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, ~~2022~~2023

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

For the transition period from ______ to______.

Commission file number: 001-33059

FUEL TECH, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-5657551

(State or other jurisdiction of

incorporation of organization)

(I.R.S. Employer

Identification Number)

Fuel Tech, Inc.

27601 Bella Vista Parkway

Warrenville, IL 60555-1617

630-845-4500

www.ftek.com

(Address and telephone number of principal executive offices)

________________________________

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

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

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

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

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

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

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

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

On October 31, ~~2022~~2023 there were outstanding ~~30,296,297~~ 30,385,297 shares of Common Stock, par value $0.01 per share, of the registrant.

Table of Contents

	September 30,			December 31,			September 30,			December 31,
	2022			2021			2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	24,082		$	35,893		$	13,483		$	23,328
Restricted cash and cash equivalents		—			891
Short-term investments		2,469			—			14,802			2,981
Accounts receivable, net		6,658			3,259			7,696			7,729
Inventories, net		391			348			325			392
Prepaid expenses and other current assets		696			1,074			1,041			1,395
Total current assets		34,296			41,465			37,347			35,825
Property and equipment, net of accumulated depreciation of $18,425 and $18,243, respectively		4,505			4,609
Property and equipment, net of accumulated depreciation of $18,727 and $18,557, respectively								4,364			4,435
Goodwill		2,116			2,116			2,116			2,116
Other intangible assets, net of accumulated amortization of $389 and $341, respectively		410			448
Restricted cash		—			270
Right-of-use operating lease assets		225			242
Other intangible assets, net of accumulated amortization of $452 and $406, respectively								376			397
Right-of-use operating lease assets, net								462			197
Long-term investments		7,339			—			4,883			6,360
Other assets		791			824			771			794
Total assets	$	49,682		$	49,974		$	50,319		$	50,124
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,626		$	1,561		$	2,872		$	2,710
Accrued liabilities:
Operating lease liabilities - current		125			113			103			125
Employee compensation		855			688			618			1,105
Other accrued liabilities		768			861			1,838			826
Total current liabilities		4,374			3,223			5,431			4,766
Operating lease liabilities - non-current		94			122			348			66
Deferred income taxes, net		139			139			177			177
Other liabilities		243			290			275			274
Total liabilities		4,850			3,774			6,231			5,283
Stockholders’ equity:
Common stock, $.01 par value, 40,000,000 shares authorized, 31,272,303 and 31,227,300 shares issued, and 30,296,297 and 30,263,791 shares outstanding, respectively		313			312
Common stock, $.01 par value, 40,000,000 shares authorized, 31,361,303 and 31,272,303 shares issued, and 30,385,297 and 30,296,297 shares outstanding, respectively								313			313
Additional paid-in capital		164,334			164,199			164,752			164,422
Accumulated deficit		(115,589	)		(114,549	)		(116,990	)		(115,991	)
Accumulated other comprehensive loss		(2,051	)		(1,604	)		(1,812	)		(1,728	)
Nil coupon perpetual loan notes		76			76			76			76
Treasury stock, at cost		(2,251	)		(2,234	)		(2,251	)		(2,251	)
Total stockholders’ equity		44,832			46,200			44,088			44,841
Total liabilities and stockholders’ equity	$	49,682		$	49,974		$	50,319		$	50,124

The following summarizes the changes in total stockholders' equity for the three and nine months ended September 30, ~~2021:~~2022:

											Accumulated			Nil																			Accumulated			Nil
						Additional					Other			Coupon													Additional						Other			Coupon
	Common Stock					Paid-in		Accumulated			Comprehensive			Perpetual		Treasury						Common Stock					Paid-in			Accumulated			Comprehensive			Perpetual		Treasury
	Shares			Amount		Capital		Deficit			Loss			Loan Notes		Stock			Total			Shares			Amount		Capital			Deficit			Loss			Loan Notes		Stock			Total
Balance at December 31, 2020		25,229		$	262	$	140,138	$	(114,603	)	$	(1,370	)	$	76	$	(2,182	)	$	22,321
Balance at December 31, 2021																							30,264		$	312	$	164,199		$	(114,549	)	$	(1,604	)	$	76	$	(2,234	)	$	46,200
Net loss																							—			—		—			(998	)		—			—		—			(998	)
Foreign currency translation adjustments																							—			—		—			—			(70	)		—		—			(70	)
Stock compensation expense																							—			—		18			—			—			—		—			18
Common shares issued upon vesting of restricted stock units																							45			1		(1	)		—			—			—		—			—
Taxes paid on behalf of equity award participants																							(13	)		—		—			—			—			—		(17	)		(17	)
Balance at March 31, 2022																							30,296		$	313	$	164,216		$	(115,547	)	$	(1,674	)	$	76	$	(2,251	)	$	45,133
Net loss																							—			—		—			(356	)		—			—		—			(356	)
Foreign currency translation adjustments																							—			—		—			—			(222	)		—		—			(222	)
Stock compensation expense																							—			—		28			—			—			—		—			28
Balance at June 30, 2022																							30,296		$	313	$	164,244		$	(115,903	)	$	(1,896	)	$	76	$	(2,251	)	$	44,583
Net income		—			—		—		398			—			—		—			398			—			—		—			314			—			—		—			314
Foreign currency translation adjustments		—			—		—		—			(193	)		—		—			(193	)		—			—		—			—			(155	)		—		—			(155	)
Stock compensation expense		—			—		20		—			—			—		—			20			—			—		90			—			—			—		—			90
Common stock issued in connection with private placement, net		5,000			50		23,979		—			—			—		—			24,029
Common shares issued upon vesting of restricted stock units		50			—		—		—			—			—		—			—
Taxes paid on behalf of equity award participants		(15	)		—		—		—			—			—		(52	)		(52	)
Balance at March 31, 2021		30,264		$	312	$	164,137	$	(114,205	)	$	(1,563	)	$	76	$	(2,234	)	$	46,523
Net loss		—			—		—		(778	)		—			—		—			(778	)
Foreign currency translation adjustments		—			—		—		—			133			—		—			133
Stock compensation expense		—			—		20		—			—			—		—			20
Balance at June 30, 2021		30,264		$	312	$	164,157	$	(114,983	)	$	(1,430	)	$	76	$	(2,234	)	$	45,898
Net income		—			—		—		678			—			—		—			678
Foreign currency translation adjustments		—			—		—		—			(153	)		—		—			(153	)
Stock compensation expense		—			—		21		—			—			—		—			21
Balance at September 30, 2021		30,264		$	312	$	164,178	$	(114,305	)	$	(1,583	)	$	76	$	(2,234	)	$	46,444
Balance at September 30, 2022																							30,296		$	313	$	164,334		$	(115,589	)	$	(2,051	)	$	76	$	(2,251	)	$	44,832

The following summarizes the changes in total stockholders' equity for the three and nine months ended September 30, ~~2022:~~2023:

												Accumulated			Nil																	Accumulated			Nil
						Additional						Other			Coupon												Additional					Other			Coupon
	Common Stock					Paid-in			Accumulated			Comprehensive			Perpetual		Treasury						Common Stock				Paid-in		Accumulated			Comprehensive			Perpetual		Treasury
	Shares			Amount		Capital			Deficit			Loss			Loan Notes		Stock			Total			Shares		Amount		Capital		Deficit			Loss			Loan Notes		Stock			Total
Balance at December 31, 2021		30,264		$	312	$	164,199		$	(114,549	)	$	(1,604	)	$	76	$	(2,234	)	$	46,200
Balance at December 31, 2022																								30,296	$	313	$	164,422	$	(115,991	)	$	(1,728	)	$	76	$	(2,251	)	$	44,841
Net loss		—			—		—			(998	)		—			—		—			(998	)		—		—		—		(414	)		—			—		—			(414	)
Foreign currency translation adjustments		—			—		—			—			(70	)		—		—			(70	)		—		—		—		—			86			—		—			86
Stock compensation expense		—			—		18			—			—			—		—			18			—		—		89		—			—			—		—			89
Common shares issued upon vesting of restricted stock units		45			1		(1	)		—			—			—		—			—
Taxes paid on behalf of equity award participants		(13	)		—		—			—			—			—		(17	)		(17	)
Balance at March 31, 2022		30,296		$	313	$	164,216		$	(115,547	)	$	(1,674	)	$	76	$	(2,251	)	$	45,133
Balance at March 31, 2023																								30,296	$	313	$	164,511	$	(116,405	)	$	(1,642	)	$	76	$	(2,251	)	$	44,602
Net loss		—			—		—			(356	)		—			—		—			(356	)		—		—		—		(1,044	)		—			—		—			(1,044	)
Foreign currency translation adjustments		—			—		—			—			(222	)		—		—			(222	)		—		—		—		—			(48	)		—		—			(48	)
Stock compensation expense		—			—		28			—			—			—		—			28			—		—		98		—			—			—		—			98
Balance at June 30, 2022		30,296		$	313	$	164,244		$	(115,903	)	$	(1,896	)	$	76	$	(2,251	)	$	44,583
Exercise of stock options																								44		—		42		—			—			—		—			42
Common shares issued upon vesting of restricted stock units																								45		—		—		—			—			—		—			—
Balance at June 30, 2023																								30,385	$	313	$	164,651	$	(117,449	)	$	(1,690	)	$	76	$	(2,251	)	$	43,650
Net income		—			—		—			314			—			—		—			314			—		—		—		459			—			—		—			459
Foreign currency translation adjustments		—			—		—			—			(155	)		—		—			(155	)		—		—		—		—			(122	)		—		—			(122	)
Stock compensation expense		—			—		90			—			—			—		—			90			—		—		101		—			—			—		—			101
Balance at September 30, 2022		30,296		$	313	$	164,334		$	(115,589	)	$	(2,051	)	$	76	$	(2,251	)	$	44,832
Balance at September 30, 2023																								30,385	$	313	$	164,752	$	(116,990	)	$	(1,812	)	$	76	$	(2,251	)	$	44,088

	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2023			2022
Operating Activities
Net (loss) income	$	(1,040	)	$	298
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Net loss							$	(999	)	$	(1,040	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		267			457			247			267
Amortization		70			114			46			70
Loss on disposal of equipment		—			13
Provision for doubtful accounts, net of recoveries		(45	)		(2	)
Non-cash interest income on held-to-maturity securities								(319	)		—
Provision for credit losses, net of recoveries								—			(45	)
Stock-based compensation, net of forfeitures		136			61			288			136
Gain of forgiveness on Paycheck Protection Plan Loan		—			(1,556	)
Changes in operating assets and liabilities:
Accounts receivable		(3,449	)		1,405			5			(3,449	)
Inventories		(44	)		(32	)		68			(44	)
Prepaid expenses, other current assets and other non-current assets		370			1,176			363			370
Accounts payable		1,094			(980	)		172			1,094
Accrued liabilities and other non-current liabilities		50			(382	)		520			50
Net cash (used in) provided by operating activities		(2,591	)		572
Net cash provided by (used in) operating activities								391			(2,591	)
Investing Activities
Purchases of equipment and patents		(186	)		(584	)		(201	)		(186	)
Purchases of debt securities		(9,777	)		—			(14,026	)		(9,777	)
Maturities of debt securities								4,000			—
Net cash used in investing activities		(9,963	)		(584	)		(10,227	)		(9,963	)
Financing Activities
Proceeds from sale of common stock issued in connection with private placement		—			25,812
Costs related to sale of common stock issued in connection with private placement		—			(1,783	)
Proceeds from exercise of stock options								42			—
Taxes paid on behalf of equity award participants		(17	)		(52	)		—			(17	)
Net cash (used in) provided by financing activities		(17	)		23,977
Net cash provided by (used in) financing activities								42			(17	)
Effect of exchange rate fluctuations on cash		(401	)		(249	)		(51	)		(401	)
Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents		(12,972	)		23,716
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period (Note 2)		37,054			12,606
Cash, cash equivalents and restricted cash and cash equivalents at end of period (Note 2)	$	24,082		$	36,322
Net decrease in cash and cash equivalents								(9,845	)		(12,972	)
Cash and cash equivalents at beginning of period								23,328			37,054
Cash and cash equivalents at end of period							$	13,483		$	24,082

Fuel Tech, Inc. and subsidiaries ("Fuel Tech", the "Company", "we", "us" or "our") develops and provides proprietary technologies for air pollution control, process optimization, water treatment, and advanced engineering services. These technologies enable customers to operate in a cost-effective and environmentally sustainable manner.

The Company’s nitrogen oxide (NOx) reduction technologies reduce nitrogen oxide emissions from boilers, furnaces, and other stationary combustion sources. To reduce NOx emissions, our technologies utilize advanced combustion modification techniques and post-combustion NOx control approaches including non-catalytic, catalytic, and combined systems. The Company also provides solutions for the mitigation of particulate matter, including particulate control with electrostatic precipitator products and services, and using flue gas conditioning systems which modify the ash properties of particulate for improved collection efficiency. The Company’s FUEL CHEM® technology improves the efficiency, reliability, fuel flexibility, boiler heat rate, and environmental status of combustion units by controlling slagging, fouling, corrosion, and opacity. Water treatment technologies include ~~DGI™~~DGI® Dissolved Gas Infusion Systems which utilize a patented ~~nozzle~~gas-infusing saturator vessel and a patent-pending channel injector to deliver supersaturated ~~oxygen~~oxygen-water solutions and potentially other ~~gas-water~~gas-liquid combinations to target process applications or environmental ~~issues. This~~issues within the municipal and industrial water sectors. The infusion process has a variety of potential applications in the water and wastewater ~~industries,~~treatment sector, including ~~remediation, aeration, biological~~aquaculture, agriculture/horticulture, pulp & paper, tanneries, landfill leachate, irrigation, treatment ~~and~~of natural waters, wastewater odor ~~management.~~management as well as supplying oxygen or other gases for biochemical reactions and pH adjustment.

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for the fair statement of Fuel Tech's financial position, cash flows, and results of operations for the periods presented. All significant intercompany transactions and balances have been eliminated. The results of operations for the three and nine months ended September 30, ~~2022~~2023 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2022.~~2023. For further information, refer to the audited consolidated financial statements and footnotes thereto included in Fuel Tech’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 as filed with the Securities and Exchange Commission.

~~The effects of the coronavirus (COVID-~~19~~) global pandemic have presented significant risks to the Company. Although the impact of the pandemic is difficult to quantify, the Company has experienced, and~~ ~~may~~ continue to experience, supply chain issues, travel restrictions, and reductions in demand for certain of our products due to the delay or abandonment of ongoing or anticipated projects due to our customers’, suppliers’ and other ~~third~~ ~~parties’ financial distress or concern regarding the volatility of global markets.~~

~~Geopolitical events and global economic sanctions resulting from the ongoing conflict between Russia and Ukraine~~ ~~may~~ ~~impact new or existing projects and the prices and availability of raw materials, energy and other materials. These events~~ ~~may~~ also impact energy and regulatory policy nationally or regionally for the impacted regions. In addition, we have experienced and are experiencing varying levels of inflation resulting in part from increased shipping and transportation costs, raw material costs, and labor costs.

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

~~Restricted cash as of~~ ~~September 30, 2021~~ ~~represent funds that are restricted to satisfy any amount borrowed against the Company's Cash Collateral Security agreement with BMO Harris Bank N.A (Cash Collateral Security agreement). In~~ ~~June 2022,~~ the Company replaced the former Cash Collateral Security agreement with an Investment Collateral Security agreement with BMO Harris Bank N.A (Investment Collateral Security agreement) where existing standby letters of credit are collateralized by amounts held in the Company's investment funds (see Note 10).

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

In ~~June~~ 2022,the Board of Directors approved a plan to invest up to ~~$10,000~~$20,000 of excess capital in debt securities, or held in money market funds until such investments can be made, with BMO Harris Bank N.A (BMO Harris). A portion of the funds invested are restricted as collateral under the Investment Collateral Security agreement (see Note 10). At September 30, ~~2022~~2023, the amount of funds collateralized under the Investment Collateral Security agreement is $~~1,090~~1,488 relating to existing standby letters of credit that is comprised of $1,197 with varying maturity dates and expire no later than September 30, ~~2023.~~2024 and $291 with the latest maturity date no later than November 30, 2025.

We consider all highly liquid debt investments with original maturities from the date of purchase of three months or less as cash equivalents. Cash equivalents include investments in money market funds. Carrying value of cash equivalents approximates fair value due to the maturities of three months or less.

Our investments in debt securities consist of United States (US) Treasury securities, including Notes, Bonds, and Bills, and US Government Agency securities, which are designated as held-to-maturity (HTM) and stated at amortized cost. The Company has the positive intent and ability to hold these investments to maturity and does not expect to sell any debt securities before maturity to settle an obligation under the Investment Collateral Security agreement. The maturities of our HTM investments range from three to thirty-six months. HTM debt investments with original maturities of approximately three months or less from the date of purchase are classified within cash and cash equivalents. HTM debt investments with original maturities at the date of purchase greater than approximately three months and remaining maturities of less than one year are classified as short-term investments. HTM debt investments with remaining maturities beyond one year are classified as long-term investments. Interest income, including amortization of premium and accretion of discount, are included on the Condensed Consolidated Statements of Operations in Interest income under the effective yield method. Accrued interest is included in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

Our investments in debt securities consist of United States (US) Treasury securities, including Notes, Bonds, and Bills, and US Government Agency securities. Due to the creditworthiness of the entities issuing these securities, there is no impairment recorded related to the unrealized losses.

The following table provides the amortized cost, gross unrealized gains and losses, and fair value of our HTM debt ~~securities at~~ ~~September 30, 2022~~:securities:

The following table provides the amortized cost and fair value of debt securities by maturities at September 30, ~~2022~~2023:

Inventories consist primarily of equipment constructed for resale and spare parts and are stated at the lower of cost or net realizable value, using the weighted-average cost method. At September 30, ~~2022~~2023 and December 31, ~~2021~~2022, inventory included equipment constructed for resale of $~~208~~207 and $~~227~~207, respectively, and spare parts, net of reserves of $~~183~~118 and $~~121~~185, respectively. Usage is recorded in cost of sales in the period that parts were issued to a project, used to service equipment, or sold to customers. Equipment constructed for resale that is in process is recorded in Other assets. In process equipment for inventory recorded as Other assets was $619 and $634 as of September 30, 2023 and December 31, 2022, respectively. Inventories are periodically evaluated to identify obsolete or otherwise impaired parts and are written off when management determines usage is not probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using last used and original purchase date and existing sales pipeline for which the inventory could be used.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This guidance requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables and other financial instruments, we are required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The Company adopted these ASUs on January 1, 2023 using the prospective method. Application of the amendments did not require a cumulative-effect adjustment to retained earnings as of the effective date and did not have a material impact on our financial statements. Beginning on January 1, 2023, Fuel Tech will use the caption Allowance for Credit Losses and our expected credit loss model to calculate the allowance.

For the general risk categories, the Company uses historical losses over a fixed period, excluding certain write-off activity that was not considered credit loss events, to determine the historical credit loss. Historical loss rates are then adjusted to consider current economic conditions, and past, current, and future events and circumstances when determining expected credit losses. Investments in financial assets issued by US Government and Government Agency are considered as having zero expected credit losses and are excluded from the allowance for credit loss calculation.

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

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. In our Air Pollution Control (APC) technology segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. For the FUEL CHEM technology segment, deliveries made in the current period but billed in subsequent periods are also considered unbilled receivables (contract assets). These assets are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. At September 30, ~~2022~~2023, December 31, ~~2021~~2022, and December 31, ~~2020,~~2021, contract assets for APC technology projects were approximately ~~$1,587,~~$1,944, $3,082, and $1,277, ~~and $2,079, respectively, and at~~ ~~December 31, 2020,~~ ~~contract assets for the FUEL CHEM technology segment were approximately $269, and are included in accounts receivable on the Condensed Consolidated Balance Sheets.~~respectively. There were no contract assets for the FUEL CHEM technology segment as of September 30, ~~2022~~2023 or, December 31, ~~2021~~2022. , and December 31, 2021.

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 Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Contract liabilities were ~~$174,~~$1,365, $372, and $390 ~~and $850~~ at September 30, ~~2022~~2023, December 31, ~~2021~~2022, and December 31, ~~2020,~~2021, respectively, and are included in other accrued liabilities on the Condensed Consolidated Balance Sheets.

Changes in the contract asset and liability balances during the nine-month period ended September 30, ~~2022~~2023, 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 ~~$131~~$0 and ~~$381~~$368 for the three and nine months ended September 30, ~~2022~~2023, respectively, and ~~$173~~$131 and ~~$331~~$381 for three and nine months ended September 30, ~~2021~~2022, respectively, which represented primarily revenue from progress towards completion of our APC technology contracts.

As of September 30, ~~2022~~2023 and December 31, ~~2021~~2022, we had no construction contracts in progress that were identified as a loss contract.

Remaining performance obligations represents the transaction price of APC technology booked orders for which work has not been performed. As of September 30, ~~2022~~2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $~~8,763~~5,624. The Company expects to recognize revenue on approximately $~~8,406~~4,874 of the remaining performance obligations over the next 12 months with the remaining recognized thereafter.

On January 18, 2019, the Company announced a planned suspension of its APC business operation in China. This action was part of Fuel Tech’s ongoing operational improvement initiatives designed to prioritize resource allocation, reduce costs, and drive profitability for the Company on a global basis. The transition associated with the suspension of the APC business which has taken place through September 30, ~~2022~~2023 includes staff rationalization and reduction, supplier and partner engagement, and the monetization of certain assets. The remaining transition activities include the execution of the activities to satisfy the requirements for the remaining APC projects in China (with a backlog totaling approximately ~~$5) in addition~~$3) and those related to ~~collection efforts for the remaining accounts receivable.~~subsidiary closure.

The following table presents our revenues and net loss for ~~2022~~2023 and ~~2021~~2022 in China as follows:

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

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

Common stock held in treasury totaled 976,006 ~~and 963,509~~ with a cost of $2,251 ~~and $2,234~~ at September 30, ~~2022~~2023 and December 31, ~~2021~~2022~~, 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.

Basic earnings per share excludes the dilutive effects of stock options, restricted stock units (RSUs), warrants, and the nil coupon non-redeemable convertible unsecured loan notes. Diluted earnings per share includes the dilutive effect of the nil coupon non-redeemable convertible unsecured loan notes, RSUs, warrants, and unexercised in-the-money stock options, except in periods of net loss where the effect of these instruments is anti-dilutive. Out-of-money stock options and warrants are excluded from diluted earnings per share because they are unlikely to be exercised and would be ~~anti-dilutive~~anti-dilutive if they were ~~exercise~~d.exercised. For the nine months ended September 30, 2023 and 2022,, basic earnings per share is equal to diluted earnings per share because all outstanding stock awards, warrants, and convertible loan notes are considered anti-dilutive during periods of net loss.

The following table sets forth the weighted-average shares used in calculating the earnings per share for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022.

For the three and nine months ended September 30, 2023, Fuel Tech had weighted-average outstanding equity awards of 246,500 and 382,200, respectively, and warrants of 2,850,000 in both periods, which were antidilutive or represent out-of-the-money options for the purpose of the calculation of diluted earnings per share. For the nine months ended September 30, 2023, Fuel Tech had 250,500 incremental equity awards that were excluded from the computation of diluted earnings per share as the inclusion of such would have been anti-dilutive due to a net loss in the period. For the three and nine months ended September 30, 2022, Fuel Tech had weighted-average outstanding equity awards of 296,500 and 674,000, respectively, and warrants of 2,850,000 in both periods, which were antidilutive for the purpose of the calculation of diluted earnings per share. For the nine months ended September 30, 2022, Fuel Tech had 33,000 of incremental equity awards that were excluded from the computation of diluted earnings per share as the inclusion of such would have been anti-dilutive due to a net loss in the period. These equity awards could potentially dilute basic earnings per share in future years.

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, 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, ~~2022~~2023, Fuel Tech had ~~1,874,250~~745,650 shares available for share-based awards under the Incentive Plan.

We did not record any excess tax benefits within income tax expense for the three and nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022. 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, ~~2022~~2023 and ~~2021.~~2022. 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 Condensed Consolidated Statements of Operations. The components of stock-based compensation for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 were as follows:

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, ~~2022~~2023 was as follows:

As of September 30, ~~2022~~2023, there was no unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans.

RSUs granted to employees vest over time based on continued service (typically vesting over a period between two to four years), and RSUs granted to directors vest after a one year vesting period based on continued service. 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 2023 Executive Performance RSU Award Agreement (the “2023 Agreement”) with certain officers, including its President and Chief Executive Officer, Chief Financial Officer and Senior Vice President, Sales (each a “2023 Participating Executive”) pursuant to which each 2023 Participating Executive will have the opportunity to earn a specified amount of restricted stock units (RSUs) based on Fuel Tech’s performance in 2023 and 2024. The target amount of RSUs for each of four possible RSU award components is set for each Participating Executive for 2023 and 2024. The amount, if any, of actual RSU awards to be issued is contingent on performance by the Participating Executive and the Company in the performance areas and for the measurement periods set forth in the Agreement as determined by the Company.

The Agreement provides for four possible RSU awards: “Look-Back RSUs,” “Total Revenue RSUs,” “New Business Growth RSUs,” and “Operating Income Growth” RSUs. If the Look-Back RSU’s are awarded, these RSUs will follow a vesting schedule that provides for vesting of one-third of the granted Look-Back RSUs after the first anniversary of the grant determination date, one-third after the second anniversary date and one-third after the third anniversary date. If the Total Revenue RSUs, New Business Growth RSUs, or Operating Income Growth RSUs targets are achieved, these RSU’s will follow a vesting schedule whereby 100% of the granted RSUs will vest one year following the grant determination date. All RSUs are valued at the date of grant based on the closing price of the Company’s common stock on the grant date.

At September 30, ~~2022~~2023, there is ~~$827~~$1,670 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 ~~2.57~~1.92 years.

A summary of restricted stock unit activity for the nine months ended September 30, ~~2022~~2023 is as follows:

The fair value of restricted stock that vested during the nine-month period ~~ending~~ended September 30, ~~2022~~2023 was ~~$68.~~$62.

In addition to the Incentive Plans, Fuel Tech has a Deferred Compensation Plan for Directors (Deferred Plan). Under the terms of the Deferred Plan, Directors can elect to defer Directors’ fees for shares of Fuel Tech Common Stock that are issuable at a future date as defined in the agreement. In accordance with Accounting Standards Codification (ASC) 718, Fuel Tech accounts for these awards as equity awards as opposed to liability awards. During the nine-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022, Fuel Tech recorded no stock-based compensation expense under the Deferred Plan.

The following table summarizes information about warrants outstanding and exercisable at September 30, ~~2022~~2023:

On June 30, 2022, the Company entered into an Investment Collateral Security agreement to use for the sole purpose of issuing standby letters of credit that replaces the former Cash Collateral agreement with BMO Harris. The Investment Collateral Security agreement requires us to pledge our investments as collateral for 150% of the aggregate face amount of outstanding standby letters of credit. The Company pays 250 basis points on the face values of outstanding letters of credit. There are no financial covenants set forth in the Investment Collateral Security agreement. At September 30, ~~2022~~2023, the Company had outstanding standby letters of credit totaling approximately $~~727~~992 under the Investment Collateral Security agreement. At September 30, ~~2022~~2023, the investments held as collateral totaled $~~1,090~~1,488. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

On ~~April 17, 2020,~~ the Company received $1,556 in loan proceeds from the Paycheck Protection Program (PPP), established pursuant to the Coronavirus Aid, Relief, and Economic Security 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~~ ~~in the principal amount of $1,556, issued to BMO Harris Bank N.A., the lender.~~

On ~~January 8, 2021,~~ the Company received full forgiveness from the SBA for the entire balance of loan proceeds used to fund its qualified payroll expenses. The Company accounted for the PPP Loan as debt in accordance with Financial Accounting Standards Board (FASB) ASC ~~470,~~ ~~Debt and accrued interest in accordance with the interest method under FASB ASC~~ ~~835~~-~~30.~~ ~~When the loan was forgiven, the Company reduced the non-current liability by the amount forgiven and recorded other income in the Condensed Consolidated Statements of Operations.~~

We segregate our financial results into two reportable segments representing two broad technology segments as follows:

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 operations are provided below:

Information concerning our operations by geographic area is provided below. Revenues are attributed to countries based on the location of the end-user. Assets are those directly associated with operations of the geographic area.

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.

Fuel Tech issues a standard product warranty with the sale of its products to customers. Our recognition of warranty liability is based primarily on analyses of warranty claims experienced in the preceding years as the nature of our historical product sales for which we offer a warranty are substantially unchanged. This approach provides an aggregate warranty accrual that is historically aligned with actual warranty claims experienced.

There was no change in the warranty liability balance included in the other accrued liabilities line of the Condensed Consolidated Balance Sheets during the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022. The warranty liability balance was $159 at September 30, ~~2022~~2023 and December 31, ~~2021~~2022.

The Company’s effective tax rate is approximately ~~0.9%~~0.0% and ~~3.2%~~0.9% for the nine-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022, respectively. The Company's effective tax rate differs from the statutory federal tax rate of 21% for the nine-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022 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, ~~2022~~2023 and ~~2021~~2022. ~~Income generated in the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021~~ ~~attributed to the gain on forgiveness of the Paycheck Protection Plan loan is tax exempt.~~

Fuel Tech had no unrecognized tax benefits as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022.

In ~~October 2022,~~ Fuel Tech finalized a settlement agreement with a supplier related to an equipment component failure at a foreign customer location. The failure was previously recorded and remedied under the warranty provision of the contract. Per the agreement, Fuel Tech will receive a combination of cash, invoice forgiveness, and credit on future equipment purchases totaling approximately $245. Settlement amounts will be recorded during the ~~fourth~~ ~~quarter of~~ ~~2022.~~

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

In the third quarter of ~~2022,~~2023, the Company continued to ~~experience a challenging operational environment~~successfully execute on existing orders resulting in improved performance in the APC segment. Revenues from our Fuel Chem technology segment increased 110% from the ~~ongoing substitution of gas-fired and renewable energy plants for coal-fired installations and the ongoing impacts of geopolitical events and the coronavirus (COVID-19) global pandemic.~~prior quarter as our customer base returned from maintenance outages. We continue to invest in development of new technologies to expand our product offerings into the water and waste-water treatment market. Our capital resources are sufficient for our immediate and longer-term needs, and we continue to enjoy the services and support of a dedicated workforce. We expect that our cost control efforts will maintain our existing levels of operating expenditures and the diminishing effects of the pandemic should lead to an improved market outlook.

The effects of the COVID-19 global pandemic have presented significant risks to the Company. Although the impact of the pandemic is difficult to quantify, the Company has experienced, and may continue to experience, supply chain issues, travel restrictions, and reductions in demand for certain of our products due to the delay or abandonment of ongoing or anticipated projects due to our customers’, suppliers’ and other third parties’ financial distress or concern regarding the volatility of global markets. Geopolitical events and global economic sanctions resulting from the ongoing conflict between Russia and Ukraine may impact new or existing projects and the prices and availability of raw materials, energy and other materials. These events may also impact energy and regulatory policy nationally or regionally for the impacted regions. ~~In addition, we have experienced and are experiencing varying levels of inflation resulting in part from increased shipping and transportation costs, raw material costs, and labor costs.~~ Management cannot predict the full impact of the COVID-19 pandemic and geopolitical events on the Company’s sales and marketing channels and supply chain, and as a result, the ultimate extent of the effects on the Company is highly uncertain and will depend on future developments. Such effects could exist for an extended period of time. The Company continues to monitor the potential impacts on the business.

Our FUEL CHEM segment experienced ~~a decline~~an increase in ~~revenues~~revenue and segment operating profits from prior quarter in 2023 and a decrease in the current quarter as compared to ~~2021.~~2022. The FUEL CHEM ~~faced some headwinds in the quarter~~segment was impacted by decreased operational demand from our client base and partially due to scheduled plant closures versus the ~~loss of one customer from permanent plant retirement and the reduction~~same period in ~~demand from other customers due to climate and operating and maintenance scheduling.~~ 2022.

Our Air Pollution Control (APC) business experienced improvement in the quarter compared to ~~2021,~~2022, due to the execution onof projects awarded in the ~~second half~~prior years and earlier in this year and due to increased sales of ~~2021 and in 2022.~~aftermarket products. We are ~~also~~ encouraged by the ~~pace and~~ depth of our business development activities, which reflects an increased focus on global emissions protocols across a variety of fuel sources. We continue to experience a challenging operational environment resulting from customers delaying the timing of purchasing decisions. Our Consolidated APC backlog at September 30, ~~2022~~2023 was $~~8,763~~5,624 and our global sales pipeline is in the $50 -75 million range.

Revenues for the three-month periods ending September 30, ~~2022~~2023 and ~~2021~~2022 were $~~8,017~~7,988 and $~~7,559~~8,017, respectively, representing an ~~increase~~decrease of $~~458~~29, or 6%0%, versus the same period last year. Revenues for the nine-month periods ending September 30, ~~2022~~2023 and ~~2021~~2022 were $~~19,920~~20,736 and $~~17,810~~19,920, respectively, representing an increase of $~~2,110~~816, or ~~12%~~4%, versus the same period last year.

The APC technology segment generated revenues of $~~2,728~~3,711 for the three-month period ended September 30, ~~2022~~2023, representing an increase of $~~784~~983, or ~~40%~~36%, from the prior year amount of $~~1,944~~2,728. The APC technology segment generated revenues of $~~7,670~~10,692 and $~~3,837~~7,670 for the nine-month periods ~~ended~~ending September 30, ~~2022~~2023 and ~~2021~~2022, respectively, representing an increase of $~~3,833~~3,022, or ~~100%~~39%. ~~These increases~~This increase in APC revenue ~~were~~was primarily related to the timing of project execution and new APC orders announced during ~~2021~~2022 and continuing through the first nine months of ~~2022~~2023. Consolidated APC backlog at September 30, ~~2022~~2023 was $~~8,763~~5,624 versus backlog at December 31, ~~2021~~2022 of $~~9,119~~8,245. Our current backlog consists of U.S. domestic projects totaling $~~7,016~~4,788 and international projects totaling $~~1,747~~836.

The FUEL CHEM technology segment generated revenues of $~~5,289~~4,277 and $~~5,615~~5,289 for the three-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022, respectively, representing a decrease of $~~326~~1,012, or 6%19%. The FUEL CHEM technology segment generated revenues of $~~12,250~~10,044 and $~~13,973~~12,250 for the nine-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022, respectively, representing a decrease of $~~1,723~~2,206, or ~~12%~~18%. ~~The decreases~~This decrease in FUEL CHEM revenue for the three and nine months ended September 30, ~~2022~~2023 as compared to the same ~~period~~periods of the prior year ~~were partially~~was primarily due to ~~the loss of one customer due to permanent~~a decrease in electrical generation demand, unscheduled plant ~~retirement, dispatch/demand,~~outages and ~~unforeseen~~ plant ~~outages.~~closures.

Consolidated gross margin percentage for the three-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022 were ~~46%~~45% and ~~49%~~46%, respectively. Gross margin decreased versus the comparable period due to the decrease in the FUEL CHEM operating segment gross margin partially offset by an increase in APC operating segment gross margin. For the three-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022 the FUEL CHEM operating segment gross margins decreased to 49% from 52% primarily due to the reduction in revenue. APC gross margin ~~decreased~~increased to ~~34%~~40% from ~~42%~~34%~~, respectively,~~ primarily due to product and project mix. ~~FUEL CHEM operating segment gross margins remained flat at~~ ~~52%~~.

Consolidated gross margin percentage for the nine-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022 were ~~43%~~41% and ~~49%~~43%, respectively. Gross margin decreased versus the comparable period due to the change in segment mix and to the decrease in ~~both~~the APC operating segment gross ~~margins due to increases in supply chain costs and product mix.~~margin. For the nine-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022 the APC gross margin decreased to ~~34%~~33% from ~~43%~~34%, respectively, primarily due to product and project mix. FUEL CHEM operating segment gross ~~margins decreased to~~margin remained flat at 49% ~~from~~ ~~50%~~ ~~in the current quarter due to the decrease in revenue volume and higher material, freight, and labor costs.~~ .

Selling, general and administrative expenses (SG&A) were $~~3,273~~2,966 and $~~2,801~~3,273 for the three-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022, respectively. For the three-month period ended September 30, ~~2022~~2023 the ~~increase~~decrease of $~~472~~307 is primarily the result of ~~increases~~decreases in employee compensation and benefit related costs of ~~$514~~$283, professional fees of $44, and ~~outside services~~certain administrative expenses of ~~$73,~~$30, partially offset by ~~decreases~~increases in depreciation ~~expense of $33, certain administrative overhead expenses for our international operations~~ of $30 ~~travel costs of $15,~~ and other ~~costs~~miscellaneous expenses of ~~$37.~~$20 primarily relating to the corporate headquarters. For the three-month periods ending September 30, ~~2022~~2023 and ~~2021~~2022, SG&A as a percentage of revenues ~~increased~~decreased to ~~41%~~37% from ~~37%~~41%. The ~~increase~~decrease versus the comparable period is primarily due to the ~~increase~~decrease in SG&A ~~in the current~~expenses when revenues were flat compared to prior year ~~due to employee related costs.~~quarter.

SG&A expenses were $~~9,201~~9,126 and $~~8,858~~9,201 for the nine-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022, respectively. For the nine-month period ended September 30, ~~2022~~2023 the ~~increase~~decrease of $~~343~~75 is primarily the result of decreases in certain administrative expenses of $132 and other miscellaneous expenses of $47, partially offset by increases in employee compensation and benefit related costs of ~~$474, outside services~~$74, professional fees of ~~$46,~~$17, and ~~travel costs of $39, partially offset by decreases in~~ depreciation expense of ~~$91, certain administrative overhead expenses for our international operations of $23, and other costs of $102.~~$13. For the nine-month periods ending September 30, ~~2022~~2023 and ~~2021~~2022, SG&A as a percentage of revenues decreased to ~~46%~~44% from ~~50%~~46%. The decrease versus the comparable period is primarily due to the increase in ~~overall~~ revenues ~~partially offset by the increase in SG&A~~ in the current ~~year due to employee related costs.~~year.

Research and development expenses for the three and nine-month periods ended September 30, 2023 were $513 and $1,144, respectively, and for the same periods in 2022 were $207 and $716, ~~respectively, and for the same periods in~~ ~~2021~~ ~~were~~ ~~$340~~ ~~and~~ ~~$1,070~~, respectively. ~~The decreases in expenditures were related to reduced employee related costs and timing of execution on current project initiatives.~~ The expenditures in our research and development expenses are 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™~~DGI® Dissolved Gas Infusion Systems, an innovative alternative to current aeration technology. This infusion process has a variety of applications in the water and wastewater industries, including remediation, treatment, biological activity, and wastewater odor management. ~~DGI~~DGI® technology benefits include reduced energy consumption, installation costs, and operating costs, while improving treatment performance.

~~Income tax expense for both of the three-month periods ended~~ ~~September 30, 2022 and 2021~~ ~~was~~ $0~~. Income tax expense for the~~ ~~nine-month period ended~~ ~~September 30, 2022~~ ~~was~~ $9~~. Income tax expense for the~~ ~~nine-month period ended~~ ~~September 30, 2021~~ ~~was~~ ~~$10. The Company is projecting a consolidated effective tax rate of approximately 0% for~~ ~~2022, 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-month periods ended~~ ~~September 30, 2022~~ 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.

Interest income was $92322 for the three-month period ended September 30, ~~2022~~2023 compared to $192 for the same period in ~~2021~~2022. Interest income was $~~101~~968 for the nine-month period ended September 30, ~~2022~~2023 compared to $4101 for the same period in ~~2021~~2022. Interest income ~~increase in both periods~~increased due to the interest income on the held-to-maturity debt securities and money market funds.

Other income, net was $349 for the three-month period ended September 30, ~~2022~~2023 compared to Other income, net of $~~104~~34 for the same period in ~~2021~~2022. Other ~~income, net decreased~~ ~~$70~~ ~~mainly due to transactional foreign exchange gain/loss.~~

~~Other income,~~expense, net was $~~158~~95 for the nine-month period ended September 30, ~~2022~~2023 compared to Other income, net of $~~1,586~~158 for the same period in ~~2021~~2022. The changes in Other (expense) income, net ~~decreased~~ ~~$1,428~~were mainly due to ~~the forgiveness of the Paycheck Protection Program Loan in 2021 consisting of $1,556 of principal and $10 of accrued interest.~~transactional foreign exchange losses.

We have losses from operations during the nine-month period ended September 30, ~~2022~~2023 totaling $~~1,277~~1,857. Our cash ~~used~~provided by operations for this same period totaled $~~2,591~~391.

Our cash and cash equivalent balance as of September 30, ~~2022~~2023 totaled $~~24,082~~13,483, which includes $~~226~~980 of cash equivalents, and our working capital totaled $~~29,922~~31,916. We have no outstanding debt other than our outstanding letters of credit, under our Investment Collateral Security agreement with BMO Harris Bank, N.A. (the Investment Collateral Security agreement), which does not have any financial covenants. We expect to ~~continue~~continue operating under this arrangement for the foreseeable future.

Operating activities provided cash of $391 for the nine-month period ended September 30, 2023, primarily due to an increase in other liabilities of $519 due to timing of project related activity, a decrease in other current assets of $365, an increase in accounts payable of $172 due to timing of project related activity, and removals of non-cash items from our net loss from continuing operations for depreciation and amortization of $293 and stock-based compensation of $288.

Operating activities used cash of ~~$2,591~~$2,591 for the nine-month period ended September 30, 2022, primarily due to an increase in accounts receivable balances of $3,449 due to the timing of project milestone billings and the net loss from continuing operations, partially offset by removals of non-cash items from our net loss from continuing operations for depreciation and amortization of $337, an increase in accounts payable balances of $1,094, and a decrease in other assets of $370.

~~Operating activities provided $572 of cash for the~~ ~~nine-month period ended~~ ~~September 30, 2021~~, primarily due to decreases in our accounts receivable balance of $1,405 and prepaid expenses and other current and non-current assets of $1,176 and the add back of non-cash items from our net loss including depreciation and amortization of $571, partially offset by the add back of non-cash items from our net loss for the gain on the Paycheck Protection Program Loan forgiveness of $1,556 and decreases in our accounts payable balance of $980 and accrued liabilities and other non-current liabilities of $382.

Investing activities used cash of $~~9,963~~10,227 and ~~$584~~$9,963 for the nine-month periods ended September 30, ~~2022~~2023 and ~~2021~~2022, respectively. Investing activities for the nine-month periods ended September 30, 2023 and 2022 primarily consisted of purchases of debt securities as ~~investments.~~investments of $14,026 and $9,777, respectively. Investing activities for the nine-month period ended September 30, 2023 was funded by the maturities of debt securities of $4,000.

Financing activities ~~used~~provided cash of $1742 for the nine-month period ended September 30, ~~2022~~2023 compared to cash ~~provided~~used of ~~$23,977~~$17 for the nine-month period ended September 30, ~~2021~~2022. In ~~2022,~~2023, the financing activity was related to proceeds from the exercise of stock options. In 2022, financing activities were related to taxes paid on behalf of the equity award participants on the vesting of restricted stock units. In 2021, the Company issued common stock in connection with the private placement offering. Proceeds from the private placement offering were $25,812, partially offset by the costs related to the offering of $1,783.

The effects of the COVID-19 global pandemic and certain geopolitical events have presented significant risks to the Company, not all of which the Company is able to fully evaluate or even foresee at the current time. Although the impact of the pandemic is difficult to quantify, the Company has experienced, and may continue to experience, reductions in demand for certain of our products due to the delay or abandonment of ongoing or anticipated projects due to our customers’, suppliers’ and other third parties’ financial distress or concern regarding the volatility of global markets. Other directly or indirectly COVID-19 related effects, such as supply chain disruptions and travel restrictions, have been impacting operations and financial performance to varying degrees. We continue to monitor our liquidity needs and in response to our recent periods of declines in revenue and net losses have taken measures to reduce expenses and restructure operations which we feel are necessary to ensure we maintain sufficient working capital and liquidity to operate the business and invest in our future. We have evaluated our ongoing business needs and considered the cash requirements of our base business of Air Pollution Control and FUEL CHEM, 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. 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.

We expect additional capital expenditures in ~~2022~~2023 for maintenance of field equipment, computer and systems, and general office equipment. We expect to fund our capital expenditures with cash from operations or cash on hand.

In ~~June~~ 2022, the Board of Directors approved an investment plan that would hold ~~$10,000~~$20,000 in funds at BMO Harris Bank (BMO Harris) to be invested in held-to-maturity debt securities of United States (US) Treasuries, including Notes, Bonds, and Bills, or US Government Agency securities. The funds would be held in money market funds until they are invested in those securities. The investments would be structured to create a maturity “ladder” where the proceeds from maturities are re-invested to maintain a balance of short- and long-term investments based on the expected business needs. Maturities will be between three and thirty-six months. This strategy allows the Company to provide returns on excess cash, while managing liquidity and minimizing exposure to interest rate fluctuations.

On June 30, 2022, the Company entered into the Investment Collateral Security agreement to use for the sole purpose of issuing standby letters of credit, which replaces the Cash Collateral Security agreement with BMO Harris Bank, N.A. (the Former Collateral agreement). The Investment Collateral Security agreement requires us to pledge our investments as collateral for 150% of the aggregate face amount of outstanding standby letters of credit. The Company pays 250 basis points on the face values of outstanding letters of credit. There are no financial covenants set forth in the Investment Collateral Security agreement. At September 30, ~~2022,~~2023, the Company had outstanding standby letters of credit totaling approximately $~~727~~992 under the Investment Collateral Security agreement. At September 30, ~~2022,~~2023, the investments held as collateral totaled $~~1,090~~1,488. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

On June 19, 2019, the Company entered into the Former Collateral agreement to use for the sole purpose of issuing standby letters of credit. The Former Collateral agreement requires us to pledge as cash collateral 105% of the aggregate face amount of outstanding standby letters of credit. The Company paid 250 basis points on the face values of outstanding letters of credit. There were no financial covenants set forth in the Former Collateral agreement. At ~~September 30, 2022, the Company had no outstanding standby letters of credit under the Former Collateral agreement.~~

On February 11, 2021, Fuel Tech entered into a securities purchase agreement to issue and sell, in a private placement, 5,000,000 shares of Common Stock and 2,500,000 warrants exercisable for a total of 2,500,000 shares of Common Stock with an exercise price of $5.10 per Warrant Share, at a purchase price of $5.1625 per Share and associated warrant. The gross proceeds to the Company from the Private Placement were $25,812, before deducting placement agent fees and offering expenses of $1,783.

~~In 2020, the Company received $1,556 in loan proceeds from the~~ ~~Paycheck Protection Program~~, established pursuant to the Coronavirus Aid, Relief, and Economic Security Act and administered by the U.S. Small Business Administration (SBA). On January 8, 2021 the Company received full forgiveness from the SBA for the entire balance of loan proceeds used to fund its qualified payroll expenses. When the loan was forgiven, the Company reduced the non-current liability by the amount forgiven and recorded other income in the Condensed Consolidated Statements of Operations.

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, ~~2022.~~2023.

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, ~~2021~~2022 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.

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 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.

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.

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.

The risk factors included in our Annual Report on Form 10-K for fiscal year ended December 31, ~~2021~~2022 have not materially changed.

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.

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
PART II.	OTHER INFORMATION	20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	2120
SIGNATURES		2221

				As of
Held-to-maturity debt securities:				September 30, 2023			December 31, 2022
Amortized cost	$	9,808		$	19,685		$	9,341
Gross unrecognized gains		—			—			—
Gross unrecognized losses		(161	)		(187	)		(168	)
Fair value	$	9,647		$	19,498		$	9,173

	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	2,469	$	2,460	$	14,802	$	14,694
After one year through two years		3,937		3,866		4,883		4,804
After two years through three years		3,402		3,321
Total	$	9,808	$	9,647	$	19,685	$	19,498

At January 1, 2022	$	223
Provision charged to expense		(19	)
(Write-offs) / Recoveries		(94	)
At December 31, 2022	$	110
Provision charged to expense		—
(Write-offs) / Recoveries		—
At September 30, 2023	$	110

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
United States	$	6,972	$	6,049	$	14,939	$	15,100	$	5,640	$	6,972	$	15,937	$	14,939
Foreign Revenues
Latin America		56		121		185		338		157		56		310		185
Europe		613		663		1,939		1,339		1,001		613		2,400		1,939
Asia		376		726		2,857		1,033		1,190		376		2,089		2,857
Total Foreign Revenues		1,045		1,510		4,981		2,710		2,348		1,045		4,799		4,981
Total Revenues	$	8,017	$	7,559	$	19,920	$	17,810	$	7,988	$	8,017	$	20,736	$	19,920

	As of						As of
	September 30, 2022			December 31, 2021			September 30, 2023			December 31, 2022
Trade receivables	$	4,935		$	2,122		$	5,717		$	4,605
Unbilled receivables		1,587			1,277			1,944			3,082
Other short-term receivables		309			83			145			152
Allowance for doubtful accounts		(173	)		(223	)
Allowance for credit losses								(110	)		(110	)
Total accounts receivable	$	6,658		$	3,259		$	7,696		$	7,729

						Weighted- Average									Weighted- Average
	Number			Weighted-		Remaining		Aggregate		Number			Weighted-		Remaining		Aggregate
	of			Average		Contractual		Intrinsic		of			Average		Contractual		Intrinsic
	Options			Exercise Price		Term		Value		Options			Exercise Price		Term		Value
Outstanding on January 1, 2022		434,500		$	3.05
Outstanding on January 1, 2023											384,500		$	2.98
Granted		—			—						—			—
Exercised		—			—						(44,000	)		0.96
Expired or forfeited		(50,000	)		3.55						(70,000	)		3.85
Outstanding on September 30, 2022		384,500		$	2.98		2.69	$	18
Exercisable on September 30, 2022		384,500		$	2.98		2.69	$	18
Outstanding on September 30, 2023											270,500		$	3.09		1.81	$	9
Exercisable on September 30, 2023											270,500		$	3.09		1.81	$	9

				Weighted Average
				Grant Date
	Shares			Fair Value
Unvested restricted stock units at January 1, 2022		45,003		$	1.51
Granted		807,048			1.32
Forfeited		(15,000	)		1.32
Vested		(45,003	)		1.51
Unvested restricted stock units at September 30, 2022		792,048		$	1.32

Range of Exercise Price	Range of Exercise Price	Number Outstanding/Exercisable		Weighted Average Remaining Life in Years	Weighted Average Exercise Price		Range of Exercise Price	Number Outstanding/Exercisable		Weighted Average Remaining Life in Years	Weighted Average Exercise Price
$5.10	$5.10		2,500,000	3.87	$	5.10	$5.10		2,500,000	2.87	$	5.10
$6.45	$6.45		350,000	3.87	$	6.45	$6.45		350,000	2.87	$	6.45
			2,850,000						2,850,000

	Air Pollution			FUEL CHEM
Three months ended September 30, 2023	Control Segment			Segment			Other			Total
Revenues from external customers	$	3,711		$	4,277		$	—		$	7,988
Cost of sales		(2,214	)		(2,162	)		—			(4,376	)
Gross margin		1,497			2,115			—			3,612
Selling, general and administrative		—			—			(2,966	)		(2,966	)
Research and development		—			—			(513	)		(513	)
Operating income (loss) from operations	$	1,497		$	2,115		$	(3,479	)	$	133

	Air Pollution			FUEL CHEM
Three months ended September 30, 2022	Control Segment			Segment			Other			Total
Revenues from external customers	$	2,728		$	5,289		$	—		$	8,017
Cost of sales		(1,801	)		(2,544	)		—			(4,345	)
Gross margin		927			2,745			—			3,672
Selling, general and administrative		—			—			(3,273	)		(3,273	)
Research and development		—			—			(207	)		(207	)
Operating income (loss) from operations	$	927		$	2,745		$	(3,480	)	$	192

	Air Pollution			FUEL CHEM
Nine months ended September 30, 2022	Control Segment			Segment			Other			Total
Revenues from external customers	$	7,670		$	12,250		$	—		$	19,920
Cost of sales		(5,032	)		(6,248	)		—			(11,280	)
Gross margin		2,638			6,002			—			8,640
Selling, general and administrative		—			—			(9,201	)		(9,201	)
Research and development		—			—			(716	)		(716	)
Operating income (loss) from operations	$	2,638		$	6,002		$	(9,917	)	$	(1,277	)

	Air Pollution			FUEL CHEM
Nine months ended September 30, 2021	Control Segment			Segment			Other			Total
Revenues from external customers	$	3,837		$	13,973		$	—		$	17,810
Cost of sales		(2,172	)		(6,978	)		—			(9,150	)
Gross margin		1,665			6,995			—			8,660
Selling, general and administrative		—			—			(8,858	)		(8,858	)
Research and development		—			—			(1,070	)		(1,070	)
Operating income (loss) from operations	$	1,665		$	6,995		$	(9,928	)	$	(1,268	)

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	Inline INSXBRL Instance Document - The Instance Document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document.
	101.2	Inline SCHXBRL Taxonomy Extension Schema Document
	101.3	Inline CALXBRL Taxonomy Extension Calculation Linkbase Document
	101.4	Inline DEFXBRL Taxonomy Extension Definition Linkbase Document
	101.5	Inline LABXBRL Taxonomy Extension Label Linkbase Document
	101.6	Inline PREXBRL Taxonomy Extension Prevention Linkbase Document
	104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Date: November ~~8, 2022~~7, 2023	By:	/s/ Vincent J. Arnone
		Vincent J. Arnone
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November ~~8, 2022~~7, 2023	By:	/s/ Ellen T. Albrecht
		Ellen T. Albrecht
		Vice President, Chief Financial Officer and Treasurer
		(Principal Financial Officer)