# Fuel Tech, Inc.: Form 10-Q for the period ended Jun 30, 2021

- Company: [Fuel Tech, Inc.](/companies/ftek.md) (CIK 846913)
- Form: 10-Q
- Filed: 2021-08-10
- Accepted by EDGAR: Aug 10, 2021, 16:22 ET
- Period: 2021-06-30
- Accession: 0001437749-21-019315
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/846913/000143774921019315/ftek20210630_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/846913/000143774921019315/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-04-01 to 2021-06-30 | $5.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2021-01-01 to 2021-06-30 | $10.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-04-01 to 2021-06-30 | $2.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2021-01-01 to 2021-06-30 | $5.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2021-04-01 to 2021-06-30 | $2.6m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2021-01-01 to 2021-06-30 | $4.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2021-04-01 to 2021-06-30 | $315.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2021-01-01 to 2021-06-30 | $730.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2021-04-01 to 2021-06-30 | $3.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2021-01-01 to 2021-06-30 | $6.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-04-01 to 2021-06-30 | −$689.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2021-01-01 to 2021-06-30 | −$1.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-04-01 to 2021-06-30 | $5.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2021-01-01 to 2021-06-30 | $9.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-04-01 to 2021-06-30 | $10.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2021-01-01 to 2021-06-30 | $10.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-04-01 to 2021-06-30 | −$778.0k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2021-01-01 to 2021-06-30 | −$380.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-04-01 to 2021-06-30 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2021-01-01 to 2021-06-30 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-04-01 to 2021-06-30 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2021-01-01 to 2021-06-30 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-04-01 to 2021-06-30 | 30,264,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2021-01-01 to 2021-06-30 | 28,895,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2021-01-01 to 2021-06-30 | $229.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2021-01-01 to 2021-06-30 | $237.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2021-06-30 | $36.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-06-30 | $41.4m | us-gaap:AssetsCurrent |
| Total assets | at 2021-06-30 | $50.1m | us-gaap:Assets |
| Current liabilities | at 2021-06-30 | $3.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-06-30 | $4.2m | us-gaap:Liabilities |
| Long-term debt | at 2021-06-30 | $0 | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2021-06-30 | $45.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 10,089 characters.

### Results of Operations

Revenues for the three and six month periods ending June 30, 2021 and 2020 were $5,218 and $4,401, $10,251 and $8,179, respectively, representing an increase of $817 or 19% and $2,072 or 25% versus the same period last year.

The Air Pollution Control (APC) technology segment generated revenues of $986 and $1,893 for the three and six month periods ending June 30, 2021, representing a decrease of $951 or 49% and $1,240 or 40% from the prior year amount of $1,937 and $3,133. The decrease in APC revenue was principally related to timing of project execution and the decline in backlog resulting from lower new APC orders announced during 2020 and continuing through the first six months of 2021.

Consolidated APC backlog at June 30, 2021 was $4,943 versus backlog at December 31, 2020 of $5,268. Our current backlog consists of U.S. domestic projects totaling $4,558 and international projects totaling $385.

The FUEL CHEM® technology segment generated revenues of $4,232 and $8,358 for the three and six months ended June 30, 2021, representing an increase of $1,768 or 72% and $3,312 or 66% from the prior year amounts of $2,464 and $5,046. The increase in FUEL CHEM revenue for the three months ended June 30, 2021 as compared to the same period of the prior year was 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 and six month periods ended June 30, 2021 and 2020 was 50% and 48%, and 14% and 26% respectively. Gross margin increased versus the comparable period due to the concentration of product mix that is heavily FUEL CHEM weighted. FUEL CHEM margins increased to 50% from 40% in the current quarter due to the increase in revenue volume. Gross margins for the three and six months ended June 30, 2021 and 2020 for the APC segment were 49% and 45%, and (20%) and 2% respectively. The increase in APC gross margin in the three and six months ended June 30, 2021 from the same period in 2020 is primarily due to the higher product mix of ancillary products and services and due to the non recurrence of $1,150 of 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.

Selling, general and administrative expenses (SG&A) were $2,957 and $6,057, and $2,755 and $6,641, respectively for the three and six month periods ended June 30, 2021 and 2020. For the three and six month period ended June 30, 2021 the increase of $202 is primarily the result of an increase in employee related costs of $335 and an increase in certain administrative overhead expenses of $40 offset by a reversal of a $499 charge to the allowance for doubtful accounts recorded in second quarter of 2020. For the six month periods ending June 30, 2021 and 2020, SG&A as a percentage of revenues decreased to 59% from 81%. The decrease versus the comparable period is primarily due to the increase in overall revenues in the current year.

Research and development expenses for the three and six-month periods ended June 30, 2021 were $315 and $730, and for the same periods in 2020 was $271 and $595 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 and six month periods ended June 30, 2021 and 2020 was $10 and $10, and $31 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 six months ended June 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.

### Liquidity and Sources of Capital

We have sustained losses from operations during the six month period ended June 30, 2021 totaling $1,846. Our cash provided by operations for this same period totaled $229.

Our cash balance as of June 30, 2021 totaled $36,562 (including restricted cash of $368), and our working capital totaled $37,892. 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.

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 June 30, 2021, the Company had outstanding standby letters of credit totaling approximately $351 under the BMO Harris agreement. As of June 30, 2021, the Company held $368 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.

### 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 six months ended June 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.

## Market risk

As filed, 661 characters.

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

Fuel Tech is also exposed to changes in interest rates primarily due to its debt facility (refer to Note 10 to the consolidated financial statements). A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not have a materially adverse effect on interest expense during the upcoming year ended December 31, 2021.

## Controls and procedures

As filed, 1,221 characters.

### 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.

## Risk factors

As filed, 128 characters.

The risk factors included in our Annual Report on Form 10-K for fiscal year ended December 31, 2020 have not materially changed.

Filed Aug 10, 2021.
Source: SEC EDGAR, the filing index for accession 0001437749-21-019315. Last ingested by Listed: Nov 3, 2026, 20:38 ET. No prices; not investment advice.