ftek20210630

ftek20210630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended

June 30, 2021

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

For the transition period from ______ to______.

Commission file number: 001-33059

FUEL TECH, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-5657551

(State or other jurisdiction of

incorporation of organization)

(I.R.S. Employer

Identification Number)

Fuel Tech, Inc.

27601 Bella Vista Parkway

Warrenville, IL 60555-1617

630-845-4500

www.ftek.com

(Address and telephone number of principal executive offices)

________________________________

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

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

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

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

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

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

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

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

On July 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 six-month period ended June 30, 2021

INDEX

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

	June 30,			December 31,
	2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	36,194		$	10,640
Restricted cash		98			1,595
Accounts receivable, net		3,403			6,548
Inventories, net		194			97
Prepaid expenses and other current assets		1,555			2,193
Total current assets		41,444			21,073
Property and equipment, net of accumulated depreciation of $18,459 and $26,889, respectively		5,087			5,220
Goodwill		2,116			2,116
Other intangible assets, net of accumulated amortization of $828 and $757, respectively		516			553
Restricted cash		270			371
Right-of-use operating lease assets		311			394
Other assets		317			361
Total assets	$	50,061		$	30,088
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,400		$	2,353
Accrued liabilities:
Operating lease liabilities - current		132			149
Employee compensation		681			930
Other accrued liabilities		1,339			2,099
Total current liabilities		3,552			5,531
Operating lease liabilities - non-current		171			237
Long-term borrowings		—			1,556
Deferred income taxes, net		134			134
Other liabilities		306			309
Total liabilities		4,163			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		164,157			140,138
Accumulated deficit		(114,983	)		(114,603	)
Accumulated other comprehensive loss		(1,430	)		(1,370	)
Nil coupon perpetual loan notes		76			76
Treasury stock, at cost		(2,234	)		(2,182	)
Total stockholders’ equity		45,898			22,321
Total liabilities and stockholders’ equity	$	50,061		$	30,088

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Revenues	$	5,218		$	4,401		$	10,251		$	8,179
Costs and expenses:
Cost of sales		2,635			3,799			5,310			6,050
Selling, general and administrative		2,957			2,755			6,057			6,641
Research and development		315			271			730			595
		5,907			6,825			12,097			13,286
Operating loss		(689	)		(2,424	)		(1,846	)		(5,107	)
Interest expense		(5	)		(3	)		(9	)		(6	)
Interest income		2			2			3			13
Other (expense) income, net		(76	)		(88	)		1,482			138
Loss before income taxes		(768	)		(2,513	)		(370	)		(4,962	)
Income tax expense		(10	)		(31	)		(10	)		(149	)
Net loss	$	(778	)	$	(2,544	)	$	(380	)	$	(5,111	)
Net loss per common share:
Basic net loss per common share	$	(0.03	)	$	(0.10	)	$	(0.01	)	$	(0.21	)
Diluted net loss per common share	$	(0.03	)	$	(0.10	)	$	(0.01	)	$	(0.21	)
Weighted-average number of common shares outstanding:
Basic		30,264,000			24,668,000			28,895,000			24,633,000
Diluted		30,264,000			24,668,000			28,895,000			24,633,000

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Net loss	$	(778	)	$	(2,544	)	$	(380	)	$	(5,111	)
Other comprehensive income (loss):
Foreign currency translation adjustments		133			152			(60	)		(79	)
Comprehensive loss	$	(645	)	$	(2,392	)	$	(440	)	$	(5,190	)

See notes to condensed consolidated financial statements.

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Fuel Tech, Inc.

Condensed Statements of Stockholders’ Equity

(in thousands of dollars or shares, as appropriate)

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

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

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

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Six Months Ended
	June 30,
	2021			2020
Operating Activities
Net loss	$	(380	)	$	(5,111	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		319			329
Amortization		71			85
Loss on disposal of equipment		13			—
Provision for doubtful accounts, net of recoveries		23			(1,082	)
Stock-based compensation, net of forfeitures		40			150
Gain on forgiveness of Paycheck Protection Plan Loan		(1,556	)		—
Changes in operating assets and liabilities:
Accounts receivable		3,079			1,863
Inventories		(97	)		(78	)
Prepaid expenses, other current assets and other non-current assets		681			424
Accounts payable		(943	)		(531	)
Accrued liabilities and other non-current liabilities		(1,021	)		537
Net cash provided by (used in) operating activities		229			(3,414	)
Investing Activities
Purchases of equipment and patents		(237	)		(122	)
Net cash used in investing activities		(237	)		(122	)
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		(13	)		(258	)
Net increase (decrease) in cash, cash equivalents and restricted cash		23,956			(2,244	)
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)	$	36,562		$	11,257

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 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 six months ended June 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.

Table of Contents

2. Summary of Significant Accounting Policies

Restricted cash

Restricted cash as of June 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 $368 is comprised of $98 in current assets relating to existing standby letters of credit with varying maturity dates and expire no later than June 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:

	June 30,		June 30,
	2021		2020
Cash and cash equivalents	$	36,194	$	8,254
Restricted cash included in current assets		98		2,639
Restricted cash included in long-term assets		270