Q - FUEL TECH,

June 30, 2025

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

1. General

Organization

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

The Company’s nitrogen oxide (NOx) reduction technologies reduce nitrogen oxide emissions from boilers, furnaces, and other stationary combustion sources. To reduce NOx emissions, our technologies utilize advanced combustion modification techniques and post-combustion NOx control approaches including non-catalytic, catalytic, and combined systems. The Company also provides solutions for the mitigation of particulate matter, including particulate control with electrostatic precipitator products and services, and using flue gas conditioning systems which modify the ash properties of particulate for improved collection efficiency. The Company’s FUEL CHEM® technology improves the efficiency, reliability, fuel flexibility, boiler heat rate, and environmental status of combustion units by controlling slagging, fouling, corrosion, and opacity. Water treatment technologies include DGI® Dissolved Gas Infusion Systems which utilize a patented gas-infusing saturator vessel and a patent-pending channel injector to deliver supersaturated oxygen-water solutions and potentially other gas-liquid combinations to target process applications or environmental issues within the municipal and industrial water sectors. The infusion process has a variety of potential applications in the water and wastewater treatment sector, including aquaculture, agriculture/horticulture, pulp & paper, tanneries, landfill leachate, irrigation, treatment of natural waters, wastewater odor management as well as supplying oxygen or other gases for biochemical reactions and pH adjustment.

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form10-Q and Article10 of Regulation S-X of the Exchange Act. Accordingly, they donot include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for the fair statement of Fuel Tech's financial position, cash flows, and results of operations for the periods presented. All significant intercompany transactions and balances have been eliminated. The results of operations for thethree andsix months ended* June 30, 2025* arenot necessarily indicative of the results to be expected for the full year ending* December**31,* 2025. For further information, refer to the audited consolidated financial statements and footnotes thereto included in Fuel Tech’s Annual Report on Form10-K for the year ended* December 31, 2024* as filed with the Securities and Exchange Commission.

CARES Act

On* March 27, 2020,the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit (“ERC”), which allows for employers to claim a refundable tax credit against the employer share of Social Security tax for qualifying periods in2020* and2021. Under the provisions of the CARES Act, the Company is eligible for a refundable employee retention credit subject to certain criteria.

As there isno authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, we account for the ERC by analogy to International Accounting Standard ("IAS")20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS20, management determined it has reasonable assurance for receipt of the ERC and recorded the ERC benefit of $1,677 as other income on the Statement of Operations for thesix months ended* June 30, 2024*. We received payment for $1,232 of the outstanding receivable during thethree months ended* June 30, 2025*. The remaining ERC benefit receivable of $511, which includes an additional $67 of interest receivable recorded during thethree months ended* June 30, 2025,is presented as a component of Accounts receivable on the Balance Sheet as of June 30, 2025*.

2. Summary of Significant Accounting Policies

Investments

The Company's investment policy provides for $20,000 in funds at BMO Harris Bank, N.A. (BMO Harris) to be invested in debt securities. The funds are held in money market funds until they are invested in those securities. A portion of the funds invested are restricted as collateral under the Investment Collateral Security agreement (see Note10). At* June 30, 2025*, the amount of funds collateralized under the Investment Collateral Security agreement is $4,385 relating to existing standby letters of credit that is comprised of $2,933 with varying maturity dates that expireno later than* June 30, 2026and $1,452 with a latest maturity date of March 31, 2027.*

We consider all highly liquid debt investments with original maturities from the date of purchase ofthree months or less as cash equivalents. Cash equivalents include investments in money market funds. Carrying value of cash equivalents approximates fair value due to the maturities ofthree months or less.

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Our investments in debt securities consist of United States (US) Treasury securities, including Notes, Bonds, and Bills, and US Government Agency securities, which are designated as held-to-maturity (HTM) and stated at amortized cost. The Company has the positive intent and ability to hold these investments to maturity and doesnot expect to sell any debt securities before maturity to settle an obligation under the Investment Collateral Security agreement. The original maturities of our HTM investments range from three tothirty-six months. HTM debt investments with original maturities of approximatelythree months or less from the date of purchase are classified within cash and cash equivalents. HTM debt investments with original maturities at the date of purchase greater than approximatelythree months and remaining maturities of less thanone year are classified as short-term investments. HTM debt investments with remaining maturities beyondone year are classified as long-term investments. Interest income, including amortization of premium and accretion of discount, is included on the Condensed Consolidated Statements of Operations in Interest income under the effective yield method. Accrued interest is included in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. Due to the creditworthiness of the entities issuing these securities, there isno impairment recorded related to the unrealized losses.

The following table provides the amortized cost, gross unrealized gains and losses, and fair value of our HTM debt securities:

The following table provides the amortized cost and fair value of debt securities by maturities at* June 30, 2025*:

Inventories

Inventories consist primarily of equipment constructed for resale and spare parts and are stated at the lower of cost or net realizable value, using the weighted-average cost method. At* June 30, 2025* and* December 31, 2024*, inventory included equipment constructed for resale of $176 and spare parts, net of reserves, of $440 and $221, respectively. Usage is recorded in cost of sales in the period that parts were issued to a project, used to service equipment, or sold to customers. Equipment constructed for resale that is in process is recorded in Other assets. In process equipment for inventory recorded as Other assets was $44 and $44 as of* June 30, 2025* and* December 31, 2024*, respectively. Inventories are periodically evaluated to identify obsolete or otherwise impaired parts and are written off when management determines usage isnot probable. The Company estimates the balance of excess and obsolete inventory by analyzing inventory by age using the last used and original purchase dates and existing sales pipeline for which the inventory could be used.

Allowance for Credit Losses

The Company accounts for expected credit losses under Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) ASU2019-10, Financial Instruments - Credit Losses (Topic326), Derivatives and Hedging (Topic815), and Leases (Topic842). This guidance requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables and other financial instruments, we are required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.

For the general risk categories, the Company uses historical losses over a fixed period, excluding certain write-off activity that wasnot considered a credit loss event, to determine the historical credit loss. Historical loss rates are then adjusted to consider current economic conditions and past, current, and future events and circumstances when determining expected credit losses. Investments in financial assets issued by US Government and Government Agency are considered as havingzero expected credit losses and are excluded from the allowance for credit loss calculation.

The following table provides the roll forward of the allowance for credit losses:

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3. Revenue

Disaggregated Revenue by Product Technology

The following table presents our revenues disaggregated by product technology:

Disaggregated Revenue by Geography

The following table presents our revenues disaggregated by geography, based on the location of the end-user:

Timing of Revenue Recognition

The following table presents the timing of our revenue recognition:

Contract Balances

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. In our Air Pollution Control (APC) 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 Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. At* June 30, 2025*,* December 31, 2024*, and* December 31, 2023*, contract assets for APC technology projects were approximately $1,064, $2,075, and $2,285, respectively.

The Company will periodically bill in advance of costs incurred before revenue is recognized, resulting in contract liabilities. These liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Contract liabilities were $1,683, $721, and $1,279 at* June 30, 2025*,* December 31, 2024*, and* December 31, 2023*, respectively, and are included in other accrued liabilities on the Condensed Consolidated Balance Sheets.

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Changes in the contract asset and liability balances during thesix-month period ended* June 30, 2025* werenot materially impacted by any other items other than amounts billed and revenue recognized as described previously. Revenue recognized that was included in the contract liability balance at the beginning of the period was $171 and $543 for thethree andsix months ended* June 30, 2025*, respectively, and $438 and $1,221 for thethree andsix months ended* June 30, 2024*, respectively, which represented revenue from progress towards completion of our APC technology contracts.

As of* June 30, 2025* and* December 31, 2024*, we hadno construction contracts in progress that were identified as a loss contract.

Remaining Performance Obligations

Remaining performance obligations represents the transaction price of APC technology booked orders for which work hasnot been performed. As of* June 30, 2025*, the aggregate amount of the transaction price allocated to remaining performance obligations was $7,811. The Company expects to recognize revenue on approximately $5,045 of the remaining performance obligations over the next 12 months with the remaining recognized thereafter.

Accounts Receivable

The components of accounts receivable are as follows:

4. Restructuring Activities

On* January 18, 2019,the Company announced a planned suspension of its APC business operation in China. This action was part of Fuel Tech’s ongoing operational improvement initiatives designed to prioritize resource allocation, reduce costs, and drive profitability for the Company on a global basis. The transition associated with the suspension of the APC business which has taken place through June 30, 2025* includes staff rationalization and reduction, supplier and partner engagement, and the monetization of certain assets. The remaining transition activities include the execution of the activities to satisfy the requirements for the remaining APC projects in China (with a backlog totaling approximately $3) and those related to subsidiary closure.

The following table presents our revenues and net loss for thethree andsix months ended* June 30, 2025and2024* in China as follows:

The following table presents net assets in China as of* June 30, 2025* and* December 31, 2024*:

Total assets primarily consist of cash and other receivables. Total liabilities consist of accounts payable and certain accrued liabilities.

5. Accumulated Other Comprehensive Loss

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

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6. Treasury Stock

Common stock held in treasury totaled 1,206,741 and 1,059,056 with a cost of $2,568 and $2,346 at* June 30, 2025* and* December 31, 2024*, respectively. These shares were withheld from employees to settle personal tax withholding obligations that arose as a result of restricted stock units that vested.

7. Earnings per Share

Basic earnings per share excludes the dilutive effects of stock options, restricted stock units (RSUs), warrants, and thenil coupon non-redeemable convertible unsecured loan notes. Diluted earnings per share includes the dilutive effect of thenil coupon non-redeemable convertible unsecured loan notes, RSUs, warrants, and unexercised in-the-money stock options, except in periods of net loss where the effect of these instruments is anti-dilutive. Out-of-money stock options and warrants are excluded from diluted earnings per share because they are unlikely to be exercised and would be anti-dilutive if they were exercised. For thethree andsix months ended* June 30, 2025and2024*, basic earnings per share is equal to diluted earnings per share because all outstanding stock awards, warrants, and convertible loan notes are considered anti-dilutive during periods of net loss.

The following table sets forth the weighted-average shares used in calculating the earnings per share for thethree andsix months ended* June 30, 2025and2024*:

For thethree andsix months ended* June 30, 2025*, Fuel Tech had weighted-average outstanding equity awards of 36,800 and 71,300, respectively, and warrants of 2,850,000 in both periods, which were antidilutive or represent out-of-the-money options for the purpose of the calculation of diluted earnings per share. For thethree andsix months ended* June 30, 2025*, Fuel Tech had incremental equity awards of 316,100 and 467,100, respectively, that were excluded from the computation of diluted earnings per share as the inclusion of such would have been anti-dilutive due to a net loss in the period. These equity awards could potentially dilute basic earnings per share in future years.

For thethree andsix months ended* June 30, 2024*, Fuel Tech had weighted-average outstanding equity awards of 198,400 and 284,100, respectively, and warrants of 2,850,000 in both periods, which were antidilutive or represent out-of-the-money options for the purpose of the calculation of diluted earnings per share. For thethree andsix months ended* June 30, 2024*, Fuel Tech had incremental equity awards of 802,000 and 933,400, respectively, that were excluded from the computation of diluted earnings per share as the inclusion of such would have been anti-dilutive due to a net loss in the period. These equity awards could potentially dilute basic earnings per share in future years.

8. Stock-Based Compensation

Fuel Tech's2024 Long-Term Incentive Plan (2024 Plan) was adopted in* June 2024and replaced our prior incentive plan which was approved by our stockholders in2014* (LTIP). No further grants will be made from the LTIP. The2024 Plan and LTIP are referred to collectively as the Incentive Plans.

Under the Incentive Plans, awards* maybe granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, RSUs, Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof. Participants in the Incentive Plans maybe our directors, officers, employees, consultants, or advisors (except consultants or advisors in capital-raising transactions) as the directors determine are key to the success of our business. There are a maximum of 2,883,057 shares that maybe issued or reserved for awards to participants under the Incentive Plans. As of June 30, 2025*, Fuel Tech had 2,668,885 shares available for issuance under the Incentive Plans.

We didnot record any excess tax benefits within income tax expense for thethree andsix months ended* June 30, 2025* and2024. Given the Company has a full valuation allowance on its deferred tax assets, there wereno excess tax benefits to record for thethree andsix months ended* June 30, 2025* and2024. In addition, we account for forfeitures of awards based on an estimate of the number of awards expected to be forfeited and adjust the estimate when it isno longer probable that the employee will fulfill the service condition.

Stock-based compensation is included in selling, general, and administrative costs in our Condensed Consolidated Statements of Operations. The components of stock-based compensation for thethree andsix months ended* June 30, 2025and2024* were as follows:

Stock Options

Stock options granted to employees under the Incentive Plans have a 10-year life and they vest as follows:50% after thesecond anniversary of the award date,25% after thethird anniversary, and the final 25% after thefourth anniversary of the award date. Fuel Tech calculates stock compensation expense for employee option awards based on the grant date fair value of the award, less expected annual forfeitures, and recognizes expense on a straight-line basis over thefour-year service period of the award. Stock options granted to members of our board of directors vest immediately. Stock compensation for these awards is based on the grant date fair value of the award and is recognized in expense immediately.

Fuel Tech uses the Black-Scholes option pricing model to estimate the grant date fair value of employee stock options. The principal variable assumptions utilized in valuing options and the methodology for estimating such model inputs include: (1) risk-free interest rate – an estimate based on the yield of zero–coupon treasury securities with a maturity equal to the expected life of the option; (2) expected volatility – an estimate based on the historical volatility of Fuel Tech’s Common Stock for a period equal to the expected life of the option; and (3) expected life of the option – an estimate based on historical experience including the effect of employee terminations.

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Stock option activity for Fuel Tech’s Incentive Plans for thesix months ended* June 30, 2025* was as follows:

As of* June 30, 2025*, there wasno unrecognized compensation cost related to non-vested stock options granted under the Incentive Plans.

Restricted Stock Units

RSUs granted to employees vest over time based on continued service (typically vesting over a period betweentwo tofour years), and RSUs granted to directors vest after aone year vesting period based on continued service. Such time-vested RSUs are valued at the date of grant based on the closing price of the Common Shares on the grant date. Compensation cost, adjusted for estimated forfeitures, is amortized on a straight-line basis over the requisite service period.

In addition to the time vested RSUs, in2025 the Company entered into an Executive Performance RSU Award Agreement (the “Agreement”) with certain officers, including its President and Chief Executive Officer, Chief Financial Officer and Senior Vice President, Sales (each a “Participating Executive”) pursuant to which each Participating Executive will have the opportunity to earn a specified amount of restricted stock units (RSUs) based on Fuel Tech’s performance in2025 and2026. The target amount of RSUs for each offour possible RSU award components is set for each Participating Executive for2025 and2026. The amount of actual RSU awards to be issued is contingent on performance by the Participating Executive and the Company in the performance areas and for the measurement periods set forth in the Agreement as determined by the Company.

The Agreement provides forfour possible RSU awards: “Look-Back RSUs,” “Total Revenue RSUs,” “New Business Revenue RSUs,” and “Operating Income” RSUs. If the Look-Back RSU’s are awarded, these RSUs will follow a vesting schedule that provides for vesting ofone-third of the granted Look-Back RSUs after thefirst anniversary of the grant determination date, one-third after thesecond anniversary date andone-third after thethird anniversary date. If the Total Revenue RSUs, New Business Revenue RSUs, or Operating Income RSUs targets are achieved, these RSU’s will follow a vesting schedule whereby 100% of the granted RSUs will vestone year following the grant determination date. All RSUs are valued at the date of grant based on the closing price of the Company’s common stock on the grant date.

At* June 30, 2025*, there is $1,121 of unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Incentive Plan. That cost is expected to be recognized over the remaining requisite service period of 2.08 years.

A summary of restricted stock unit activity for thesix months ended* June 30, 2025* is as follows:

The fair value of restricted stock that vested during thesix-month period ended* June 30, 2025* was $654.

Deferred Directors Fees

In addition to the Incentive Plans, Fuel Tech has a Deferred Compensation Plan for Directors (Deferred Plan). Under the terms of the Deferred Plan, Directors can elect to defer Directors’ fees for shares of Fuel Tech Common Stock that are issuable at a future date as defined in the agreement. In accordance with Accounting Standards Codification (ASC)718, Fuel Tech accounts for these awards as equity awards as opposed to liability awards. During thesix-month periods ended* June 30, 2025and2024*, Fuel Tech recordedno stock-based compensation expense under the Deferred Plan.

9. Warrants

The following table summarizes information about warrants outstanding and exercisable at* June 30, 2025*:

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10. Debt Financing

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 areno financial covenants set forth in the Investment Collateral Security agreement. At* June 30, 2025*, the Company had outstanding standby letters of credit totaling approximately $2,923 under the Investment Collateral Security agreement. At* June 30, 2025*, the investments held as collateral totaled $4,385. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments.

11. Business Segment and Geographic Financial Data

Business Segment Financial Data

We segregate our financial results intotwo reportable segments representingtwo broad technology segments as follows:

The “Other” classification includes those profit and loss itemsnot allocated to either reportable segment. There areno inter-segment sales that require elimination.

Our Chief Executive Officer (CEO) serves as our Chief Operating Decision Maker (CODM) and is responsible for reviewing segment performance and making decisions regarding resource allocation. We evaluate performance and allocate resources based on reviewing gross margin by reportable segment. We donot allocate selling, general and administrative expenses, interest, other non-operating income or expense items, or taxes to segments. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (Note1 in our annual report on Form10-K). We donot review assets by reportable segment, but rather, in aggregate for the Company as a whole.

Information about reporting segment net sales and gross margin from continuing operations is provided below:

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Geographic Segment Financial Data

Information concerning our operations by geographic area is provided below. Revenues are attributed to countries based on the location of the end-user. Assets are those directly associated with operations of the geographic area.

12. Accrued Liabilities

The components of other accrued liabilities are as follows:

13. Commitments and Contingencies

Fuel Tech is subject to various claims and contingencies related to, among other things, workers compensation, general liability (including product liability), and lawsuits. The Company records liabilities where a contingent loss is probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount whenno amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability isnot probable or the amount isnot estimable, or both, if there is a reasonable possibility that a material loss* may*have been incurred.

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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 willnot materially affect our consolidated financial position, results of operations, or cash flows. We donot believe we have any pending loss contingencies that are probable or reasonably possible of having a material impact on our consolidated financial position, results of operations or cash flows.

Fuel Tech issues a standard product warranty with the sale of its products to customers. Our recognition of warranty liability is based primarily on analyses of warranty claims experienced in the preceding years as the nature of our historical product sales for which we offer a warranty are substantially unchanged. This approach provides an aggregate warranty accrual that is historically aligned with actual warranty claims experienced.

There wasno change in the warranty liability balance included in the other accrued liabilities line of the Condensed Consolidated Balance Sheets during thesix months ended* June 30, 2025and2024*. The warranty liability balance was $159 at* June 30, 2025* and* December 31, 2024*.

14. Income Taxes

The Company’s effective tax rate is approximately 0.3% and 13.8% for thesix-month periods ended* June 30, 2025and2024*, respectively. The Company's effective tax rate differs from the statutory federal tax rate of 21% for thesix-month periods ended* June 30, 2025and2024* primarily due to a full valuation allowance recorded on our United States, China and Italy deferred tax assets since we cannot anticipate when or if we will have sufficient taxable income to utilize the deferred tax assets in the future. Further, our effective tax rate differs from the statutory federal tax rate due to state taxes, differences between U.S. and foreign tax rates, foreign losses incurred withno related tax benefit, non-deductible commissions, and non-deductible meals and entertainment expenses for thesix-month periods ended* June 30, 2025and2024*.

On* July 4, 2025,the One Big Beautiful Bill Act was signed into law. This act includes changes to the U.S. corporate income tax system. The Company is currently evaluating the full effect of the legislation, but doesnot* expect it to have a material impact on our Consolidated Financial Statements.

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FUEL TECH, INC.