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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, 2021

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, 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, 2021 there were outstanding 30,263,791 shares of Common Stock, par value $0.01 per share, of the registrant.

Table of Contents

FUEL TECH, INC.

Form 10-Q for the nine-month period ended September 30, 2021

INDEX

|  | Page
PART I. FINANCIAL INFORMATION |
Item 1. | Financial Statements (Unaudited) | 1
| Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 | 1
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 | 2
| Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020 | 3
| Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September, 2021 and 2020 | 4
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 | 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 | 23
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

Table of Contents

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, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
ASSETS |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 35,161 |  |  | $ | 10,640 |
Restricted cash |  |  | 891 |  |  |  | 1,595 |
Accounts receivable, net |  |  | 5,062 |  |  |  | 6,548 |
Inventories, net |  |  | 128 |  |  |  | 97 |
Prepaid expenses and other current assets |  |  | 1,064 |  |  |  | 2,193 |
Total current assets |  |  | 42,306 |  |  |  | 21,073 |
Property and equipment, net of accumulated depreciation of $18,582 and $26,889, respectively |  |  | 5,293 |  |  |  | 5,220 |
Goodwill |  |  | 2,116 |  |  |  | 2,116 |
Other intangible assets, net of accumulated amortization of $871 and $757, respectively |  |  | 475 |  |  |  | 553 |
Restricted cash |  |  | 270 |  |  |  | 371 |
Right-of-use operating lease assets |  |  | 283 |  |  |  | 394 |
Other assets |  |  | 296 |  |  |  | 361 |
Total assets |  | $ | 51,039 |  |  | $ | 30,088 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 1,354 |  |  | $ | 2,353 |
Accrued liabilities: |  |  |  |  |  |  |  |
Operating lease liabilities - current |  |  | 128 |  |  |  | 149 |
Employee compensation |  |  | 701 |  |  |  | 930 |
Other accrued liabilities |  |  | 1,829 |  |  |  | 2,099 |
Total current liabilities |  |  | 4,012 |  |  |  | 5,531 |
Operating lease liabilities - non-current |  |  | 147 |  |  |  | 237 |
Long-term borrowings |  |  | — |  |  |  | 1,556 |
Deferred income taxes, net |  |  | 134 |  |  |  | 134 |
Other liabilities |  |  | 302 |  |  |  | 309 |
Total liabilities |  |  | 4,595 |  |  |  | 7,767 |
Stockholders’ equity: |  |  |  |  |  |  |  |
Common stock, $.01 par value, 40,000,000 shares authorized, 31,227,300 and 25,639,702 shares issued, and 30,263,791 and 25,228,951 shares outstanding, respectively |  |  | 312 |  |  |  | 262 |
Additional paid-in capital |  |  | 164,178 |  |  |  | 140,138 |
Accumulated deficit |  |  | (114,305 | ) |  |  | (114,603 | )
Accumulated other comprehensive loss |  |  | (1,583 | ) |  |  | (1,370 | )
Nil coupon perpetual loan notes |  |  | 76 |  |  |  | 76 |
Treasury stock, at cost |  |  | (2,234 | ) |  |  | (2,182 | )
Total stockholders’ equity |  |  | 46,444 |  |  |  | 22,321 |
Total liabilities and stockholders’ equity |  | $ | 51,039 |  |  | $ | 30,088 |

See notes to condensed consolidated financial statements.

1

Table of Contents

FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Revenues |  | $ | 7,559 |  |  | $ | 8,155 |  |  | $ | 17,810 |  |  | $ | 16,334 |
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales |  |  | 3,840 |  |  |  | 2,249 |  |  |  | 9,150 |  |  |  | 8,299 |
Selling, general and administrative |  |  | 2,801 |  |  |  | 3,184 |  |  |  | 8,858 |  |  |  | 9,825 |
Research and development |  |  | 340 |  |  |  | 285 |  |  |  | 1,070 |  |  |  | 880 |
|  |  | 6,981 |  |  |  | 5,718 |  |  |  | 19,078 |  |  |  | 19,004 |
Operating income (loss) |  |  | 578 |  |  |  | 2,437 |  |  |  | (1,268 | ) |  |  | (2,670 | )
Interest expense |  |  | (5 | ) |  |  | (9 | ) |  |  | (14 | ) |  |  | (15 | )
Interest income |  |  | 1 |  |  |  | 3 |  |  |  | 4 |  |  |  | 16 |
Other income (expense),net |  |  | 104 |  |  |  | (55 | ) |  |  | 1,586 |  |  |  | 83 |
Income (loss) before income taxes |  |  | 678 |  |  |  | 2,376 |  |  |  | 308 |  |  |  | (2,586 | )
Income tax expense |  |  | — |  |  |  | — |  |  |  | (10 | ) |  |  | (149 | )
Net income (loss) |  | $ | 678 |  |  | $ | 2,376 |  |  | $ | 298 |  |  | $ | (2,735 | )
Net income (loss) per common share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic net income (loss) per common share |  | $ | 0.02 |  |  | $ | 0.10 |  |  | $ | 0.01 |  |  | $ | (0.11 | )
Diluted net income (loss) per common share |  | $ | 0.02 |  |  | $ | 0.09 |  |  | $ | 0.01 |  |  | $ | (0.11 | )
Weighted-average number of common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 30,264,000 |  |  |  | 24,701,000 |  |  |  | 29,356,000 |  |  |  | 24,656,000 |
Diluted |  |  | 30,335,000 |  |  |  | 25,120,000 |  |  |  | 29,482,000 |  |  |  | 24,656,000 |

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Net income (loss) |  | $ | 678 |  |  | $ | 2,376 |  |  | $ | 298 |  |  | $ | (2,735 | )
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | (153 | ) |  |  | 268 |  |  |  | (213 | ) |  |  | 189 |
Comprehensive income (loss) |  | $ | 525 |  |  | $ | 2,644 |  |  | $ | 85 |  |  | $ | (2,546 | )

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

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

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  | Nil |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  | Other |  |  | Coupon |  |  |  |  |  |  |  |  |
|  | Common Stock |  |  | Paid-in |  |  | Accumulated |  |  | Comprehensive |  |  | Perpetual |  |  | Treasury |  |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Loss |  |  | Loan Notes |  |  | Stock |  |  | Total |
Balance at December 31, 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 loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 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 |

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

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  | Nil |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  | Other |  |  | Coupon |  |  |  |  |  |  |  |  |
|  | Common Stock |  |  | Paid-in |  |  | Accumulated |  |  | Comprehensive |  |  | Perpetual |  |  | Treasury |  |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Loss |  |  | Loan Notes |  |  | Stock |  |  | Total |
Balance at December 31, 2020 |  |  | 25,229 |  |  | $ | 262 |  |  | $ | 140,138 |  |  | $ | (114,603 | ) |  | $ | (1,370 | ) |  | $ | 76 |  |  | $ | (2,182 | ) |  | $ | 22,321 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 398 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 398 |
Foreign currency translation adjustments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (193 | ) |  |  | — |  |  |  | — |  |  |  | (193 | )
Stock compensation expense |  |  | — |  |  |  | — |  |  |  | 20 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 20 |
Common stock issued in connection with private placement, net |  |  | 5,000 |  |  |  | 50 |  |  |  | 23,979 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 24,029 |
Common shares issued upon vesting of restricted stock units |  |  | 50 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Treasury shares withheld |  |  | (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 |

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

|  | Nine Months Ended |
|  | September 30, |
|  | 2021 |  |  | 2020 |
Operating Activities |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 298 |  |  | $ | (2,735 | )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |
Depreciation |  |  | 457 |  |  |  | 495 |
Amortization |  |  | 114 |  |  |  | 139 |
Loss (gain) on sale of equipment |  |  | 13 |  |  |  | (3 | )
Provision for doubtful accounts, net of recoveries |  |  | (2 | ) |  |  | (1,144 | )
Stock-based compensation, net of forfeitures |  |  | 61 |  |  |  | 208 |
Gain of forgiveness on Paycheck Protection Plan Loan |  |  | (1,556 | ) |  |  | — |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | 1,405 |  |  |  | (863 | )
Inventories |  |  | (32 | ) |  |  | (71 | )
Prepaid expenses, other current assets and other non-current assets |  |  | 1,176 |  |  |  | 239 |
Accounts payable |  |  | (980 | ) |  |  | 820 |
Accrued liabilities and other non-current liabilities |  |  | (382 | ) |  |  | (376 | )
Net cash provided by (used in) operating activities |  |  | 572 |  |  |  | (3,291 | )
Investing Activities |  |  |  |  |  |  |  |
Purchases of equipment and patents |  |  | (584 | ) |  |  | (206 | )
Net cash used in investing activities |  |  | (584 | ) |  |  | (206 | )
Financing Activities |  |  |  |  |  |  |  |
Proceeds from borrowings |  |  | — |  |  |  | 1,556 |
Proceeds from sale of common stock issued in connection with private placement |  |  | 25,812 |  |  |  | — |
Costs related to sale of common stock issued in connection with private placement |  |  | (1,783 | ) |  |  | — |
Taxes paid on behalf of equity award participants |  |  | (52 | ) |  |  | (6 | )
Net cash provided by financing activities |  |  | 23,977 |  |  |  | 1,550 |
Effect of exchange rate fluctuations on cash |  |  | (249 | ) |  |  | 256 |
Net increase (decrease) in cash, cash equivalents and restricted cash |  |  | 23,716 |  |  |  | (1,691 | )
Cash, cash equivalents, and restricted cash at beginning of period (Note 2) |  |  | 12,606 |  |  |  | 13,501 |
Cash, cash equivalents and restricted cash at end of period (Note 2) |  | $ | 36,322 |  |  | $ | 11,810 |

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(Unaudited)

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

1. General

Organization

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

The Company’s NOx reduction technologies reduce nitrogen oxide emissions from boilers, furnaces and other stationary combustion sources. To reduce NOx emissions, our technologies utilize advanced combustion modification techniques and post-combustion NOx control approaches including non-catalytic, catalytic and combined systems. The Company also provides solutions for the mitigation of particulate matter, including particulate control with electrostatic precipitator products and services, and using flue gas conditioning systems which modify the ash properties of particulate for improved collection efficiency. The Company’s FUEL CHEM® technology improves the efficiency, reliability, fuel flexibility, boiler heat rate, and environmental status of combustion units by controlling slagging, fouling, corrosion, and opacity. Water treatment technologies include DGI™ Dissolved Gas Infusion Systems which utilize a patented nozzle to deliver supersaturated oxygen solutions and other gas-water combinations to target process applications or environmental issues. This infusion process has a variety of applications in the water and wastewater industries, including remediation, aeration, biological treatment, and wastewater odor management.

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for 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, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021. 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, 2020 as filed with the Securities and Exchange Commission.

COVID-19 Pandemic

The effects of the coronavirus (COVID-19) global pandemic has 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.

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.

Private Placement Offering

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. Subject to certain ownership limitations, the Warrants are immediately exercisable upon issuance and expire on the five and one-half year anniversary of the effective date of the registration statement registering the Warrant Shares for resale. In addition, the Company issued to the placement agent Warrants to purchase up to 350,000 shares of Common Stock. The Placement Agent Warrants are exercisable at an exercise price of $6.45 per share of Common Stock and expire on the five and one-half year anniversary of the effective date of the registration statement registering the Shares and the Warrant Shares for resale.

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2. Summary of Significant Accounting Policies

Restricted cash

Restricted cash as of September 30, 2021 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 $1,161 is comprised of $891 in current assets relating to existing standby letters of credit with varying maturity dates and expire no later than September 30, 2022 and $270 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 10 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 Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |
Cash and cash equivalents |  | $ | 35,161 |  |  | $ | 9,418 |
Restricted cash included in current assets |  |  | 891 |  |  |  | 2,025 |
Restricted cash included in long-term assets |  |  | 270 |  |  |  | 367 |
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows |  | $ | 36,322 |  |  | $ | 11,810 |

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 operating lease assets, operating lease liabilities - current, and operating lease liabilities - non-current on our Condensed 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 Condensed Consolidated Balance Sheet.

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.

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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 Air Pollution Control (“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 1,200 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.

For projects containing multiple performance obligations, the Company allocates the transaction price based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the stand-alone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

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Disaggregated Revenue by Product Technology

The following table presents our revenues disaggregated by product technology:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Air Pollution Control |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Technology solutions |  | $ | 1,172 |  |  | $ | 2,326 |  |  | $ | 1,768 |  |  | $ | 4,524 |
Spare parts |  |  | 407 |  |  |  | 254 |  |  |  | 823 |  |  |  | 667 |
Ancillary revenue |  |  | 365 |  |  |  | 306 |  |  |  | 1,246 |  |  |  | 828 |
Total Air Pollution Control Technology revenues |  |  | 1,944 |  |  |  | 2,886 |  |  |  | 3,837 |  |  |  | 6,019 |
FUEL CHEM |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FUEL CHEM technology solutions |  |  | 5,615 |  |  |  | 5,269 |  |  |  | 13,973 |  |  |  | 10,315 |
Total Revenues |  | $ | 7,559 |  |  | $ | 8,155 |  |  | $ | 17,810 |  |  | $ | 16,334 |

Disaggregated Revenue by Geography

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
United States |  | $ | 6,049 |  |  | $ | 6,473 |  |  | $ | 15,100 |  |  | $ | 12,880 |
Foreign Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Latin America |  |  | 121 |  |  |  | 195 |  |  |  | 338 |  |  |  | 400 |
Europe |  |  | 663 |  |  |  | 904 |  |  |  | 1,339 |  |  |  | 1,494 |
Asia |  |  | 726 |  |  |  | 583 |  |  |  | 1,033 |  |  |  | 1,560 |
Total Foreign Revenues |  |  | 1,510 |  |  |  | 1,682 |  |  |  | 2,710 |  |  |  | 3,454 |
Total Revenues |  | $ | 7,559 |  |  | $ | 8,155 |  |  | $ | 17,810 |  |  | $ | 16,334 |

Timing of Revenue Recognition

The following table presents the timing of our revenue recognition:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Products transferred at a point in time |  | $ | 6,387 |  |  | $ | 5,108 |  |  | $ | 16,042 |  |  | $ | 11,089 |
Products and services transferred over time |  |  | 1,172 |  |  |  | 3,047 |  |  |  | 1,768 |  |  |  | 5,245 |
Total Revenues |  | $ | 7,559 |  |  | $ | 8,155 |  |  | $ | 17,810 |  |  | $ | 16,334 |

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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. 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 consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. At September 30, 2021 and December 31, 2020, contract assets for APC technology projects were approximately $375 and $2,080, respectively, and $0 and $269, respectively, for the FUEL CHEM technology segment, and are included in accounts receivable on the condensed 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 $1,246 and $850, at September 30, 2021 and December 31, 2020, 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, 2021, 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 $173 and $331 for the three and nine months ended September 30, 2021, and $97 and $555 for three and nine months ended September 30, 2020, which represented primarily revenue from progress towards completion of our Air Pollution Control technology contracts.

As of September 30, 2021, we had no construction contracts in progress that were identified as a loss contract. As of December 31, 2020, we had one construction contract in progress that was identified as a loss contract and a provision for losses in the amount of $176 was recorded in other accrued liabilities on the consolidated balance sheet. Refer to Footnote 14 for an accrual related to an equipment failure issue with a Customer that requires remedy under the warranty provision of the customer contract.

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, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $8,173. The Company expects to recognize revenue on approximately $5,517 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, 2021 |  |  | December 31, 2020 |
Trade receivables |  | $ | 5,423 |  |  | $ | 5,015 |
Unbilled receivables |  |  | 375 |  |  |  | 2,348 |
Other short-term receivables |  |  | 102 |  |  |  | 20 |
Allowance for doubtful accounts |  |  | (838 | ) |  |  | (835 | )
Total accounts receivable |  | $ | 5,062 |  |  | $ | 6,548 |

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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 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, 2021 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 $10) in addition to collection efforts for the remaining accounts receivable.

The following table presents our revenues and net income (loss) which includes the Restructuring charge line item within the Condensed Statements of Operations for 2021 and 2020 in China as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Total revenues |  | $ | 2 |  |  | $ | 6 |  |  | $ | 17 |  |  | $ | 11 |
Net loss |  |  | (47 | ) |  |  | (73 | ) |  |  | (85 | ) |  |  | (31 | )

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, 2021 |  |  | December 31, 2020 |
Total assets |  | $ | 1,444 |  |  | $ | 2,463 |
Total liabilities |  |  | 290 |  |  |  | 396 |
Total net assets |  | $ | 1,154 |  |  | $ | 2,067 |

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5. Accumulated Other Comprehensive Loss

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Foreign currency translation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | (1,430 | ) |  | $ | (1,857 | ) |  | $ | (1,370 | ) |  | $ | (1,778 | )
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments (1) |  |  | (153 | ) |  |  | 268 |  |  |  | (213 | ) |  |  | 189 |
Total accumulated other comprehensive loss |  | $ | (1,583 | ) |  | $ | (1,589 | ) |  | $ | (1,583 | ) |  | $ | (1,589 | )

(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 963,509 and 948,347 with a cost of $2,234 and $2,182 at September 30, 2021 and December 31, 2020, 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), 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 anti-dilutive. For the nine months ended September 30, 2020, 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, 2021 and 2020.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Basic weighted-average shares |  |  | 30,264,000 |  |  |  | 24,701,000 |  |  |  | 29,356,000 |  |  |  | 24,656,000 |
Conversion of unsecured loan notes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Unexercised options and unvested RSUs |  |  | 71,000 |  |  |  | 419,000 |  |  |  | 126,000 |  |  |  | — |
Diluted weighted-average shares |  |  | 30,335,000 |  |  |  | 25,120,000 |  |  |  | 29,482,000 |  |  |  | 24,656,000 |

For the nine month period ended September 30, 2020, Fuel Tech had 520,000 outstanding equity awards that were excluded from the computation of diluted EPS as the inclusion of such would have been anti-dilutive due to a net loss in the period.

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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, 2021, Fuel Tech had 2,603,801 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, 2021. 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, 2021. 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, 2021 and 2020 were as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Stock options and restricted stock units, net of forfeited |  | $ | 21 |  |  | $ | 57 |  |  | $ | 61 |  |  | $ | 207 |
After-tax effect of stock-based compensation |  | $ | 21 |  |  | $ | 57 |  |  | $ | 61 |  |  | $ | 207 |

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, 2021 was as follows:

|  |  |  |  |  |  |  |  |  | Weighted- Average |  |  |  |  |
|  | Number |  |  | Weighted- |  |  | Remaining |  |  | Aggregate |
|  | of |  |  | Average |  |  | Contractual |  |  | Intrinsic |
|  | Options |  |  | Exercise Price |  |  | Term |  |  | Value |
Outstanding on January 1, 2021 |  |  | 484,500 |  |  | $ | 3.57 |  |  |  |  |  |  |  |  |
Granted |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |
Exercised |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |
Expired or forfeited |  |  | (50,000 | ) |  |  | 8.16 |  |  |  |  |  |  |  |  |
Outstanding on September 30, 2021 |  |  | 434,500 |  |  | $ | 3.05 |  |  |  | 3.34 |  |  | $ | 73 |
Exercisable on September 30, 2021 |  |  | 434,500 |  |  | $ | 3.05 |  |  |  | 3.34 |  |  | $ | 73 |

As of September 30, 2021, there was no unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans.

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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 2021 Executive Performance RSU Award Agreement (the “2021 Agreement”) with certain officers, including its President and Chief Executive Officer pursuant to which each 2021 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 2021 (“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 2021. 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 based on the closing price of the Company’s common stock on the grant date. Currently there is no expense reflected in the financial statements for these awards as the achievement is not considered probable.

At September 30, 2021, there is $39 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 0.47 years.

A summary of restricted stock unit activity for the nine months ended September 30, 2021 is as follows:

|  |  |  |  |  | Weighted Average |
|  |  |  |  |  | Grant Date |
|  | Shares |  |  | Fair Value |
Unvested restricted stock units at January 1, 2021 |  |  | 100,005 |  |  | $ | 4.08 |
Granted |  |  | — |  |  |  | — |
Forfeited |  |  | (5,000 | ) |  |  | 0.97 |
Vested |  |  | (50,002 | ) |  |  | 1.50 |
Unvested restricted stock units at September 30, 2021 |  |  | 45,003 |  |  | $ | 7.29 |

The fair value of restricted stock that vested during the nine month period ending September 30, 2021 was $75.

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, 2021 and 2020, Fuel Tech recorded no stock-based compensation expense under the Deferred Plan.

9. Warrants

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. Subject to certain ownership limitations, the Warrants are immediately exercisable upon issuance and expire on the five and one-half year anniversary of the effective date of the registration statement registering the Warrant Shares for resale. In addition, the Company issued to the placement agent Warrants to purchase up to 350,000 shares of Common Stock. The Placement Agent Warrants are exercisable at an exercise price of $6.45 per share of Common Stock and expire on the five and one-half year anniversary of the effective date of the registration statement registering the Shares and the Warrant Shares for resale.

Fuel Tech uses the Black-Scholes option pricing model to estimate the grant date fair value of the warrants. The principal variable assumptions utilized in valuing warrants and the methodology for estimating such model inputs are: (1) risk-free interest rate of 0.59%, an estimate based on the yield of zero–coupon treasury securities with a maturity equal to the expected life of the warrant; (2) expected volatility of 94.66% – an estimate based on the historical volatility of Fuel Tech’s Common Stock for a period equal to the expected life of the warrant; and (3) expected life of the warrant of five and one-half years based on the term of the warrant.

The calculated fair value allocated to the warrants is $7,337. This amount has been recorded as Additional paid in capital - warrants and is shown net in the Additional paid in capital line of the condensed consolidated balance sheets.

The issuance of warrants to purchase shares of the Company's common stock are summarized as follows:

|  | Shares |
Outstanding on December 31, 2020 |  |  | — |
Granted |  |  | 2,850,000 |
Exercised |  |  | — |
Outstanding as of September 30, 2021 |  |  | 2,850,000 |

The following table summarizes information about warrants outstanding and exercisable at September 30, 2021:

Range of Exercise Price |  |  | Number Outstanding/Exercisable |  |  | Weighted Average Remaining Life in Years |  |  | Weighted Average Exercise Price |
$5.10 |  |  |  | 2,500,000 |  |  | 4.87 |  |  | $ | 5.10 |
$6.45 |  |  |  | 350,000 |  |  | 4.87 |  |  | $ | 6.45 |
|  |  |  | 2,850,000 |  |  |  |  |  |  |  |

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10. 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 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.

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 accounts for the PPP Loan as debt in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 470, Debt and accrues 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 Statement of Operations.

11. Business Segment and Geographic Financial Data

Business Segment Financial Data

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

| • | 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 operations are provided below:

|  | Air Pollution |  |  | FUEL CHEM |  |  |  |  |  |  |  |  |
Three months ended September 30, 2021 |  | Control Segment |  |  | Segment |  |  | Other |  |  | Total |
Revenues from external customers |  | $ | 1,944 |  |  | $ | 5,615 |  |  | $ | — |  |  | $ | 7,559 |
Cost of sales |  |  | (1,134 | ) |  |  | (2,706 | ) |  |  | — |  |  |  | (3,840 | )
Gross margin |  |  | 810 |  |  |  | 2,909 |  |  |  | — |  |  |  | 3,719 |
Selling, general and administrative |  |  | — |  |  |  | — |  |  |  | (2,801 | ) |  |  | (2,801 | )
Research and development |  |  | — |  |  |  | — |  |  |  | (340 | ) |  |  | (340 | )
Operating income (loss) from operations |  | $ | 810 |  |  | $ | 2,909 |  |  | $ | (3,141 | ) |  | $ | 578 |

|  | Air Pollution |  |  | FUEL CHEM |  |  |  |  |  |  |  |  |
Three months ended September 30, 2020 |  | Control Segment |  |  | 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 operations |  | $ | 3,190 |  |  | $ | 2,716 |  |  | $ | (3,469 | ) |  | $ | 2,437 |

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|  | 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 | )

|  | Air Pollution |  |  | FUEL CHEM |  |  |  |  |  |  |  |  |
Nine months ended September 30, 2020 |  | Control Segment |  |  | 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 operations |  | $ | 3,237 |  |  | $ | 4,798 |  |  | $ | (10,705 | ) |  | $ | (2,670 | )

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 |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 6,049 |  |  | $ | 6,473 |  |  | $ | 15,100 |  |  | $ | 12,880 |
Foreign |  |  | 1,510 |  |  |  | 1,682 |  |  |  | 2,710 |  |  |  | 3,454 |
|  | $ | 7,559 |  |  | $ | 8,155 |  |  | $ | 17,810 |  |  | $ | 16,334 |

|  | September 30, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Assets: |  |  |  |  |  |  |  |
United States |  | $ | 46,713 |  |  | $ | 24,524 |
Foreign |  |  | 4,326 |  |  |  | 5,564 |
|  | $ | 51,039 |  |  | $ | 30,088 |

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12. 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 2 months to 4 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, 2021 and 2020, is as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Operating lease cost |  | $ | 44 |  |  | $ | 47 |  |  | $ | 133 |  |  | $ | 157 |
Short-term lease cost |  |  | 4 |  |  |  | 5 |  |  |  | 15 |  |  |  | 12 |
Total lease cost |  | $ | 48 |  |  | $ | 52 |  |  | $ | 148 |  |  | $ | 169 |

The weighted average remaining lease term was 2.45 years as of September 30, 2021. The weighted average discount rate was 4.55% as of September 30, 2021.

Remaining maturities of our existing lease liabilities as of September 30, 2021 were as follows:

Year Ending December 31, |  | Operating Leases |
2021 (excluding the nine months ended September 30, 2021) |  |  | 44 |
2022 |  |  | 132 |
2023 |  |  | 115 |
2024 |  |  | 29 |
2025 |  |  | 7 |
Total lease payments |  | $ | 327 |
Less imputed interest |  |  | (52 | )
Total |  | $ | 275 |

The following is the balance sheet classification of our existing lease liabilities as of September 30, 2021:

|  | As of |
|  | September 30, 2021 |  |  | December 31, 2020 |
Operating lease liabilities - current |  | $ | 128 |  |  | $ | 149 |
Operating lease liabilities - non-current |  |  | 147 |  |  |  | 237 |
Total operating lease liabilities |  | $ | 275 |  |  | $ | 386 |

Supplemental cash flow information related to leases, was as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Cash paid for amounts included in the measurement of lease liabilities |  | $ | 50 |  |  | $ | 45 |  |  | $ | 148 |  |  | $ | 148 |
Leased assets obtained in exchange for operating lease liabilities |  |  | 39 |  |  |  | 41 |  |  |  | 119 |  |  |  | 137 |

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13. Accrued Liabilities

The components of other accrued liabilities are as follows:

|  | As of |
|  | September 30, 2021 |  |  | December 31, 2020 |
Contract liabilities (Note 3) |  | $ | 1,246 |  |  | $ | 850 |
Accrued remediation contingency (Note 14) |  |  | — |  |  |  | 176 |
Other accrued liabilities |  |  | 583 |  |  |  | 1,073 |
Total other accrued liabilities |  | $ | 1,829 |  |  | $ | 2,099 |

14. 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 third quarter of 2020, the Company was notified of an equipment component failure at a foreign customer location. The failure was remedied under the warranty provision of the contract that is in place with the customer and supplier and was completed in the third quarter of 2021. As of September 30, 2021 and December 31, 2020, respectively, a charge of $0 and $176 was recorded in the other accrued liabilities line of the condensed 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 Condensed Consolidated Balance Sheets during the nine months ended September 30, 2021 and 2020. The warranty liability balance was $159 at September 30, 2021 and December 31, 2020.

15. Income Taxes

The Company’s effective tax rate is approximately 3.2% and (5.8%) for the nine-month periods ended September 30, 2021 and 2020, respectively. The Company's effective tax rate differs from the statutory federal tax rate of 21% for the nine month period ended September 30, 2021 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, 2021 and 2020. 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, 2021 and December 31, 2020.

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16. 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, 2021 and December 31, 2020, 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, 2021 and 2020.

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, 2021 and 2020.

17. 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.

18 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 historically. 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.

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FUEL TECH, INC.

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

Results of Operations

Revenues for the three month periods ending September 30, 2021 and 2020 were $7,559 and $8,155, respectively, representing a decrease of $596, or 7%, versus the same period last year. For the nine month periods ending September 30, 2021 and 2020 revenues were $17,810 and $16,334, respectively, representing an increase of $1,476, or 9%, versus the same period last year.

The Air Pollution Control (APC) technology segment generated revenues of $1,944 for the three month period ending September 30, 2021, representing a decrease of $942, or 33%, from the prior year amount of $2,886. The APC technology segment generated revenues of $3,837 and $6,019 for the nine months ended September 30, 2021 and 2020, respectively, representing a decrease of $2,182, or 36%. The decreases in APC revenue were primarily related to timing of project execution and new APC orders announced during 2020 and continuing through the first nine months of 2021. Consolidated APC backlog at September 30, 2021 was $8,173 versus backlog at December 31, 2020 of $5,268. Our current backlog consists of U.S. domestic projects totaling $8,029 and international projects totaling $144.

The FUEL CHEM® technology segment generated revenues of $5,615 and $13,973 for the three and nine months ended September 30, 2021, respectively, representing increases of $346, or 7%, and $3,658, or 35%, from the same periods in 2020 of $5,269 and $10,315, respectively. The increases in FUEL CHEM revenue for the three and nine months ended September 30, 2021 as compared to the same period of the prior year were due to revenue from new accounts, increased demand for power generation, and recovery from extended unscheduled outages and significantly reduced operations impacted by the COVID-19 pandemic in 2020.

Consolidated gross margin percentage for the three month periods ended September 30, 2021 and 2020 were 49% and 72%, respectively. Gross margin decreased versus the comparable period primarily due to the decrease in the APC gross margin, while FUEL CHEM gross margin remained flat at 52%. For the three month periods ended September 30, 2021 and 2020 the APC gross margin decreased to 42% from 110%, respectively, primarily due to the $2,589 insurance claim settlement recorded in the third quarter of 2020 for the remediation efforts on a non-conformance issues with a U.S. customer under a warranty provision of the contract. Consolidated gross margin percentage for the nine month periods ended September 30, 2021 and 2020 remained flat at 49%. FUEL CHEM gross margins increased to 50% from 47% in the current quarter due to the increase in revenue volume. Gross margins for the nine months ended September 30, 2021 and 2020 for the APC segment were 43% and 54%, respectively. The decrease in APC gross margin is primarily due to the insurance claim settlement recorded in the third quarter of 2020, partially offset by the charges incurred to remedy a non-conformance issues with a U.S. customer under a warranty provision of the contract that was recorded in 2020 and higher product mix of ancillary products and services.

Selling, general and administrative expenses (SG&A) were $2,801 and $3,184 for the three month periods ended September 30, 2021 and 2020, respectively. For the three month period ended September 30, 2021 the decrease of $383 is primarily the result of decreases in employee related costs of $284 and professional services of $143, partially offset by increases in certain administrative overhead expenses of $44. SG&A for the nine month periods ended September 30, 2021 and 2020 were $8,858 and $9,825, respectively. For the nine month period ended September 30, 2021 the decrease of $967 is primarily the result of decreases in employee related costs of $1,114, professional services of $289, and in certain administrative overhead expenses of $63, partially offset by a reversal of a $499 charge to the allowance for doubtful accounts recorded in the second quarter of 2020. For the three month periods ending September 30, 2021 and 2020, SG&A as a percentage of revenues decreased to 37% from 39%. For the nine month periods ending September 30, 2021 and 2020, SG&A as a percentage of revenues decreased to 50% from 60%. The decreases versus the comparable period are primarily due to the increase in overall revenues in the current year.

Research and development expenses for the three and nine month periods ended September 30, 2021 were $340 and $1,070, respectively, and for the same periods in 2020 were $285 and $880, 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 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 month periods ended September 30, 2021 and 2020 was $0 for both periods, and for the nine month periods ended September 30, 2021 and 2020, Income tax expense was $10 and $149, respectively. The Company is projecting a consolidated effective tax rate of approximately 3% for 2021, 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, 2021 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.

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Liquidity and Sources of Capital

We have sustained losses from operations during the nine month period ended September 30, 2021 totaling $1,268. Our cash provided by operations for this same period totaled $572.

Our cash balance as of September 30, 2021 totaled $36,322 (including restricted cash of $1,161), and our working capital totaled $38,294. We have no outstanding debt other than our 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.

The effects of the COVID-19 global pandemic has 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 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, 2021, the Company had outstanding standby letters of credit totaling approximately $1,106 under the BMO Harris agreement. As of September 30, 2021, the Company held $1,161 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.

On April 15, 2020, the Company received $1,556 in loan proceeds from the Paycheck Protection Program (the “PPP”), established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES 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 statement of operations.

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Contingencies and Contractual Obligations

Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note 14. There was no change in the warranty liability balance during the nine months ended September 30, 2021.

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, 2020 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.

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.

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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, 2020 have not materially changed.

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

None

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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 | 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)

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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: November 9, 2021 | By: | /s/ Vincent J. Arnone
|  | Vincent J. Arnone
|  | President and Chief Executive Officer
|  | (Principal Executive Officer)

Date: November 9, 2021 | By: | /s/ Ellen T. Albrecht
|  | Ellen T. Albrecht
|  | Acting Treasurer and Controller
|  | (Principal Financial Officer)

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