FUEL TECH, INC. 10-Q

ftek20230930_10q.htm       UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q   (Mark One)   ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended September 30, 2023 or   ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to______. Commission file number: 001-33059   FUEL TECH, INC. (Exact name of registrant as specified in its charter)   Delaware 20-5657551 (State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification Number)   Fuel Tech, Inc. 27601 Bella Vista Parkway Warrenville , IL 60555 -1617 630 - 845-4500 www.ftek.com (Address and telephone number of principal executive offices)   ________________________________   Securities registered pursuant to Section 12(b) of the Act:   Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock   FTEK NASDAQ   Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   ☒    No  ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes   ☒    No  ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   Large accelerated filer   ☐ Accelerated filer   ☐ Non-accelerated filer   ☒ Smaller reporting company   ☒       Emerging growth company   ☐   If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ☐     No  ☒   O n October 31, 2023 there were outstanding 30,385,297   sh ares of Common Stock, par value $0.01 per share, of the registrant.            Table of Contents     FUEL TECH, INC. Form 10-Q for the nine-month period ended September 30, 2023   INDEX       Page PART I. FINANCIAL INFORMATION   Item 1. Financial Statements (Unaudited) 1   Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 1   Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 2   Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022 3   Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022 4   Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 5   Notes to Condensed Consolidated Financial Statements 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk 19 Item 4. Controls and Procedures 19 PART II. OTHER INFORMATION 20 Item 1. Legal Proceedings 20 Item 1A. Risk Factors 20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 6. Exhibits 20 SIGNATURES 21     Table of Contents       PART I. FINANCIAL INFORMATION   Item 1. Financial Statements   FUEL TECH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(in thousands, except share and per share data)       September 30,     December 31,       2023     2022   ASSETS                 Current assets:                 Cash and cash equivalents   $ 13,483     $ 23,328   Short-term investments     14,802       2,981   Accounts receivable, net     7,696       7,729   Inventories, net     325       392   Prepaid expenses and other current assets     1,041       1,395   Total current assets     37,347       35,825   Property and equipment, net of accumulated depreciation of $ 18,727 and $ 18,557 , respectively     4,364       4,435   Goodwill     2,116       2,116   Other intangible assets, net of accumulated amortization of $ 452 and $ 406 , respectively     376       397   Right-of-use operating lease assets, net     462       197   Long-term investments     4,883       6,360   Other assets     771       794   Total assets   $ 50,319     $ 50,124   LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Accounts payable   $ 2,872     $ 2,710   Accrued liabilities:                 Operating lease liabilities - current     103       125   Employee compensation     618       1,105   Other accrued liabilities     1,838       826   Total current liabilities     5,431       4,766   Operating lease liabilities - non-current     348       66   Deferred income taxes, net     177       177   Other liabilities     275       274   Total liabilities     6,231       5,283   Stockholders’ equity:                 Common stock, $ .01 par value, 40,000,000 shares authorized, 31,361,303 and 31,272,303 shares issued, and 30,385,297 and 30,296,297 shares outstanding, respectively     313       313   Additional paid-in capital     164,752       164,422   Accumulated deficit     ( 116,990 )     ( 115,991 ) Accumulated other comprehensive loss     ( 1,812 )     ( 1,728 ) Nil coupon perpetual loan notes     76       76   Treasury stock, at cost     ( 2,251 )     ( 2,251 ) Total stockholders’ equity     44,088       44,841   Total liabilities and stockholders’ equity   $ 50,319     $ 50,124     See notes to condensed consolidated financial statements.   1 Table of Contents                                              FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except share and per-share data)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Revenues   $ 7,988     $ 8,017     $ 20,736     $ 19,920   Costs and expenses:                                 Cost of sales     4,376       4,345       12,323       11,280   Selling, general and administrative     2,966       3,273       9,126       9,201   Research and development     513       207       1,144       716         7,855       7,825       22,593       21,197   Operating income (loss)     133       192       ( 1,857 )     ( 1,277 ) Interest expense     ( 5 )     ( 4 )     ( 15 )     ( 13 ) Interest income     322       92       968       101   Other income (expense), net     9       34       ( 95 )     158   Income (loss) before income taxes     459       314       ( 999 )     ( 1,031 ) Income tax expense     —       —       —       ( 9 ) Net income (loss)   $ 459     $ 314     $ ( 999 )   $ ( 1,040 ) Net income (loss) per common share:                                 Basic net income (loss) per common share   $ 0.02     $ 0.01     $ ( 0.03 )   $ ( 0.03 ) Diluted net income (loss) per common share   $ 0.01     $ 0.01     $ ( 0.03 )   $ ( 0.03 ) Weighted-average number of common shares outstanding:                                 Basic     30,385,000       30,296,000       30,336,000       30,287,000   Diluted     30,627,000       30,371,000       30,336,000       30,287,000     See notes to condensed consolidated financial statements.   2 Table of Contents       FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (in thousands)       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Net income (loss)   $ 459     $ 314     $ ( 999 )   $ ( 1,040 ) Other comprehensive (loss) income:                                 Foreign currency translation adjustments     ( 122 )     ( 155 )     ( 84 )     ( 447 ) Comprehensive income (loss)   $ 337     $ 159     $ ( 1,083 )   $ ( 1,487 )   See notes to condensed consolidated financial statements.   3 Table of Contents       FUEL TECH, INC. CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)(in thousands of dollars or shares, as appropriate)   The following summarizes the changes in total stockholders' equity for the three and nine months ended September 30, 2022:                                       Accumulated     Nil                                       Additional             Other     Coupon                       Common Stock     Paid-in     Accumulated     Comprehensive     Perpetual     Treasury               Shares     Amount     Capital     Deficit     Loss     Loan Notes     Stock     Total   Balance at December 31, 2021     30,264     $ 312     $ 164,199     $ ( 114,549 )   $ ( 1,604 )   $ 76     $ ( 2,234 )   $ 46,200   Net loss     —       —       —       ( 998 )     —       —       —       ( 998 ) Foreign currency translation adjustments     —       —       —       —       ( 70 )     —       —       ( 70 ) Stock compensation expense     —       —       18       —       —       —       —       18   Common shares issued upon vesting of restricted stock units     45       1       ( 1 )     —       —       —       —       —   Taxes paid on behalf of equity award participants     ( 13 )     —       —       —       —       —       ( 17 )     ( 17 ) Balance at March 31, 2022     30,296     $ 313     $ 164,216     $ ( 115,547 )   $ ( 1,674 )   $ 76     $ ( 2,251 )   $ 45,133   Net loss     —       —       —       ( 356 )     —       —       —       ( 356 ) Foreign currency translation adjustments     —       —       —       —       ( 222 )     —       —       ( 222 ) Stock compensation expense     —       —       28       —       —       —       —       28   Balance at June 30, 2022     30,296     $ 313     $ 164,244     $ ( 115,903 )   $ ( 1,896 )   $ 76     $ ( 2,251 )   $ 44,583   Net income     —       —       —       314       —       —       —       314   Foreign currency translation adjustments     —       —       —       —       ( 155 )     —       —       ( 155 ) Stock compensation expense     —       —       90       —       —       —       —       90   Balance at September 30, 2022     30,296     $ 313     $ 164,334     $ ( 115,589 )   $ ( 2,051 )   $ 76     $ ( 2,251 )   $ 44,832       The following summarizes the changes in total stockholders' equity for the three and nine months ended September 30, 2023:                                       Accumulated     Nil                                       Additional             Other     Coupon                       Common Stock     Paid-in     Accumulated     Comprehensive     Perpetual     Treasury               Shares     Amount     Capital     Deficit     Loss     Loan Notes     Stock     Total   Balance at December 31, 2022     30,296     $ 313     $ 164,422     $ ( 115,991 )   $ ( 1,728 )   $ 76     $ ( 2,251 )   $ 44,841   Net loss     —       —       —       ( 414 )     —       —       —       ( 414 ) Foreign currency translation adjustments     —       —       —       —       86       —       —       86   Stock compensation expense     —       —       89       —       —       —       —       89   Balance at March 31, 2023     30,296     $ 313     $ 164,511     $ ( 116,405 )   $ ( 1,642 )   $ 76     $ ( 2,251 )   $ 44,602   Net loss     —       —       —       ( 1,044 )     —       —       —       ( 1,044 ) Foreign currency translation adjustments     —       —       —       —       ( 48 )     —       —       ( 48 ) Stock compensation expense     —       —       98       —       —       —       —       98   Exercise of stock options     44       —       42       —       —       —       —       42   Common shares issued upon vesting of restricted stock units     45       —       —       —       —       —       —       —   Balance at June 30, 2023     30,385     $ 313     $ 164,651     $ ( 117,449 )   $ ( 1,690 )   $ 76     $ ( 2,251 )   $ 43,650   Net income     —       —       —       459       —       —       —       459   Foreign currency translation adjustments     —       —       —       —       ( 122 )     —       —       ( 122 ) Stock compensation expense     —       —       101       —       —       —       —       101   Balance at September 30, 2023     30,385     $ 313     $ 164,752     $ ( 116,990 )   $ ( 1,812 )   $ 76     $ ( 2,251 )   $ 44,088     See notes to condensed consolidated financial statements.   4 Table of Contents       FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)       Nine Months Ended       September 30,       2023     2022   Operating Activities                 Net loss   $ ( 999 )   $ ( 1,040 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                 Depreciation     247       267   Amortization     46       70   Non-cash interest income on held-to-maturity securities     ( 319 )     —   Provision for credit losses, net of recoveries     —       ( 45 ) Stock-based compensation, net of forfeitures     288       136   Changes in operating assets and liabilities:                 Accounts receivable     5       ( 3,449 ) Inventories     68       ( 44 ) Prepaid expenses, other current assets and other non-current assets     363       370   Accounts payable     172       1,094   Accrued liabilities and other non-current liabilities     520       50   Net cash provided by (used in) operating activities     391       ( 2,591 ) Investing Activities                 Purchases of equipment and patents     ( 201 )     ( 186 ) Purchases of debt securities     ( 14,026 )     ( 9,777 ) Maturities of debt securities     4,000       —   Net cash used in investing activities     ( 10,227 )     ( 9,963 ) Financing Activities                 Proceeds from exercise of stock options     42       —   Taxes paid on behalf of equity award participants     —       ( 17 ) Net cash provided by (used in) financing activities     42       ( 17 ) Effect of exchange rate fluctuations on cash     ( 51 )     ( 401 ) Net decrease in cash and cash equivalents     ( 9,845 )     ( 12,972 ) Cash and cash equivalents at beginning of period     23,328       37,054   Cash and cash equivalents at end of period   $ 13,483     $ 24,082     See notes to condensed consolidated financial statements.   5 Table of Contents   FUEL TECH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (Unaudited) (in thousands, except share and per-share data)     1.      General   Organization   Fuel Tech, Inc. and subsidiaries ("Fuel Tech", the "Company", "we", "us" or "our") develops and provides proprietary technologies for air pollution control, process optimization, water treatment, and advanced engineering services. These technologies enable customers to operate in a cost-effective and environmentally sustainable manner.   The Company’s nitrogen oxide (NOx) reduction technologies reduce nitrogen oxide emissions from boilers, furnaces, and other stationary combustion sources. To reduce NOx emissions, our technologies utilize advanced combustion modification techniques and post-combustion NOx control approaches including non-catalytic, catalytic, and combined systems. The Company also provides solutions for the mitigation of particulate matter, including particulate control with electrostatic precipitator products and services, and using flue gas conditioning systems which modify the ash properties of particulate for improved collection efficiency. The Company’s FUEL CHEM® technology improves the efficiency, reliability, fuel flexibility, boiler heat rate, and environmental status of combustion units by controlling slagging, fouling, corrosion, and opacity.  Water treatment technologies include DGI® Dissolved Gas Infusion Systems which utilize a patented gas-infusing saturator vessel and a patent-pending channel injector to deliver supersaturated oxygen-water solutions and potentially other gas-liquid combinations to target process applications or environmental issues within the municipal and industrial water sectors. The infusion process has a variety of potential applications in the water and wastewater treatment sector, including aquaculture, agriculture/horticulture, pulp & paper, tanneries, landfill leachate, irrigation, treatment of natural waters, wastewater odor management as well as supplying oxygen or other gases for biochemical reactions and pH adjustment.   Many of Fuel Tech’s products and services rely heavily on the Company’s computational fluid dynamics modeling capabilities, which are enhanced by internally developed, high-end visualization software.   Basis of Presentation   The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10 -Q and Article 10 of Regulation S- X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for the fair statement of Fuel Tech's financial position, cash flows, and results of operations for the periods presented. All significant intercompany transactions and balances have been eliminated. The results of operations for the  three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December  31, 2023 . 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, 2022 as filed with the Securities and Exchange Commission.   Global Health and Geopolitical Events   Management cannot predict the full impact of the COVID- 19 pandemic and geopolitical events on the Company’s sales and marketing channels and supply chain, and as a result, the ultimate extent of the effects on the Company are highly uncertain and will depend on future developments. The Company continues to monitor the potential impacts on the business.      2.     Summary of Significant Accounting Policies   Investments   In 2022, the Board of Directors approved a plan to invest up to $ 20,000  of excess capital in debt securities, or held in money market funds until such investments can be made, with BMO Harris Bank N.A (BMO Harris). A portion of the funds invested are restricted as collateral under the Investment Collateral Security agreement (see Note 10 ). At September 30, 2023 , the amount of funds collateralized under the Investment Collateral Security agreement is $ 1,488  relating to existing standby letters of credit that is comprised of $ 1,197  with varying maturity dates and expire no later than September 30, 2024 and $ 291  with the latest maturity date no later than  November 30, 2025.   We consider all highly liquid debt investments with original maturities from the date of purchase of three months or less as cash equivalents. Cash equivalents include investments in money market funds. Carrying value of cash equivalents approximates fair value due to the maturities of three months or less.   Our investments in debt securities consist of United States (US) Treasury securities, including Notes, Bonds, and Bills, and US Government Agency securities, which are designated as held-to-maturity (HTM) and stated at amortized cost. The Company has the positive intent and ability to hold these investments to maturity and does  not expect to sell any debt securities before maturity to settle an obligation under the Investment Collateral Security agreement. The maturities of our HTM investments range from three to thirty-six months. HTM debt investments with original maturities of approximately three months or less from the date of purchase are classified within cash and cash equivalents. HTM debt investments with original maturities at the date of purchase greater than approximately three months and remaining maturities of less than one year are classified as short-term investments. HTM debt investments with remaining maturities beyond one year are classified as long-term investments. Interest income, including amortization of premium and accretion of discount, are included on the Condensed Consolidated Statements of Operations in Interest income under the effective yield method. Accrued interest is included in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.    6 Table of Contents   Our investments in debt securities consist of United States (US) Treasury securities, including Notes, Bonds, and Bills, and US Government Agency securities. Due to the creditworthiness of the entities issuing these securities, there is  no  impairment recorded related to the unrealized losses.   The following table provides the amortized cost, gross unrealized gains and losses, and fair value of our HTM debt securities:       As of   Held-to-maturity debt securities:   September 30, 2023     December 31, 2022   Amortized cost   $ 19,685     $ 9,341   Gross unrecognized gains     —       —   Gross unrecognized losses     ( 187 )     ( 168 ) Fair value   $ 19,498     $ 9,173     The following table provides the amortized cost and fair value of debt securities by maturities at September 30, 2023 :       Amortized Cost     Fair Value   Within one year   $ 14,802     $ 14,694   After one year through two years     4,883       4,804   Total   $ 19,685     $ 19,498     Inventories   Inventories consist primarily of equipment constructed for resale and spare parts and are stated at the lower of cost or net realizable value, using the weighted-average cost method. At  September 30, 2023  and December 31, 2022 , inventory included equipment constructed for resale of $ 207  and $ 207 , respectively, and spare parts, net of reserves of $ 118  and $ 185 , respectively. Usage is recorded in cost of sales in the period that parts were issued to a project, used to service equipment, or sold to customers. Equipment constructed for resale that is in process is recorded in Other assets. In process equipment for inventory recorded as Other assets was $ 619  and $ 634  as of  September 30, 2023  and December 31, 2022 , respectively. In ventories are periodically evaluated to identify obsolete or otherwise impaired parts and are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used.    Allowance for Credit Losses   In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016 - 13,  Financial Instruments - Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments, and in November 2019, the FASB issued ASU 2019 - 10, Financial Instruments - Credit Losses (Topic 326 ), Derivatives and Hedging (Topic 815 ), and Leases (Topic 842 ). This guidance requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables and other financial instruments, we are required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The Company adopted these ASUs on January 1, 2023 using the prospective method. Application of the amendments did not require a cumulative-effect adjustment to retained earnings as of the effective date and did not have a material impact on our financial statements. Beginning on January 1, 2023, Fuel Tech will use the caption Allowance for Credit Losses and our expected credit loss model to calculate the allowance.   For the general risk categories, the Company uses historical losses over a fixed period, excluding certain write-off activity that was  not considered credit loss events, to determine the historical credit loss. Historical loss rates are then adjusted to consider current economic conditions, and past, current, and future events and circumstances when determining expected credit losses. Investments in financial assets issued by US Government and Government Agency are considered as having zero expected credit losses and are excluded from the allowance for credit loss calculation.   The following table provides the roll forward of the allowance for credit loss:   At January 1, 2022   $ 223   Provision charged to expense     ( 19 ) (Write-offs) / Recoveries     ( 94 ) At December 31, 2022   $ 110   Provision charged to expense     —   (Write-offs) / Recoveries     —   At September 30, 2023   $ 110       3.      Revenue   Disaggregated Revenue by Product Technology   The following table presents our revenues disaggregated by product technology:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Air Pollution Control                                 Technology solutions   $ 1,910     $ 1,904     $ 7,449     $ 5,711   Spare parts     1,339       384       1,938       742   Ancillary revenue     462       440       1,305       1,217   Total Air Pollution Control technology revenues     3,711       2,728       10,692       7,670   FUEL CHEM                                 FUEL CHEM technology solutions     4,277       5,289       10,044       12,250   Total Revenues   $ 7,988     $ 8,017     $ 20,736     $ 19,920     7 Table of Contents   Disaggregated Revenue by Geography   The following table presents our revenues disaggregated by geography, based on t he location of the end-user:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   United States   $ 5,640     $ 6,972     $ 15,937     $ 14,939   Foreign Revenues                                 Latin America     157       56       310       185   Europe     1,001       613       2,400       1,939   Asia     1,190       376       2,089       2,857   Total Foreign Revenues     2,348       1,045       4,799       4,981   Total Revenues   $ 7,988     $ 8,017     $ 20,736     $ 19,920     Timing of Revenue Recognition   The following table presents the timing of our revenue recognition:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Products transferred at a point in time   $ 6,078     $ 5,969     $ 13,287     $ 14,065   Products and services transferred over time     1,910       2,048       7,449       5,855   Total Revenues   $ 7,988     $ 8,017     $ 20,736     $ 19,920     Contract Balances   The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. In our Air Pollution Control (APC) technology segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. For the FUEL CHEM technology segment, deliveries made in the current period but billed in subsequent periods are also considered unbilled receivables (contract assets). These assets are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. At September 30, 2023 ,  December 31, 2022 , and December 31, 2021, contract assets for APC technology projects were approximately $ 1,944 , $ 3,082 , and $ 1,277 , respectively. There were no contract assets for the FUEL CHEM technology segment as of  September 30, 2023 ,  December 31, 2022 , and December 31, 2021.     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 Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Contract liabilities were $ 1,365 , $ 372 , and $ 390 at September 30, 2023 ,  December 31, 2022 , and December 31, 2021, respectively, and are included in other accrued liabilities on the Condensed Consolidated Balance Sheets.   Changes in the contract asset and liability balances during the  nine -month period ended September 30, 2023 , 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 $ 0  and $ 368  for the three and nine months ended September 30, 2023 , respectively, and $ 131  and $ 381  for three and nine months ended September 30, 2022 , respectively, which represented primarily revenue from progress towards completion of our APC technology contracts.   As of September 30, 2023  and December 31, 2022 , we had no construction contracts in progress that were identified as a loss contract.    8 Table of Contents   Remaining Performance Obligations   Remaining performance obligations represents the transaction price of APC technology booked orders for which work has not been performed. As of September 30, 2023 , the aggregate amount of the transaction price allocated to remaining performance obligations was $ 5,624 . The Company expects to recognize revenue on approximately $ 4,874  of the remaining performance obligations over the next 12 months with the remaining recognized thereafter.    Accounts Receivable   The components of accounts receivable are as follows:       As of       September 30, 2023     December 31, 2022   Trade receivables   $ 5,717     $ 4,605   Unbilled receivables     1,944       3,082   Other short-term receivables     145       152   Allowance for credit losses     ( 110 )     ( 110 ) Total accounts receivable   $ 7,696     $ 7,729       4.      Restructuring Activities   On January 18, 2019, the Company announced a planned suspension of its APC business operation in China. This action was 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 September 30, 2023 includes staff rationalization and reduction, supplier and partner engagement, and the monetization of certain assets. The remaining transition activities include the execution of the activities to satisfy the requirements for the remaining APC projects in China (with a backlog totaling approximately $ 3 ) and those related to subsidiary closure.   The following table presents our revenues and net loss for  2023 and 2022 in China as follows:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Total revenues   $ —     $ 1     $ 2     $ 2   Net loss     ( 17 )     ( 142 )     ( 36 )     ( 193 )   Total assets primarily consist of cash and other receivables. Total liabilities consist of accounts payable and certain accrued liabilities.   The following table presents net assets in China as follows:       As of       September 30, 2023     December 31, 2022   Total assets   $ 842     $ 929   Total liabilities     73       79   Total net assets   $ 769     $ 850     9 Table of Contents     5.      Accumulated Other Comprehensive Loss   The changes in accumulated other comprehensive loss by component were as follows:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Foreign currency translation                                 Balance at beginning of period   $ ( 1,690 )   $ ( 1,896 )   $ ( 1,728 )   $ ( 1,604 ) Other comprehensive (loss) income:                                 Foreign currency translation adjustments (1)     ( 122 )     ( 155 )     ( 84 )     ( 447 ) Total accumulated other comprehensive loss   $ ( 1,812 )   $ ( 2,051 )   $ ( 1,812 )   $ ( 2,051 )   ( 1 ) In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.     6.      Treasury Stock   Common stock held in treasury totaled 976,006  with a cost of $ 2,251  at September 30, 2023 and December 31, 2022 . 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.     7.      Earnings per Share   Basic earnings per share excludes the dilutive effects of stock options, restricted stock units (RSUs), warrants, and the nil coupon non-redeemable convertible unsecured loan notes. Diluted earnings per share includes the dilutive effect of the nil coupon non-redeemable convertible unsecured loan notes, RSUs, warrants, and unexercised in-the-money stock options, except in periods of net loss where the effect of these instruments is anti-dilutive. Out-of-money stock options and warrants are excluded from diluted earnings per share because they are unlikely to be exercised and would be anti- dilutive if they were exercised. For the nine months ended September 30, 2023 and 2022,  basic earnings per share is equal to diluted earnings per share because all outstanding stock awards, warrants, 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 nine months ended September 30, 2023 and 2022 .       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Basic weighted-average shares     30,385,000       30,296,000       30,336,000       30,287,000   Conversion of unsecured loan notes     —       —       —       —   Unexercised options and unvested RSUs     242,000       75,000       —       —   Diluted weighted-average shares     30,627,000       30,371,000       30,336,000       30,287,000     For the three and nine months ended September 30, 2023 , Fuel Tech had weighted-average outstanding equity awards of 246,500  and 382,200 , respectively, and warrants of 2,850,000  in both periods, which were antidilutive or represent out-of-the-money options for the purpose of the calculation of diluted earnings per share. For the nine months ended September 30, 2023, Fuel Tech had  250,500  incremental equity awards that were excluded from the computation of diluted earnings per share as the inclusion of such would have been anti-dilutive due to a net loss in the period. For the three and nine months ended September 30, 2022 , Fuel Tech had weighted-average outstanding equity awards of 296,500  and 674,000 , respectively, and warrants of 2,850,000  in both periods, which were antidilutive for the purpose of the calculation of diluted earnings per share. For the nine months ended September 30, 2022 , Fuel Tech had  33,000  incremental equity awards that were excluded from the computation of diluted earnings per share as the inclusion of such would have been anti-dilutive due to a net loss in the period. These equity awards could potentially dilute basic earnings per share in future years.   10 Table of Contents     8.      Stock-Based Compensation   Under our stock-based employee compensation plan, referred to as the Fuel Tech, Inc. 2014 Long-Term Incentive Plan (Incentive Plan), awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, RSUs, Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof. Participants in the Incentive Plan may be our directors, officers, employees, consultants, or advisors (except consultants or advisors in capital-raising transactions) as the directors determine are key to the success of our business. There are a maximum of 5,600,676  shares that may be issued or reserved for awards to participants under the Incentive Plan. As of September 30, 2023 , Fuel Tech had 745,650  shares available for share-based awards under the Incentive Plan.   We did not record any excess tax benefits within income tax expense for the three and nine months ended September 30, 2023  and 2022 . 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 nine months ended September 30, 2023  and 2022 . 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 Condensed Consolidated Statements of Operations. The components of stock-based compensation for the  three and nine months ended September 30, 2023 and 2022 were as follows:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Stock options and restricted stock units, net of forfeitures   $ 101     $ 90     $ 288     $ 136   After-tax effect of stock-based compensation   $ 101     $ 90     $ 288     $ 136     Stock Options   Stock options granted to employees under the Incentive Plans have a 10 -year life and they vest as follows: 50 % after the second anniversary of the award date, 25 % after the third anniversary, and the final 25 % after the fourth anniversary of the award date. Fuel Tech calculates stock compensation expense for employee option awards based on the grant date fair value of the award, less expected annual forfeitures, and recognizes expense on a straight-line basis over the four -year service period of the award. Stock options granted to members of our board of directors vest immediately. Stock compensation for these awards is based on the grant date fair value of the award and is recognized in expense immediately.   Fuel Tech uses the Black-Scholes option pricing model to estimate the grant date fair value of employee stock options. The principal variable assumptions utilized in valuing options and the methodology for estimating such model inputs include: ( 1 ) risk-free interest rate – an estimate based on the yield of zero–coupon treasury securities with a maturity equal to the expected life of the option; ( 2 ) expected volatility – an estimate based on the historical volatility of Fuel Tech’s Common Stock for a period equal to the expected life of the option; and ( 3 ) expected life of the option – an estimate based on historical experience including the effect of employee terminations.   Stock option activity for Fuel Tech’s Incentive Plans for the  nine months ended September 30, 2023 was as follows:                       Weighted- Average               Number     Weighted-     Remaining     Aggregate       of     Average     Contractual     Intrinsic       Options     Exercise Price     Term     Value   Outstanding on January 1, 2023     384,500     $ 2.98                   Granted     —       —                   Exercised     ( 44,000 )     0.96                   Expired or forfeited     ( 70,000 )     3.85                   Outstanding on September 30, 2023     270,500     $ 3.09       1.81     $ 9   Exercisable on September 30, 2023     270,500     $ 3.09       1.81     $ 9     As of September 30, 2023 , there was no unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans.   11 Table of Contents   Restricted Stock Units   RSUs granted to employees vest over time based on continued service (typically vesting over a period between two to four ye ars), and RSUs granted to directors vest after a one year vesting period based on continued service. Su ch time-vested RSUs are valued at the date of grant based on the closing price of the Common Shares on the grant date. Compensation cost, adjusted for estimated forfeitures, is amortized on a straight-line basis over the requisite service perio d.    In addition to the time vested RSUs, the Company entered into a  2023 Executive Performance RSU Award Agreement (the “2023 Agreement”) with certain officers, including its President and Chief Executive Officer, Chief Financial Officer and Senior Vice President, Sales (each a “2023 Participating Executive”) pursuant to which each 2023 Participating Executive will have the opportunity to earn a specified amount of restricted stock units (RSUs) based on Fuel Tech’s performance in 2023 and 2024. The target amount of RSUs for each of four possible RSU award components is set for each Participating Executive for 2023 and 2024. The amount, if any, of actual RSU awards to be issued is contingent on performance by the Participating Executive and the Company in the performance areas and for the measurement periods set forth in the Agreement as determined by the Company.   The Agreement provides for four possible RSU awards: “Look-Back RSUs,” “Total Revenue RSUs,” “New Business Growth RSUs,” and “Operating Income Growth” RSUs. If the Look-Back RSU’s are awarded, these RSUs will follow a vesting schedule that provides for vesting of one - third of the granted Look-Back RSUs after the first anniversary of the grant determination date, one - third after the second anniversary date and one - third after the third anniversary date. If the Total Revenue RSUs, New Business Growth RSUs, or Operating Income Growth RSUs targets are achieved, these RSU’s will follow a vesting schedule whereby 100 % of the granted RSUs will vest one year following the grant determination date. All RSUs are valued at the date of grant based on the closing price of the Company’s common stock on the grant date.   At  September 30, 2023 , there is $ 1,670  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 1.92  yea rs.   A summary of restricted stock unit activity for the  nine months ended September 30, 2023 is as follows:               Weighted Average               Grant Date       Shares     Fair Value   Unvested restricted stock units at January 1, 2023     767,048     $ 1.32   Granted     965,200       1.26   Vested     ( 45,000 )     1.37   Unvested restricted stock units at September 30, 2023     1,687,248     $ 1.29     The fair value of restricted stock that vested during the  nine -month period ended September 30, 2023  was $ 62 .   Deferred Directors Fees   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 Accounting Standards Codification (ASC)  718, Fuel Tech accounts for these awards as equity awards as opposed to liability awards. During the nine -month periods ended September 30, 2023 and 2022 , Fuel Tech recorded no stock-based compensation expense under the Deferred Plan.     9.       Warrants   The following table summarizes information about warrants outstanding and exercisable at September 30, 2023 :   Range of Exercise Price     Number Outstanding/Exercisable     Weighted Average Remaining Life in Years     Weighted Average Exercise Price   $5.10       2,500,000     2.87     $ 5.10   $6.45       350,000     2.87     $ 6.45            2,850,000                   12 Table of Contents     10.      Debt Financing   On June 30, 2022, the Company entered into an Investment Collateral Security agreement to use for the sole purpose of issuing standby letters of credit that replaces the former Cash Collateral agreement with BMO Harris. The Investment Collateral Security agreement requires us to pledge our investments as collateral for 150 % of the aggregate face amount of outstanding standby letters of credit. The Company pays 250 basis points on the face values of outstanding letters of credit. There are no financial covenants set forth in the Investment Collateral Security agreement. At September 30, 2023 , the Company had outstanding standby letters of credit totaling approximately $ 992  under the Investment Collateral Security agreement. At September 30, 2023 , the investments held as collateral totaled $ 1,488 . Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.     11.      Business Segment and Geographic Financial Data   Business Segment Financial Data We segregate our financial results into two reportable segments representing two broad technology segments as follows:     • T he Air Pollution Control technology segment includes technologies to reduce NOx emissions in flue gas generated by the firing of natural gas or coal from boilers, incinerators, furnaces, and other stationary combustion sources. These include Over-Fire Air systems, NOxOUT ® and HERT™ Selective Non-Catalytic Reduction systems, and Selective Catalytic Reduction (SCR) systems. Our SCR systems can also include Ammonia Injection Grid, and Graduated Straightening Grid GSG™ systems to provide high NOx reductions at significantly lower capital and operating costs than conventional SCR systems. ULTRA ® technology creates ammonia at a plant site using safe urea for use with any SCR application. Electrostatic Precipitator technologies make use of electrostatic precipitator products and services to reduce particulate matter. Flue Gas Conditioning systems are chemical injection systems offered in markets outside the U.S. and Canada to enhance electrostatic precipitator and fabric filter performance in controlling particulate emissions.     • The FUEL CHEM ® technology segment, which uses chemical processes in combination with advanced Computational Fluid Dynamics and Chemical Kinetics Modeling boiler modeling, for the control of slagging, fouling, corrosion, opacity and other sulfur trioxide-related issues in furnaces and boilers through the addition of chemicals into the furnace using TIFI ® Targeted In-Furnace Injection™ technology.   The “Other” classification includes those profit and loss items not allocated to either reportable segment. There are no inter-segment sales that require elimination.   We evaluate performance and allocate resources based on reviewing gross margin by reportable segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (Note 1 in our annual report on Form 10 -K). We do not review assets by reportable segment, but rather, in aggregate for the Company as a whole.   13 Table of Contents   Information about reporting segment net sales and gross margin from operations are provided below:       Air Pollution     FUEL CHEM                   Three months ended September 30, 2023   Control Segment     Segment     Other     Total   Revenues from external customers   $ 3,711     $ 4,277     $ —     $ 7,988   Cost of sales     ( 2,214 )     ( 2,162 )     —       ( 4,376 ) Gross margin     1,497       2,115       —       3,612   Selling, general and administrative     —       —       ( 2,966 )     ( 2,966 ) Research and development     —       —       ( 513 )     ( 513 ) Operating income (loss) from operations   $ 1,497     $ 2,115     $ ( 3,479 )   $ 133         Air Pollution     FUEL CHEM                   Three months ended September 30, 2022   Control Segment     Segment     Other     Total   Revenues from external customers   $ 2,728     $ 5,289     $ —     $ 8,017   Cost of sales     ( 1,801 )     ( 2,544 )     —       ( 4,345 ) Gross margin     927       2,745       —       3,672   Selling, general and administrative     —       —       ( 3,273 )     ( 3,273 ) Research and development     —       —       ( 207 )     ( 207 ) Operating income (loss) from operations   $ 927     $ 2,745     $ ( 3,480 )   $ 192         Air Pollution     FUEL CHEM                   Nine months ended September 30, 2023   Control Segment     Segment     Other     Total   Revenues from external customers   $ 10,692     $ 10,044     $ —     $ 20,736   Cost of sales     ( 7,155 )     ( 5,168 )     —       ( 12,323 ) Gross margin     3,537       4,876       —       8,413   Selling, general and administrative     —       —       ( 9,126 )     ( 9,126 ) Research and development     —       —       ( 1,144 )     ( 1,144 ) Operating income (loss) from operations   $ 3,537     $ 4,876     $ ( 10,270 )   $ ( 1,857 )       Air Pollution     FUEL CHEM                   Nine months ended September 30, 2022   Control Segment     Segment     Other     Total   Revenues from external customers   $ 7,670     $ 12,250     $ —     $ 19,920   Cost of sales     ( 5,032 )     ( 6,248 )     —       ( 11,280 ) Gross margin     2,638       6,002       —       8,640   Selling, general and administrative     —       —       ( 9,201 )     ( 9,201 ) Research and development     —       —       ( 716 )     ( 716 ) Operating income (loss) from operations   $ 2,638     $ 6,002     $ ( 9,917 )   $ ( 1,277 )   Geographic Segment Financial Data   Information concerning our operations by geographic area is provided below. Revenues are attributed to countries based on the location of the end-user. Assets are those directly associated with operations of the geographic area.       Three Months Ended     Nine Months Ended       September 30,     September 30,       2023     2022     2023     2022   Revenues:                                 United States   $ 5,640     $ 6,972     $ 15,937     $ 14,939   Foreign     2,348       1,045       4,799       4,981       $ 7,988     $ 8,017     $ 20,736     $ 19,920         September 30,     December 31,       2023     2022   Assets:                 United States   $ 46,550     $ 47,007   Foreign     3,769       3,117       $ 50,319     $ 50,124     14 Table of Contents      12.      Accrued Liabilities   The components of other accrued liabilities are as follows:       As of       September 30, 2023     December 31, 2022   Contract liabilities (Note 3)   $ 1,365     $ 372   Warranty reserve (Note 13)     159       159   Other accrued liabilities     314       295   Total other accrued liabilities   $ 1,838     $ 826       13.      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. The Company records liabilities where a contingent loss is probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred.   From time to time we are involved in litigation with respect to matters arising from the ordinary conduct of our business. In the opinion of management, based upon presently available information, either adequate provision for anticipated costs have been accrued or the ultimate anticipated costs will not materially affect our consolidated financial position, results of operations, or cash flows. 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.   Fuel Tech issues a standard product warranty with the sale of its products to customers. Our recognition of warranty liability is based primarily on analyses of warranty claims experienced in the preceding years as the nature of our historical product sales for which we offer a warranty are substantially unchanged. 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 Condensed Consolidated Balance Sheets during the nine months ended September 30, 2023 and 2022 . The warranty liability balance was $ 159 at September 30, 2023 and December 31, 2022 .     14.      Income Taxes   The Company’s effective tax rate is approximately 0.0 %  and  0.9 % for the nine -month periods ended September 30, 2023 and 2022 , respectively. The Company's effective tax rate differs from the statutory federal tax rate of 21 % for the nine -month periods ended September 30, 2023 and 2022 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 nine -month periods ended September 30, 2023 and 2022 .   Fuel Tech had no unrecognized tax benefits as of September 30, 2023 and December 31, 2022 .   15 Table of Contents     FUEL TECH, INC.   Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations        Overview   In the third quarter of 2023, the Company continued to successfully execute on existing orders resulting in improved performance in the APC segment.  Revenues from our Fuel Chem technology segment increased 110% from the prior quarter as our customer base returned from maintenance outages.  We continue to invest in development of new technologies to expand our product offerings into the water and waste-water treatment market. Our capital resources are sufficient for our immediate and longer-term needs, and we continue to enjoy the services and support of a dedicated workforce. We expect that our cost control efforts will maintain our existing levels of operating expenditures and the diminishing effects of the pandemic should lead to an improved market outlook.   Key Operating Factors   Our FUEL CHEM segment experienced an increase in revenue and segment operating profits from prior quarter in 2023 and a decrease in the current quarter as compared to 2022. The FUEL CHEM segment was impac ted by decreased operational demand from our client base and partially due to scheduled plant closures versus the same period in 2022.     Our Air Pollution Control (APC) business experienced improvement in the quarter compared to 2022, due to the execution of projects awarded in the prior years and earlier in this year and due to increased sales of aftermarket products. We are encouraged by the depth of our business development activities, which reflects an increased focus on global emissions protocols across a variety of fuel sources. We continue to experience a challenging operational environment resulting from customers delaying the timing of purchasing decisions.  Our Consolidated APC backlog at September 30, 2023 was $ 5,624  and our global sales pipeline is in the $50 -75 million range.   Results of Operations   Revenues   Revenues for the three-month periods ending September 30, 2023 and 2022 were $7,988  and $8,017 , respectively, representing an decrease of $29 , or 0% , versus the same period last year. Revenues for the nine -month periods ending  September 30, 2023 and 2022 were $20,736  and $19,920 , respectively, representing an increase of $816 , or 4% , versus the same period last year.   The APC technology segment generated revenues of $ 3,711  for the three-month period ended  September 30, 2023 , representing an increase of $983 , or 36% , from the prior year amount of $ 2,728 . The APC technology segment generated revenues of $ 10,692  and $ 7,670  for the  nine -month periods ending  September 30, 2023 and 2022 , respectively, representing an increase of $3,022 , or 39% . This increase in APC revenue was primarily related to the timing of project execution and new APC orders announced during 2022 and continuing through the first nine months of 2023 . Consolidated APC backlog at September 30, 2023 was $ 5,624  versus backlog at December 31, 2022 of $ 8,245 . Our current backlog consists of U.S. domestic projects totaling $ 4,788  and international projects totaling $ 836 .    The FUEL CHEM technology segment generated revenues of $ 4,277  and $ 5,289  for the three-month periods ended September 30, 2023 and 2022 , respectively, representing a decrease of $1,012 , or 19% . The FUEL CHEM technology segment generated revenues of $ 10,044  and $ 12,250  for the nine -month periods ended September 30, 2023 and 2022 , respectively, representing a decrease of $2,206 , or 18% . This decrease in FUEL CHEM revenue for the three and nine months ended September 30, 2023 as compared to the same periods of the prior year was primarily due to a decrease in electric al generation demand, unscheduled plant outages and plant closures.   16 Table of Contents   Cost of sales and gross margin   Consolidated gross margin percentage for the three-month periods ended September 30, 2023 and 2022 were  45%  and  46% , respectively. Gross margin decreased versus the comparable period due to the decrease in the FUEL CHEM operating segment gross margin partially offset by an increase in APC operating segment gross margin. For the three-month periods ended September 30, 2023 and 2022  the FUEL CHEM operating segment gross margins decreased to  49%  from  52%  primarily due to the reduction in revenue. APC gross margin increased to  40%  from  34%  primarily due to product and project mix.    Consolidated gross margin percentage for the nine -month periods ended September 30, 2023 and 2022 were  41%  and  43% , respectively. Gross margin decreased versus the comparable period due to the change in segment mix and to the decrease in the APC operating segment gross margin. For the nine -month periods ended September 30, 2023 and 2022  the APC gross margin decreased to  33%  from  34% , respectively, primarily due to product and project mix. FUEL CHEM operating segment gross margin remained flat at  49% .   Selling, general and administrative   Selling, general and administrative expenses (SG&A) were $2,966  and $3,273  for the three-month periods ended September 30, 2023 and 2022 , respectively. For the three-month period ended September 30, 2023 the decrease of $307  is primarily the result of decreases in employee compensation and benefit related costs of $283, professional fees of $44, and certain administrative expenses of $30, partially offset by increases in depreciation of $30 and other miscellaneous expenses of $20 primarily relating to the corporate headquarters. For the three-month periods ending September 30, 2023 and 2022 , SG&A as a percentage of revenues decreased to 37%  from 41% . The decrease versus the comparable period is primarily due to the decrease in SG&A expenses when revenues were flat compared to prior year quarter.   SG&A expenses were $9,126  and $9,201  for the nine -month periods ended September 30, 2023 and 2022 , respectively. For the nine -month period ended September 30, 2023 the decrease of $75  is primarily the result of decreases in certain administrative expenses of $132 and other miscellaneous expenses of $47, partially offset by increases in employee compensation and benefit related costs of $74, professional fees of $17, and depreciation expense of $13. For the  nine -month periods ending September 30, 2023 and 2022 , SG&A as a percentage of revenues decreased to 44%  from 46% . The decrease versus the comparable period is primarily due to the increase in revenues in the current year.   Research and development   Research and development expenses for the three and nine -month periods ended September 30, 2023 were  $513  and $1,144 , respectively, and for the same periods in  2022 were  $207  and $716 , respectively. The expenditures in our research and development expenses are focused on new product development efforts in the pursuit of commercial applications for technologies outside of our traditional markets, and in the development and analysis of new technologies that could represent incremental market opportunities. This includes water treatment technologies and more specifically, our DGI® Dissolved Gas Infusion Systems, an innovative alternative to current aeration technology. This infusion process has a variety of applications in the water and wastewater industries, including remediation, treatment, biological activity, and wastewater odor management. DGI® technology benefits include reduced energy consumption, installation costs, and operating costs, while improving treatment performance.   Interest income   Interest income was  $322  for the three-month period ended September 30, 2023  compared to  $92  for the same period in  2022 . Interest income was  $968  for the nine -month period ended September 30, 2023  compared to  $101  for the same period in  2022 . Interest income increased due to the interest income on the held-to-maturity debt securities and money market funds.   Other income (expense), net   Other income, net was  $9  for the three-month period ended September 30, 2023  compared to Other income, net of  $34  for the same period in  2022 . Other expense, net was  $95  for the nine -month period ended September 30, 2023  compared to Other income, net of  $158  for the same period in  2022 . The changes in Other (expense) income, net were mainly due to transactional foreign exchange losses.     Liquidity and Sources of Capital   We have losses from operations during the nine -month period ended September 30, 2023 totaling $1,857 . Our cash provided by operations for this same period totaled $391 .    Our cash and cash equivalent balance as of September 30, 2023 totaled $ 13,483 , which includes $ 980  of cash equivalents, and our working capital totaled $ 31,916 . We have no outstanding debt other than our outstanding letters of credit, under our Investment Collateral Security agreement with BMO Harris Bank, N.A. (the Investment Collateral Security agreement), which does not have any financial covenants. We expect to continue operating under this arrangement for the foreseeable future.    17 Table of Contents   Operating activities provided cash of $391  for the nine -month period ended September 30, 2023 , primarily due to an increase in other liabilities of $519 due to timing of project related activity, a decrease in other current assets of $365, an increase in accounts payable of $172 due to timing of project related activity, and removals of non-cash items from our net loss from continuing operations for depreciation and amortization of $293 and stock-based compensation of $288.   Operating activities used cash of $2,591 for the nine -month period ended September 30, 2022 , primarily due to an increase in accounts receivable balances of $3,449 due to the timing of project milestone billings and the net loss from continuing operations, partially offset by removals of non-cash items from our net loss from continuing operations for depreciation and amortization of $337, an increase in accounts payable balances of $1,094, and a decrease in other assets of $370.   Investing activities used cash of $10,227  and $9,963 for the nine -month periods ended September 30, 2023 and 2022 , respectively. Investing activities for the nine -month periods ended September 30, 2023 and 2022  primarily consisted of purchases of debt securities as investments of $14,026 and $9,777, respectively. Investing activities for the nine -month period ended September 30, 2023  was funded by the maturities of debt securities of $4,000.   Financing activities provided cash of $42  for the nine -month period ended September 30, 2023 compared to cash used of $17 for the nine -month period ended September 30, 2022 . In 2023, the financing activity was related to proceeds from the exercise of stock options. In 2022, financing activities were related to taxes paid on behalf of the equity award participants on the vesting of restricted stock units.    The effects of the COVID-19 global pandemic and certain geopolitical events have presented significant risks to the Company, not all of which the Company is able to fully evaluate or even foresee at the current time. Although the impact of the pandemic is difficult to quantify, the Company has experienced, and may continue to experience, reductions in demand for certain of our products 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. Other directly or indirectly COVID-19 related effects, such as supply chain disruptions and travel restrictions, have been impacting operations and financial performance to varying degrees. We continue to monitor our liquidity needs and in response to our recent periods of declines in revenue and net losses 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 have evaluated our ongoing business needs and considered the cash requirements of our base business of Air Pollution Control and FUEL CHEM, as well as our efforts to wind-down our APC operations in China. This evaluation included consideration of the following: a) customer and revenue trends in our APC and FUEL CHEM business segments, b) current operating structure and expenditure levels, and c) the costs of winding down our APC operations in China as well as other research and development initiatives. Based on this analysis, management believes that currently we have sufficient cash and working capital to operate our base APC and FUEL CHEM businesses. 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.   We expect additional capital expenditures in 2023 for maintenance of field equipment, computer and systems, and general office equipment. We expect to fund our capital expenditures with cash from operations or cash on hand.   In 2022, the Board of Directors approved an investment plan that would hold $20,000 in funds at BMO Harris Bank (BMO Harris) to be invested in held-to-maturity debt securities of United States (US) Treasuries, including Notes, Bonds, and Bills, or US Government Agency securities. The funds would be held in money market funds until they are invested in those securities. The investments would be structured to create a maturity “ladder” where the proceeds from maturities are re-invested to maintain a balance of short- and long-term investments based on the expected business needs. Maturities will be between three and thirty-six months. This strategy allows the Company to provide returns on excess cash, while managing liquidity and minimizing exposure to interest rate fluctuations.   On June 30, 2022, the Company entered into the Investment Collateral Security agreement to use for the sole purpose of issuing standby letters of credit, which replaces the Cash Collateral Security agreement with BMO Harris Bank, N.A. (the Former Collateral agreement). The Investment Collateral Security agreement requires us to pledge our investments as collateral for 150% of the aggregate face amount of outstanding standby letters of credit. The Company pays 250 basis points on the face values of outstanding letters of credit. There are no financial covenants set forth in the Investment Collateral Security agreement. At September 30, 2023 , the Company had outstanding standby letters of credit totaling approximately $ 992  under the Investment Collateral Security agreement. At September 30, 2023 , the investments held as collateral totaled $ 1,488 . Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.   18 Table of Contents   Contingencies and Contractual Obligations   Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note 13. There was no change in the warranty liability balance during the nine months ended September 30, 2023.   Forward-Looking Statements   This Quarterly Report on Form 10-Q contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech’s current expectations regarding future growth, results of operations, cash flows, performance and business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. Fuel Tech has tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “plan,” “expect,” “estimate,” “intend,” “will,” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed in Fuel Tech’s Annual Report on Form 10-K for the year ended December 31, 2022 in Item 1A under the caption “Risk Factors,” which could cause Fuel Tech’s actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in Fuel Tech’s filings with the Securities and Exchange Commission.   Item 3.          Quantitative and Qualitative Disclosures about Market Risk   Fuel Tech’s earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. We do not enter into foreign currency forward contracts nor into foreign currency option contracts to manage this risk due to the immaterial nature of the transactions involved.   Item 4.          Controls and Procedures   Evaluation of Disclosure Controls and Procedures   Fuel Tech maintains disclosure controls and procedures and internal controls designed to ensure (a) that information required to be disclosed in Fuel Tech’s filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) that such information is accumulated and communicated to management, including the principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure. Fuel Tech’s Chief Executive Officer and principal financial officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d -15(e) of the Exchange Act, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.   Changes in Internal Control over Financial Reporting   There has been no change in the Company's internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.   19 Table of Contents       PART II. OTHER INFORMATION   Item 1.     Legal Proceedings   We are from time to time involved in litigation incidental to our business. We are not currently involved in any litigation in which we believe an adverse outcome would have a material effect on our business, financial conditions, results of operations, or prospects.   Item 1A.   Risk Factors   The risk factors included in our Annual Report on Form 10-K for fiscal year ended December 31, 2022 have not materially changed.   Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds   None   Item 6.     Exhibits   a. Exhibits (all filed herewith)   31.1 Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of 2002   31.2 Certification of principal financial officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002   32 Certification of CEO and principal financial officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002   101.1 Inline INSXBRL Instance Document - The Instance Document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document.   101.2 Inline SCHXBRL Taxonomy Extension Schema Document   101.3 Inline CALXBRL Taxonomy Extension Calculation Linkbase Document   101.4 Inline DEFXBRL Taxonomy Extension Definition Linkbase Document   101.5 Inline LABXBRL Taxonomy Extension Label Linkbase Document   101.6 Inline PREXBRL Taxonomy Extension Prevention Linkbase Document   104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)   20 Table of Contents   FUEL TECH, INC.   Signatures   Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.     Date: November 7, 2023 By: /s/ Vincent J. Arnone     Vincent J. Arnone     President and Chief Executive Officer     (Principal Executive Officer)       Date: November 7, 2023 By: /s/ Ellen T. Albrecht     Ellen T. Albrecht     Vice President, Chief Financial Officer and Treasurer     (Principal Financial Officer)   21