ftek20220630

ftek20220630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to______.

Commission file number: 001-33059

FUEL TECH, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-5657551

(State or other jurisdiction of

incorporation of organization)

(I.R.S. Employer

Identification Number)

Fuel Tech, Inc.

27601 Bella Vista Parkway

Warrenville, IL 60555-1617

630-845-4500

www.ftek.com

(Address and telephone number of principal executive offices)

________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FTEK	NASDAQ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On July 31, 2022 there were outstanding 30,296,297 shares of Common Stock, par value $0.01 per share, of the registrant.

Table of Contents

FUEL TECH, INC.

Form 10-Q for the six-month period ended June 30, 2022

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	20
PART II.	OTHER INFORMATION	21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 6.	Exhibits	22
SIGNATURES		23

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PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

FUEL TECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)(in thousands, except share and per share data)

	June 30,			December 31,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	31,308		$	35,893
Restricted cash and cash equivalents		1,990			891
Accounts receivable, net		6,424			3,259
Inventories, net		405			348
Prepaid expenses and other current assets		856			1,074
Total current assets		40,983			41,465
Property and equipment, net of accumulated depreciation of $18,379 and $18,243, respectively		4,556			4,609
Goodwill		2,116			2,116
Other intangible assets, net of accumulated amortization of $369 and $341, respectively		416			448
Restricted cash		—			270
Right-of-use operating lease assets		236			242
Other assets		811			824
Total assets	$	49,118		$	49,974
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,348		$	1,561
Accrued liabilities:
Operating lease liabilities - current		118			113
Employee compensation		677			688
Other accrued liabilities		887			861
Total current liabilities		4,030			3,223
Operating lease liabilities - non-current		111			122
Deferred income taxes, net		139			139
Other liabilities		255			290
Total liabilities		4,535			3,774
Stockholders’ equity:
Common stock, $.01 par value, 40,000,000 shares authorized, 31,272,303 and 31,227,300 shares issued, and 30,296,297 and 30,263,791 shares outstanding, respectively		313			312
Additional paid-in capital		164,244			164,199
Accumulated deficit		(115,903	)		(114,549	)
Accumulated other comprehensive loss		(1,896	)		(1,604	)
Nil coupon perpetual loan notes		76			76
Treasury stock, at cost		(2,251	)		(2,234	)
Total stockholders’ equity		44,583			46,200
Total liabilities and stockholders’ equity	$	49,118		$	49,974

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per-share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Revenues	$	6,368		$	5,218		$	11,903		$	10,251
Costs and expenses:
Cost of sales		3,690			2,635			6,935			5,310
Selling, general and administrative		2,874			2,957			5,928			6,057
Research and development		289			315			509			730
		6,853			5,907			13,372			12,097
Operating loss		(485	)		(689	)		(1,469	)		(1,846	)
Interest expense		(4	)		(5	)		(9	)		(9	)
Interest income		8			2			9			3
Other income (expense), net		134			(76	)		124			1,482
Loss before income taxes		(347	)		(768	)		(1,345	)		(370	)
Income tax expense		(9	)		(10	)		(9	)		(10	)
Net loss	$	(356	)	$	(778	)	$	(1,354	)	$	(380	)
Net loss per common share:
Basic net loss per common share	$	(0.01	)	$	(0.03	)	$	(0.04	)	$	(0.01	)
Diluted net loss per common share	$	(0.01	)	$	(0.03	)	$	(0.04	)	$	(0.01	)
Weighted-average number of common shares outstanding:
Basic		30,296,000			30,264,000			30,282,000			28,895,000
Diluted		30,296,000			30,264,000			30,282,000			28,895,000

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Net loss	$	(356	)	$	(778	)	$	(1,354	)	$	(380	)
Other comprehensive (loss) income:
Foreign currency translation adjustments		(222	)		133			(292	)		(60	)
Comprehensive loss	$	(578	)	$	(645	)	$	(1,646	)	$	(440	)

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)(in thousands of dollars or shares, as appropriate)

The following summarizes the changes in total stockholders' equity for the three and six months ended June 30, 2021:

											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, 2020		25,229		$	262	$	140,138	$	(114,603	)	$	(1,370	)	$	76	$	(2,182	)	$	22,321
Net income		—			—		—		398			—			—		—			398
Foreign currency translation adjustments		—			—		—		—			(193	)		—		—			(193	)
Stock compensation expense		—			—		20		—			—			—		—			20
Common stock issued in connection with private placement, net		5,000			50		23,979		—			—			—		—			24,029
Common shares issued upon vesting of restricted stock units		50			—		—		—			—			—		—			—
Taxes paid on behalf of equity award participants		(15	)		—		—		—			—			—		(52	)		(52	)
Balance at March 31, 2021		30,264		$	312	$	164,137	$	(114,205	)	$	(1,563	)	$	76	$	(2,234	)	$	46,523
Net loss		—			—		—		(778	)		—			—		—			(778	)
Foreign currency translation adjustments		—			—		—		—			133			—		—			133
Stock compensation expense		—			—		20		—			—			—		—			20
Balance at June 30, 2021		30,264		$	312	$	164,157	$	(114,983	)	$	(1,430	)	$	76	$	(2,234	)	$	45,898

The following summarizes the changes in total stockholders' equity for the three and six months ended June 30, 2022:

												Accumulated			Nil
						Additional						Other			Coupon
	Common Stock					Paid-in			Accumulated			Comprehensive			Perpetual		Treasury
	Shares			Amount		Capital			Deficit			Loss			Loan Notes		Stock			Total
Balance at December 31, 2021		30,264		$	312	$	164,199		$	(114,549	)	$	(1,604	)	$	76	$	(2,234	)	$	46,200
Net loss		—			—		—			(998	)		—			—		—			(998	)
Foreign currency translation adjustments		—			—		—			—			(70	)		—		—			(70	)
Stock compensation expense		—			—		18			—			—			—		—			18
Common shares issued upon vesting of restricted stock units		45			1		(1	)		—			—			—		—			—
Taxes paid on behalf of equity award participants		(13	)		—		—			—			—			—		(17	)		(17	)
Balance at March 31, 2022		30,296		$	313	$	164,216		$	(115,547	)	$	(1,674	)	$	76	$	(2,251	)	$	45,133
Net loss		—			—		—			(356	)		—			—		—			(356	)
Foreign currency translation adjustments		—			—		—			—			(222	)		—		—			(222	)
Stock compensation expense		—			—		28			—			—			—		—			28
Balance at June 30, 2022		30,296		$	313	$	164,244		$	(115,903	)	$	(1,896	)	$	76	$	(2,251	)	$	44,583

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Six Months Ended
	June 30,
	2022			2021
Operating Activities
Net loss	$	(1,354	)	$	(380	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		182			319
Amortization		50			71
Loss on disposal of equipment		—			13
Provision for doubtful accounts, net of recoveries		43			23
Stock-based compensation, net of forfeitures		46			40
Gain of forgiveness on Paycheck Protection Plan Loan		—			(1,556	)
Changes in operating assets and liabilities:
Accounts receivable		(3,245	)		3,079
Inventories		(58	)		(97	)
Prepaid expenses, other current assets and other non-current assets		205			681
Accounts payable		812			(943	)
Accrued liabilities and other non-current liabilities		(2	)		(1,021	)
Net cash (used in) provided by operating activities		(3,321	)		229
Investing Activities
Purchases of equipment and patents		(138	)		(237	)
Net cash used in investing activities		(138	)		(237	)
Financing Activities
Proceeds from sale of common stock issued in connection with private placement		—			25,812
Costs related to sale of common stock issued in connection with private placement		—			(1,783	)
Taxes paid on behalf of equity award participants		(17	)		(52	)
Net cash (used in) provided by financing activities		(17	)		23,977
Effect of exchange rate fluctuations on cash		(280	)		(13	)
Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents		(3,756	)		23,956
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period (Note 2)		37,054			12,606
Cash, cash equivalents and restricted cash and cash equivalents at end of period (Note 2)	$	33,298		$	36,562

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

(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 nozzle to deliver supersaturated oxygen solutions and other gas-water combinations to target process applications or environmental issues. This infusion process has a variety of applications in the water and wastewater industries, including remediation, aeration, biological treatment, and wastewater odor management.

Many of Fuel Tech’s products and services rely heavily on the Company’s Computational Fluid Dynamics modeling capabilities, which are enhanced by internally developed, high-end visualization software.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for the fair statement of Fuel Tech's financial position, cash flows, and results of operations for the periods presented. All significant intercompany transactions and balances have been eliminated. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022. 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, 2021 as filed with the Securities and Exchange Commission.

COVID-19 Pandemic and Geopolitical Events

The effects of the coronavirus (COVID-19) global pandemic have presented significant risks to the Company, not all of which the Company is able to fully evaluate or even foresee at the current time. Although the impact of the pandemic is difficult to quantify, the Company has experienced, and may continue to experience, reductions in demand for certain of our products due to the delay or abandonment of ongoing or anticipated projects due to our customers’, suppliers’ and other third parties’ financial distress or concern regarding the volatility of global markets.

Geopolitical events and global economic sanctions resulting from the ongoing conflict between Russia and Ukraine may impact new or existing projects and the prices and availability of raw materials, energy and other materials. These events may also impact energy and regulatory policy nationally or regionally for the impacted regions.

Management cannot predict the full impact of the COVID-19 pandemic and geopolitical events on the Company’s sales and marketing channels and supply chain, and as a result, the ultimate extent of the effects on the Company is highly uncertain and will depend on future developments. Such effects could exist for an extended period of time. The Company continues to monitor the potential impacts on the business.

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2. Summary of Significant Accounting Policies

Restricted cash and cash equivalents

Restricted cash as of June 30, 2021 represent funds that are restricted to satisfy any amount borrowed against the Company's Cash Collateral Security agreement with BMO Harris Bank N.A (Cash Collateral Security agreement). In June 2022, the Company replaced the former Cash Collateral Security agreement with an Investment Collateral Security agreement with BMO Harris Bank N.A (Investment Collateral Security agreement) where existing standby letters of credit are collateralized by amounts held in the Company's investment funds (see Note 10). At June 30, 2022, the amount of funds collateralized under the Investment Collateral Security agreement is $1,990 relating to existing standby letters of credit with varying maturity dates and expire no later than June 30, 2023.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

	June 30,		June 30,
	2022		2021
Cash	$	23,298	$	36,194
Cash equivalents		8,010		—
Restricted cash and cash equivalents included in current assets		1,990		98
Restricted cash included in long-term assets		—		270
Total cash, cash equivalents, and restricted cash and cash equivalents shown in the Condensed Consolidated Statements of Cash Flows	$	33,298	$	36,562

Investments

In June 2022, the Board of Directors approved a plan to invest up to $10 million of excess capital in debt securities, or held in money market funds until such investments can be made, with BMO Harris Bank N.A (BMO Harris). At June 30, 2022, $10,000 was invested in a money market fund with the intent to purchase debt securities in the near term. A portion of the funds invested are restricted as collateral under the Investment Collateral Security agreement (see Note 10).

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 3 months or less.

Our investments in debt securities consist of Unites States (US) Treasury securities, including Notes, Bonds, and Bills, and US Government Agency securities, that are designated as held-to-maturity (HTM) and stated at amortized cost. The Company has the positive intent and ability to hold these investments to maturity and does not expect to sell any debt securities before maturity to settle an obligation under the Investment Collateral Security agreement. The maturities of our HTM investments range from 3 to 36 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 other long-term investments. Interest income, including amortization of premium and accretion of discount, are included on the Condensed Consolidated Statements of Operations in Interest income under the effective yield method. Discounts or premiums are included in the effective yield and amortized on a straight-line until maturity.

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 June 30, 2022 and December 31, 2021, inventory included equipment constructed for resale of $208 and $227, respectively, and spare parts, net of reserves of $197 and $121, 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. Inventories are periodically evaluated to identify obsolete or otherwise impaired parts and are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used.

3. Revenue

Disaggregated Revenue by Product Technology

The following table presents our revenues disaggregated by product technology:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Air Pollution Control
Technology solutions	$	1,966	$	223	$	3,807	$	596
Spare parts		262		236		358		416
Ancillary revenue		510		527		777		881
Total Air Pollution Control technology revenues		2,738		986		4,942		1,893
FUEL CHEM
FUEL CHEM technology solutions		3,630		4,232		6,961		8,358
Total Revenues	$	6,368	$	5,218	$	11,903	$	10,251

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Disaggregated Revenue by Geography

The following table presents our revenues disaggregated by geography, based on the location of the end-user:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
United States	$	4,279	$	4,588	$	7,967	$	9,051
Foreign Revenues
Latin America		60		142		129		217
Europe		922		301		1,326		676
Asia		1,107		187		2,481		307
Total Foreign Revenues		2,089		630		3,936		1,200
Total Revenues	$	6,368	$	5,218	$	11,903	$	10,251

Timing of Revenue Recognition

The following table presents the timing of our revenue recognition:

SEC Form 10-Q filed by Fuel Tech Inc.