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Fuel Tech(FTEK) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited financial statements for H1 2023 reflect a slight asset decrease and net loss, primarily due to investing activities Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2023, shows a slight asset decrease, with reduced cash offset by increased investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $15,134 | $23,328 | | Short-term investments | $12,855 | $2,981 | | Total current assets | $36,585 | $35,825 | | Total assets | $49,609 | $50,124 | | Liabilities & Equity | | | | Total current liabilities | $5,126 | $4,766 | | Total liabilities | $5,959 | $5,283 | | Total stockholders' equity | $43,650 | $44,841 | | Total liabilities and stockholders' equity | $49,609 | $50,124 | Condensed Consolidated Statements of Operations For H1 2023, revenues increased, but operating and net losses widened, while Q2 2023 saw a revenue decline Statement of Operations Summary (in thousands, except per-share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $5,461 | $6,368 | $12,748 | $11,903 | | Operating loss | $(1,332) | $(485) | $(1,990) | $(1,469) | | Net loss | $(1,044) | $(356) | $(1,458) | $(1,354) | | Diluted net loss per share | $(0.03) | $(0.01) | $(0.05) | $(0.04) | Condensed Consolidated Statements of Cash Flows Net cash from operations improved in H1 2023, but overall cash decreased due to substantial investing activities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $17 | $(3,321) | | Net cash used in investing activities | $(8,288) | $(138) | | Net cash provided by (used in) financing activities | $42 | $(17) | | Net decrease in cash | $(8,194) | $(3,756) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, revenue disaggregation, segment performance, and remaining performance obligations - The company's business involves developing proprietary technologies for air pollution control (NOx reduction), process optimization (FUEL CHEM®), and water treatment (DGI® Dissolved Gas Infusion Systems)2324 Revenue by Product Technology (in thousands) | Product Line | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Air Pollution Control technology | $6,981 | $4,942 | | FUEL CHEM technology | $5,767 | $6,961 | | Total Revenues | $12,748 | $11,903 | Revenue by Geography (in thousands) | Geography | H1 2023 | H1 2022 | | :--- | :--- | :--- | | United States | $10,297 | $7,967 | | Foreign | $2,451 | $3,936 | | Total Revenues | $12,748 | $11,903 | - The planned suspension of the APC business in China continues, with a remaining project backlog of approximately $3 thousand and total net assets in China of $790 thousand as of June 30, 20234749 - As of June 30, 2023, the company had $6.61 million in remaining performance obligations, with approximately $6.31 million expected to be recognized as revenue over the next 12 months45 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2023 challenges to customer delays and outages, with H1 2023 revenue up and strong liquidity maintained - APC segment revenue increased 41% to $7.0 million in H1 2023 due to the timing of project execution, with a consolidated APC backlog of $6.6 million at June 30, 202389 - FUEL CHEM segment revenue decreased 17% to $5.8 million in H1 2023, primarily due to unplanned client maintenance and outages90 - Consolidated gross margin for H1 2023 decreased to 38% from 42% in H1 2022, mainly due to a change in segment mix and lower APC gross margin93 - R&D expenses increased in H1 2023, focusing on new product development, including DGI® Dissolved Gas Infusion Systems for the water and wastewater industries96 - The company has a strong liquidity position with $15.1 million in cash and cash equivalents, $31.5 million in working capital, and no outstanding debt as of June 30, 2023, which management believes is adequate to fund operations for the next 12 months100105 Quantitative and Qualitative Disclosures about Market Risk The company's earnings and cash flow are subject to foreign currency exchange rate fluctuations, but this risk is currently immaterial - The company is exposed to market risk from changes in foreign currency exchange rates but does not use derivative instruments to hedge this exposure due to its immateriality112 Controls and Procedures The CEO and principal financial officer concluded that disclosure controls are effective, with no material changes to internal controls - The CEO and principal financial officer have concluded that the company's disclosure controls and procedures were effective as of June 30, 2023113 - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls114 PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any litigation that it believes would have a material adverse effect on its business - The company reports no current involvement in litigation expected to have a material adverse effect on its business115 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - Risk factors have not materially changed from those reported in the Annual Report on Form 10-K for the year ended December 31, 2022116 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None117 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and principal financial officer - Exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act118