What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-03 compared with 2025-03-04 · 35 added, 45 removed, 188 unchanged (30% of the section changed)

5 unchanged sentences

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.

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.

In 2025, we achieved revenue growth of over $1.5M compared to 2024.

Throughout 2025, we maintained our momentum by successfully fulfilling existing orders while investing in R&D to bring new technologies to the water and wastewater treatment markets.

Our financial position remains robust, providing ample liquidity for both immediate operations and long-term growth.

Supported by a dedicated workforce and disciplined cost management, we are well positioned to leverage new business opportunities and enhance our overall market standing.

Key Operating Factors

1 unchanged sentence

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.

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 fired 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.

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

Our FUEL CHEM segment showed improved performance in 2025, experiencing an increase in segment revenues compared to 2024.

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.

Revenue growth was driven by increased regularity of orders from legacy customers as well as a full year of revenue from a new commercial program which was added in the second half of 2024 following a successful site demonstration.

Also contributing to this increase was a new commercial demonstration program which commenced in the fourth quarter of 2025.

Our APC business experienced a decline in revenues and segment operating profits in 2025 compared to 2024 primarily due to customer-driven project delays and project timing.

3 unchanged sentences

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;

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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.

These include SCR systems along with NOxOUT and Advanced 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.

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

Our ammonia storage and delivery systems supply reagent for SCR applications.

ESP technologies make use of electrostatic precipitator products and services to reduce particulate matter.

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Air Pollution Control Technology

Fuel Tech’s APC contracts are typically six to eighteen months in length.

Fuel Tech’s APC contracts are typically eight to twenty months in length.

A typical contract will have three or four critical operational measurements that, when achieved, serve as the basis for us to invoice the customer via progress billings.

38 unchanged sentences

Fuel Tech uses a discounted cash flow (DCF) model to determine the current fair value of its FUEL CHEM reporting unit as this methodology was deemed to best quantify the present values of our expected future cash flows and yield a fair value that should be in line with the aggregate market value placed on the outstanding common stock as reflected by the current stock price multiplied by the outstanding shares of common stock.

A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce and working capital changes.

Events outside our control, specifically market conditions that impact revenue growth assumptions, could significantly impact the fair value calculated.

25 unchanged sentences

This assessment resulted in a valuation allowance on our deferred tax assets of $14,761 and $13,697 at December 31, 2025 and 2024, respectively.

Stock-Based Compensation

We recognize compensation expense for employee equity awards ratably over the requisite service period of the award, adjusted for estimated forfeitures.

We utilize the Black-Scholes option-pricing model to estimate the fair value of stock option awards.

Determining the fair value of stock options using the Black-Scholes model requires judgment, including estimates for (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 our 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.

Recently Issued Accounting Pronouncements

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 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 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):

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Operating loss

Interest expense

Interest income

Other income (expense), net

Other (expense) income, net

Loss before income taxes

1 unchanged sentence

Revenues for the years ended December 31, 2025 and 2024 were $26,677 and $25,133, respectively.

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.

The year-over-year increase of $1,544 or 6%, was driven by the increase in FUEL CHEM technology segment revenues, partially offset by a decrease in revenue in our APC technology segment.

revenues increased by $3,220, or 18%, from $17,802 in 2024 to $21,022 in 2025, and our international revenues decreased by $1,676, or 23%, from $7,331 in 2024 to $5,655 in 2025.

Revenues for the APC technology segment were $8,908 for the year ended December 31, 2025, a decrease of $2,334, or 21%, versus fiscal 2024.

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.

The decrease in APC revenue for the twelve-month period ending December 31, 2025 in comparison to the prior year amount was principally related to the timing of project execution and customer-driven delays in contract awards.

Consolidated APC backlog was $7,047 and $6,175 at December 31, 2025 and 2024, respectively.

2 unchanged sentences

Revenues for the FUEL CHEM technology segment for the year ended December 31, 2025 were $17,769, an increase of $3,878, or 28%, versus fiscal 2024.

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.

The increase in FUEL CHEM revenue was due primarily to renewed orders from previously dormant customers as well as a full year of revenues from the addition of a new customer in the second half of 2024 following a successful site demonstration.

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

3 unchanged sentences

Consolidated gross margin percentages for the years ended December 31, 2025 and 2024 were 46% and 42%, respectively.

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.

The gross margins for the APC technology segment increased to 43% in 2025 from 37% in 2024.

The increase 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 increased to 48% from 46% for the years ended December 31, 2025 and 2024.

This improvement is primarily due to an increase in revenue generation from accounts that had periods of dormancy due to outages in the prior year.

Selling, general and administrative

2 unchanged sentences

An increase in employee related costs of $257

An increase in travel expense of $38

An increase in professional services and other expenses of $26

An increase in depreciation expense of $122

An increase in office and administrative costs relating to our foreign subsidiaries of $15

A decrease in depreciation expense of $49

Depreciation and Amortization

3 unchanged sentences

Research and development expenses were $2,014 and $1,564 for the years ended December 31, 2025 and 2024, respectively.

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.

The expenditures in our research and development department 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.

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.

4 unchanged sentences

Interest income was $1,415 for the year ended December 31, 2025 compared to $1,251 for the same period in 2024.

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.

Interest income increased primarily due to $263 of interest received during the year ended December 31, 2025 related to the employee retention credit.

Other (expense) income, net

Other expense, net was $43 for the year ended December 31, 2025 compared to Other income, net of $1,585 for the same period in 2024.

Other expense for the year ended December 31, 2025 primarily relates to bank fees and foreign currency exchange losses.

Other income for the same period in 2024 primarily relates to a $1,677 gain recorded related to the employee retention credit.

Income tax expense

8 unchanged sentences

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

Operating activities provided cash of $3,016 for the year ended December 31, 2025, primarily due to a decrease in accounts receivable balances of $2,518, the collection of the employee retention credit receivable of $1,677, an increase in accounts payable balances of $258, and adjustments for non-cash items from our net loss from continuing operations for depreciation and amortization of $699 and stock compensation expense of $326, partially offset by an increase in prepaid expenses, other current assets, and other non-current assets of $172.

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, 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 provided cash of $545 and used cash of $5,443 for the years ended December 31, 2025 and 2024 .

Investing activities for the years ended December 31, 2025 and 2024 primarily consisted of purchases of HTM debt securities as investments of $12,031 and $18,060, respectively, and the purchases of equipment and patent and other intangible asset related costs of $674 and $378, respectively.

Investing activities for the years ended December 31, 2025 and 2024 were partially funded by the maturities of debt securities of $13,250 and $12,995, respectively.

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.

Financing activities used cash of $222 and $95 for the years ended December 31, 2025 and 2024, respectively.

Financing activities in both periods relate to taxes paid on behalf of 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.

18 unchanged sentences

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