FUEL TECH, INC. 10-Q

Item 1. Financial Statements FUEL TECH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(in thousands, except share and per share data) March 31, December 31, 2026 2025 ASSETS Current assets: Cash and cash equivalents $ 9,109 $ 11,939 Short-term investments 12,470 12,942 Accounts receivable, less current expected credit loss of $ 107 and $ 108 , respectively 4,112 5,355 Inventories, net 364 373 Prepaid expenses and other current assets 1,099 1,335 Total current assets 27,154 31,944 Property and equipment, net of accumulated depreciation of $ 18,048 and $ 19,433 , respectively 4,886 4,739 Goodwill 2,116 2,116 Other intangible assets, net of accumulated amortization of $ 586 and $ 561 , respectively 620 646 Right-of-use operating lease assets, net 516 536 Long-term investments 8,995 6,991 Other assets 200 207 Total assets $ 44,487 $ 47,179 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,144 $ 3,242 Accrued liabilities: Operating lease liabilities - current 92 89 Employee compensation 1,265 1,308 Other accrued liabilities 1,487 1,634 Total current liabilities 4,988 6,273 Operating lease liabilities - non-current 465 491 Deferred income taxes, net 187 187 Other liabilities 291 296 Total liabilities 5,931 7,247 Stockholders’ equity: Common stock, $ .01 par value, 40,000,000 shares authorized, 32,390,127 and 32,281,179 shares issued, and 31,157,075 and 31,074,438 shares outstanding, respectively 323 322 Additional paid-in capital 165,671 165,616 Accumulated deficit ( 123,151 ) ( 121,796 ) Accumulated other comprehensive loss ( 1,761 ) ( 1,718 ) Nil coupon perpetual loan notes 76 76 Treasury stock, at cost ( 2,602 ) ( 2,568 ) Total stockholders’ equity 38,556 39,932 Total liabilities and stockholders’ equity $ 44,487 $ 47,179 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 March 31, 2026 2025 Revenues $ 6,080 $ 6,382 Costs and expenses: Cost of sales 3,436 3,423 Selling, general and administrative 3,716 3,341 Research and development 524 570 7,676 7,334 Operating loss ( 1,596 ) ( 952 ) Interest income 240 279 Other expense, net — ( 66 ) Loss before income taxes ( 1,356 ) ( 739 ) Income tax benefit 1 — Net loss $ ( 1,355 ) $ ( 739 ) Net loss per common share: Basic net loss per common share $ ( 0.04 ) $ ( 0.02 ) Diluted net loss per common share $ ( 0.04 ) $ ( 0.02 ) Weighted-average number of common shares outstanding: Basic 31,091,335 30,718,000 Diluted 31,091,335 30,718,000 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 March 31, 2026 2025 Net loss $ ( 1,355 ) $ ( 739 ) Other comprehensive income (loss): Foreign currency translation adjustments ( 43 ) 135 Comprehensive loss $ ( 1,398 ) $ ( 604 ) 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 months ended March 31, 2025: 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, 2024 30,708 $ 317 $ 165,295 $ ( 119,472 ) $ ( 1,915 ) $ 76 $ ( 2,346 ) $ 41,955 Net loss — — — ( 739 ) — — — ( 739 ) Foreign currency translation adjustments — — — — 135 — — 135 Stock compensation expense — — 110 — — — — 110 Common shares issued upon vesting of restricted stock units 85 1 — — — — — 1 Taxes paid on behalf of equity award participants ( 24 ) — — — — — ( 24 ) ( 24 ) Balance at March 31, 2025 30,769 $ 318 $ 165,405 $ ( 120,211 ) $ ( 1,780 ) $ 76 $ ( 2,370 ) $ 41,438 The following summarizes the changes in total stockholders' equity for the three months ended March 31, 2026: 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, 2025 31,074 $ 322 $ 165,616 $ ( 121,796 ) $ ( 1,718 ) $ 76 $ ( 2,568 ) $ 39,932 Net loss — — — ( 1,355 ) — — — ( 1,355 ) Foreign currency translation adjustments — — — — ( 43 ) — — ( 43 ) Stock compensation expense — — 56 — — — — 56 Common shares issued upon vesting of restricted stock units 109 1 ( 1 ) — — — — — Taxes paid on behalf of equity award participants ( 26 ) — — — — — ( 34 ) ( 34 ) Balance at March 31, 2026 31,157 $ 323 $ 165,671 $ ( 123,151 ) $ ( 1,761 ) $ 76 $ ( 2,602 ) $ 38,556 See notes to condensed consolidated financial statements. 4 Table of Contents FUEL TECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 2026 2025 Operating Activities Net loss $ ( 1,355 ) $ ( 739 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 175 164 Amortization 26 9 Non-cash interest income on held-to-maturity securities 105 ( 50 ) Provision for credit losses, net of recoveries ( 1 ) — Stock-based compensation, net of forfeitures 56 110 Changes in operating assets and liabilities: Accounts receivable 1,176 3,768 Inventory 9 ( 137 ) Prepaid expenses, other current assets and other non-current assets 240 ( 28 ) Accounts payable ( 1,095 ) ( 1,340 ) Accrued liabilities and other non-current liabilities ( 183 ) ( 249 ) Net cash (used in) provided by operating activities ( 847 ) 1,508 Investing Activities Purchases of equipment and patents ( 322 ) ( 65 ) Purchases of debt securities ( 6,092 ) ( 993 ) Maturities of debt securities 4,500 2,750 Net cash (used in) provided by investing activities ( 1,914 ) 1,692 Financing Activities Taxes paid on behalf of equity award participants ( 34 ) ( 24 ) Net cash used in financing activities ( 34 ) ( 24 ) Effect of exchange rate fluctuations on cash ( 35 ) 135 Net (decrease) increase in cash and cash equivalents ( 2,830 ) 3,311 Cash and cash equivalents at beginning of period 11,939 8,510 Cash and cash equivalents at end of period $ 9,109 $ 11,821 See notes to condensed consolidated financial statements. 5 Table of Contents FUEL TECH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2026 (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 months ended March 31, 2026 are not necessarily indicative of the results to be expected for the full year ending December 31, 2026 . 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, 2025 as filed with the Securities and Exchange Commission. 2. Summary of Significant Accounting Policies Investments The Company's investment policy provides for $ 20,000 in funds at BMO Harris Bank, N.A. (BMO Harris) to be invested in debt securities. The funds are held in money market funds until they are invested in those securities. A portion of the funds invested are restricted as collateral under the Investment Collateral Security agreement (see Note 10 ). At March 31, 2026 , the amount of funds collateralized under the Investment Collateral Security agreement is $ 2,798 relating to existing standby letters of credit that is comprised of $ 2,746 with varying maturity dates that expire no later than March 31, 2027 and $ 52 with a latest maturity date of October 8, 2028. 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. 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, 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 original 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, is 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. 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: March 31, 2026 December 31, 2025 Amortized cost $ 21,465 $ 19,933 Gross unrecognized gains 24 76 Gross unrecognized losses ( 11 ) — Fair value $ 21,478 $ 20,009 The following table provides the amortized cost and fair value of debt securities by maturities at March 31, 2026 : Amortized Cost Fair Value Within one year $ 12,470 $ 12,483 After one year through two years 8,995 8,995 Total $ 21,465 $ 21,478 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 March 31, 2026 and December 31, 2025 , inventory included equipment constructed for resale of $ 176 and spare parts, net of reserves, of $ 188 and $ 197 , 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 $ 52 and $ 53 as of March 31, 2026 and December 31, 2025 , 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 the last used and original purchase dates and existing sales pipeline for which the inventory could be used. Allowance for Credit Losses The Company accounts for expected credit losses under Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 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. For the general risk categories, the Company uses historical losses over a fixed period, excluding certain write-off activity that was not considered a credit loss event, 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 losses: At January 1, 2025 $ 106 Provision charged to expense — (Write-offs) / Recoveries 2 At December 31, 2025 $ 108 Provision charged to expense — (Write-offs) / Recoveries ( 1 ) At March 31, 2026 $ 107 7 Table of Contents 3. Revenue Disaggregated Revenue by Product Technology The following table presents our revenues disaggregated by product technology: Three Months Ended March 31, 2026 2025 Air Pollution Control Technology solutions $ 755 $ 571 Spare parts 394 251 Ancillary revenue 455 481 Total Air Pollution Control technology revenues 1,604 1,303 FUEL CHEM FUEL CHEM technology solutions 4,476 5,079 Total Revenues $ 6,080 $ 6,382 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 March 31, 2026 2025 United States $ 5,247 $ 5,359 Foreign Revenues Latin America 186 348 Europe 393 477 Africa — 38 Asia 254 160 Total Foreign Revenues 833 1,023 Total Revenues $ 6,080 $ 6,382 Timing of Revenue Recognition The following table presents the timing of our revenue recognition: Three Months Ended March 31, 2026 2025 Products transferred at a point in time $ 5,325 $ 5,811 Products and services transferred over time 755 571 Total Revenues $ 6,080 $ 6,382 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. These assets are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. At March 31, 2026 , December 31, 2025 , and December 31, 2024 , contract assets for APC technology projects were approximately $ 974 , $ 887 , and $ 2,075 , respectively, and are included in accounts receivable on the Condensed Consolidated Balance Sheets. 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 $ 1,066 , $ 1,026 , and $ 721 at March 31, 2026 , December 31, 2025 , and December 31, 2024 , respectively, and are included in other accrued liabilities on the Condensed Consolidated Balance Sheets. 8 Table of Contents Changes in the contract asset and liability balances during the three -month period ended March 31, 2026 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 $ 452 and $ 372 for the three months ended March 31, 2026 and 2025 , respectively. As of March 31, 2026 and December 31, 2025 , we had no construction contracts in progress that were identified as a loss contract. Remaining Performance Obligations Remaining performance obligations represents the transaction price of APC technology booked orders for which work has not been performed. As of March 31, 2026 , the aggregate amount of the transaction price allocated to remaining performance obligations was $ 6,923 . The Company expects to recognize revenue on approximately $ 6,000 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 March 31, 2026 December 31, 2025 Trade receivables $ 3,156 $ 4,494 Unbilled receivables 974 887 Other short-term receivables 89 82 Allowance for credit losses ( 107 ) ( 108 ) Total accounts receivable $ 4,112 $ 5,355 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 March 31, 2026 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 the three months ended March 31, 2026 and 2025 in China as follows: Three Months Ended March 31, 2026 2025 Total revenues $ — $ — Net loss ( 13 ) ( 18 ) The following table presents net assets in China as of March 31, 2026 and December 31, 2025 : As of March 31, 2026 December 31, 2025 Total assets $ 772 $ 767 Total liabilities 92 83 Total net assets $ 680 $ 684 Total assets primarily consist of cash and other receivables. Total liabilities consist of accounts payable and certain accrued liabilities. 5. Accumulated Other Comprehensive Loss The changes in accumulated other comprehensive loss by component were as follows: Three Months Ended March 31, 2026 2025 Foreign currency translation Balance at beginning of period $ ( 1,718 ) $ ( 1,915 ) Other comprehensive income (loss): Foreign currency translation adjustments (1) ( 43 ) 135 Total accumulated other comprehensive loss $ ( 1,761 ) $ ( 1,780 ) ( 1 ) In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings. 9 Table of Contents 6. Treasury Stock Common stock held in treasury totaled 1,233,052 and 1,206,741 with a cost of $ 2,602 and $ 2,568 at March 31, 2026 and December 31, 2025 , respectively. These shares were withheld from employees to settle personal tax withholding obligations that arose as a result of restricted stock units that vested. 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 three months ended March 31, 2026 and 2025 , 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 months ended March 31, 2026 and 2025 : Three Months Ended March 31, 2026 2025 Basic weighted-average shares 31,091,335 30,718,000 Unexercised options and unvested RSUs — — Diluted weighted-average shares 31,091,335 30,718,000 For the three months ended March 31, 2026 and 2025 , Fuel Tech had weighted-average outstanding equity awards of 27,000 and 135,900 , 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 three months ended March 31, 2026 and 2025 , Fuel Tech had incremental equity awards of 159,300 and 322,700 , respectively, 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. 8. Stock-Based Compensation Fuel Tech's 2024 Long-Term Incentive Plan ( 2024 Plan) was adopted in June 2024 and replaced our prior incentive plan which was approved by our stockholders in 2014 (LTIP). No further grants will be made from the LTIP. The 2024 Plan and LTIP are referred to collectively as the Incentive Plans. Under the Incentive Plans, 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 Plans 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 3,249,134 shares that may be issued or reserved for awards to participants under the Incentive Plans. As of March 31, 2026 , Fuel Tech had 3,120,297 shares available for issuance under the Incentive Plans. We did not record any excess tax benefits within income tax expense for the three months ended March 31, 2026 and 2025 . Given the Company has a full valuation allowance on its deferred tax assets, there were no excess tax benefits to record for the three months ended March 31, 2026 and 2025 . In addition, we account for forfeitures of awards based on an estimate of the number of awards expected to be forfeited and adjust 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 months ended March 31, 2026 and 2025 were as follows: Three Months Ended March 31, 2026 2025 Stock options and restricted stock units, net of forfeitures $ 56 $ 110 After-tax effect of stock-based compensation $ 56 $ 110 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. 10 Table of Contents Stock option activity for Fuel Tech’s Incentive Plans for the three months ended March 31, 2026 was as follows: Weighted- Average Number Weighted- Remaining Aggregate of Average Contractual Intrinsic Options Exercise Price Term Value Outstanding on January 1, 2026 71,000 $ 1.20 Granted — — Exercised — — Expired or forfeited — — Outstanding on March 31, 2026 71,000 $ 1.20 1.10 $ 11 Exercisable on March 31, 2026 71,000 $ 1.20 1.10 $ 11 As of March 31, 2026 , there was no unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans. 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, in 2025 the Company entered into an Executive Performance RSU Award Agreement (the “Agreement”) with certain officers, including its President and Chief Executive Officer, Chief Financial Officer and Senior Vice President, Sales (each a “Participating Executive”) pursuant to which each Participating Executive will have the opportunity to earn a specified amount of restricted stock units (RSUs) based on Fuel Tech’s performance in 2026. The target amount of RSUs for each of four possible RSU award components is set for each Participating Executive for 2026. The amount 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 Revenue RSUs,” and “Operating Income” 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 Revenue RSUs, or Operating Income 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 March 31, 2026 , there is $ 608 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 1.62 yea rs. A summary of restricted stock unit activity for the three months ended March 31, 2026 is as follows: Weighted Average Grant Date Shares Fair Value Unvested restricted stock units at January 1, 2026 1,109,222 $ 1.06 Granted 70,850 1.26 Vested ( 108,949 ) 1.15 Forfeited ( 425,100 ) 1.02 Unvested restricted stock units at March 31, 2026 646,023 $ 1.10 The fair value of restricted stock that vested during the three -month period ended March 31, 2026 was $ 125 . 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 three -month periods ended March 31, 2026 and 2025 , 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 March 31, 2026 : Exercise Price Number Outstanding/Exercisable Weighted Average Remaining Life in Years Weighted Average Exercise Price $5.10 2,500,000 0.37 $ 5.10 $6.45 350,000 0.37 $ 6.45 2,850,000 11 Table of Contents 10. Debt Financing 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. There are no financial covenants set forth in the Investment Collateral Security agreement. At March 31, 2026 , the Company had outstanding standby letters of credit totaling approximately $ 1,866 under the Investment Collateral Security agreement. At March 31, 2026 , the investments held as collateral totaled $ 2,798 . 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 (ESP) 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. Our Chief Executive Officer (CEO) serves as our Chief Operating Decision Maker (CODM) and is responsible for reviewing segment performance and making decisions regarding resource allocation. We evaluate performance and allocate resources based on reviewing gross margin by reportable segment. We do not allocate selling, general and administrative expenses, interest, other non-operating income or expense items, or taxes to segments. 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. Information about reporting segment net sales and gross margin from continuing operations is provided below: Air Pollution FUEL CHEM Three months ended March 31, 2026 Control Segment Segment Other Total Revenues from external customers $ 1,604 $ 4,476 $ — $ 6,080 Cost of sales ( 989 ) ( 2,447 ) — ( 3,436 ) Gross margin 615 2,029 — 2,644 Selling, general and administrative — — ( 3,716 ) ( 3,716 ) Research and development — — ( 524 ) ( 524 ) Income (loss) from operations $ 615 $ 2,029 $ ( 4,240 ) $ ( 1,596 ) Air Pollution FUEL CHEM Three months ended March 31, 2025 Control Segment Segment Other Total Revenues from external customers $ 1,303 $ 5,079 $ — $ 6,382 Cost of sales ( 878 ) ( 2,545 ) — ( 3,423 ) Gross margin 425 2,534 — 2,959 Selling, general and administrative — — ( 3,341 ) ( 3,341 ) Research and development — — ( 570 ) ( 570 ) Income (loss) from operations $ 425 $ 2,534 $ ( 3,911 ) $ ( 952 ) 12 Table of Contents 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 March 31, 2026 2025 Revenues: United States $ 5,247 $ 5,359 Foreign 833 1,023 $ 6,080 $ 6,382 March 31, December 31, 2026 2025 Assets: United States $ 41,751 $ 44,345 Foreign 2,736 2,834 $ 44,487 $ 47,179 12. Accrued Liabilities The components of other accrued liabilities are as follows: As of March 31, 2026 December 31, 2025 Contract liabilities (Note 3) $ 1,066 $ 1,026 Warranty reserve (Note 13) 159 159 Deferred revenue 72 91 Accrued professional fees — 83 Other accrued liabilities 190 275 Total other accrued liabilities $ 1,487 $ 1,634 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. 13 Table of Contents 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 three months ended March 31, 2026 and 2025 . The warranty liability balance was $ 159 at March 31, 2026 and December 31, 2025 . 14. Income Taxes The Company’s effective tax rate is approximately ( 0.1 % ) and 0.0 % for the three -month periods ended March 31, 2026 and 2025 , respectively. The Company's effective tax rate differs from the statutory federal tax rate of 21 % for the three -month periods ended March 31, 2026 and 2025 primarily due to a full valuation allowance recorded on our United States, China and Italy deferred tax assets since we cannot anticipate when or if we will have sufficient taxable income to utilize the deferred tax assets in the future. Further, our effective tax rate differs from the statutory federal tax rate due to state taxes, differences between U.S. and foreign tax rates, foreign losses incurred with no related tax benefit, non-deductible commissions, and non-deductible meals and entertainment expenses for the three -month periods ended March 31, 2026 and 2025 . 14 Table of Contents FUEL TECH, INC.