Fuel Tech, Inc.: Form 10-K for the period ended Dec 31, 2024

As used in this Annual Report on Form 10-K, the terms “we,” “us,” or “our,” refer to Fuel Tech, Inc. and our wholly owned subsidiaries.

GENERAL

We are a leading technology company engaged in the worldwide development, commercialization and application of sustainable state-of-the-art proprietary technologies for air pollution control, process optimization, water treatment and advanced engineering services. These technologies enable our customers to operate efficiently in a cost-effective and environmentally sustainable manner.

• The Company’s nitrogen oxide (NOx) reduction technologies include NOxOUT®, HERT™ High Energy Reagent Technology™, and Advanced Selective Non-Catalytic Reduction (SNCR) systems, ASCR® Advanced Selective Catalytic Reduction systems, and I-NOx® Integrated NOx Reduction Systems, which utilize various combinations of these systems, along with the UDI™ Urea Direct Injection system for Selective Catalytic Reduction (SCR) reagent supply, and the ULTRA® process for safe ammonia generation. These technologies have established Fuel Tech as a leader in NOx reduction, with installations on over 1,300 units worldwide.
• Fuel Tech’s Air Pollution Control (APC) technologies include particulate control with Electrostatic Precipitator (ESP) products and services with experience on units up to 700 MW. Flue Gas Conditioning (FGC) systems include treatment using sulfur trioxide (SO3) and ammonia-based conditioning agents to improve the performance of ESPs by modifying the properties of fly ash particles. Fuel Tech’s particulate control technologies have been installed on more than 125 units worldwide.
• Our FUEL CHEM technologies revolve around the unique application of chemical injection programs which improve the efficiency, reliability, fuel flexibility, boiler heat rate and environmental status of combustion units by controlling slagging, fouling, corrosion, opacity and acid plume, as well as the formation of sulfur trioxide, ammonium bisulfate, particulate matter, sulfur dioxide, and carbon dioxide. We use our proprietary TIFI® Targeted In-Furnace Injection™ processes to apply specialty chemical programs to units burning a wide variety of fuels including coal, heavy oil, biomass, and municipal waste. These TIFI® programs incorporate design, modeling, equipment, reagent, and service to provide complete customized on-site programs designed to improve plant operations and provide a return on investment in addition to helping meet emission regulatory requirements.
• Water treatment technologies include DGI® Dissolved Gas Infusion Systems which utilize a proprietary channel injector and a patented saturator to provide a competitive advantage over conventional water and wastewater treatment by infusing oxygen, carbon dioxide or other gases into water. An innovative alternative to current technologies among other applications, DGI® systems can 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 segments, including irrigation, treatment of natural waters, aquaculture, supply of oxygen for biological remediation, wastewater odor management, pH adjustment, re-carbonization, and alkalinity control, etc. DGI® technology benefits include improved treatment performance and reduced treatment time, and the potential for reduced energy consumption, along with lower installation and operating costs. The DGI® technology is currently in the demonstration phase and we expect additional revenue generating demonstrations and opportunities throughout 2025. Third party validation testing of the efficiency of transferring oxygen to a treatment basin has been completed and results have been published.

Many of our products and services rely heavily on our Computational Fluid Dynamics (CFD) and Chemical Kinetics Modeling (CKM) capabilities, which are enhanced by internally developed, high-end visualization software. These capabilities, coupled with our innovative technologies and multi-disciplined team approach, enable us to provide practical solutions to some of our customers' most challenging issues.

AIR POLLUTION CONTROL (APC)

Regulations and Markets: Domestic

The future growth of our APC technology segment is dependent upon the adoption and enforcement of environmental regulations in the United States (U.S.) and globally. In the U.S., federal and state laws regulating the emission of NOx are the primary driver in our APC technology segment. The principal regulatory drivers currently in effect are as follows:

Clean Air Act (CAA): The CAA requires the U.S. Environmental Protection Agency (EPA) to establish national ambient air quality standards (NAAQS) at levels that are protective of public health with an adequate margin of safety. The six pollutants specified include: Ozone, Particulate Matter, Nitrogen Dioxide, Sulfur Dioxide, Lead, and Carbon Monoxide. The NAAQS provisions require that states comply with ozone and particulate emissions standards. NOx emissions are a precursor to ozone formation and contribute to fine particulate emissions. Since 1990, EPA rules and programs have been established at the regional and federal level to help states in their mission to define and meet their State Implementation Plans for attainment. The NAAQS ground-level ozone standards that were issued in 1997 were made more stringent in 2008 and again in 2015. The EPA kept the 2020 NAAQS ozone standard at 70 parts per billion, the same limit as 2015. The ozone NAAQs will be reviewed again in 2025, with industry analysts expecting no change in emissions requirements.

In March 2023, EPA issued a Federal Implementation Plan (FIP) to address NOx emissions from upwind sources on downwind states. The issuance of the FIP was preceded by the EPA’s rejection of the proposed State Implementation Plans (SIPs) submitted by many of the upwind states pursuant to the CAA. The issuance of the FIP, which was made pursuant to the Good Neighbor provision of the CAA, was likely to require a significant number of upwind sources to provide additional NOx controls to help downwind states meet the 2020 ozone NAAQS requirements starting in 2024 for utility power units and starting in 2026 for industrial sources. This FIP is also referred to as the EPA Good Neighbor Rule. The US Supreme Court ruled in June 2024 to stay the Rule for a number of affected states after other states had been granted a stay by various Circuit Courts. EPA vacated the entire Good Neighbor Rule in November 2024 and publicly stated it would look to address concerns raised by the US Supreme Court and reissue the Good Neighbor Rule. Without the Good Neighbor Rule, downwind states are on record that they may challenge the upwind states in court as to not meeting the Good Neighbor obligations as defined in the CAA. The downwind states may not be able to meet their emission standards due to the contribution of NOx emissions from upwind states. Fuel Tech will monitor the potential impact on these upcoming NOx emission requirements.

Clean Air Visibility Rule (CAVR): The CAVR, also known as the Regional Haze rule, is part of the Clean Air Act and was finalized in 2005. Under CAVR, certain States are required to submit implementation plans to the EPA to comply with the Regional Haze requirements, and updates are required every five years. A new CAVR was issued in January 2017 which extended the review period to every ten years. NOx emissions contribute to ground level ozone which can contribute to localized haze, and many State Implementation Plans (SIP) are addressing NOx reduction as part of CAVR compliance. Environmental organizations have filed lawsuits against EPA for failure to approve SIPs for the second round of CAVR compliance which is required prior to 2028. The overall obligation of CAVR is to return the U.S. scenic areas to “active” visibility by 2064.

New Unit Permits: New gas fired units for both electricity generation and industrial use will require Best Available Control Technology (BACT) as a permit requirement. SCR technology is very often BACT for NOx, and these permit requirements generate new market opportunities.

Consent Decrees: Consent decree activity through the U.S. Department of Justice or EPA may require emission sources to meet individual requirements. Sources may also agree to specific air pollution requirements with states or environmental groups.

Regulations and Markets: International

We also sell air pollution control systems outside the U.S., specifically in Europe, South Africa, CentrSouth America, India (under a license agreement) and in the Pacific Rim. The demand for our technologies comes from specific governmental regulations in NOx and particulate matter emission limits which vary by country. We expect that there will be further opportunities to implement our technologies globally in 2025.

The European Union’s Best Available Reference Technology (BREF) emission guidelines continue to be implemented gradually starting from large utility boilers down to small industrial units. The last major update of the BREF guidelines reduced NOx limit values by up to 25% which in some cases required an upgrade of the first-generation NOx abatement systems. That has presented new opportunities for Fuel Tech, especially on biomass and waste incineration plants. New system opportunities are also being identified and followed in hydrogen production, chemical production and in petrochemical industries. European engineering companies are supplying power generation and flue gas treatment systems to industrial and utility customers globally. Middle Eastern countries, especially Saudi Arabia have become a major focus for these companies due to the local initiatives for reducing pollution and improving tourism. Fuel Tech’s NOx control technologies can be integrated into both new and existing combustion systems supplied into this market.

In South Africa, the state-owned utility Eskom and metallurgical companies are continuing with refurbishing aging ESPs and adding FGC technology to further improve ESP performance. Fuel Tech is well placed to compete for this business with our local partner Lesedi.

Brazil’s Sau Paulo state has announced stricter NOx emission requirements which will impact local cement, steel and glass production industries. Fuel Tech has established local partnerships to bring our SNCR, SCR and FGC technologies to this market.

The Indian government has prioritized sulfur oxide treatment over NOx abatement in the refurbishment of thermal power units. However, new biomass fired boilers are expected to be outfitted with SNCR technology. Particulate matter emission reductions continue to be an area of focus in the country and that presents an ongoing opportunity for Fuel Tech’s FGC technology. These technologies will be implemented through a collaboration with our local partner ISGEC.

Products

Our NOx reduction and particulate control technologies are installed worldwide on over 1,300 combustion units, including utility, industrial and municipal solid waste applications. Our products include customized NOx control systems and our proprietary ULTRA® technology, which converts urea-to-ammonia on site and provides safe reagent for use in SCR systems.

• SCR Systems and Services: Our SCR systems control NOx emissions from industrial and utility sources including boilers, incinerators, kilns, reformers and many other types of heat recovery equipment firing coal, natural gas, oil, and a variety of process gases and waste fuels. The SCR systems typically include urea or ammonia storage and delivery subsystems, reagent injection systems in the form of an Ammonia Injection Grid (AIG), catalyst reactor vessel and SCR catalyst. In addition, other related services, including start-ups, maintenance support and general consulting services for SCR systems, AIG design and tuning to help optimize catalyst performance, and catalyst management services to help optimize catalyst life, are now offered to customers around the world. We also specialize in CFD models, which simulate fluid and gas flow by generating a virtual replication of real-world geometry and operating inputs. We design flow corrective devices, such as turning vanes, ash screens, static mixers and our GSG™ Graduated Straightening Grid. Our SCR systems utilize urea or ammonia as the SCR catalyst reagent to achieve NOx reductions of up to 90% from industrial combustion sources.
• ULTRA® Technology: Our ULTRA® process is designed to convert urea to ammonia safely and economically for use as a reagent in the SCR process for NOx reduction. Recent local objections in the ammonia permitting process have raised concerns regarding the safety of ammonia shipment and storage in quantities sufficient to supply SCR. In addition, the Department of Homeland Security has characterized anhydrous ammonia as a Toxic Inhalation Hazard commodity. The safe conversion of urea to ammonia just prior to injection into the flue gas duct is particularly important near densely populated cities, major waterways, harbors or islands, or where the storage or transport of anhydrous or aqueous ammonia is a safety concern. UDI™ Urea Direct Injection systems utilize direct injection of urea reagent without the need for an ammonia injection grid.
• SNCR Systems: Our NOxOUT® and HERT™ SNCR processes use urea or ammonia reagent injected into a variety of combustion furnaces to reduce NOx by up to 25% - 50% for utilities and by potentially significantly greater amounts for industrial units. Capital costs ranging from $5 - $20/kW for utility boilers and with total annualized operating costs range from $1,000 - $2,000/ton of NOx removed. Advanced SNCR (ASNCR) systems are also available to improve performance and minimize reagent costs through in-furnace monitoring and an advanced control system.
• I-NOx® Systems: Our I-NOx® systems can include SNCR components combined with SCR technology. Together, these systems provide up to 90% NOx reduction at significantly lower capital and operating costs than conventional SCR systems while providing greater operational flexibility to plant operators. The capital costs for I-NOx® systems can range from $30 - $150/kW depending on boiler size and configuration, which is significantly less than that of conventional SCRs, which can cost $300/kW or more, while operating costs are competitive with those experienced by conventional SCR systems.
• ESP and FGC Processes and Services: ESP technologies for particulate control include ESP products and services including ESP Inspection Services, Performance Modeling, and Performance and Efficiency Upgrades, along with engineering capability for ESP retrofits. FGC systems include treatment using sulfur trioxide (SO3) and ammonia-based systems to improve the performance of ESPs by modifying the properties of fly ash particles. Our ULTRA® technology can provide the ammonia system feed requirements for FGC applications as a safe alternative to ammonia reagent-based systems. FGC systems offer a lower capital cost approach to improving ash particulate capture versus the alternative of installing larger ESPs or utilizing fabric filter technology to meet targeted emissions and opacity limits. Fuel Tech’s particulate control technologies have been installed on more than 125 units worldwide.

A market factor for the APC product line is the continued use of coal and natural gas and the growth of biomass for global electricity production. The growth of natural gas in the U.S. for industrial applications in support of traditional electricity generation, as well as the increased demand in support of the growth of data centers which require significant power generation capability, has increased the need for SCR technology since it often meets the definition of BACT and is required on new industrial units.

Sales of APC products were $11.2 million and $13.5 million for the years ended December 31, 2024 and 2023, respectively.

APC Competition

Competition with our products may be expected from companies supplying SCR Systems, SNCR systems, ESP retrofits and FGC technologies. In addition, we experience competition in the urea-to-ammonia conversion market.

The SCR process is an effective and proven method of control for removal of NOx up to 90%. SCR systems have a high capital cost of $300+/kW on retrofit coal applications. Companies including Babcock Power, Babcock & Wilcox (B&W) Company, CECO Environmental and Mitsubishi are active SCR system and reagent feed system providers.

The use of both urea and ammonia as the reagent for the SNCR process can reduce NOx by 30% - 70%, depending on a number of factors. Ammonia can be effective on incinerators and on Circulating Fluidized Bed combustion units, but has limited applicability for most utility boilers, where urea is dominant. The ammonia-based systems utilize either anhydrous or aqueous ammonia, both of which are hazardous substances. Competitors for ammonia based SNCR include CECO Environmental, B&W, and Yara, with CECO Environmental and B&W for urea based SNCR systems.

ESP retrofit competitors include B&W and Southern Environmental. FGC competition includes Chemithon, Inc.

Lastly, with respect to urea-to-ammonia conversion technologies, our controlled urea decomposition system competes with ammonia-based processes.

APC Backlog

Consolidated APC segment backlog at December 31, 2024 was $6.2 million versus backlog at December 31, 2023 of $7.5 million. The Company expects to recognize revenue on approximately $4.5 million of the backlog over the next 12 months with the remaining recognized thereafter.

FUEL CHEM

Product and Markets

The FUEL CHEM® technology segment revolves around the unique application of specialty chemicals to improve the efficiency, reliability and environmental status of plants operating in the electric utility, industrial, pulp and paper, waste-to-energy, university and district heating markets. FUEL CHEM programs are currently in place on combustion units in North America, Mexico, Europe, and the Pacific Rim, treating a wide variety of solid and liquid fuels, including coal, heavy oil, black liquor, biomass and municipal waste.

Central to the FUEL CHEM approach is the introduction of chemical reagents, such as magnesium hydroxide, to combustion units via in-body fuel application (pre-combustion) or via direct injection (post-combustion) utilizing our proprietary TIFI® technology. By attacking performance-hindering problems, such as slagging, fouling and corrosion, as well as the formation of sulfur trioxide (SO3), and ammonium bisulfate, our programs offer numerous operational, financial and environmental benefits to owners of boilers, furnaces and other combustion units.

A key market factor for this product line is the continued use of coal for global electricity production. In 2024, coal accounted for approximately 15% of all U.S. electricity generation and roughly 35% of global electricity generation. Major coal consumers include the U.S., China and India. Additional market dynamics include a growing, worldwide utilization of biomass for both steam and electrical production, and the continued use of heavy fuel oil for power generation. The principal markets for this product line are electric power plants burning coals with slag-forming constituents such as sodium, iron and high levels of sulfur. Sodium is typically found in the Powder River Basin coals of Wyoming and Montana. High sulfur content can give rise to unacceptable levels of SO3 formation especially in plants with SCR systems and flue gas desulphurization units (scrubbers). As coal units strive to compete in electricity supply markets, lower cost, higher slagging fuels can create more operational challenges which TIFI® Programs can help mitigate. The current Mexican government is utilizing more indigenous fuel sources for power generation because the international market for high sulfur fuel oil (what Mexico produces) has been significantly reduced with the adoption of the new International Maritime Organization restrictions. Fuel Tech’s TIFI® systems can help with SO3 mitigation at these oil-fired power generation units.

The combination of slagging coals and SO3-related issues, such as “blue plume” formation, air pre-heater fouling and corrosion, SCR fouling and the proclivity to suppress certain mercury removal processes, represents an attractive market potential for Fuel Tech.

Sales of the FUEL CHEM products were $13.9 million and $13.6 million, for the years ended December 31, 2024 and 2023, respectively.

Competition

Competition for our FUEL CHEM product line includes chemicals sold by specialty chemical companies, such as Imerys, Environmental Energy Services, Inc., and SUEZ Water Technologies. No technologically comparable substantive competition currently exists for our TIFI® technology, which is designed primarily for slag control and SO3 abatement, but there can be no assurance that such lack of substantive competition will continue.

INTELLECTUAL PROPERTY

We own 36 granted patents worldwide including 13 US patents and 23 non-US patents. We have five patent applications pending: including two in the U.S. and three in non-U.S. jurisdictions. These patents and applications cover some 41 inventions, 24 associated with our NOx reduction business, eight associated with the FUEL CHEM business, and nine associated with water treatment. Our granted patents have expiration dates ranging from November of 2028 to August of 2042.

Management believes that the protection provided by the numerous claims in the above referenced patents or patent applications is substantial and affords us a significant competitive advantage in our business. Accordingly, any significant reduction in the protection afforded by these patents or any significant development in competing technologies could have a material adverse effect on our business.

EMPLOYEES

At December 31, 2024, we had 72 employees, 67 in North America, and five in Europe. We enjoy good relations with our employees and are not a party to any labor management agreement.

HUMAN CAPITAL RESOURCES

We believe our employees are our most valuable asset and we endeavor to provide a safe, inclusive, high-performance culture where our people can thrive. As such, we continually work to recruit, develop, engage, train and protect our employees. The following are key human capital measures and objectives on which we currently focus.

Employee Total Compensation and Benefits Philosophy. We provide access to benefits and offer programs that support work-life balance and overall well-being, including financial, physical and mental health resources, such as those listed below.

Commitment to Safe Working Environment. All employees are required to understand and obey local laws, to report any suspected violations, and to act in accordance with our Code of Conduct.

Compensation Equity. We conduct comprehensive pay equity analyses encompassing all staff members and job levels at appropriate intervals. We believe we have made compensation adjustments to rectify compensation disparities. We have also implemented hiring and promotional practices to support our goal of ensuring offers to new employees or to employees being promoted internally are aligned with the market and equitable on an internal basis.

Talent Acquisition and Retention. We strive to attract, develop and retain high-performing talent, and we support and reward employee performance. Programs to strengthen our talent include an employee referral program, tuition reimbursement, continued training and development and succession planning. We prioritize employee engagement and transparency by implementing programs and processes to ensure our employees have opportunities to ask questions, voice concerns, and share feedback. This is accomplished in part by conducting employee satisfaction surveys as part of the annual review process, and quarterly town hall meetings. In 2024, our employee turnover rate was approximately 11%.

AVAILABLE INFORMATION

We are a fully integrated company using a suite of advanced technologies to provide boiler optimization, efficiency improvement and air pollution reduction and control solutions to utility and industrial customers worldwide. Originally incorporated in 1987 under the laws of the Netherlands Antilles as Fuel-Tech N.V., we were domesticated in the United States on September 30, 2006, and continue as a Delaware corporation with our corporate headquarters at 27601 Bella Vista Parkway, Warrenville, Illinois, 60555-1617. Fuel Tech maintains an Internet website at www.ftek.com (http://www.ftek.com). Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act are made available through our website as soon as reasonably practical after we electronically file or furnish the reports to the Securities and Exchange Commission. Our website also contains our Corporate Governance Guidelines and Code of Ethics and Business Conduct, as well as the charters of the Audit, Compensation, and Nominating and Corporate Governance committees of the Board of Directors. All of these documents are available in print without charge to stockholders who request them. Information on our website is not incorporated into this report.

The following is a discussion of the material risk factors; however, they may not be the only risks that we may face. The risks described below should not be considered a complete list of potential risks that we face, and additional risks and uncertainties not currently known to us or that we currently consider immaterial may also negatively impact our business. If any of these risks develop into actual or expected events, our business, financial condition, results of operations or cash flows could be materially and adversely affected, and, as a result, the trading price of our common stock could decline. You should carefully consider the risk factors described below, together with the other information included in this Annual Report on Form 10-K, before you decide to invest in our securities. Please read the cautionary notice regarding forward-looking statements under the heading “Forward-Looking Statements.”

RISKS RELATED TO OUR PRODUCTS AND PRICING

Our Product Portfolio Lacks Diversification

We have two broad technology segments that provide advanced engineering solutions to meet the pollution control, efficiency improvement, and operational optimization needs of coal, biomass and natural gas-fired energy-related facilities worldwide. They are as follows:

• The Air Pollution Control technology segment includes technologies to reduce NOx emissions in flue gas generated by the firing of natural gas, coal, or biomass from boilers, incinerators, furnaces and other stationary combustion sources. These include NOxOUT® and HERT™ SNCR systems, and SCR systems. Our SCR systems can also include AIG, and GSG™ systems to provide high NOx reductions at significantly lower capital and operating costs than conventional SCR systems. ULTRA® technology creates ammonia at a plant site using safe urea for use with any SCR application. ESP technologies make use of electrostatic precipitator products and services to reduce particulate matter. FGC 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 coal-fired furnaces and boilers through the addition of chemicals into the furnace using TIFI® Targeted In-Furnace Injection™ technology.

An adverse development in our advanced engineering solutions business as a result of competition, technological change, government regulation, customers converting to use natural gas or other fuels, or any other factor could have a significantly greater impact than if we maintained more diverse operations.

We Face Substantial Competition

Competition in the Air Pollution Control market comes from competitors utilizing their own NOx reduction processes, including SCR systems, SNCR systems, ammonia and urea-based delivery systems for SNCR and SCR, which do not infringe our patented or proprietary technologies. Indirect competition will also arise from business practices such as the purchase rather than the generation of electricity, fuel switching, closure or de-rating of units, and sale or trade of pollution credits and emission allowances. Utilization by customers of such processes or business practices or combinations thereof may adversely affect our pricing and participation in the NOx control market if customers elect to comply with regulations by methods other than the purchase of our Air Pollution Control products. See Item 1 “Products” and “APC Competition” in the Air Pollution Control segment overview.

Competition for our FUEL CHEM markets include chemicals sold by specialty chemical companies, such as Imerys, Environmental Energy Services, Inc., and SUEZ Water Technologies.

Our Dependence Upon Fixed-price Contracts Could Adversely Affect our Operating Results

The majority of our air pollution control projects are currently performed on a fixed-price basis. Under a fixed-price contract, we agree on the price that we will receive for the entire project, based upon a defined scope, which includes specific assumptions and project criteria. If our estimates of the costs to complete the project are below the actual costs that we incur, our margins will decrease, or we may incur a loss. The revenue, cost and gross profit realized on a fixed-price contract will often vary from the estimated amounts because of unforeseen conditions or changes in job conditions and variations in labor and equipment productivity over the term of the contract. While our fixed-price contracts are typically not individually material to our operating results, if we are unsuccessful in mitigating these risks, we may realize gross profits that are different from those originally estimated and incur reduced profitability or losses on projects. Depending on the size of a project, these variations from estimated contract performance could have a significant effect on our operating results. In general, turnkey contracts to be performed on a fixed-price basis involve an increased risk of significant variations. Generally, our contracts and projects vary in length, depending on the size and complexity of the project, project owner demands and other factors. The foregoing risks are exacerbated for projects with longer-term durations and the inherent difficulties in estimating costs and of the interrelationship of the integrated services to be provided under these contracts whereby unanticipated costs or delays in performing part of the contract can have compounding effects by increasing costs of performing other parts of the contract.

Customers May Cancel or Delay Projects

Customers may cancel or delay projects for reasons beyond our control. Our orders normally contain cancellation provisions that permit us to recover our costs, and, for most contracts, a portion of our anticipated profit in the event a customer cancels an order. If a customer elects to cancel an order, we may not realize the full amount of revenues included in our backlog. If projects are delayed, the timing of our revenues could be adversely affected and projects may remain in our backlog for extended periods of time. Revenue recognition occurs over long periods of time and is subject to unanticipated delays. If we receive relatively large orders in any given quarter, fluctuations in the levels of our quarterly backlog can result because the backlog in that quarter may reach levels that may not be sustained in subsequent quarters.

Our Operating Results May Be Adversely Affected by Product Pricing

We typically experience significant competition for both of our technology segments which may require us to lower our product prices in order to remain competitive and have a corresponding adverse impact on our realized gross margins and operating profitability. See the risk factor entitled “We Face Substantial Competition” above.

Our Customer Base Is Highly Concentrated

A small number of customers have historically accounted for a significant portion of our revenues. During 2024, our five largest customers accounted for approximately 49% of our net revenues, with our largest customer accounting for approximately 16% of our net revenues. There can be no assurance that all significant customers will continue to purchase our products in the same quantities that they have in the past. The loss of any one of our significant customers or a material reduction in sales to a significant customer could have a material adverse effect on our sales and results of operations.

RISKS RELATED TO OUR BUSINESS

Our Financial Performance May Vary Significantly From Period to Period

Our annual revenues and earnings have varied in the past and are likely to vary in the future. Our contracts generally stipulate customer specific delivery terms and may have contract cycles of a year or more, which subjects these contracts to many factors beyond our control. In addition, contracts that are significantly larger in size than our typical contracts tend to intensify their impact on our annual operating results. Furthermore, as a significant portion of our operating costs are fixed, an unanticipated decrease in our revenues, a delay or cancellation of orders in backlog, or a decrease in the demand for our products, may have a significant impact on our annual operating results. Therefore, our annual operating results may be subject to significant variations and our operating performance in one period may not be indicative of our future performance.

Energy Transition

The strategic priorities and financial performance of our businesses are subject to market and other dynamics related to decarbonization, which can pose risks in addition to opportunities for those businesses. Given the nature of our businesses and the industries we serve, we must anticipate and respond to market, technological, regulatory and other changes driven by broader trends related to decarbonization efforts in response to climate change. These changes present both risks and opportunities for our businesses, many of which provide products and services to customers in sectors like power generation that have historically been carbon intensive and will remain important to efforts globally to lower greenhouse gas emissions for decades to come. For example, the significant decreases in recent years in the levelized cost of energy for renewable sources of power generation (such as wind and solar), along with ongoing changes in government, investor, customer and consumer policies, commitments, preferences and considerations related to climate change, in some cases have adversely affected, and are expected to continue to affect, the demand for and the competitiveness of products and services related to carbonaceous fuel-based power generation, including sales of new air pollution control equipment and the utilization and servicing needs for existing power plants. Continued shifts toward greater penetration by renewables in both new capacity additions and the proportionate share of power generation, particularly depending on the pace and timeframe for such shifts across different markets globally, could have a material adverse effect on our business and our consolidated results.

Our Manufacturing Operations Are Dependent on Third-party Suppliers

Although we are not dependent on any one supplier, we are dependent on the ability of our third-party suppliers to supply our raw materials, as well as certain specific component parts. The third-party suppliers upon which we depend may default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud, loss of key personnel, or other reasons. We cannot assure that our third-party suppliers will dedicate sufficient resources to meet our scheduled delivery requirements or that our suppliers will have sufficient resources to satisfy our requirements during any period of sustained demand. Failure of suppliers to supply, or delays in supplying, our raw materials or certain components, or allocations in the supply of certain high demand raw components, for any reason, including, without limitation, disruptions in our suppliers’ business activities due to cybersecurity incidents, terrorist activity, public health crises, fires or other natural disasters could materially adversely affect our operations and ability to meet our own delivery schedules on a timely and competitive basis. Additionally, our third-party suppliers may provide us with raw materials or component parts that fail to meet our expectations or the expectations of our customers, which could subject us to product liability claims, other claims and litigation.

Our Use of Subcontractors Could Potentially Harm our Profitability and Business Reputation

Occasionally we act as a prime contractor in some of the engineered projects we undertake. In our capacity as lead provider and when acting as a prime contractor, we perform a portion of the work on our projects with our own resources and typically subcontract activities such as manufacturing and installation work. In our industry, the lead contractor is normally responsible for the performance of the entire contract, including subcontract work. Thus, when acting as a prime contractor, we are subject to risk associated with the failure of one or more subcontractors to perform as anticipated.

We employ subcontractors at various locations around the world to meet our customers’ needs in a timely manner, meet local content requirements and reduce costs. Subcontractors perform all of our manufacturing for customers. The use of subcontractors decreases our control over the performance of these functions and could result in project delays, escalated costs and substandard quality. These risks could adversely affect our profitability and business reputation. In addition, many of our competitors, who have greater financial resources and greater bargaining power than we have, use the same subcontractors that we use and could potentially influence our ability to hire these subcontractors. If we were to lose relationships with key subcontractors, our business could be adversely impacted.

Operational Execution

Operational challenges could have a material adverse effect on our business, reputation, financial position, results of operations and cash flows. The Company’s financial results depend on the successful execution of our businesses’ operating plans across all steps of the engineering and design, manufacture, installation and service lifecycle. We continue working to improve the operations and execution of our businesses and our ability to make the desired improvements will be a significant factor in our overall financial performance. Operational failures in any of our business segments that result in quality problems or potential product, environmental, health or safety risks, could have a material adverse effect on our business, reputation, financial position and results of operations. In addition, for some large-scale projects we may be required by our customer to take on the full scope of engineering, procurement, construction or other services. These types of projects often pose unique risks related to their location, scale, complexity, duration and pricing or payment structure. Performance issues or schedule delays can arise due to inadequate technical expertise, unanticipated project modifications, developments at project sites, environmental, health and safety issues, execution by or coordination with suppliers, subcontractors or consortium partners, financial difficulties of our customers or significant partners or compliance with government regulations, and these can lead to cost overruns, contractual penalties, liquidated damages and other adverse consequences. Operational, quality or other issues at large projects, or across our projects portfolio more broadly, can adversely affect our business, reputation or results of operations.

We Rely on Several Key Employees Whose Absence or Loss Could Disrupt our Operations or Be Adverse to our Business

We are highly dependent on the experience of our management in the continuing development of our operations. The loss of the services of certain of these individuals would have a material adverse effect on our business. Although we have employment and non-competition agreements with certain of our key employees, as a practical matter, those agreements will not assure the retention of our employees, and we may not be able to enforce all of the provisions in any employment or non-competition agreement. Our future success will depend in part on our ability to attract and retain qualified personnel to manage our development and future growth. We cannot guarantee that we will be successful in attracting and retaining such personnel. Our failure to recruit additional key personnel could have a material adverse effect on our financial condition, results of operations and cash flows.

Increasing Costs for Manufactured Components May Adversely Affect our Profitability

Our products utilize a variety of manufactured components, including metallurgical catalysts, storage tanks, pumps and fans. The current economic environment has resulted, and may continue to result, in price volatility and inflation of these costs. Further increases in the price of these items could further materially increase our operating costs and materially adversely affect our profit margins if we are unable to successfully pass such costs on to our customers.

Cybersecurity

Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted computer crime pose a risk to our systems, networks, products, solutions, services and data. Increased global cybersecurity vulnerabilities, threats, computer viruses and more sophisticated and targeted cyber-related attacks such as ransomware, as well as cybersecurity failures resulting from human error and technological errors, pose a risk to the security of Fuel Tech and its customers', partners', suppliers' and third-party service providers' infrastructure, products, systems and networks and the confidentiality, availability and integrity of Fuel Tech’s and its customers' data. As the perpetrators of such attacks become more capable, and as critical infrastructure is increasingly becoming digitized, the risks in this area continue to grow. There can be no assurance that our efforts to mitigate cybersecurity risks by employing a number of measures, including employee training, monitoring and testing, vulnerability testing and maintenance of protective systems and contingency plans, will be sufficient to prevent, detect and limit the impact of cyber-related attacks, and we remain vulnerable to known or unknown threats. A significant cyber-related attack could result in other negative consequences, including damage to our reputation or competitiveness, remediation, increased digital infrastructure or other costs that are not covered by insurance, litigation or regulatory action.

We May Not Be Able to Successfully Protect our Patents and Proprietary Rights

We hold licenses to or own a number of patents for our products and processes. In addition, we also have numerous patent applications pending both in the U.S. and abroad. There can be no assurance that any of our pending patent applications will be granted or that our outstanding patents will not be challenged, overturned or otherwise circumvented by competitors. In foreign markets, the absence of harmonized patent laws makes it more difficult to ensure consistent respect for our patent rights in emerging markets. In addition, certain critical technical information relating to our products which is not patented is held as trade secret, and protected by trade secret laws and restrictions on disclosure contained in our confidentiality and licensing agreements. There can be no assurance that such protections will prove adequate or that we will have adequate remedies against contractual counterparties for disclosure of our trade secrets or other violations of our intellectual property rights. See Item 1 above under the caption “Intellectual Property.”

Our Results May Be Affected By Foreign Operations

We currently have foreign operations predominantly in Europe with our office located in Gallarate, Italy. The future business opportunities in this market are dependent on the continued implementation and enforcement of regulatory policies that will benefit our technologies, the acceptance of our engineering solutions in such markets, the ability of potential customers to utilize our technologies on a competitive, cost-effective basis, and our ability to protect and enforce our intellectual property rights.

We May Not Be Able to Purchase Raw Materials on Commercially Advantageous Terms

Our FUEL CHEM technology segment is dependent, in part, upon a supply of magnesium hydroxide. Any adverse changes in the availability of this chemical will likely have an adverse impact on ongoing operation of our FUEL CHEM programs. On March 4, 2009, we entered into a Restated Product Supply Agreement (PSA) with Martin Marietta Magnesia Specialties, LLC (MMMS) in order to assure the continuance of a stable supply from MMMS of magnesium hydroxide products for our requirements in the U.S. and Canada. The term of the PSA expires on December 31, 2025. Pursuant to the PSA, MMMS supplies us with magnesium hydroxide products manufactured pursuant to our specifications and we have agreed to purchase from MMMS, and MMMS has agreed to supply, 100% of our requirements for such magnesium hydroxide products for our customers who purchase such products for delivery in the U.S. and Canada. There can be no assurance that we will be able to obtain a stable source of magnesium hydroxide in markets outside the U.S.

RISKS RELATED TO OUR INDUSTRY

Demand for Our APC and FUEL CHEM Products is Affected by External Market Factors

Reduced coal-fired electricity demand across the U.S. has led to production declines. Contributing factors to this decline in coal-fired generation were: 1) lower natural gas prices which allowed utility operators to increase the amount of power generated from natural gas plants, 2) increased cost of environmental compliance with current environmental regulations, 3) constrained funding for capital projects, and 4) the increased production of electricity from renewable sources, such as wind and solar.

Our Business Is Dependent on Continuing Air Pollution Control Regulations and Enforcement

Our business is significantly impacted by and dependent upon the regulatory environment surrounding the electricity generation market. Our business will be adversely impacted to the extent that regulations are repealed or amended to significantly reduce the level of required NOx or particulate matter reduction, or to the extent that regulatory authorities delay or otherwise minimize enforcement of existing laws. Additionally, long-term changes in environmental regulation that threaten or preclude the use of coal or other fossil fuels as a primary fuel source for electricity production which result in the reduction or closure of a significant number of fossil fuel-fired power plants may adversely affect our business, financial condition and results of operations. See Item 1 above under the caption “Regulations and Markets” in the Air Pollution Control segment overview.

GENERAL RISK FACTORS

Geopolitical and Unexpected Events May Impact New or Existing Projects and Prices and Availability of Raw Materials, Energy and Other Materials.

These events may also impact energy and regulatory policy nationally or regionally for the impacted regions. Such disruptions could have a material adverse effect on our business and financial results.

Risk Assessment and Strategy

Fuel Tech regularly evaluates cybersecurity risk from computer viruses and more sophisticated and targeted cyber-related attacks such as ransomware, as well as cybersecurity failures resulting from human error and technological errors. Such risks are reviewed by our Information Technology Steering Committee on a quarterly basis, or more frequently if deemed appropriate.

Our overall strategy in combatting known cybersecurity risks includes a variety of individual tactics, including:

• the use of antivirus software, virtual private networks, email security, as well as other software to prevent and detect data intrusions.
• the deployment of updates and patches as they are available and maintaining the current versions of major software to reduce the exposure to vulnerabilities.
• the use of third-party service to conduct mandatory online training for all employees regarding identifying and avoiding cyber-security risks.
• the review of the security procedures used by third parties that may host or otherwise have access to Fuel Tech’s data.
• the deployment of third-party cyber-security experts to perform penetration testing on our internal and external networks and systems in an effort to identify potential vulnerabilities.
• if necessary, the use of third-party security experts if and when an incident is detected

We are not aware of having experienced any material cybersecurity incidents. We are not aware of any existent cybersecurity threats that would materially affect, or are reasonably likely to materially affect, our business strategy, results of operations or financial conditions. For more information, please see “Cybersecurity” under Item 1A “Risk Factors” above.

Management Oversight

Day-to day management of cybersecurity threats is conducted by our Information Technology department which is charged with identifying and reporting threats to senior management. On a quarterly basis, cybersecurity is reviewed by our Information Technology Steering Committee, which is comprised of our Chief Executive Officer, Chief Financial Officer, General Counsel and Head of Information Technology.

Board Oversight

The Audit Committee of our Board of Directors, which is composed of all non-employee directors, is responsible for oversight of management’s efforts to eliminate cybersecurity risks.

We own an office building in Warrenville, Illinois, which has served as our corporate headquarters since June 23, 2008. This facility, with approximately 40,000 square feet of office space, is sufficient to meet our requirements for the foreseeable future.

We also operate from leased office facilities and we do not segregate any of these leased facilities by operating business segment. The terms of the Company's primary lease arrangements as of December 31, 2024 are as follows:

• The Gallarate, Italy building lease, for approximately 1,335 square feet, runs through April 30, 2031. This facility serves as the operating headquarters for our European operations.
• The Aurora, IL warehouse lease, for approximately 11,000 square feet, runs through March 31, 2031. This facility serves as an outside warehouse facility.

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.

See Note 9 "Commitments and Contingencies" in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Management’s discussion and analysis (“MD&A”) should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this Annual Report on Form 10-K, which include additional information about our accounting policies, practices and the transactions underlying our financial results. The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes including various claims and contingencies related to lawsuits, taxes, environmental and other matters arising during the normal course of business. We apply our best judgment, our knowledge of existing facts and circumstances and actions that we may undertake in the future in determining the estimates that affect our consolidated financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effects cannot be determined with precision, actual results may differ from these estimates.

Overview

In 2024, the Company continued to successfully execute on existing orders. We continue to invest in development of new technologies to expand our product offerings into the water and waste-water treatment market. Our capital resources are sufficient for our immediate and longer-term needs, and we continue to enjoy the services and support of a dedicated workforce. We expect that our cost control efforts will maintain our existing levels of operating expenditures and the diminishing effects of the pandemic should lead to an improved market outlook.

Key Operating Factors

Sales growth for our two reportable business segments is dependent upon the continued utilization of carbon-based fuels, such as natural gas and coal, for the generation of electric power. For our APC market segment, sales are driven primarily by our customers need to comply with federal, state and local regulatory mandates for the reduction or control of emissions of NOx. For our FUEL CHEM market segment, sales are dependent primarily upon our customers usage of our chemical technologies in order to mitigate slagging and fouling on coal or oil based combustion units in order to enjoy longer run times without the necessity of taking the combustion unit off line for cleaning.

We believe continued demand for our products will be led by the increased demand for electricity in emerging markets and new industries that are highly dependent upon electric power, such as the mega-computers required in order to power artificial intelligence and cryptocurrencies. While the market will continue to shift towards alternate forms of power generation continues, we anticipate natural gas and coal will remain significant sources of electricity generation in the future.

Our FUEL CHEM segment showed improved performance in 2024, experiencing an increase in segment revenues compared to 2023. Revenue growth was driven by the return of previously dormant customers as well as a new commercial program which was added following a successful site demonstration.

Our APC business experienced a decline in revenues and segment operating profits in 2024 compared to 2023 primarily due to customer-driven project delays and project timing. Despite this, we are encouraged by the pace and depth of our business development activities, which reflect an increased focus on global emissions protocols across a variety of fuel sources. Our Consolidated APC backlog at year end was $6,175.

Market Pressures

Our senior management team monitors and manages our ability to operate effectively as the result of market pressures. In particular, we are currently experiencing inflationary pressures for certain materials and labor, and long lead times for equipment components embodied in our products such as pumps, fans and catalysts. We continue to monitor the activities of our existing and alternate suppliers and have taken other mitigating actions to mitigate supply disruptions; however, we cannot guarantee that we can continue to do so in the future. In this event, our business, results and financial condition could be adversely affected.

Background

We have two broad technology segments that provide advanced engineered solutions to meet the pollution control, efficiency improvement and operational optimization needs of energy-related facilities worldwide. They are as follows:

Air Pollution Control Technologies

The Air Pollution Control technology segment includes technologies to reduce NOx emissions in flue gas generated by the firing of natural gas, biomass or coal from boilers, incinerators, furnaces and other stationary combustion sources. These include SCR systems and NOxOUT and HERT™ SNCR systems. Our SCR systems can also include AIG, and GSG™ systems to provide high NOx reductions at significantly lower capital and operating costs than conventional SCR systems. ULTRA® technology creates ammonia at a plant site using safe urea for use with any SCR application. ESP technologies make use of electrostatic precipitator products and services to reduce particulate matter. FGC 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. We distribute our products through our direct sales force and third-party sales agents.

FUEL CHEM Technologies

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 coal-fired furnaces and boilers through the addition of chemicals into the furnace using TIFI® Targeted In-Furnace Injection™ technology. Fuel Tech sells its FUEL CHEM program through its direct sales force and agents to industrial and utility power-generation facilities. FUEL CHEM programs have been installed on combustion units in North America, Europe, and the Pacific Rim, treating a wide variety of solid and liquid fuels, including coal, heavy oil, biomass and municipal waste. The FUEL CHEM program improves the efficiency, reliability and environmental status of plants operating in the electric utility, industrial, pulp and paper, waste-to-energy, university and district heating markets and offers numerous operational, financial and environmental benefits to owners of boilers, furnaces and other combustion units.

The key market dynamic for both technology segments is the continued use of fossil fuels, especially coal, as the principal fuel source for global electricity production. In 2024, coal accounted for approximately 15% of all U.S. electricity generation and roughly 35% of global electricity generation. Major coal consumers include China, the U.S. and India.

Critical Accounting Policies and Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (GAAP), which require us to make estimates and assumptions. We believe that certain accounting policies (see Note 1 to the consolidated financial statements) involve a higher degree of judgment, estimates and assumptions and are deemed critical. We routinely discuss our critical accounting policies with the Audit Committee of the Board of Directors.

Revenue Recognition: Air Pollution Control Technology

Fuel Tech’s APC contracts are typically six to eighteen months in length. A typical contract will have three or four critical operational measurements that, when achieved, serve as the basis for us to invoice the customer via progress billings. At a minimum, these measurements will include the generation of engineering drawings, the shipment of equipment and the completion of a system performance test.

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

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

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

Fuel Tech has installed over 1,300 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.

As of December 31, 2024 and 2023, we had no construction contracts in progress that were identified as a loss contract.

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the consolidated balance sheets. In our Air Pollution Control technology segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. These assets are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. At December 31, 2024, 2023, and 2022 contract assets for APC technology projects were approximately $2,075, $2,285, and $3,082, respectively, and are included in accounts receivable on the consolidated balance sheets.

However, the Company will periodically bill in advance of costs incurred before revenue is recognized, resulting in contract liabilities. These liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Contract liabilities were $721, $1,279, and $372 at December 31, 2024, 2023, and 2022, respectively, and are included in other accrued liabilities on the consolidated balance sheets.

Assessment of Potential Impairment of Goodwill

Goodwill is not amortized but rather is reviewed annually as of the first day of the fourth quarter, or more frequently if indicators arise, for impairment. Such indicators include a decline in expected cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, a decrease in our market capitalization to an amount less than the carrying value of our assets, or slower growth rates, among others. We do not have any indefinite-lived intangible assets other than goodwill.

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. We have two reporting units: the FUEL CHEM segment and the APC technology segment. Goodwill is only related to the FUEL CHEM segment.

Our evaluation of goodwill impairment involves first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We may bypass this qualitative assessment, or determine that based on our qualitative assessment considering the totality of events and circumstances including macroeconomic factors, industry and market considerations, current and projected financial performance, a sustained decrease in our share price, or other factors, that additional impairment analysis is necessary. This additional analysis involves comparing the current fair value of a reporting unit to its carrying value. Fuel Tech uses a discounted cash flow (DCF) model to determine the current fair value of its FUEL CHEM reporting unit as this methodology was deemed to best quantify the present values of our expected future cash flows and yield a fair value that should be in line with the aggregate market value placed on the outstanding common stock as reflected by the current stock price multiplied by the outstanding shares of common stock. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce and working capital changes. Events outside our control, specifically market conditions that impact revenue growth assumptions, could significantly impact the fair value calculated. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. However, actual fair values that could be realized in an actual transaction may differ from those used to evaluate the impairment of goodwill.

The application of our DCF model in estimating the fair value of each reporting segment is based on the ‘net asset’ approach to business valuation. In using this approach for each reportable segment, we forecast segment revenues and expenses out to perpetuity and then discount the resulting cash flows to their present value using an appropriate discount rate. The forecast considers, among other items, the current and expected business environment, expected changes in the fixed and variable cost structure as the business grows, and a revenue growth rate that we feel is both achievable and sustainable. The discount rate used is composed of a number of identifiable risk factors, including equity risk, company size, and certain company-specific risk factors such as our debt-to-equity ratio, among other factors, that when added together, results in a total return that a prudent investor would demand for an investment in our Company. In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, we would record an impairment charge for the amount by which the carrying value exceeds the estimated fair value of the reporting unit.

The Company utilizes Accounting Standards Update (ASU) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment for the annual goodwill impairment test.

Fuel Tech performed its annual goodwill impairment analysis for its FUEL CHEM reporting unit as of October 1, 2024 and determined that no impairment of goodwill existed within the FUEL CHEM technology segment.

Impairment of Long-Lived Assets

Under the guidance set forth in Accounting Standards Update (ASU) 2014-08, Property, Plant and Equipment (Topic 360), long-lived assets, including property and equipment and intangible assets, are reviewed for impairment when events and circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable. If impairment indicators exist, we perform a more detailed analysis and an impairment loss is recognized when either estimated future undiscounted cash flows expected to result from the use of the asset (or asset group) and its eventual disposition are less than the carrying amount or the determined fair value is less than the carrying amount. This process of analyzing impairment involves examining the operating condition of individual assets (or asset group) and estimating a fair value based upon current condition, relevant market factors and the remaining estimated operational life compared to the asset’s remaining depreciable life. Quoted market prices and other valuation techniques are used to determine expected fair value. We performed a detailed analysis of potential long-lived asset impairment during the fourth quarter of 2024 and determined no impairment exists. There was no impairment recorded during 2024.

A significant portion of our property and equipment is comprised of assets deployed at customer locations relating to our FUEL CHEM technology asset group, and due to the shorter-term duration over which this equipment is depreciated, the likelihood of impairment is mitigated. The discontinuation of a FUEL CHEM program at a customer site would most likely result in the re-deployment of all or most of the affected assets to another customer location rather than an impairment.

Valuation Allowance for Deferred Income Taxes

Deferred tax assets represent deductible temporary differences and net operating loss and tax credit carryforwards. A valuation allowance is recognized if it is more likely than not that some portion of the deferred tax asset will not be realized. At the end of each reporting period, management reviews the realizability of the deferred tax assets. As part of this review, we consider if there are taxable temporary differences that could generate taxable income in the future, if there is the ability to carry back the net operating losses or credits, if there is a projection of future taxable income, and if there are any tax planning strategies that can be readily implemented. As required by ASC 740 "Income Taxes", a valuation allowance must be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. This assessment resulted in a valuation allowance on our deferred tax assets of $13,697 and $15,699 at December 31, 2024 and 2023, respectively.

Stock-Based Compensation

We recognize compensation expense for employee equity awards ratably over the requisite service period of the award, adjusted for estimated forfeitures.

We utilize the Black-Scholes option-pricing model to estimate the fair value of stock option awards. Determining the fair value of stock options using the Black-Scholes model requires judgment, including estimates for (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 our 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.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides guidance for additional disclosures around the tax rate reconciliation and other tax disclosures. The standard will become effective for the annual reporting period beginning on January 1, 2025 for Fuel Tech. Application of the amendments should be applied prospectively but retrospective application is permitted. The Company is reviewing the impact of this new pronouncement and expects to incorporate the additional disclosures prospectively in the Tax note when the ASU is adopted.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public business entities to disclose in the notes to their financial statements disaggregated information about certain costs and expenses in both annual and interim filings. The standard will become effective for the annual reporting period beginning January 1, 2027 for Fuel Tech. The Company is reviewing the impact of this new pronouncement and expects to incorporate the additional disclosures in the relevant footnotes when the ASU is adopted.

2024 versus 2023

Highlights for the year ended December 31, 2024, compared to 2023:

Revenues

Revenues for the years ended December 31, 2024 and 2023 were $25,133 and $27,081, respectively. The year-over-year decrease of $1,948 or 7%, was driven by the decrease in revenue in our APC technology segment in our U.S. operations, partially offset by an increase in our FUEL CHEM technology segment revenues. Our U.S. revenues decreased by $3,595, or 17%, from $21,397 in 2023 to $17,802 in 2024, and our international revenues increased by $1,647, or 29%, from $5,684 in 2023 to $7,331 in 2024.

Revenues for the APC technology segment were $11,242 for the year ended December 31, 2024, a decrease of $2,241, or 17%, versus fiscal 2023. The decrease in APC revenue for the twelve-month period ending December 31, 2024 in comparison to the prior year amount was principally related to the timing of project execution and customer driven delays. Consolidated APC backlog was $6,175 and $7,458 at December 31, 2024 and 2023, respectively. Our backlog at December 31, 2024 consists of U.S. domestic projects totaling $1,877 and international projects totaling $4,298.

Revenues for the FUEL CHEM technology segment for the year ended December 31, 2024 were $13,891, an increase of $293, or 2%, versus fiscal 2023. The increase in FUEL CHEM revenue was due primarily to renewed orders from previously dormant customers as well as the addition of a new customer following a successful site demonstration. We remain focused on attracting new customers in our FUEL CHEM business for both coal and non-coal applications. Our ability to attract new coal customers continues to be affected by the electric demand market, fuel switching as a result of low natural gas prices, and growth of renewable wind and solar power.

Cost of sales and gross margin

Consolidated cost of sales for the years ended December 31, 2024 and 2023 was $14,510 and $15,425, respectively. Consolidated gross margin percentages for the years ended December 31, 2024 and 2023 were 42% and 43%, respectively. The gross margins for the APC technology segment decreased to 37% in 2024 from 38% in 2023. The overall decrease in gross margin in the APC technology segment is primarily due to product and project mix. Gross margin percentage for the FUEL CHEM technology segment decreased to 46% from 48% for the years ended December 31, 2024 and 2023. This decrease is primarily due to demonstration costs and other administrative costs associated with new and previously dormant accounts.

Selling, general and administrative

Selling, general and administrative expenses for the years ended December 31, 2024 and 2023 were $13,761 and $12,803, respectively. The increase of $958, or 7%, is primarily attributed to the following:

• An increase in employee related costs of $542
• An increase in professional services and other expenses of $251
• An increase in depreciation expense of $122
• An increase in office and administrative costs relating to our foreign subsidiaries of $43

Depreciation and Amortization

Depreciation and amortization are calculated using the straight-line method and included in selling, general and administrative expense. For the years ended December 31, 2024 and 2023, the Company recorded depreciation of $403 and $281 and amortization of $57 and $61, respectively.

Research and development

Research and development expenses were $1,564 and $1,511 for the years ended December 31, 2024 and 2023, 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. Expenditures were mainly attributed to water treatment technologies and more specifically, our DGI® Dissolved Gas Infusion Systems, an innovative alternative to current gas transfer and chemical replacement technologies. This infusion process has a variety of applications in the water and wastewater segments, including irrigation, treatment of natural waters, supply of oxygen for biological remediation, wastewater odor management, pH adjustment, re-carbonization, etc. DGI® technology benefits include improved treatment performance and reduced treatment time, and the potential for reduced energy consumption, along with lower installation and operating costs. Third party validation testing of the efficiency of transferring oxygen to a treatment basin has been completed and results have been published.

Interest income

Interest income was $1,251 for the year ended December 31, 2024 compared to $1,300 for the same period in 2023. Interest income decreased due to a decrease in the balance held in money market funds.

Other income (expense), net

Other income, net was $1,585 for the year ended December 31, 2024 compared to Other expense, net of $90 for the same period in 2023. The increase of $1,675 is due primarily to the employee retention credit.

Income tax expense

For the year ended December 31, 2024, we recorded an income tax expense of $77 on pre-tax loss of $1,866. Our effective tax rates were (2.9)% and (4.8)% for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2023, we recorded an income tax expense of $69 on pre-tax income of $1,469. The effective tax rate for the year ended December 31, 2024 differed from the federal statutory rate of 21% as a result of establishing a deferred tax liability associated with a certain book-to-tax timing difference.

Liquidity and Sources of Capital

At December 31, 2024, we had cash and cash equivalents of $8,510 (which includes $631 of cash equivalents) and working capital of $23,764 versus cash and cash equivalents of $17,578 (which includes $5,083 of cash equivalents) and working capital of $32,633 at December 31, 2023. We have no outstanding debt other than our outstanding letters of credit, under our Investment Collateral Security agreement with BMO Harris Bank, N.A. (the Investment Collateral Security agreement), which does not have any financial covenants. We expect to continue operating under this arrangement for the foreseeable future.

Operating activities used cash of $3,433 for the year ended December 31, 2024, primarily due to the employee retention credit receivable of $1,677, an increase in accounts receivable balances of $1,127, a decrease in accrued liabilities and other non-current liabilities of $312, and adjustments for non-cash items from our net loss from continuing operations for non-cash interest income on held-to-maturity securities of $132, partially offset by a decrease in prepaid expenses, other current assets, and other non-current assets of $292, an increase in accounts payable balances of $519, a decrease in inventory balances of $41, and adjustments for non-cash items from our net loss from continuing operations for depreciation and amortization of $460 and stock compensation expense of $446.

Operating activities provided cash of $696 for the year ended December 31, 2023, primarily due to a decrease in accounts receivable balances of $1,039 and an increase in accrued expenses and other non-current liabilities of $1,239, partially offset by an increase in accounts payable balances of $295 and adjustments for non-cash items from our net loss from continuing operations for interest income on held-to-maturity securities of $433, depreciation and amortization of $342 and stock compensation expense of $389.

Investing activities used cash of $5,443 and $6,444 for the years ended December 31, 2024 and 2023, respectively. Investing activities for the years ended December 31, 2024 and 2023 primarily consisted of purchases of HTM debt securities as investments of $18,060 and $14,026, respectively, and the purchases of equipment and patent related costs of $378 and $418, respectively. Investing activities for the years ended December 31, 2024 and 2023 were partially funded by the maturities of debt securities of $12,995 and $8,000, respectively.

Financing activities used cash of $95 and provided cash of $42 for the years ended December 31, 2024 and 2023. In 2024, the financing activity was related to taxes paid on behalf of equity award participants on the vesting of restricted stock units. In 2023, the financing activity was related to proceeds from the exercise of stock options.

We continue to monitor our liquidity needs and in response to our recent periods of net losses have taken measures to reduce expenses and restructure operations which we feel are necessary to ensure we maintain sufficient working capital and liquidity to operate the business and invest in our future. We have evaluated our ongoing business needs and considered the cash requirements of our base business of Air Pollution Control and FUEL CHEM. This evaluation included consideration of customer and revenue trends in our APC and FUEL CHEM business segments, current operating structure and expenditure levels, and other research and development initiatives. Based on this analysis, management believes that currently we have sufficient cash and working capital to operate our base APC and FUEL CHEM businesses. We believe our current cash position and net cash flows expected to be generated from operations are adequate to fund planned operations of the Company for the next 12 months.

We expect capital expenditures in 2025 for the DGI® business, maintenance of field equipment, computer and systems, and general office equipment. We expect to fund our capital expenditures with cash from operations or cash on hand.

The Company's investment policy provides for $20,000 in funds at BMO Harris Bank (BMO Harris) to be invested in held-to-maturity debt securities of United States (US) Treasuries, including Notes, Bonds, and Bills, or US Government Agency securities. The funds are held in money market funds until they are invested in those securities. The investments are structured to create a maturity “ladder” where the proceeds from maturities are re-invested to maintain a balance of short- and long-term investments based on the expected business needs. Maturities are between three and thirty-six months.

The Company's Investment Collateral Security agreement with BMO Harris is used for the sole purpose of issuing standby letters of credit and requires us to pledge our investments as collateral for 150% of the aggregate face amount of outstanding standby letters of credit. The Company pays 250 basis points on the face values of outstanding letters of credit. There are no financial covenants set forth in the Investment Collateral Security agreement. At December 31, 2024, the Company had outstanding standby letters of credit totaling approximately $1,860 under the Investment Collateral Security agreement. At December 31, 2024, the investments held as collateral totaled $2,790. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments. The outstanding standby letters of credit mature as follows:

Our 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 or into foreign currency option contracts to manage this risk due to the nature of the transactions involved.

We are also exposed to changes in interest rates primarily due to our debt arrangement (refer to Note 11 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 year ended December 31, 2024.

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Change in Internal Controls

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

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. As required by Rule 13a-15(c) under the Exchange Act, our management has carried out an evaluation, with the participation of the Chief Executive Officer and Principal Financial Officer, of the effectiveness of its internal control over financial reporting as of the end of the last fiscal year. The framework on which such evaluation was based is contained in the report entitled “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Report”) in 2013.

Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on its assessment, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2024, based on criteria in “Internal Control - Integrated Framework” issued by the COSO in 2013.