Discontinued operations

Diluted net income (loss) per common share:

Diluted net loss per common share:

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data