UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended

September 30, 2020

or 

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

For the transition period from ______ to______.

Commission file number: 001-33059

 

FUEL TECH, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

20-5657551

(State or other jurisdiction of

incorporation of organization)

(I.R.S. Employer

Identification Number)

 

Fuel Tech, Inc.

27601 Bella Vista Parkway

Warrenville, IL 60555-1617

630-845-4500

www.ftek.com

(Address and telephone number of principal executive offices)

  ________________________________

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

 FTEK

NASDAQ

 

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

 

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

 

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

 

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 October 31, 2020 there were outstanding 24,701,159 shares of Common Stock, par value $0.01 per share, of the registrant.

 

 

 

 

 

FUEL TECH, INC.

Form 10-Q for the nine-month period ended September 30, 2020

 

INDEX

 

   

Page

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 
 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

1

 

Condensed Consolidated Statements of Operations for the Three- and Nine-Month Periods Ended September 30, 2020 and 2019

2

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three- and Nine-Month Periods Ended September 30, 2020 and 2019

2

 

Condensed Consolidated Statements of Stockholders' Equity for the Three- and Nine-Month Periods Ended September 30, 2020 and 2019

4

 

Condensed Consolidated Statements of Cash Flows for the Three- and Nine-Month Periods Ended September 30, 2020 and 2019

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

22

Item 4.

Controls and Procedures

22

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 6.

Exhibits

24

SIGNATURES

25

 

 

 

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

FUEL TECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

   

September 30,
2020

   

December 31,
2019

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 9,418     $ 10,914  

Restricted cash

    2,025       2,080  

Accounts receivable, net

    5,989       6,473  

Insurance Receivable

    2,589        

Inventories, net

    337       264  

Prepaid expenses and other current assets

    1,678       1,879  

Income taxes receivable

    69        

Total current assets

    22,105       21,610  

Property and equipment, net of accumulated depreciation of $26,692 and $26,174, respectively

    5,347       5,662  

Goodwill

    2,116       2,116  

Other intangible assets, net of accumulated amortization of $6,810 and $6,671, respectively

    794       906  

Restricted cash

    367       507  

Right-of-use operating lease assets

    430       362  

Other assets

    366       443  

Total assets

  $ 31,525     $ 31,606  

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Accounts payable

  $ 2,963     $ 2,117  

Current portion of long-term borrowings

    945        

Accrued liabilities:

               

Operating lease liabilities - current

    175       182  

Employee compensation

    687       519  

Income taxes payable

    36        

Other accrued liabilities

    1,566       1,976  

Total current liabilities

    6,372       4,794  

Operating lease liabilities - non-current

    247       180  

Long-term borrowings, net of current portion

    611        

Deferred income taxes, net

    172       171  

Other liabilities

    292       286  

Total liabilities

    7,694       5,431  

COMMITMENTS AND CONTINGENCIES (Note 13)

               

Stockholders’ equity:

               

Common stock, $.01 par value, 40,000,000 shares authorized, 25,509,298 and 25,053,480 shares issued, and 24,701,159 and 24,592,578 shares outstanding, respectively

    255       254  

Additional paid-in capital

    139,767       139,560  

Accumulated deficit

    (113,060

)

    (110,325

)

Accumulated other comprehensive loss

    (1,589

)

    (1,778

)

Nil coupon perpetual loan notes

    76       76  

Treasury stock, at cost

    (1,618

)

    (1,612

)

Total stockholders’ equity

    23,831       26,175  

Total liabilities and stockholders’ equity

  $ 31,525     $ 31,606  

 

See notes to condensed consolidated financial statements.

 

 

 

                                        

FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

 

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenues

  $ 8,155     $ 6,452     $ 16,334     $ 25,555  

Costs and expenses:

                               

Cost of sales

    2,249       3,563       8,299       14,754  

Selling, general and administrative

    3,184       3,822       9,825       12,735  

Restructuring charge

                      625  

Research and development

    285       352       880       823  

Intangible assets abandonment

          76             127  
      5,718       7,813       19,004       29,064  

Operating income (loss) from continuing operations

    2,437

 

    (1,361

)

    (2,670

)

    (3,509

)

Interest expense

    (9

)

    (4

)

    (15

)

    (8

)

Interest income

    3       19       16       30  

Other income (expense), net

    (55

)

    71

 

    83       (1

)

Income (loss) from continuing operations before income taxes

    2,376

 

    (1,275

)

    (2,586

)

    (3,488

)

Income tax expense

          (21

)

    (149

)

    (23

)

Net income (loss) from continuing operations

    2,376

 

    (1,296

)

    (2,735

)

    (3,511

)

Income (Loss) from discontinued operations

          18

 

          (1

)

Net income (loss)

  $ 2,376

 

  $ (1,278

)

  $ (2,735

)

  $ (3,512

)

Net income (loss) per common share:

                               

Basic

                               

Continuing operations

  $ 0.10

 

  $ (0.05

)

  $ (0.11

)

  $ (0.15

)

Discontinued operations

  $     $     $     $  

Basic net income (loss) per common share

  $ 0.10

 

  $ (0.05

)

  $ (0.11

)

  $ (0.15

)

Diluted

                               

Continuing operations

  $ 0.09

 

  $ (0.05

)

  $ (0.11

)

  $ (0.15

)

Discontinued operations

  $     $     $     $  

Diluted net income (loss) per common share

  $ 0.09     $ (0.05 )   $ (0.11

)

  $ (0.15

)

Weighted-average number of common shares outstanding:

                               

Basic

    24,701,000       24,187,000       24,656,000       24,183,000  

Diluted

    25,120,000       24,187,000       24,656,000       24,183,000  

 

See notes to condensed consolidated financial statements.

 

 

 

FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net income (loss)

  $ 2,376

 

  $ (1,278

)

  $ (2,735

)

  $ (3,512

)

Other comprehensive income (loss):

                               

Foreign currency translation adjustments

    268       (337

)

    189

 

    (276 )

Comprehensive income (loss)

  $ 2,644

 

  $ (1,615

)

  $ (2,546 )   $ (3,788

)

 

See notes to condensed consolidated financial statements.

 

 

 

Fuel Tech, Inc.

Condensed Statements of Stockholders’ Equity

(in thousands of dollars or shares, as appropriate)

 

The following summarizes the changes in total stockholders' equity for the three and nine months ended September 30, 2019:

 

   

Common Stock

   

Additional
Paid-in

   

Accumulated

   

Accumulated
Other
Comprehensive

   

Nil
Coupon
Perpetual

   

Treasury

   

 

 
   

Shares

   

Amount

    Capital     Deficit     Income (Loss)     Loan Notes     Stock     Total  

Balance at December 31, 2018

    24,170     $ 248     $ 138,992     $ (102,495

)

  $ (1,285

)

  $ 76     $ (1,484

)

  $ 34,052  

Net loss

                      (1,289

)

                      (1,289

)

Foreign currency translation adjustments

                            104                   104  

Stock compensation expense

                96                               96  

Common shares issued upon vesting of restricted stock units

    18                                            

Treasury shares withheld

    (2

)

                                  (2

)

    (2

)

Adoption of ASC 842

                      22                         22  

Balance at March 31, 2019

    24,186     $ 248     $ 139,088     $ (103,762

)

  $ (1,181

)

  $ 76     $ (1,486

)

  $ 32,983  

Net Loss

                      (945

)

                      (945

)

Foreign currency translation adjustments

                            (43

)

                (43

)

Stock compensation expense

                123                               123  

Balance at June 30, 2019

    24,186     $ 248     $ 139,211     $ (104,707

)

  $ (1,224

)

  $ 76     $ (1,486

)

  $ 32,118  
Net Loss                       (1,278 )                       (1,278 )
Foreign currency translation adjustments                             (337 )                 (337 )
Stock compensation expense                 138                               138  
Balance at September 30, 2019     24,186     $ 248     $ 139,349     $ (105,985 )   $ (1,561 )   $ 76     $ (1,486 )   $ 30,641  

 

 

The following summarizes the changes in total stockholders' equity for the three and nine months ended September 30, 2020:

 

   

Common Stock

   

Additional
Paid-in

   

Accumulated

   

Accumulated
Other
Comprehensive

   

Nil
Coupon
Perpetual

   

Treasury

         
   

Shares

   

Amount

    Capital     Deficit     Income (Loss)     Loan Notes     Stock     Total  

Balance at December 31, 2019

    24,592     $ 254     $ 139,560     $ (110,325

)

  $ (1,778

)

  $ 76     $ (1,612

)

  $ 26,175  

Net loss

                      (2,567

)

                      (2,567

)

Foreign currency translation adjustments

                            (231

)

                (231

)

Stock compensation expense

                81                               81  

Common shares issued upon vesting of restricted stock units

    55                                            

Treasury shares withheld

    (11

)

                                  (5

)

    (5

)

Balance at March 31, 2020

    24,636     $ 254     $ 139,641     $ (112,892

)

  $ (2,009

)

  $ 76     $ (1,617

)

  $ 23,453  

Net Loss

                      (2,544

)

                      (2,544

)

Foreign currency translation adjustments

                            152                   152  

Stock compensation expense

                69                               69  

Common shares issued upon vesting of restricted stock units

    66       1                               (1

)

     

Treasury shares withheld

    (1

)

                                         

Balance at June 30, 2020

    24,701     $ 255     $ 139,710     $ (115,436

)

  $ (1,857

)

  $ 76     $ (1,618

)

  $ 21,130  
Net Income                       2,376                         2,376  
Foreign currency translation adjustments                             268                   268  
Stock compensation expense                 57                               57  
Balance at September 30, 2020     24,701     $ 255     $ 139,767     $ (113,060 )   $ (1,589 )   $ 76     $ (1,618 )   $ 23,831  

 

See notes to condensed consolidated financial statements.

 

 

 

FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

   

Nine Months Ended
September 30,

 
   

2020

   

2019

 

Operating Activities

               

Net loss

  $ (2,735

)

  $ (3,512

)

Loss from discontinued operations

          1  

Net loss from continuing operations

    (2,735

)

    (3,511

)

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation

    495       644  

Amortization

    139       118  

(Gain) loss on disposal of equipment

    (3 )     4  

Provision for doubtful accounts, net of recoveries

    (1,144

)

     

Adjustment for Operating Lease (Note 2)

    (11

)

     

Intangible assets abandonment

          127  

Stock-based compensation, net of forfeitures

    208       357  

Changes in operating assets and liabilities:

               

Accounts receivable

    (863

)

    8,601  

Inventories

    (71

)

    654  

Prepaid expenses, other current assets and other non-current assets

    250       1,804  

Accounts payable

    820       (6,812

)

Accrued liabilities and other non-current liabilities

    (376 )     (4,306

)

Net cash used in operating activities - continuing operations

    (3,291

)

    (2,320

)

Net cash used in operating activities - discontinued operations

          (21

)

Net cash used in operating activities

    (3,291

)

    (2,341

)

Investing Activities

               

Purchases of equipment and patents

    (206

)

    (431

)

Net cash used in investing activities - continuing operations

    (206

)

    (431

)

Net cash provided by investing activities - discontinued operations

          505  

Net cash (used in) provided by investing activities

    (206

)

    74  

Financing Activities

               

Proceeds from borrowings

    1,556        

Taxes paid on behalf of equity award participants

    (6

)

    (2

)

Net cash provided by (used in) financing activities

    1,550       (2

)

Effect of exchange rate fluctuations on cash

    256       (458

)

Net decrease in cash, cash equivalents and restricted cash

    (1,691

)

    (2,727

)

Cash, cash equivalents, and restricted cash at beginning of period (Note 2)

    13,501       18,059  

Cash, cash equivalents and restricted cash at end of period (Note 2)

  $ 11,810     $ 15,332  

 

See notes to condensed consolidated financial statements.

 

 

FUEL TECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(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") provides advanced engineered solutions for the optimization of combustion systems in utility and industrial applications. Our primary focus is on the worldwide marketing and sale of NOx reduction technologies as well as our FUEL CHEM program. The Company’s NOx reduction technologies reduce nitrogen oxide emissions from boilers, furnaces and other stationary combustion sources.

 

Our FUEL CHEM program is based on proprietary TIFI® Targeted In-Furnace™ Injection technology, in combination with advanced Computational Fluid Dynamics (CFD) and Chemical Kinetics Modeling (CKM) boiler modeling, in the unique application of specialty chemicals to improve the efficiency, reliability and environmental status of combustion units by controlling slagging, fouling, corrosion, opacity and other sulfur trioxide-related issues in the boiler.

 

Our business is materially dependent on the continued existence and enforcement of air quality regulations, particularly in the United States. We have expended significant resources in the research and development of new technologies in building our proprietary portfolio of air pollution control, fuel and boiler treatment chemicals, computer modeling and advanced visualization technologies.

 

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 a fair presentation of the statements for the periods presented. All significant intercompany transactions and balances have been eliminated. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020. 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, 2019 as filed with the Securities and Exchange Commission.

 

COVID-19 Pandemic

 

The emergence of the coronavirus (COVID-19) around the world presents significant risks to the Company, not all of which the Company is able to fully evaluate or even foresee at the current time. The COVID-19 pandemic has affected the Company’s operations in the three and nine months ended September 30, 2020, although the impact of the pandemic is difficult to quantify, and may continue to do so indefinitely thereafter. The Company has experienced, and may continue to experience, reductions in demand for certain of our products as several accounts remained offline due to soft electric demand and unplanned outage activities and 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.

 

Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales and marketing channels and supply chain, and as a result, the ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments. Such effects could exist for an extended period of time even after the pandemic might end.

 

 

 

2.     Summary of Significant Accounting Policies

 

Restricted cash

 

Restricted cash as of September 30, 2020 represents funds that are restricted to satisfy any amount borrowed against the Company's Cash Collateral Security agreement with BMO Harris Bank N.A. The balance of restricted cash totaling $2,392 is comprised of $2,025 in current assets relating to existing standby letters of credit with varying maturity dates and expire no later than September 30, 2021 and $367 in long-term assets will remain through the expiration dates of the underlying standby letter of credits (the latest maturity date is February 1, 2023) with BMO Harris Bank N.A. Refer to Note 9 Debt Financing for further information on the Cash Collateral Security agreement with BMO Harris Bank N.A.

 

 

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

 

   

September 30,
2020

   

September 30,
2019

 

Cash and cash equivalents

  $ 9,418     $ 12,850  

Restricted cash included in current assets

    2,025       988  

Restricted cash included in long-term assets

    367       1,494  

Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows

  $ 11,810     $ 15,332  

 

Leases

 

The Company applies the provisions of Accounting Standards Codification ("ASC") 842, Leases.  The Company determines if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. Right-of-use ("ROU") assets and lease liabilities are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term. Operating ROU assets also include the impact of any lease incentives. Operating leases are included in right-of-use ("ROU") operating lease assets, operating lease liabilities - current, and operating lease liabilities - non-current on our Consolidated Balance Sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

We have lease agreements with lease and non-lease components, and we elected the practical expedient to not separate lease and non-lease components for the majority of our leases. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. We also elected the practical expedient to keep leases with an initial term of 12 months or less off of the consolidated balance sheet.

 

During the quarter ending September 30, 2020, an error was detected in the calculation of the adoption of ASC 842. “Leases” made on January 1, 2019.  The calculation included an incorrect lease amount associated with one of our leases.   This error did not correctly present the Right of Use Operating Lease Asset and related Operating Lease Liability on the Company’s balance sheet.

 

We evaluated the revision in accordance with Accounting Standards Codification (ASC) 250, Accounting Changes and Error Corrections and evaluated the materiality of the revision on prior periods' financial statements in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 108, Quantifying Financial Statement Errors. We concluded that the revision was not material to any prior period and therefore, amendments of previously filed reports are not required. In accordance with ASC 250, we have corrected the error in all prior periods presented by revising the consolidated financial statements appearing herein. Periods not presented herein will be revised, as applicable, in future filings. The revision did not have an impact on net loss or earnings per share data for the year ended December 31, 2019.

 

   

As Previously Reported Year Ended

December 31, 2019

   

Revision

   

As Revised

 

Right of Use Operating Lease Asset

    980       (618 )     362  

Operating Lease Liabilities - current

    300       (118 )     182  

Operating Lease Liabilities - non current

    680       (500 )     180  

 

 

 

3.     Revenue

 

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. Fuel Tech’s sales of products to customers generally represent single performance obligations. 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.

 

 

We generally expense sales commissions on a ratable basis when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses within the Condensed Consolidated Statements of Operations.

 

Air Pollution Control Technology

 

Fuel Tech’s APC contracts are typically six to eighteen 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. At a minimum, these measurements will include the generation of engineering drawings, the shipment of equipment and the completion of a system performance test.

 

As part of most of its contractual APC project agreements, Fuel Tech will agree to customer-specific acceptance criteria that relate to the operational performance of the system that is being sold. These criteria are determined based on modeling that is performed by Fuel Tech personnel, which is based on operational inputs that are provided by the customer. The customer will warrant that these operational inputs are accurate as they are specified in the binding contractual agreement. Further, the customer is solely responsible for the accuracy of the operating condition information; typically all performance guarantees and equipment warranties granted by us are voidable if the operating condition information is inaccurate or is not met.

 

Since control transfers over time, revenue is recognized based on the extent of progress towards completion of the single performance obligation. Fuel Tech uses the cost-to-cost input measure of progress for our contracts since it best depicts the transfer of assets to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost input measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. Costs to fulfill include all internal and external engineering costs, equipment charges, inbound and outbound freight expenses, internal and site transfer costs, installation charges, purchasing and receiving costs, inspection costs, warehousing costs, project personnel travel expenses and other direct and indirect expenses specifically identified as project- or product-line related, as appropriate (e.g. test equipment depreciation and certain insurance expenses).

 

Fuel Tech’s APC product line also includes ancillary revenue for post contractual goods and services.  Revenue associated with these activities are recognized at point in time when delivery of goods or completion of the service obligation is performed.

 

Fuel Tech has installed over 1,100 units with APC technology and normally provides performance guarantees to our customers based on the operating conditions for the project. As part of the project implementation process, we perform system start-up and optimization services that effectively serve as a test of actual project performance. We believe that this test, combined with the accuracy of the modeling that is performed, enables revenue to be recognized prior to the receipt of formal customer acceptance.

 

FUEL CHEM

 

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 above and for those project where control transfers over time,  revenue is recognized based on the extent of progress towards completion of the single performance obligation. 

 

 

Disaggregated Revenue by Product Technology

 

The following table presents our revenues disaggregated by product technology:

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Air Pollution Control

                               

Technology solutions

  $ 2,326     $ 1,191     $ 4,524     $ 9,727  

Spare parts

    254       299       667       832  

Ancillary revenue

    306       326       828       1,849  

Total Air Pollution Control Technology revenues

    2,886       1,816       6,019       12,408  

FUEL CHEM

                               

FUEL CHEM technology solutions

    5,269       4,636       10,315       13,147  

Total Revenues

  $ 8,155     $ 6,452     $ 16,334     $ 25,555  

 

Disaggregated Revenue by Geography

 

The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers:

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

United States

  $ 6,473     $ 5,727     $ 12,880     $ 22,104  

Foreign Revenues

                               

Latin America

    195       282       400       474  

Europe

    904       283       1,494       1,568  

Asia

    583       160       1,560       1,409  

Total Foreign Revenues

    1,682       725       3,454       3,451  

Total Revenues

  $ 8,155     $ 6,452     $ 16,334     $ 25,555  

 

Timing of Revenue Recognition

 

The following table presents the timing of our revenue recognition:

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Products transferred at a point in time

  $ 5,108     $ 5,261     $ 11,089     $ 15,828  

Products and services transferred over time

    3,047       1,191       5,245       9,727  

Total Revenues

  $ 8,155     $ 6,452     $ 16,334     $ 25,555  

 

 

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 consolidated balance sheets. In our Air Pollution Control 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 consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. At September 30, 2020 and December 31, 2019, contract assets were approximately $1,929 and $1,857, 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. These liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Contract liabilities were $357 and $712, at September 30, 2020 and December 31, 2019, respectively, and are included in other accrued liabilities on the consolidated balance sheets.

 

Changes in the contract asset and liability balances during the nine month period ended September 30, 2020, 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 $97 and $555 for the three and nine months ended September 30, 2020, respectively and $302 and $1,059 for three and nine months ended September 30, 2019, respectively, which represented primarily revenue from progress towards completion of our Air Pollution Control technology contracts.

 

As of September 30, 2020, we had three construction contracts in progress that were identified as loss contracts and a provision for losses of $3 was recorded in other accrued liabilities on the consolidated balance sheet. Refer to Footnote 13 for an accrual related to certain non-conformance issues with a U.S. customer associated with equipment that requires remedy under the warranty provision of the customer contract. As of December 31, 2019, we had three construction contracts in progress that were identified as loss contracts and a provision for losses in the amount of $26 was recorded in other accrued liabilities on the consolidated balance sheet.

 

Remaining Performance Obligations

 

Remaining performance obligations, represents the transaction price of Air Pollution Control technology booked orders for which work has not been performed. As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $6,417. The Company expects to recognize revenue on approximately $4,130 of the remaining performance obligations over the next 12 months with the remaining recognized thereafter.

 

Accounts Receivable

 

The components of accounts receivable are as follows:

 

   

As of

 
   

September 30, 2020

   

December 31, 2019

 

Trade receivables

  $ 4,731     $ 6,425  

Unbilled receivables

    1,929       1,857  

Other short-term receivables

    29       7  

Allowance for doubtful accounts

    (700

)

    (1,816

)

Total accounts receivable

  $ 5,989     $ 6,473  

 

 

 

4.     Restructuring Activities

 

On January 18, 2019, the Company announced a planned suspension of its Air Pollution Control (“APC”) business operation in China. This action is part of Fuel Tech’s ongoing operational improvement initiatives designed to prioritize resource allocation, reduce costs, and drive profitability for the Company on a global basis. The transition associated with the suspension of the APC business which has taken place through September 30, 2020 includes staff rationalization and reduction, supplier and partner engagement, and the monetization of certain assets. The remaining transition activities include the execution of the remaining activities to satisfy the requirements for the remaining APC projects in China (with a backlog totaling approximately $25) in addition to collection efforts for the remaining accounts receivable.

 

The following table presents our revenues and net loss which includes the Restructuring charge line item within the Condensed Statements of Operations for 2020 and 2019 in China as follows:

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Total revenues

  $ 6     $

 

  $ 11     $ 311  

Net loss

  $ (73

)

  $ (80

)

  $ (31 )   $ (1,469

)

 

Total assets primarily consist of cash, accounts receivable, contract assets, prepaid expenses and other current assets. Total liabilities consist of accounts payable and certain accrued liabilities.

 

The following table presents net assets in China as follows:

 

   

As of

 
   

September 30, 2020

   

December 31, 2019

 

Total assets

  $ 3,134     $ 4,249  

Total liabilities

    380       399  

Total net assets

  $ 2,754     $ 3,850  

 

The Company incurred $0 in the three and nine month periods ending September 30, 2020 and $0 and $625 during the three and nine month periods ending September 30, 2019 for severance and lease cancellation costs related to the suspension of the APC business in China.

 

There is no liability for restructuring activities for the three and nine months ending September 30, 2020. The following is a reconciliation of the accrual for the workforce reduction that is included within the "Accrued Liabilities - Employee Compensation" line of the consolidated balance sheets for the three and nine months ending September 30, 2020 and 2019:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Restructuring liability at beginning of period

  $     $ 155     $     $ 65  

Amounts expensed

                      625  

Amounts paid

          (155

)

          (690

)

Restructuring liability at end of period

  $     $     $     $  

 

 

 

5.     Accumulated Other Comprehensive Loss

 

The changes in accumulated other comprehensive loss by component were as follows:

 

   

Three months ended

September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Foreign currency translation

                               

Balance at beginning of period

  $ (1,857

)

  $ (1,224

)

  $ (1,778

)

  $ (1,285

)

Other comprehensive loss:

                               

Foreign currency translation adjustments (1)

    268       (337

)

    189

 

    (276 )

Total accumulated other comprehensive loss

  $ (1,589

)

  $ (1,561

)

  $ (1,589

)

  $ (1,561

)

 

(1)

In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.

 

 

6.     Treasury Stock

 

Common stock held in treasury totaled 808,139 and 796,090 with a cost of $1,618 and $1,612 at September 30, 2020 and December 31, 2019, respectively. These shares were withheld from employees to settle personal tax withholding obligations that arose as a result of restricted stock units that vested in the periods presented.

 

 

7.     Earnings per Share

 

Basic earnings per share excludes the dilutive effects of stock options, restricted stock units (RSUs), 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, 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 are excluded from diluted earnings per share because they are anti-dilutive.  For the nine months ended September 30, 2020 and 2019, basic earnings per share is equal to diluted earnings per share because all outstanding stock awards and convertible loan notes are considered anti-dilutive during periods of net loss. The following table sets forth the weighted-average shares used in calculating the earnings per share for the three and nine months ended September 30, 2020 and 2019.

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Basic weighted-average shares

    24,701,000       24,187,000       24,656,000       24,183,000  

Conversion of unsecured loan notes

                       

Unexercised options and unvested RSUs

    419,000                    

Diluted weighted-average shares

    25,120,000       24,187,000       24,656,000       24,183,000  

 

For the three month period ended September 30, 2020, there were 110,000 outstanding equity awards that were excluded from the computation of diluted EPS as the inclusion of such would have been anti-dilutive.  

 

 

 

8.     Stock-Based Compensation

 

Under our stock-based employee compensation plan, referred to as the Fuel Tech, Inc. 2014 Long-Term Incentive Plan (Incentive Plan), awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units (“RSUs”), Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof. Participants in the Incentive Plan may be our directors, officers, employees, consultants or advisors (except consultants or advisors in capital-raising transactions) as the directors determine are key to the success of our business. There are a maximum of 5,600,676 shares that may be issued or reserved for awards to participants under the Incentive Plan. As of September 30, 2020, Fuel Tech had 2,359,333 shares available for share-based awards under the 2014 Plan.

 

We did not record any excess tax benefits within income tax expense for the three and nine months ended September 30, 2020. Given the Company has a full valuation allowance on its deferred tax assets, there were no excess tax benefits to record for the three and nine months ended September 30, 2020. In addition, we account for forfeitures of awards based on an estimate of the number of awards expected to be forfeited and adjusting the estimate when it is no longer probable that the employee will fulfill the service condition.

    

Stock-based compensation is included in selling, general, and administrative costs in our Consolidated Statements of Operations. The components of stock-based compensation for the three and nine months ended September 30, 2020 and 2019 were as follows:

 

   

Three Months Ended
September 30,

   

Nine Months Ended

September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Stock options and restricted stock units, net of forfeited

  $ 57     $ 138     $ 207     $ 357  

Tax benefit of stock-based compensation expense

                       

After-tax effect of stock-based compensation

  $ 57     $ 138     $ 207     $ 357  

 

Stock Options

 

Stock options granted to employees under the Incentive Plans have a 10-year life and they vest as follows: 50% after the second anniversary of the award date, 25% after the third anniversary, and the final 25% after the fourth anniversary of the award date. Fuel Tech calculates stock compensation expense for employee option awards based on the grant date fair value of the award, less expected annual forfeitures, and recognizes expense on a straight-line basis over the four-year service period of the award. Stock options granted to members of our board of directors vest immediately. Stock compensation for these awards is based on the grant date fair value of the award and is recognized in expense immediately.

 

Fuel Tech uses the Black-Scholes option pricing model to estimate the grant date fair value of employee stock options. The principal variable assumptions utilized in valuing options and the methodology for estimating such model inputs include: (1) risk-free interest rate – an estimate based on the yield of zero–coupon treasury securities with a maturity equal to the expected life of the option; (2) expected volatility – an estimate based on the historical volatility of Fuel Tech’s Common Stock for a period equal to the expected life of the option; and (3) expected life of the option – an estimate based on historical experience including the effect of employee terminations.

 

Stock option activity for Fuel Tech’s Incentive Plans for the nine months ended September 30, 2020 was as follows:

 

   

Number

of

Options

   

Weighted-

Average

Exercise Price

   

Weighted- Average

Remaining

Contractual

Term

   

Aggregate

Intrinsic

Value

 

Outstanding on January 1, 2020

    747,500     $ 3.33                  

Granted

                           

Exercised

                           

Expired or forfeited

    (80,000

)

    5.79                  

Outstanding on September 30, 2020

    667,500     $ 3.04       4.48     $  

Exercisable on September 30, 2020

    667,500     $ 3.04       4.48     $  

 

As of September 30, 2020, there was no unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans.

 

 

Restricted Stock Units

 

Restricted stock units (RSUs) granted to employees vest over time based on continued service (typically vesting over a period between two and four years). Such time-vested RSUs are valued at the date of grant using the intrinsic value method 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 period.

 

In addition to the time vested RSUs, the Company entered into a 2020 Executive Performance RSU Award Agreement (the “2020 Agreement”) with certain officers, including its President and Chief Executive Officer pursuant to which each 2020 Participating Executive will have the opportunity to earn a specified amount of restricted stock units (RSUs). The amount of RSUs awarded, if any, will be based on the Company’s achievement of varying levels of operating income before the impact of incentive pay (but including adjustments to reflect the payment of sales commissions) in fiscal 2020 (“Operating Income”), as determined by the Company, in its sole discretion. Nevertheless, no Participating Executive will be entitled to any such RSUs unless the Company achieves a minimum of $1 million in Operating Income in 2020. If awarded, such RSUs will vest in equal amounts (i.e., 1/3, 1/3 and 1/3) over three years commencing one year after the grant date based on continued service. Such RSUs are valued at the date of grant using the intrinsic value method based on the closing price of the Company’s common stock on the grant date.

 

At September 30, 2020, there is $151 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 1.22  years.

 

A summary of restricted stock unit activity for the nine months ended September 30, 2020 is as follows:

 

   

Shares

   

Weighted Average

Grant Date

Fair Value

 

Unvested restricted stock units at January 1, 2020

    775,635     $ 1.47  

Granted

           

Forfeited

    (60,000

)

    0.97  

Vested

    (120,630

)

    1.57  

Unvested restricted stock units at September 30, 2020

    595,005     $ 1.50  

 

The fair value of restricted stock that vested during the nine month period ending September 30, 2020 was $190.

 

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 ASC 718, Fuel Tech accounts for these awards as equity awards as opposed to liability awards. During the nine month periods ended September 30, 2020 and 2019, Fuel Tech recorded no stock-based compensation expense under the Deferred Plan.

 

 

9.     Debt Financing

 

On April 17, 2020, the Company received $1,556 in loan proceeds from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The unsecured loan is evidenced by a promissory note of the Company dated April 15, 2020 (the “Note”) in the principal amount of $1,556, issued to BMO Harris Bank N.A. (the “Bank”), the lender.

 

Under the terms of the Note, interest will accrue on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, though it may be payable sooner in connection with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning seven months from the date of the Note, until the maturity date. The Note contains covenants by the Company, including obtaining the written consent of the Bank prior to material changes in the management or ownership of the Company.

 

As of September 30, 2020 the Company has utilized the entire balance of loan proceeds to fund its payroll expenses.  As a result, the Company believes it has met the eligibility criteria for forgiveness.  To the extent any amount is deemed unforgiveable, such amount will be payable over the terms of the note.

 

On June 19, 2019, the Company entered into a Cash Collateral Security agreement with BMO Harris Bank, N.A. (the BMO Harris agreement) to use for the sole purpose of issuing standby letters of credit. The BMO Harris agreement requires us to pledge as cash collateral 105% 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 BMO Harris agreement. At September 30, 2020 and December 31, 2019, respectively, the Company had outstanding standby letters of credit totaling approximately $2,278 and $2,461 under the BMO Harris agreement. As of September 30, 2020 and December 31, 2019 respectively, the Company held $2,392 and $2,587 in a separate restricted use designated BMO Harris Bank N.A. deposit account. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

 

In connection with the transition to BMO Harris Bank N.A., the Company canceled its U.S. credit facility with JPMorgan Chase Bank, N.A. effective on September 25, 2019.

 

 

 

10.     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:

 

 

The Air Pollution Control technology segment includes technologies to reduce NOx emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources. These include Low and Ultra Low NOx Burners (LNB and ULNB), Over-Fire Air (OFA) systems, NOxOUT® and HERT™ Selective Non-Catalytic Reduction (SNCR) systems, and Advanced Selective Catalytic Reduction (ASCR) systems. Our ASCR systems include ULNB, OFA, and SNCR components, along with a downsized SCR catalyst, Ammonia Injection Grid (AIG), and Graduated Straightening Grid GSG™ systems to provide high NOx reductions at significantly lower capital and operating costs than conventional SCR systems. The NOxOUT CASCADE® and NOxOUT-SCR® processes are more basic, using just SNCR and SCR catalyst components. ULTRA™ technology creates ammonia at a plant site using safe urea for use with any SCR application. 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 CFD and CKM boiler modeling, for the control of slagging, fouling, corrosion, opacity and other sulfur trioxide-related issues in furnaces and boilers through the addition of chemicals into the furnace using TIFI® Targeted In-Furnace Injection™ technology.

 

The “Other” classification includes those profit and loss items not allocated to either reportable segment. There are no inter-segment sales that require elimination.

 

We evaluate performance and allocate resources based on reviewing gross margin by reportable segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (Note 1 in our annual report on Form 10-K). We do not review assets by reportable segment, but rather, in aggregate for the Company as a whole.

 

Information about reporting segment net sales and gross margin from continuing operations are provided below:

 

Three months ended September 30, 2020

 

Air Pollution
Control Segment

   

FUEL CHEM
Segment

   

Other

   

Total

 

Revenues from external customers

  $ 2,886     $ 5,269     $     $ 8,155  

Cost of sales

    304

 

    (2,553

)

          (2,249

)

Gross margin

    3,190       2,716             5,906  

Selling, general and administrative

                (3,184

)

    (3,184

)

Research and development

                (285

)

    (285

)

Operating income (loss) from continuing operations

  $ 3,190

 

  $ 2,716     $ (3,469

)

  $ 2,437

 

 

 

Three months ended September 30, 2019

 

Air Pollution
Control Segment

   

FUEL CHEM
Segment

   

Other

   

Total

 

Revenues from external customers

  $ 1,816     $ 4,636     $     $ 6,452  

Cost of sales

    (1,197

)

    (2,366

)

          (3,563

)

Gross margin

    619       2,270             2,889  

Selling, general and administrative

                (3,822

)

    (3,822

)

Restructuring Charge

   

 

               

 

Research and development

                (352

)

    (352

)

Intangible assets abandonment

                (76

)

    (76

)

Operating income (loss) from continuing operations

  $ 619     $ 2,270     $ (4,250

)

  $ (1,361

)

 

 

Nine months ended September 30, 2020

 

Air Pollution
Control Segment

   

FUEL CHEM
Segment

   

Other

   

Total

 

Revenues from external customers

  $ 6,019     $ 10,315     $     $ 16,334  

Cost of sales

    (2,782

)

    (5,517

)

          (8,299

)

Gross margin

    3,237       4,798             8,035  

Selling, general and administrative

                (9,825

)

    (9,825

)

Research and development

                (880

)

    (880

)

Operating income (loss) from continuing operations

  $ 3,237     $ 4,798     $ (10,705

)

  $ (2,670

)

 

Nine months ended September 30, 2019

 

Air Pollution
Control Segment

   

FUEL CHEM
Segment

   

Other

   

Total

 

Revenues from external customers

  $ 12,408     $ 13,147     $     $ 25,555  

Cost of sales

    (8,061

)

    (6,693

)

          (14,754

)

Gross margin

    4,347       6,454             10,801  

Selling, general and administrative

                (12,735

)

    (12,735

)

Restructuring Charge

   

 

          (625 )     (625

)

Research and development

                (823

)

    (823

)

Intangible assets abandonment

                (127

)

    (127

)

Operating income (loss) from continuing operations

  $ 4,347     $ 6,454     $ (14,310

)

  $ (3,509

)

 

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 customer. Assets are those directly associated with operations of the geographic area.

 

   

Three Months Ended
September 30,

   

Nine Months Ended

September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Revenues:

                               

United States

  $ 6,473     $ 5,727     $ 12,880     $ 22,104  

Foreign

    1,682       725       3,454       3,451  
    $ 8,155     $ 6,452     $ 16,334     $ 25,555  

 

   

September 30,
2020

   

December 31,
2019

 

Assets:

               

United States

  $ 25,008     $ 23,460  

Foreign

    6,517       8,146  
    $ 31,525     $ 31,606  

 

 

 

11.     Leases

 

Leases

We have seven total operating leases which relate to both office space locations and certain office equipment. Our leases have remaining lease terms of 8 months to 5 years. Our leases do not contain any material residual value guarantees or material restricted covenants and we currently have no material sublease arrangements. We have no financing leases as defined under ASC 842.

 

Total operating lease expense for the three and nine months ended September 30, 2020 and 2019, adjusted for correction referenced in Note 2, is as follows:

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Operating lease cost

  $ 47     $ 136     $ 157     $ 419  

Short-term lease cost

    5       1       12       135  

Total lease cost

  $ 52     $ 137     $ 169     $ 554  

 

The weighted average remaining lease term was 3.23 years as of September 30, 2020. The weighted average discount rate was 4.72% as of September 30, 2020.

 

Remaining maturities of our existing lease liabilities as of September 30, 2020 were as follows:

 

Year Ending December 31,

 

Operating Leases

 

2020 (excluding the nine months ended September 30, 2020)

    44  

2021

    176  

2022

    121  
2023     115  

2024

    26  

Thereafter

    10  

Total lease payments

  $ 492  

Less imputed interest

    (70

)

Total

  $ 422  

 

The following is the balance sheet classification of our existing lease liabilities as of September 30, 2020:

 

   

As of

 
   

September 30, 2020

   

December 31, 2019

 

Operating lease liabilities - current

  $ 175     $ 182  

Operating lease liabilities - non-current

    247       180  

Total operating lease liabilities

  $ 422     $ 362  

 

Supplemental cash flow information related to leases, adjusted for correction referenced in Note 2, was as follows:

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Cash paid for amounts included in the measurement of lease liabilities

  $ 45     $ 133     $ 148     $ 411  

Leased assets obtained in exchange for operating lease liabilities

    41       127       137       395  

 

  

 

12.     Accrued Liabilities

 

The components of other accrued liabilities are as follows:

 

   

As of

 
   

September 30, 2020

   

December 31, 2019

 

Contract liabilities (Note 3)

  $ 357     $ 712  

Accrued remediation contingency (Note 13)

    238       146  

Other accrued liabilities

    971       1,118  

Total other accrued liabilities

  $ 1,566     $ 1,976  

 

 

13.     Commitments and Contingencies

 

Fuel Tech is subject to various claims and contingencies related to, among other things, workers compensation, general liability (including product liability), and lawsuits. The Company records liabilities where a contingent loss is probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred.

 

From time to time we are involved in litigation with respect to matters arising from the ordinary conduct of our business. In the opinion of management, based upon presently available information, either adequate provision for anticipated costs have been accrued or the ultimate anticipated costs will not materially affect our consolidated financial position, results of operations, or cash flows.  We do not believe we have any pending loss contingencies that are probable or reasonably possible of having a material impact on our consolidated financial position, results of operations or cash flows.

 

During the fourth quarter of 2018, the Company was notified of certain non-conformance issues with a U.S. customer associated with equipment that requires remedy under the warranty provision of the contract. During the second quarter of 2020 a charge of $1,150 to remedy this non-conformance issue was incurred. Offsetting this amount was a reversal of $499 of expense to reduce the allowance of doubtful accounts that had been previously reserved. The Company has completed all work associated with this issue. As of September 30, 2020 and December 31, 2019, we have $0 and $146 of accrued liability associated with the completion of the non-conformance issues in the other accrued liabilities line of the Consolidated Balance Sheets.  During the third quarter of 2020, the Company settled an outstanding claim with our insurance provider for these remediation efforts and recorded a receivable in the amount of $2,589. The settlement is recorded in the cost of sales line on the Consolidated Statement of Operations and in the Insurance Receivable line in the current asset section of the Consolidated Balance Sheets. Collection of the funds was completed in October 2020.

 

During the third quarter of 2020, the Company was notified of an equipment component failure at a foreign customer location.  The failure is under investigation and will be remedied under the warranty provision of the contracts that are in place with the customer and supplier.  As of September 30, 2020 a charge of $238 was recorded in the accounts payable line of the Consolidated Balance Sheets.  

 

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 Consolidated Balance Sheets during the nine months ended September 30, 2020 and 2019. The warranty liability balance was $159 at September 30, 2020 and 2019.

 

 

14.     Income Taxes

 

The Company’s effective tax rate is approximately 5.8% and 0.7% for the nine-month period ended September 30, 2020 and 2019, respectively. The Company's effective tax rate differs from the statutory federal tax rate of 21% for the nine month period ended September 30, 2020 primarily due to a full valuation allowance recorded on our United States, China and Italy deferred tax assets since we cannot anticipate when or if we will have sufficient taxable income to utilize the deferred tax assets in the future. Further, our effective tax rate differs from the statutory federal tax rate due to state taxes, differences between U.S. and foreign tax rates, foreign losses incurred with no related tax benefit, non-deductible commissions, and non-deductible meals and entertainment expenses for the nine month periods ended September 30, 2020 and 2019.

 

Fuel Tech had no unrecognized tax benefits as of September 30, 2020 and December 31, 2019.

 

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (the “CARES Act”). Among the changes to the U.S. federal income tax rules, the Cares Act restored net operating loss carryback rules that were eliminated by 2017 Tax Cuts and Jobs Act, restored 100 percent bonus depreciation for qualified improvement property, modified the limit on the deduction for net interest expense and accelerated the timeframe for refunds of AMT credits.   At this time we do not anticipate a material impact to the Company’s current or deferred income taxes as a result of the CARES Act.  We will continue to evaluate the effects of the CARES Act as additional legislative guidance become available.

 

 

 

15.     Goodwill and Other Intangibles

 

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. Fuel Tech has two reporting units for goodwill evaluation purposes: the FUEL CHEM® technology segment and the APC technology segment. There is no goodwill associated with our APC segment.  At both September 30, 2020 and December 31, 2019, our entire goodwill balance of $2,116 was allocated to the FUEL CHEM® technology segment.

 

Goodwill is allocated to each of our reporting units after considering the nature of the net assets giving rise to the goodwill and how each reporting unit would enjoy the benefits and synergies of the net assets acquired. There were no indications of goodwill impairment in the nine months ended September 30, 2020 and 2019.

 

Fuel Tech reviews other intangible assets, which include patent assets, for impairment on a recurring basis or when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event that impairment indicators exist, a further analysis is performed and if the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Management considers historical experience and all available information at the time the estimates of future cash flows are made, however, the actual cash values that could be realized may differ from those that are estimated.

 

There were no indications of intangible asset impairments for the nine month periods ended September 30, 2020 and 2019.

 

 

16.     Subsequent Events

 

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.

 

 

17.     Liquidity

 

We continue to monitor our liquidity needs and in response to our continued 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 experienced continued declines in revenues and recurring losses. As a result, we have evaluated our ongoing business needs, and considered the cash requirements of our base business of Air Pollution Control (APC) and Fuel Chem businesses. This evaluation included consideration of the following: a) customer and revenue trends in our APC and Fuel Chem business segments, b) current operating structure and expenditure levels, c) current availability of working capital, and d) support for our research and development initiatives. We continue to monitor our liquidity needs and 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 believe our current cash position and net cash flows expected to be generated from operations are adequate to fund planned operations of the Company for the next 12 months. In the event we determine we need to raise additional working capital, we may consider various financing alternatives which may include debt financing, common stock offerings, or financing involving convertible debt or other equity-linked securities; however, such financing alternatives may not be available on acceptable terms or at all and any such additional financing could be dilutive to our shareholders.

 

 

 

FUEL TECH, INC.

 

Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations     

 

Results of Operations

 

Revenues for the three and nine month periods ending September 30, 2020 and 2019 were $8,155 and $6,452, $16,334 and $25,555 respectively, representing an increase of $1,703 or 26% for the quarter and a decrease of  $9,221 or 36% versus the same period last year.

 

The Air Pollution Control (APC) technology segment generated revenues of $2,886 and $6,019 for the three and nine month periods ending September 30, 2020, representing an increase on the quarter of $1,070 or 59% and a decrease of $6,389 or 52% from the prior year amounts of $1,816 and $12,408. The variances in APC revenue were principally related to timing of project execution on existing projects and the decrease in new APC orders announced during 2019 and continuing through the first nine months of 2020.

 

Consolidated APC backlog at September 30, 2020 was $6,417 versus backlog at December 31, 2019 of $9,671. Our current backlog consists of U.S. domestic projects totaling $5,959 and international projects totaling $458.

 

The FUEL CHEM® technology segment generated revenues of $5,269 and $10,315 for the three and nine months ended September 30, 2020, representing an increase of $633 or 14% for the quarter and a decrease of $2,832 or 22% from the prior year amounts of $4,636 and $13,147. The increase in FUEL CHEM revenue for the three months ended September 30, 2020 as compared to the same period of the prior year was due to the sales and installation of equipment on three new units.  The decrease in revenues for the nine month period ending September 30, 2020 is due to a reduction in demand from power generation, extended unscheduled outages and significantly reduced operations which were largely impacted by the COVID-19 pandemic. 

 

Consolidated gross margin percentage for the three and nine month periods ended September 30, 2020 and 2019 was 72% and 49%, and 45% and 42%, respectively. Gross margin for the comparable periods have increased due to the settlement and recording of an insurance claim for remediation efforts on the APC product line.  FUEL CHEM margins increased to 52% from 49% in the current quarter due to the product mix largely attributed to the aforementioned new unit installations.  Gross margins for the nine months ended September 30, 2020 and 2019 remained flat at 49%.  The increase in APC gross margin to 110% and 54% in the three and nine months ending September 30, 2020 from 34% and 35% in 2019 is primarily due to the $2,589 insurance settlement recorded for a non-conformance issue with a U.S. customer under a warranty provision of the contract.

 

Selling, general and administrative expenses (SG&A) were $3,184 and $9,825, and $3,822 and $12,735 respectively for the three and nine month periods ended September 30, 2020 and 2019. For the three and nine month periods ended September 30, 2020 the decrease of $638 and $2,910 is primarily the result of a reduction in administrative costs relating to foreign subsidiaries of $52 and $1,000 (largely driven by the suspension of the APC business operation in China), a reduction in administrative costs related to employees of $319 and $504, other administrative costs of $134 and $487, space rental of $64 and $171 and professional and consulting services of $73 and $264. The reversal of a specific reserve of $499 for allowance of doubtful accounts related to the remedy of the aforementioned warranty nonconformity in the second quarter of 2020 also contributed to this reduction. SG&A as a percentage of revenues decreased to 39% from 59% in the three month periods ending September 30, 2020 and 2019.  For the nine month periods ending September 30, 2020 and 2019, SG&A as a percentage of revenues increased to 60% from 50%.  The increase and decrease in the comparable periods are primarily due timing of project execution and an overall decrease in revenue year over year. 

 

On January 18, 2019, the Company announced a planned suspension of its APC business operation in China. This action is 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 Company recorded restructuring charges of $0 and $0, and $0 and $625 for the three and nine months ended September 30, 2020 and 2019, respectively. The charge in the nine months ended September 30, 2019 consisted primarily of one-time severance payments and the early termination penalty for our lease associated with the suspension of our APC business in China. For further information related to restructuring, refer to Note 4 - Restructuring Activities. The Company continues to engage in efforts to complete existing contracts.

 

Research and development expenses for the three and nine-month periods ended September 30, 2020 were $285 and $880, and for the same periods in 2019 were $352 and $823 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. This includes water treatment technologies and more specifically, our DGI™ Dissolved Gas Infusion Systems, an innovative alternative to current aeration technology. This technology has not yet met the criteria to be a separate operating segment under ASC 280 Segment Reporting. This infusion process has a variety of applications in the water and waste water industries, including remediation, treatment, biological activity and wastewater odor management. DGI technology benefits include reduced energy consumption, installation costs, and operating costs, while improving treatment performance.

 

Income tax expense for the three and nine month periods ended September 30, 2020 and 2019 were $0 and $21, and $149 and $23 respectively. The Company is projecting a consolidated effective tax rate of approximately 5.8% for 2020 which is lower than the federal income tax rate of 21%. The Company's effective tax rate differs from the statutory federal tax rate of 21% for the three and nine months ended September 30, 2020 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.

 

 

 

Liquidity and Sources of Capital

We have sustained losses from continuing operations during the nine month period ended September 30, 2020 totaling $2,736. Our cash used from continuing operations for this same period totaled $3,291. We have taken measures to reduce our expense infrastructure and our ability to operate our base businesses prospectively is based on our ability to secure new orders in the APC business and our ability to successfully execute existing APC projects in line with our internal budgets.

 

Our cash balance as of September 30, 2020 totaled $11,810 (including restricted cash of $2,392), and our working capital totaled $15,733. We have debt obligations of $1,556 from a Paycheck Protection Program (the “PPP”) loan, and we have outstanding letters of credit, under our current credit agreement which does not have any financial covenants as we are currently in a Cash Collateral Security agreement with our lender.

 

We continue to monitor our liquidity needs and in response to our continued losses have taken measures to reduce expenses and restructure operations which we feel are necessary to ensure we maintain sufficient working capital and liquidity to operate the business and invest in our future.

 

We have evaluated our ongoing business needs, and considered the cash requirements of our base business of Air Pollution Control and FUEL CHEM, as well as our efforts to wind-down our APC operations in China. This evaluation included consideration of the following: a) customer and revenue trends in our APC and FUEL CHEM business segments, b) current operating structure and expenditure levels, and c) the costs of winding down our APC operations in China as well as other research and development initiatives.

 

Based on this analysis, management believes that currently we have sufficient cash and working capital to operate our base APC and FUEL CHEM businesses.

 

On June 19, 2019, the Company entered into a Cash Collateral Security agreement with BMO Harris Bank, N.A. (the BMO Harris agreement) to use for the sole purpose of issuing standby letters of credit. The BMO Harris agreement requires us to pledge as cash collateral 105% 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 BMO Harris agreement. At September 30, 2020, the Company had outstanding standby letters of credit totaling approximately $2,278 under the BMO Harris agreement. As of September 30, 2020, the Company held $2,392 in a separate restricted use designated BMO Harris Bank N.A. deposit account. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

 

In connection with the transition to BMO Harris Bank N.A., the Company canceled its U.S. credit facility with JPMorgan Chase Bank, N.A. effective on September 25, 2019.

 

On April 15, 2020, the Company received $1,556 in loan proceeds from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The unsecured loan is evidenced by a promissory note of the Company dated April 15, 2020 (the “Note”) in the principal amount of $1,556, issued to BMO Harris Bank N.A. (the “Bank”), the lender.

 

Under the terms of the Note, interest will accrue on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, though it may be payable sooner in connection with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning seven months from the date of the Note, until the maturity date. The Note contains covenants by the Company, including obtaining the written consent of the Bank prior to material changes in the management or ownership of the Company.

 

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for and be granted forgiveness for all or part of the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the eight-week period after the loan origination for certain purposes including payroll costs, rent payments on certain leases, and certain qualified utility payments, provided that at least 75% of the loan amount is used for eligible payroll costs; maintaining or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered eight-week period will qualify for forgiveness. The Company intends to use the entire PPP Loan amount for qualifying expenses, though no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

 

The Note may be prepaid in part or in full, at any time, without penalty. The Note provides for certain customary events of default, including, but not limited to, failing to make a payment when due under the Note, failure to take actions required by the Note, the Company defaulting under certain agreements in favor of any third party, making false statements, the Company’s insolvency, and the commencement of creditor or forfeiture proceedings against the Company. Upon the occurrence of an event of default, the Bank has customary remedies and may, among other things, require immediate payment of all amounts owed under the Note, collect all amounts owing from the Company, and file suit and obtain judgment against the Company.

 

 

Contingencies and Contractual Obligations

 

Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note 13. There was no change in the warranty liability balance during the nine months ended September 30, 2020.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech’s current expectations regarding future growth, results of operations, cash flows, performance and business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. Fuel Tech has tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “plan,” “expect,” “estimate,” “intend,” “will,” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed in Fuel Tech’s Annual Report on Form 10-K for the year ended December 31, 2019 in Item 1A under the caption “Risk Factors,” which could cause Fuel Tech’s actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in Fuel Tech’s filings with the Securities and Exchange Commission.

 

Item 3.          Quantitative and Qualitative Disclosures about Market Risk

 

Fuel Tech’s earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. We do not enter into foreign currency forward contracts nor into foreign currency option contracts to manage this risk due to the immaterial nature of the transactions involved.

 

Fuel Tech is also exposed to changes in interest rates primarily due to its debt facility (refer to Note 9 to the consolidated financial statements). A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not have a materially adverse effect on interest expense during the upcoming year ended December 31, 2020.

 

Item 4.          Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Fuel Tech maintains disclosure controls and procedures and internal controls designed to ensure (a) that information required to be disclosed in Fuel Tech’s filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) that such information is accumulated and communicated to management, including the principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure. Fuel Tech’s Chief Executive Officer and principal financial officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d -15(e) of the Exchange Act, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in the Company's internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

 

 

 

PART II. OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

We are from time to time involved in litigation incidental to our business. We are not currently involved in any litigation in which we believe an adverse outcome would have a material effect on our business, financial conditions, results of operations, or prospects.

 

Item 1A.          Risk Factors

 

The risk factors included in our Annual Report on Form 10-K for fiscal year ended December 31, 2019 have not materially changed, except for as follows.

 

The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows.

 

The continued global spread of the COVID-19 pandemic and the responses thereto are complex and rapidly evolving, and the extent to which the pandemic impacts our business, financial condition and results of operations, including the duration and magnitude of such impacts, will depend on numerous evolving factors that we may not be able to accurately predict or assess, including, but not limited to, the following:

 

 

We have experienced, and may continue to experience, reductions in demand for certain of our products and 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. These impacts may continue or worsen if “stay-at-home”, “shelter-in-place”, social distancing, travel restrictions and other similar orders, measures or restrictions remain in place for an extended period of time or are re-imposed after being lifted or eased.

 

Illness, travel restrictions or other workforce disruptions could adversely affect our supply chain, our ability to timely and satisfactorily complete our customers’ projects, our ability to provide services to our customers or our other business processes.

 

In addition to existing travel restrictions implemented in response to the COVID-19 pandemic, jurisdictions may continue to close borders, impose prolonged quarantines and further restrict travel and business activity, which could materially impair our ability to support our operations and customers (both domestic and international), to source supplies through the global supply chain and to identify, pursue and capture new business opportunities. We also face the possibility of increased overhead or other expenses resulting from compliance with any future government orders or other measures enacted in response to the COVID-19 pandemic.

 

COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could also precipitate or aggravate the other risk factors that we identify in our 2019 Form 10-K, which in turn could materially adversely affect our business, financial condition and results of operations.

 

Item 2.          Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

 

Item 6.          Exhibits

 

a.

Exhibits (all filed herewith)

 

31.1

Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of 2002

 

31.2

Certification of principal financial officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

 

32

Certification of CEO and principal financial officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

101.1

INSXBRL Instance Document

 

101.2

SCHXBRL Taxonomy Extension Schema Document

 

101.3

CALXBRL Taxonomy Extension Calculation Linkbase Document

 

101.4

DEFXBRL Taxonomy Extension Definition Linkbase Document

 

101.5

LABXBRL Taxonomy Extension Label Linkbase Document

 

101.6

PREXBRL Taxonomy Extension Prevention Linkbase Document

 

 

FUEL TECH, INC.

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Date: 11/10/2020

By:

/s/ Vincent J. Arnone

   

Vincent J. Arnone

   

President and Chief Executive Officer

   

(Principal Executive Officer)

 

 

 

Date: 11/10/2020

By:

/s/ Ellen T. Albrecht

   

Ellen T. Albrecht

   

Acting Treasurer and Controller

   

(Principal Financial Officer)

 

25

Exhibit 31.1

I, Vincent J. Arnone, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Fuel Tech, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
     

Date: 11/10/2020

By:

/s/ Vincent J. Arnone

 

 

Vincent J. Arnone

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

Exhibit 31.2

 

I, Ellen T. Albrecht, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Fuel Tech, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
     

Date: 11/10/2020

By:

/s/ Ellen T. Albrecht

 

 

Ellen T. Albrecht

 

 

Acting Treasurer and Controller

 

 

(Principal Financial Officer)

 

Exhibit 32

 

The undersigned in their capacities as Chief Executive Officer and Principal Financial Officer of the Registrant do hereby certify that:

 

(i) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(ii) information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in the report.

 
     

Date: 11/10/2020

By:

/s/ Vincent J. Arnone

 

 

Vincent J. Arnone

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 
     

Date: 11/10/2020

By:

/s/ Ellen T. Albrecht

 

 

Ellen T. Albrecht

 

 

Acting Treasurer and Controller

 

 

(Principal Financial Officer)

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (the “Act”) this certification accompanies the Report and shall not, except to the extent required by the Act, be deemed filed by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Fuel Tech, Inc. and will be retained by Fuel Tech, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.