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Item 7. Management’s Discussion and Analysis

2025-03-04 compared with 2024-03-11 · 73 added, 100 removed, 160 unchanged (52% of the section changed)

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (amounts in thousands of dollars)

In 2023, the Company continued to successfully execute on existing orders resulting in improved performance in the APC segment.

Management ’ s discussion and analysis ( “ MD&A ” ) should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this Annual Report on Form 10-K, which include additional information about our accounting policies, practices and the transactions underlying our financial results.

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes including various claims and contingencies related to lawsuits, taxes, environmental and other matters arising during the normal course of business.

We apply our best judgment, our knowledge of existing facts and circumstances and actions that we may undertake in the future in determining the estimates that affect our consolidated financial statements.

We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change.

As future events and their effects cannot be determined with precision, actual results may differ from these estimates.

In 2024, the Company continued to successfully execute on existing orders.

We continue to invest in development of new technologies to expand our product offerings into the water and waste-water treatment market.

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Key Operating Factors

Our FUEL CHEM segment faced difficult market circumstances in 2023, and experienced a decline in revenues and segment operating profits compared to 2022.

The FUEL CHEM segment was negatively impacted due to the reduction in demand from other customers due to unfavorable climate conditions and to operating and maintenance scheduling.

Our APC business experienced improvement in 2023, compared to 2022, due to the execution of projects awarded in the second half of 2022 and in 2023.

Sales growth experienced headwinds in the United States due to regulatory unclarity resulting from legal challenges to the Cross State Air Pollution Control rule.

We are encouraged by the pace and depth of our business development activities, which reflects an increased focus on global emissions protocols across a variety of fuel sources.

Our Consolidated APC backlog at year end was $7,458 and our global sales pipeline has increased to $50 -75 million range.

Sales growth for our two reportable business segments is dependent upon the continued utilization of carbon-based fuels, such as natural gas and coal, for the generation of electric power.

For our APC market segment, sales are driven primarily by our customers need to comply with federal, state and local regulatory mandates for the reduction or control of emissions of NOx.

For our FUEL CHEM market segment, sales are dependent primarily upon our customers usage of our chemical technologies in order to mitigate slagging and fouling on coal or oil based combustion units in order to enjoy longer run times without the necessity of taking the combustion unit off line for cleaning.

We believe continued demand for our products will be led by the increased demand for electricity in emerging markets and new industries that are highly dependent upon electric power, such as the mega-computers required in order to power artificial intelligence and cryptocurrencies.

While the market will continue to shift towards alternate forms of power generation continues, we anticipate natural gas and coal will remain significant sources of electricity generation in the future.

Our FUEL CHEM segment showed improved performance in 2024, experiencing an increase in segment revenues compared to 2023.

Revenue growth was driven by the return of previously dormant customers as well as a new commercial program which was added following a successful site demonstration.

Our APC business experienced a decline in revenues and segment operating profits in 2024 compared to 2023 primarily due to customer-driven project delays and project timing.

Despite this, we are encouraged by the pace and depth of our business development activities, which reflect an increased focus on global emissions protocols across a variety of fuel sources.

Our Consolidated APC backlog at year end was $6,175.

Market Pressures

Our senior management team monitors and manages our ability to operate effectively as the result of market pressures.

In particular, we are currently experiencing inflationary pressures for certain materials and labor, and long lead times for equipment components embodied in our products such as pumps, fans and catalysts.

We continue to monitor the activities of our existing and alternate suppliers and have taken other mitigating actions to mitigate supply disruptions;

however, we cannot guarantee that we can continue to do so in the future.

In this event, our business, results and financial condition could be adversely affected.

We have two broad technology segments that provide advanced engineered solutions to meet the pollution control, efficiency improvement and operational optimization needs of energy-related facilities worldwide.

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Air Pollution Control Technologies

The 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 SCR systems, NOxOUT and HERT™ SNCR systems.

The Air Pollution Control technology segment includes technologies to reduce NOx emissions in flue gas generated by the firing of natural gas, biomass or coal from boilers, incinerators, furnaces and other stationary combustion sources.

These include SCR systems and NOxOUT and HERT™ SNCR systems.

Our SCR systems can also include AIG, and GSG™ systems to provide high NOx reductions at significantly lower capital and operating costs than conventional SCR systems.

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Fuel Tech sells its FUEL CHEM program through its direct sales force and agents to industrial and utility power-generation facilities.

FUEL CHEM programs have been installed on combustion units in North America, Europe, China, and India, treating a wide variety of solid and liquid fuels, including coal, heavy oil, biomass and municipal waste.

FUEL CHEM programs have been installed on combustion units in North America, Europe, and the Pacific Rim, treating a wide variety of solid and liquid fuels, including coal, heavy oil, biomass and municipal waste.

The FUEL CHEM program improves the efficiency, reliability and environmental status of plants operating in the electric utility, industrial, pulp and paper, waste-to-energy, university and district heating markets and offers numerous operational, financial and environmental benefits to owners of boilers, furnaces and other combustion units.

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(GAAP), which require us to make estimates and assumptions.

We believe that our accounting policies (see Note 1 to the consolidated financial statements), involve a higher degree of judgment, estimates and assumptions and are deemed critical.

We believe that certain accounting policies (see Note 1 to the consolidated financial statements) involve a higher degree of judgment, estimates and assumptions and are deemed critical.

We routinely discuss our critical accounting policies with the Audit Committee of the Board of Directors.

Revenue Recognition:

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.

The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

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.

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

These projects are similar in nature to the APC projects described below 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.

Air Pollution Control Technology

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

At December 31, 2023 , 2022 , and 2021 contract assets for APC technology projects were approximately $2,285 and $3,082 , and $1,277, respectively, and are included in accounts receivable on the consolidated balance sheets.

There were no contract assets for the FUEL CHEM technology segment as of December 31, 2023 , 2022 , and 2021 .

At December 31, 2024 , 2023 , and 2022 contract assets for APC technology projects were approximately $2,075 , $2,285 , and $3,082, respectively, and are included in accounts receivable on the consolidated balance sheets.

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

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Contract liabilities were $721 , $1,279 , and $372 at December 31, 2024 , 2023 , and 2022 , respectively, and are included in other accrued liabilities on the consolidated balance sheets.

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).

The Company adopted these ASUs on January 1, 2023 and began using our expected credit loss model to calculate the allowance.

The allowance for credit losses is management’s best estimate of the amount of credit losses in accounts receivable.

The allowance for credit losses balance can be impacted by unforeseen collectability issues.

In order to control and monitor the credit risk associated with our customer base, we review the credit worthiness of customers on a recurring basis.

Factors influencing the level of scrutiny include the level of business the customer has with us, the customer’s payment history and the customer’s financial stability.

Receivables are considered past due if payment is not received by the date agreed upon with the customer, which is normally 30 days after invoice.

Representatives of our management team review all past due accounts on a monthly or as-needed basis to assess collectability.

At the end of each reporting period, the allowance for credit losses balance is reviewed relative to management’s expected credit loss model and is adjusted if deemed necessary through a corresponding charge or credit to bad debt 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.

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.

Usage is recorded in cost of sales in the period that parts were issued to a project or used to service equipment.

Inventories are carried at weighted average cost and periodically evaluated to identify obsolete or otherwise impaired parts that 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 the existing sales pipeline for which the inventory could be used.

Assessment of Potential Impairments of Goodwill and Intangible Assets

Goodwill is not amortized, but rather is reviewed annually (in the fourth quarter) or more frequently if indicators arise, for impairment.

We do not have any indefinite-lived intangible assets other than goodwill.

Assessment of Potential Impairment of Goodwill

Goodwill is not amortized but rather is reviewed annually as of the first day of the fourth quarter, or more frequently if indicators arise, for impairment.

Such indicators include a decline in expected cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, a decrease in our market capitalization to an amount less than the carrying value of our assets, or slower growth rates, among others.

We do not have any indefinite-lived intangible assets other than goodwill.

Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment.

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The discount rate used is composed of a number of identifiable risk factors, including equity risk, company size, and certain company-specific risk factors such as our debt-to-equity ratio, among other factors, that when added together, results in a total return that a prudent investor would demand for an investment in our Company.

In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional analysis would be required.

The additional analysis would compare the carrying amount of the reporting unit’s goodwill with the implied fair value of that goodwill.

The implied fair value of goodwill is the excess of the fair value of the reporting unit over the fair values assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price.

In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, we would record an impairment charge for the amount by which the carrying value exceeds the estimated fair value of the reporting unit.

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

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Fuel Tech performed its annual goodwill impairment analysis for its FUEL CHEM reporting unit as of October 1, 2024 and determined that no impairment of goodwill existed within the FUEL CHEM technology segment.

Impairment of Long-Lived Assets and Amortizable Intangible Assets

Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment when events and circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable.

Impairment of Long-Lived Assets

Under the guidance set forth in Accounting Standards Update (ASU) 2014-08, Property, Plant and Equipment (Topic 360), long-lived assets, including property and equipment and intangible assets, are reviewed for impairment when events and circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable.

If impairment indicators exist, we perform a more detailed analysis and an impairment loss is recognized when either estimated future undiscounted cash flows expected to result from the use of the asset (or asset group) and its eventual disposition are less than the carrying amount or the determined fair value is less than the carrying amount.

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Quoted market prices and other valuation techniques are used to determine expected fair value.

Due to the existence of impairment indicators, we performed a more detailed analysis of potential long-lived and intangible asset impairment in the APC technology asset group during the fourth quarter of 2023 and determined no impairment exists.

We performed a detailed analysis of potential long-lived asset impairment during the fourth quarter of 2024 and determined no impairment exists.

There was no impairment recorded during 2024.

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Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which provides guidance for additional disclosures around segment reporting.

The standard will become effective for annual periods beginning on January 1, 2024 for Fuel Tech and for interim periods thereafter.

Application of the amendments is retrospective.

The Company is reviewing the impact of this new pronouncement and expects to incorporate the additional disclosures in the Segment note when the ASU is adopted.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which provides guidance for additional disclosures around the tax rate reconciliation and other tax disclosures.

The standard will become effective for annual periods beginning on January 1, 2025 for Fuel Tech.

The standard will become effective for the annual reporting period beginning on January 1, 2025 for Fuel Tech.

Application of the amendments should be applied prospectively but retrospective application is permitted.

The Company is reviewing the impact of this new pronouncement and expects to incorporate the additional disclosures in the Tax note when the ASU is adopted.

The Company is reviewing the impact of this new pronouncement and expects to incorporate the additional disclosures prospectively in the Tax note when the ASU is adopted.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses, which requires public business entities to disclose in the notes to their financial statements disaggregated information about certain costs and expenses in both annual and interim filings.

The standard will become effective for the annual reporting period beginning January 1, 2027 for Fuel Tech.

The Company is reviewing the impact of this new pronouncement and expects to incorporate the additional disclosures in the relevant footnotes when the ASU is adopted.

2024 versus 2023

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Interest income

Other expense, net

Other income (expense), net

Loss before income taxes

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Revenues for the years ended December 31, 2024 and 2023 were $25,133 and $27,081, respectively.

The year-over-year increase of $140 or 1%, was driven by the increase in revenue in our APC technology segment in our U.S.

operations, partially offset by a decrease in our FUEL CHEM technology segment.

revenues increased by $751, or 4%, from $20,311 in 2022 to $21,062 in 2023, and our international revenues decreased by $611, or 9%, from $6,630 in 2022 to $6,019 in 2023.

Revenues for the APC technology segment were $13,483 for the year ended December 31, 2023, an increase of $2,886, or 27%, versus fiscal 2022.

The increase in APC revenue for the twelve-month period ending December 31, 2023 in comparison to the prior year amount was principally related to the timing of project execution and new APC orders.

The year-over-year decrease of $1,948 or 7%, was driven by the decrease in revenue in our APC technology segment in our U.S.

operations, partially offset by an increase in our FUEL CHEM technology segment revenues.

revenues decreased by $3,595, or 17%, from $21,397 in 2023 to $17,802 in 2024, and our international revenues increased by $1,647, or 29%, from $5,684 in 2023 to $7,331 in 2024.

Revenues for the APC technology segment were $11,242 for the year ended December 31, 2024, a decrease of $2,241, or 17%, versus fiscal 2023.

The decrease in APC revenue for the twelve-month period ending December 31, 2024 in comparison to the prior year amount was principally related to the timing of project execution and customer driven delays.

Consolidated APC backlog was $6,175 and $7,458 at December 31, 2024 and 2023, respectively.

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domestic projects totaling $1,877 and international projects totaling $4,298.

Revenues for the FUEL CHEM technology segment for the year ended December 31, 2023 were $13,598, a decrease of $2,746, or 17%, versus fiscal 2022.

The decrease in FUEL CHEM revenue was due to dispatch/demand and unforeseen plant outages.

Revenues for the FUEL CHEM technology segment for the year ended December 31, 2024 were $13,891, an increase of $293, or 2%, versus fiscal 2023.

The increase in FUEL CHEM revenue was due primarily to renewed orders from previously dormant customers as well as the addition of a new customer following a successful site demonstration.

We remain focused on attracting new customers in our FUEL CHEM business for both coal and non-coal applications.

Our ability to attract new coal customers continues to be affected by the electric demand market and fuel switching as a result of low natural gas prices.

Our ability to attract new coal customers continues to be affected by the electric demand market, fuel switching as a result of low natural gas prices, and growth of renewable wind and solar power.

Cost of sales and gross margin

Consolidated cost of sales for the years ended December 31, 2023 and 2022 were $15,425 and $15,298, respectively.

Consolidated cost of sales for the years ended December 31, 2024 and 2023 was $14,510 and $15,425, respectively.

Consolidated gross margin percentages for the years ended December 31, 2024 and 2023 were 42% and 43%, respectively.

The gross margins for the APC technology segment increased to 38% in 2023 from 35% in 2022.

The overall increase in gross margin in the APC technology segment is primarily due to product and project mix.

The gross margins for the APC technology segment decreased to 37% in 2024 from 38% in 2023.

The overall decrease in gross margin in the APC technology segment is primarily due to product and project mix.

Gross margin percentage for the FUEL CHEM technology segment decreased to 46% from 48% for the years ended December 31, 2024 and 2023.

This decrease is primarily due to demonstration costs and other administrative costs associated with new and previously dormant accounts.

Selling, general and administrative

Selling, general and administrative expenses for the years ended December 31, 2024 and 2023 were $13,761 and $12,803, respectively.

The increase of $528, or 4%, is attributed to the following:

The increase of $958, or 7%, is primarily attributed to the following:

An increase in employee related costs of $542

An increase in travel expense of $45

An increase in professional services of $44

A decrease in office and administrative costs relating to our foreign subsidiaries of $129

A decrease in other administrative costs of $36

An increase in professional services and other expenses of $251

An increase in depreciation expense of $122

An increase in office and administrative costs relating to our foreign subsidiaries of $43

Depreciation and Amortization

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The expenditures in our research and development expenses were 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 increase was mainly attributed to water treatment technologies and more specifically, our DGI® Dissolved Gas Infusion Systems, an innovative alternative to current gas transfer and chemical replacement technologies.

Expenditures were mainly attributed to water treatment technologies and more specifically, our DGI ® Dissolved Gas Infusion Systems, an innovative alternative to current gas transfer and chemical replacement technologies.

This infusion process has a variety of applications in the water and wastewater segments, including irrigation, treatment of natural waters, supply of oxygen for biological remediation, wastewater odor management, pH adjustment, re-carbonization, etc.

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Interest income was $1,251 for the year ended December 31, 2024 compared to $1,300 for the same period in 2023.

Interest income increased due to the interest income on the held-to-maturity (HTM) debt securities and money market funds.

Other Expense, net

Other expense, net was $90 for the year ended December 31, 2023 compared to Other expense, net of $46 for the same period in 2022.

The change of $44 is due primarily to an increase in bank fees associated with our standby letters of credit.

Income tax benefit expense

Interest income decreased due to a decrease in the balance held in money market funds.

Other income (expense), net

Other income, net was $1,585 for the year ended December 31, 2024 compared to Other expense, net of $90 for the same period in 2023.

The increase of $1,675 is due primarily to the employee retention credit.

Income tax expense

For the year ended December 31, 2024, we recorded an income tax expense of $77 on pre-tax loss of $1,866.

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We expect to continue operating under this arrangement for the foreseeable future.

Operating activities provided cash of $696 for the year ended December 31, 2023, primarily due to a decrease in accounts receivable balances of $1,039, an increase in accrued liabilities and other non-current liabilities of $1,239, partially offset by an increase in accounts payable balances of $295 and adjustments for non-cash items from our net loss from continuing operations for interest income on held-to-maturity securities of $433, depreciation and amortization of $342 and stock compensation expense of $389.

Operating activities used cash of $4,139 for the year ended December 31, 2022 , primarily due to an increase in accounts receivable balances of $4,448, an increase in prepaid expenses and other assets of $314, and an adjustment for non-cash items from our net loss from continuing operations for the provision for credit losses of $106, partially offset by increases in accounts payable balances of $1,159 and accrued liabilities and other non-current liabilities of $360, and adjustments for non-cash items from our net loss from continuing operations for depreciation and amortization of $440 and stock compensation expense of $224.

Operating activities used cash of $3,433 for the year ended December 31, 2024, primarily due to the employee retention credit receivable of $1,677, an increase in accounts receivable balances of $1,127, a decrease in accrued liabilities and other non-current liabilities of $312, and adjustments for non-cash items from our net loss from continuing operations for non-cash interest income on held-to-maturity securities of $132, partially offset by a decrease in prepaid expenses, other current assets, and other non-current assets of $292, an increase in accounts payable balances of $519, a decrease in inventory balances of $41, and adjustments for non-cash items from our net loss from continuing operations for depreciation and amortization of $460 and stock compensation expense of $446.

Operating activities provided cash of $696 for the year ended December 31, 2023 , primarily due to a decrease in accounts receivable balances of $1,039 and an increase in accrued expenses and other non-current liabilities of $1,239, partially offset by an increase in accounts payable balances of $295 and adjustments for non-cash items from our net loss from continuing operations for interest income on held-to-maturity securities of $433, depreciation and amortization of $342 and stock compensation expense of $389.

Investing activities used cash of $5,443 and $6,444 for the years ended December 31, 2024 and 2023, respectively.

Investing activities for the years ended December 31, 2023 and 2022 primarily consisted of purchases of HTM debt securities as investments of $14,026 and $9,777, respectively, and the purchases of equipment and patent related costs and of $418 and $206, respectively.

Investing activities for the years ended December 31, 2024 and 2023 primarily consisted of purchases of HTM debt securities as investments of $18,060 and $14,026, respectively, and the purchases of equipment and patent related costs of $378 and $418, respectively.

Investing activities for the years ended December 31, 2024 and 2023 were partially funded by the maturities of debt securities of $12,995 and $8,000, respectively.

Financing activities provided $42 and used $17 of cash for the years ended December 31, 2023 and 2022 .

Financing activities used cash of $95 and provided cash of $42 for the years ended December 31, 2024 and 2023 .

In 2024, the financing activity was related to taxes paid on behalf of equity award participants on the vesting of restricted stock units.

In 2023, the finan cing 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.

We continue to monitor our liquidity needs and in response to our recent periods of 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.

This evaluation included consideration of the following customer and revenue trends in our APC and FUEL CHEM business segments current operating structure and expenditure levels, and other research and development initiatives.

This evaluation included consideration of customer and revenue trends in our APC and FUEL CHEM business segments, current operating structure and expenditure levels, and 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.

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We expect to fund our capital expenditures with cash from operations or cash on hand.

In June 2022, the Board of Directors approved an investment plan that would hold $10,000 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.

In December 2022, the Board of Directors approved an additional investment of $10,000.

The Company's investment policy provides for $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 are 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 investments are 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 are between three and thirty-six months.

The Company's Investment Collateral Security agreement with BMO Harris is used for the sole purpose of issuing standby letters of credit and 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.

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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 7. Management’s Discussion and Analysis