FTEK 10-K & 10-Q changes, risk factors and insider trading

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.

A small number of customers have historically accounted for a significant portion of our revenues. During 2024,2025, our five largest customers accounted for approximately 49%58% of our net revenues, with our largest customer accounting for approximately 16%21% of our net revenues. These five customers contributed revenues to the FUEL CHEM business segment during 2025. 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.

We hold licenses to or own a number of patents for our products and processes. In addition, weWe 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 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 the 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 expiresis onrenegotiated December 31, 2025.annually. 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.

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

In 2024,2025, thewe Companyachieved continuedrevenue growth of over $1.5M compared to 2024. Throughout 2025, we maintained our momentum by successfully execute onfulfilling existing orders.orders Wewhile continueinvesting in R&D to invest in development ofbring new technologies to expand our product offerings into the water and waste-waterwastewater treatment market.markets. Our capitalfinancial resourcesposition areremains sufficientrobust, providing ample liquidity for ourboth immediate and longer-term needs,operations and welong-term continuegrowth. toSupported enjoy the services and support ofby a dedicated workforce.workforce Weand expectdisciplined thatcost management, we are well positioned to leverage new business opportunities and enhance our cost control efforts will maintain our existing levels of operating expenditures and the diminishing effects of the pandemic should lead to an improvedoverall market outlook.standing.

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 basedfired 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,generation, we anticipate natural gas and coal will remain significant sources of electricity generation in the future.

Our FUEL CHEM segment showed improved performance in 2024,2025, experiencing an increase in segment revenues compared to 2023.2024. Revenue growth was driven by theincreased returnregularity of previouslyorders dormantfrom legacy customers as well as a full year of revenue from a new commercial program which was added in the second half of 2024 following a successful site demonstration. Also contributing to this increase was a new commercial demonstration program which commenced in the fourth quarter of 2025.

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.SCR catalyst. 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.

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 andalong with NOxOUT and HERT™Advanced 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. Our ammonia storage and delivery systems supply reagent for SCR applications. 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 Tech’s APC contracts are typically sixeight to eighteentwenty 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.

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, and costs to produce and working capital changes.produce. 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.

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'Income Taxes",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$14,761 and $15,699$13,697 at December 31, 20242025 and 2023,2024, respectively.

Revenues for the years ended December 31, 20242025 and 20232024 were $25,133$26,677 and $27,081,$25,133, respectively. The year-over-year decreaseincrease of $1,948$1,544 or 7%,6%, was driven by the increase in FUEL CHEM technology segment revenues, partially offset by a 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.segment. Our U.S. revenues decreasedincreased by $3,595,$3,220, or 17%,18%, from $21,397 in 2023 to $17,802 in 2024,2024 to $21,022 in 2025, and our international revenues increaseddecreased by $1,647,$1,676, or 29%,23%, from $5,684 in 2023 to $7,331 in 2024.2024 to $5,655 in 2025.

Revenues for the APC technology segment were $11,242$8,908 for the year ended December 31, 2024,2025, a decrease of $2,241,$2,334, or 17%,21%, versus fiscal 2023.2024. The decrease in APC revenue for the twelve-month period ending December 31, 20242025 in comparison to the prior year amount was principally related to the timing of project execution and customercustomer-driven drivendelays delays.in contract awards. Consolidated APC backlog was $6,175$7,047 and $7,458$6,175 at December 31, 20242025 and 2023,2024, respectively. Our backlog at December 31, 20242025 consists of U.S. domestic projects totaling $1,877$3,411 and international projects totaling $4,298.$3,636.

Revenues for the FUEL CHEM technology segment for the year ended December 31, 20242025 were $13,891,$17,769, an increase of $293,$3,878, or 2%,28%, versus fiscal 2023.2024. The increase in FUEL CHEM revenue was due primarily to renewed orders from previously dormant customers as well as a full year of revenues from the addition of a new customer in the second half of 2024 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.

Consolidated cost of sales for the years ended December 31, 20242025 and 20232024 was $14,510$14,294 and $15,425,$14,510, respectively. Consolidated gross margin percentages for the years ended December 31, 20242025 and 20232024 were 42%46% and 43%,42%, respectively. The gross margins for the APC technology segment decreasedincreased to 43% in 2025 from 37% in 2024 from 38% in 2023.2024. The overall decreaseincrease 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 decreasedincreased to 46%48% from 48%46% for the years ended December 31, 20242025 and 2023.2024. This decreaseimprovement is primarily due to demonstrationan costsincrease andin otherrevenue administrativegeneration costsfrom associatedaccounts withthat newhad andperiods previouslyof dormantdormancy accounts.due to outages in the prior year.

Research and development expenses were $1,564$2,014 and $1,511$1,564 for the years ended December 31, 20242025 and 2023,2024, respectively. The expenditures in our research and development expensesdepartment 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 was $1,251$1,415 for the year ended December 31, 20242025 compared to $1,300$1,251 for the same period in 2023.2024. Interest income decreasedincreased primarily due to a$263 decreaseof ininterest received during the balanceyear heldended inDecember money31, market2025 funds.related to the employee retention credit.

Other income (expense), income, net

Other income,expense, net was $1,585$43 for the year ended December 31, 20242025 compared to Other expense,income, net of $90$1,585 for the same period in 2023.2024. TheOther increaseexpense offor $1,675the isyear dueended December 31, 2025 primarily relates to bank fees and foreign currency exchange losses. Other income for the same period in 2024 primarily relates to a $1,677 gain recorded related to the employee retention credit.

Investing activities provided cash of $545 and used cash of $5,443 and $6,444 for the years ended December 31, 20242025 and 2023, respectively.2024. Investing activities for the years ended December 31, 20242025 and 20232024 primarily consisted of purchases of HTM debt securities as investments of $18,060$12,031 and $14,026,$18,060, respectively, and the purchases of equipment and patent and other intangible asset related costs of $378$674 and $418,$378, respectively. Investing activities for the years ended December 31, 20242025 and 20232024 were partially funded by the maturities of debt securities of $12,995$13,250 and $8,000,$12,995, respectively.

Financing activities used cash of $95$222 and provided cash of $42$95 for the years ended December 31, 20242025 and 2023. In 2024, therespectively. financingFinancing activityactivities wasin relatedboth periods relate 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.

OurManagement APC business experienced an increase in revenue and segment operating profit in the current quarter as compared to 2025, primarily due to timing of project execution as well as an increase in ancillary revenue. We areis encouraged by the depth of ourthe Company's business development activities, which reflects an increased focusmarket onattention to global emissions protocols across a variety of fuel sources. Our Consolidated APC backlog at MarchJune 31,30, 2026 was $6,923$14,308 and ourthe Company's global sales pipeline iswas in theapproximately $75 -100 million range.million.

Revenues for the three-month periods ending MarchJune 31,30, 2026 and 2025 were $6,080$6,485 and $6,382,$5,558, respectively, representing aan decreaseincrease of $302,$927, or 17%, versus the same period last year. Revenues for the six-month periods ending June 30, 2026 and June 30, 2025 were $12,565 and $11,940, representing an increase of $625, or 5%, versus the same period last year.

The APC technology segment generated revenues of $1,604$2,785 for the three-month period ended MarchJune 31,30, 2026, representing an increase of $301,$280, or 23%,11%, from the prior year amount of $1,303.$2,505.The ThisAPC technology segment generated revenues of $4,389 for the six-month period ended June 30, 2026, representing an increase inof APC$581, revenueor 15%, from the prior year amount of $3,808. The increase was primarily relatedattributable to the timing of project execution on existing contracts.contracts and increased consolidated segment backlog resulting from new project awards. Consolidated APC backlog at MarchJune 31,30, 2026 was $6,923$14,308 versus backlog at December 31, 2025 of $7,047. Our current backlog consists of U.S. domestic delivered projects totaling $3,657$11,262 and international delivered projects totaling $3,266.$3,046.

The FUEL CHEM technology segment generated revenues of $4,476$3,700 and $5,079$3,053 for the three-month periods ended MarchJune 31,30, 2026 and 2025, respectively, representing aan decreaseincrease of $603,$647, or 12%,21%, versus the same period last year. This decreaseincrease in FUEL CHEM revenue for the three months ended MarchJune 31,30, 2026 as compared to the same period in the prior year was primarily due to seasonalincreased maintenanceoperational outagesdispatch at legacy accounts. FUEL CHEM technology segment revenues remained relatively flat for the six-month periods ended June 30, 2026 and dispatch2025 relatedat decreases$8,176 inand operational$8,132, demand.respectively.

Consolidated gross margin percentage for the three-month periods ended MarchJune 31,30, 2026 and 2025 was 43%41% and 46%, respectively. For the three-month periods ended MarchJune 31,30, 2026 and 2025 the FUEL CHEM operating segment gross margin was 45% and 50%,47%, respectively. FUEL CHEM gross margin decreased slightly from the prior year primarily due to ademonstration decreasedcosts, volumeincreased offreight salescosts activityand combinedadditional withinternal relativelylabor flatcosts operationalfor expenses.unit maintenance. APC segment gross margin increaseddecreased to 38%36% from 33%44% primarily due to product and project mix.

Selling, general and administrative expenses (SG&A) were $3,716$3,594 and $3,341$3,347 for the three-month periods ended MarchJune 31,30, 2026 and 2025, respectively. For the three-month period ended MarchJune 31,30, 2026, the increase of $375$247 is primarily the result of an increase in employee-relatedprofessional expensesfees of $195,$127, an increase in professionalemployee-related feesexpenses of $109,$86, and an increase in travel and administrative expenses for domestic and international locations of $74.$36. For the three-month periods ending MarchJune 31,30, 2026 and 2025, SG&A as a percentage of revenues increaseddecreased to 61%55% from 52%.60%. The increasedecrease versus the comparable period is primarily due to the decrease in revenues and increase in SG&A compared to prior quarter.revenues.

Research and development expenses were $524$646 and $570$490 for the three-month periods ended MarchJune 31,30, 2026 and 2025, respectively.respectively and $1,170 and $1,060 for the six-month periods ended June 30, 2026 and 2025. The expenditures in our research and development expenses are focused on new product development efforts in the pursuit of commercial applications for technologies outside of our traditional markets, and in the development and analysis of new technologies that could represent incremental market opportunities. This includes water treatment technologies and more specifically, our DGI® Dissolved Gas Infusion Systems, an innovative alternative to current aeration technology. This infusion process has a variety of potential applications in the water and wastewater 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.

Interest income was $240$266 for the three-month period ended MarchJune 31,30, 2026 compared to $279$537 for the same period in 2025. Interest income for the three-month period ended June 30, 2025 included $257 in interest income related to the collection of our ERC benefit. Interest income was $506 for the six-month period ended June 30, 2026 compared to $816 for the same period in 2025. Interest income primarily relates to interest received on the held-to-maturity debt securities and money market funds.

Other income (expense),income, net

Other expense,income, net was $0$79 for the three-month period ended MarchJune 31,30, 2026 compared to Other expense,income, net of $66$86 for the same period in 2025. Other expenseincome, net was $79 for the three-monthsix-month period ended MarchJune 31,30, 2026 compared to Other income, net of $20 for the same period in 2025. Other income for the three and six-month periods ended June 30, 2025 was mainly due to transactional foreign exchange gains and losses recognized from repayment of intercompany balances.

We have losses from operations during the three-monthsix-month period ended MarchJune 31,30, 2026 totaling $1,596.$3,161. Our cash used in operations for this same period totaled $847.$1,741.

Our cash and cash equivalent balance as of MarchJune 31,30, 2026 totaled $9,109,$7,620, which includes $1,320$1,004 of cash equivalents, and our working capital totaled $22,166.$20,118. 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 $847$1,741 for the three-monthsix-month period ended MarchJune 31,30, 2026, primarily due to a decrease in accounts payable of $1,095 and a decrease in accrued liabilities and other non-current liabilities of $183,$931 and a decrease in accounts payable of $417, offset by a decrease in accounts receivable of $1,176.$1,434.

Operating activities provided cash of $1,508$1,487 for the three-monthsix-month period ended MarchJune 31,30, 2025, primarily due to a decrease in accounts receivable of $3,768$1,987, collection of the ERC receivable of $1,232, an increase in accrued liabilities and other non-current liabilities of $203, and removals of non-cash items from our net loss from continuing operations of depreciation and amortization of $173$345 and stock-based compensation, net of forfeitures of $110,$212, offset by a decrease in accounts payable of $1,340, a decrease in accrued liabilities$833 and other non-current liabilities of $249, an increase in inventory of $137, an increase in prepaid expenses, other current assets and other non-current assets of $28, and removals of non-cash items from our net loss from continuing operations of interest income on held-to-maturity securities of $50.$218.

Investing activities used cash of $1,914$2,502 and provided cash of $1,692$700 for the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025, respectively. Investing activities for the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025 primarily consisted of purchases of debt securities as investments of $6,092$9,103 and $993,$4,949, respectively. Investing activities for the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025 were funded by the maturities of debt securities of $4,500$7,000 and $2,750,$5,750, respectively.

Financing activities used cash of $34$45 and $24,$222, respectively, for the threesix months ended MarchJune 31,30, 2026 and 2025 due to taxes paid on behalf of the equity award participants on the vesting of restricted stock units.

We expect additional capital expenditures induring the remainder of 2026 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 Collateral Security agreement 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 MarchJune 31,30, 2026, the Company had outstanding standby letters of credit totaling approximately $1,866$1,716 under the Investment Collateral Security agreement. At MarchJune 31,30, 2026, the investments held as collateral totaled $2,798.$2,574. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note 13. There was no change in the warranty liability balance during the threesix months ended MarchJune 31,30, 2026.