x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 [NO FEE REQUIRED]
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] |
Delaware
|
20-5657551
|
(State
or other jurisdiction of incorporation of organization)
|
(I.R.S.
Employer Identification Number)
|
Common
Stock $0.01 par value per share
|
The
NASDAQ Stock Market, Inc
|
(Title
of Class)
|
(Name
of Exchange on Which
Registered)
|
Page
|
|||
PART
I
|
|||
Item
1.
|
Business
|
1
|
|
Item
1A.
|
Risk
Factors of the Business
|
6
|
|
Item
1B.
|
Unresolved
Staff Comments
|
7
|
|
Item
2.
|
Properties
|
7
|
|
Item
3.
|
Legal
Proceedings
|
7
|
|
Item
4.
|
Submission
of Matters to Vote of Security Holders
|
7
|
|
PART
II
|
|||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities
|
8
|
|
Item
6.
|
Selected
Financial Data
|
10
|
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
18
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
18
|
|
Item
9.
|
Changes
in and Disagreements with Accountants and Financial
Disclosure
|
44
|
|
Item
9A.
|
Controls
and Procedures
|
44
|
|
Item
9B.
|
Other
Information
|
44
|
|
PART
III
|
|||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
45
|
|
Item
11.
|
Executive
Compensation
|
46
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management
|
46
|
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
46
|
|
Item
14.
|
Principal
Accounting Fees and Services
|
46
|
|
PART
IV
|
|||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
47
|
|
Signatures
and Certifications
|
50
|
Term
|
Definition
|
|
ABC
|
American
Bailey Corporation
|
|
CAAA
|
Clean
Air Act Amendments of 1990
|
|
CDT
|
Clean
Diesel Technologies, Inc.
|
|
CFD
|
Computational
Fluid Dynamics
|
|
Common
Shares
|
Shares
of the Common Stock of Fuel Tech
|
|
Common
Stock
|
Common
Stock of Fuel Tech
|
|
EPA
|
Environmental
Protection Agency
|
|
EPRI
|
Electric
Power Research Institute
|
|
FUEL
CHEM®
|
A
trademark used to describe Fuel Tech’s fuel and flue gas treatment
processes, including its TIFI™ Targeted In-Furnace Injection™ technology
to control slagging, fouling, corrosion and a variety of sulfur
trioxide-related issues
|
|
Fuel
Tech
|
Fuel
Tech, Inc. and its subsidiaries
|
|
Investors
|
The
purchasers of Fuel Tech securities pursuant to a Securities Purchase
Agreement as of March 23, 1998
|
|
Loan
Notes
|
Nil
Coupon Non-redeemable Convertible Unsecured Loan Notes of Fuel
Tech
|
|
NOx
|
Oxides
of nitrogen
|
|
NOxOUT
CASCADE®
|
A
trademark used to describe Fuel Tech’s combination of NOxOUT and
SCR
|
|
NOxOUT®
Process
|
A
trademark used to describe Fuel Tech’s SNCR process for the reduction of
NOx
|
|
NOxOUT-SCR®
|
A
trademark used to describe Fuel Tech’s direct injection of urea as a
catalyst reagent
|
|
NOxOUT
ULTRA®
|
A
trademark used to describe Fuel Tech’s process for generating ammonia for
use as SCR reagent
|
|
Rich
Reagent Injection Technology (RRI)
|
An
SNCR-type process that broadens the NOx reduction capability of the
NOxOUT
Process at a cost similar to NOxOUT. RRI can also be applied on a
stand-alone basis.
|
|
SCR
|
Selective
Catalytic Reduction
|
|
SIP
Call
|
State
Implementation Plan Regulation
|
|
SNCR
|
Selective
Non-Catalytic Reduction
|
|
TCI™
Targeted Corrosion Inhibition™
|
A
FUEL CHEM program designed for high-temperature slag and corrosion
control, principally in waste-to-energy boilers
|
|
TIFI™
Targeted In-Furnace Injection™
|
A
proprietary technology that enables the precise injection of a chemical
reagent into a boiler or furnace as part of a FUEL CHEM
program.
|
· |
The
NOx reduction technology segment, which includes the NOxOUT, NOxOUT
CASCADE, NOxOUT ULTRA and NOxOUT-SCR processes for the reduction
of NOx
emissions in flue gas from boilers, incinerators, furnaces and other
stationary combustion sources, and
|
· |
The
fuel treatment chemicals technology segment, which uses chemical
processes, including TIFI Targeted In-Furnace Injection technology,
to
control slagging, fouling, corrosion, opacity, acid plume and loss
on
ignition, as well as the formation of sulfur trioxide, ammonium bisulfate,
particulate matter (PM2.5),
carbon dioxide and NOx in furnaces and boilers.
|
· |
The
Batavia, Illinois building lease term, for approximately 18,000 square
feet, runs from June 1, 1999 to May 31, 2009. Fuel Tech has the option
to
extend the lease term for two successive terms of five years each
at
market rates to be agreed upon between Fuel Tech and the lessor.
|
· |
The
Stamford, Connecticut building lease term, for approximately 7,000
square
feet, runs from February 1, 2004 to January 31, 2010. Fuel Tech has
the
option to extend the lease term for one successive term of five years
at a
market rate to be agreed upon between Fuel Tech and the
lessor.
|
2006
|
High
|
Low
|
|||||
Fourth
Quarter
|
$
|
27.44
|
$
|
14.40
|
|||
Third
Quarter
|
16.45
|
10.07
|
|||||
Second
Quarter
|
18.80
|
11.15
|
|||||
First
Quarter
|
16.75
|
8.11
|
|||||
2005
|
|||||||
Fourth
Quarter
|
$
|
10.12
|
$
|
7.24
|
|||
Third
Quarter
|
10.13
|
5.75
|
|||||
Second
Quarter
|
7.20
|
5.10
|
|||||
First
Quarter
|
6.85
|
4.60
|
Plan
Category
|
Number
of Securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans excluding securities listed in column
(a)
|
|||||||
(a)
|
(b)
|
(c)
|
||||||||
Equity
compensation plans approved by security holders (1)
|
2,414,200
|
$
|
13.02
|
866,000
|
(1)
|
Includes
Common Shares of Fuel Tech authorized for awards under Fuel Tech’s
Incentive Plan, as amended through June 3,
2004.
|
For
the years ended December 31
|
||||||||||||||||
CONSOLIDATED
STATEMENT of OPERATIONS DATA
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
(in
thousands of U.S. dollars, except for share data)
|
||||||||||||||||
Net
sales
|
$
|
75,115
|
$
|
52,928
|
$
|
30,832
|
$
|
35,736
|
$
|
32,627
|
||||||
Selling,
general and administrative and other costs and expenses
|
25,953
|
18,655
|
14,130
|
12,978
|
11,777
|
|||||||||||
Operating
income
|
10,733
|
7,155
|
136
|
969
|
2,618
|
|||||||||||
Net
income
|
6,826
|
7,588
|
1,572
|
1,120
|
3,057
|
|||||||||||
Basic
income per Common Share
|
$
|
0.32
|
$
|
0.38
|
$
|
0.08
|
$
|
0.06
|
$
|
0.16
|
||||||
Diluted
income per Common Share
|
$
|
0.28
|
$
|
0.33
|
$
|
0.07
|
$
|
0.05
|
$
|
0.14
|
||||||
Weighted-average
basic shares outstanding
|
21,491,000
|
20,043,000
|
19,517,000
|
19,637,000
|
19,350,000
|
|||||||||||
Weighted-average
diluted shares outstanding
|
24,187,000
|
23,066,000
|
22,155,000
|
22,412,000
|
22,437,000
|
December
31
|
||||||||||||||||
CONSOLIDATED
BALANCE SHEET DATA
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
(in
thousands of U.S. dollars, except for share data)
|
||||||||||||||||
Working
capital
|
$
|
38,715
|
$
|
19,590
|
$
|
11,292
|
$
|
10,973
|
$
|
13,930
|
||||||
Total
assets
|
65,660
|
44,075
|
23,828
|
21,598
|
25,869
|
|||||||||||
Long-term
obligations
|
500
|
448
|
505
|
299
|
2,059
|
|||||||||||
Total
liabilities
|
18,005
|
14,939
|
4,873
|
4,287
|
9,064
|
|||||||||||
Shareholders'
equity
|
47,655
|
29,136
|
18,955
|
17,311
|
16,805
|
|||||||||||
Net
tangible book value per share
|
$
|
1.83
|
$
|
1.12
|
$
|
0.70
|
$
|
0.61
|
$
|
0.64
|
· |
Fuel
Tech recorded $1,805,000 in stock compensation expense in accordance
with
Statement 123(R), as discussed in Note 6 to the consolidated financial
statements.
|
· |
Fuel
Tech realized an increase in revenue-related expenses in the amount
of
$1,500,000 as both technology segments had significantly improved
revenue
growth versus the comparable prior-year
period.
|
· |
Fuel
Tech recorded an increase in human resource-related expenses of
approximately $1,800,000 as staffing levels were increased in several
areas in response to overall business
growth.
|
· |
Finally,
Fuel Tech realized incremental expenses related to audit, tax, consulting
and recruiting fees, all in support of achieving business growth.
Of
specific note are the costs that were incurred to domesticate Fuel
Tech.
|
· |
Demonstration
programs - there were several demonstration programs during 2005,
five of
which did not yield commercial revenues at December 31, 2005. One
was a
no-cost demonstration at a critical coal-fired utility and one was
a
demonstration at a large coal-fired utility offered at 50% of commercial
value. These two successful demonstrations had the impact of reducing
revenue by approximately $500,000 and this revenue is non-recoverable.
The
other three demonstrations were structured on a cost-share basis
and all
were on coal-fired units. Under cost-share arrangements, during the
demonstration period, Fuel Tech will invoice the customer at a specified
percentage of the commercial price. At the end of the demonstration,
if
Fuel Tech meets the criteria for success that were established for
the
program, Fuel Tech will invoice the customer for the remaining percentage
of the commercial price. These latter three demonstrations reached
their
evaluation date in the first quarter of 2006. If revenue was recognized
at
commercial pricing for these latter demonstrations, an incremental
$600,000 in revenue would have been realized in 2005.
|
· |
Coal
supply chain issues - rail disruptions in the Powder River Basin
during
2005 impacted several utilities’ ability to receive and burn Powder River
Basin coal. The required repair and maintenance work on several rail
lines
impacted coal shipments in several parts of the country well into
2006.
This market dynamic negatively impacted Fuel Tech’s revenue generating
capability in 2005 as more than one critical Western-coal fired utility
unit was forced to reduce capacity for an extended period of time
due to
transportation related shortages of Western coal deliveries. New
sales
initiatives were also negatively influenced by these issues as potential
new customers were forced to delay their evaluation and implementation
of
the Fuel Chem technology.
|
· |
Oil
pricing - the high price of oil resulted in reduced oil-fired electricity
generation in the United States. Fuel Tech’s oil-fired business was
negatively impacted by this market dynamic in
2005.
|
Payments
due by period in thousands of U.S. dollars
|
||||||||||||||||
Contractual
Cash Obligations
|
Total
|
Less
than 1 year
|
2-3
years
|
4-5
years
|
Thereafter
|
|||||||||||
Operating
Leases
|
$
|
1,388
|
$
|
521
|
$
|
827
|
$
|
40
|
$
|
-
|
Rental
payments due to Fuel Tech by period in thousands of U.S.
dollars
|
||||||||||||||||
Contractual
Cash Obligations
|
Total
|
Less
than 1 year
|
2-3
years
|
4-5
years
|
Thereafter
|
|||||||||||
Sublease
|
$
|
250
|
$
|
81
|
$
|
162
|
$
|
7
|
$
|
-
|
· |
in
support of the warranty period defined in the contract, or
|
· |
in
support of the system performance criteria that are defined in the
contract
|
Commitment
expiration by period in thousands of U.S. dollars
|
||||||||||||||||
Commercial
Commitments
|
Total
|
Less
than 1 year
|
2-3
years
|
4-5
years
|
Thereafter
|
|||||||||||
Standby
letters of credit and bank guarantees
|
$
|
1,077
|
$
|
1,077
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
/s/
GRANT THORNTON, LLP
|
|
|
/s/ GRANT THORNTON, LLP |
|
|
/s/
Ernst & Young LLP
|
2006
|
2005
|
||||||
December
31
|
|||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
24,405
|
$
|
10,375
|
|||
Short-term
investments
|
8,000
|
6,000
|
|||||
Accounts
receivable, net of allowances for doubtful accounts of $150 and $150,
respectively
|
16,724
|
13,233
|
|||||
Inventories
|
203
|
358
|
|||||
Deferred
income taxes
|
4,972
|
3,043
|
|||||
Prepaid
expenses and other current assets
|
1,916
|
1,072
|
|||||
Total
current assets
|
56,220
|
34,081
|
|||||
Equipment,
net of accumulated depreciation of $8,845 and $7,900,
respectively
|
4,051
|
4,045
|
|||||
Goodwill
|
2,119
|
2,119
|
|||||
Other
intangible assets, net of accumulated amortization of $1,205 and
$1,087,
respectively
|
1,156
|
1,224
|
|||||
Deferred
income taxes
|
885
|
1,579
|
|||||
Other
assets
|
1,229
|
1,027
|
|||||
Total
assets
|
$
|
65,660
|
$
|
44,075
|
|||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
7,632
|
$
|
6,493
|
|||
Accrued
liabilities:
|
|||||||
Employee
and director compensation
|
4,457
|
2,331
|
|||||
Other
accrued liabilities
|
5,416
|
5,667
|
|||||
Total
current liabilities
|
17,505
|
14,491
|
|||||
Other
liabilities
|
500
|
448
|
|||||
Total
liabilities
|
18,005
|
14,939
|
|||||
Shareholders'
equity:
|
|||||||
Common
stock, $.01 par value, 40,000,000 shares
|
|||||||
authorized,
22,086,728 and 20,424,133 shares issued, respectively
|
221
|
204
|
|||||
Additional
paid-in capital
|
103,122
|
91,559
|
|||||
Accumulated
deficit
|
(56,044
|
)
|
(62,870
|
)
|
|||
Accumulated
other comprehensive income (loss)
|
79
|
(39
|
)
|
||||
Nil
coupon perpetual loan notes
|
277
|
282
|
|||||
Total
shareholders' equity
|
47,655
|
29,136
|
|||||
Total
liabilities and shareholders' equity
|
$
|
65,660
|
$
|
44,075
|
2006
|
2005
|
2004
|
||||||||
For
the years ended December 31
|
||||||||||
Net
sales
|
$
|
75,115
|
$
|
52,928
|
$
|
30,832
|
||||
Costs
and expenses:
|
||||||||||
Cost
of sales
|
38,429
|
27,118
|
16,566
|
|||||||
Selling,
general and administrative
|
23,901
|
17,414
|
12,775
|
|||||||
Research
and development
|
2,052
|
1,241
|
1,355
|
|||||||
64,382
|
45,773
|
30,696
|
||||||||
Operating
income
|
10,733
|
7,155
|
136
|
|||||||
Interest
income
|
1,011
|
244
|
65
|
|||||||
Other
income (expense)
|
24
|
(230
|
)
|
(35
|
)
|
|||||
Income
before taxes
|
11,768
|
7,169
|
166
|
|||||||
Income
tax (expense) benefit
|
(4,942
|
)
|
419
|
1,406
|
||||||
Net
income
|
$
|
6,826
|
$
|
7,588
|
$
|
1,572
|
||||
Net
income per Common Share:
|
||||||||||
Basic
|
$
|
0.32
|
$
|
0.38
|
$
|
0.08
|
||||
Diluted
|
$
|
0.28
|
$
|
0.33
|
$
|
0.07
|
||||
Weighted-average
number of Common Shares outstanding:
|
||||||||||
Basic
|
21,491,000
|
20,043,000
|
19,517,000
|
|||||||
Diluted
|
24,187,000
|
23,066,000
|
22,155,000
|
Common
Stock
|
Additional
Paid-in
|
Accumulated
|
Accumulated
Other Comprehensive
|
Treasury
Stock
|
Nil
Coupon Perpetual Loan
|
|||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Income
(Loss)
|
Shares
|
Amount
|
Notes
|
Total
|
||||||||||||||||||||
Balance
at January 1, 2004
|
19,621,503
|
$
|
196
|
$
|
89,698
|
$
|
(72,030
|
)
|
$
|
48
|
118
|
$
|
(1,133
|
)
|
$
|
532
|
$
|
17,311
|
||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
1,572
|
1,572
|
||||||||||||||||||||||||||
Foreign
currency translation
adjustments
|
38
|
38
|
||||||||||||||||||||||||||
Comprehensive
income
|
1,610
|
|||||||||||||||||||||||||||
Exercise
of stock options and warrants
|
25,402
|
34
|
34
|
|||||||||||||||||||||||||
Purchase
of shares for retirement
|
(116,953
|
)
|
(1
|
)
|
(1,132
|
)
|
(118
|
)
|
1,133
|
-
|
||||||||||||||||||
Balance
at December 31, 2004
|
19,529,952
|
$
|
195
|
$
|
88,600
|
$
|
(70,458
|
)
|
$
|
86
|
-
|
$
|
-
|
$
|
532
|
$
|
18,955
|
|||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
7,588
|
7,588
|
||||||||||||||||||||||||||
Foreign
currency translation
adjustments
|
(125
|
)
|
(125
|
)
|
||||||||||||||||||||||||
Comprehensive
income
|
7,463
|
|||||||||||||||||||||||||||
Exercise
of stock options and warrants
|
855,720
|
9
|
1,221
|
1,230
|
||||||||||||||||||||||||
Conversion
of nil coupon perpetual loan notes into Common Shares
|
38,461
|
250
|
(250
|
)
|
-
|
|||||||||||||||||||||||
Tax
benefit from stock compensation expense
|
1,488
|
1,488
|
||||||||||||||||||||||||||
Balance
at December 31, 2005
|
20,424,133
|
$
|
204
|
$
|
91,559
|
$
|
(62,870
|
)
|
$
|
(39
|
)
|
-
|
$
|
-
|
$
|
282
|
$
|
29,136
|
||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
6,826
|
6,826
|
||||||||||||||||||||||||||
Foreign
currency translation
adjustments
|
118
|
118
|
||||||||||||||||||||||||||
Comprehensive
income
|
6,944
|
|||||||||||||||||||||||||||
Exercise
of stock options and warrants
|
1,661,826
|
17
|
3,809
|
3,826
|
||||||||||||||||||||||||
Conversion
of nil coupon perpetual loan notes into Common Shares
|
769
|
5
|
(5
|
)
|
-
|
|||||||||||||||||||||||
Tax
benefit from stock compensation expense
|
5,944
|
5,944
|
||||||||||||||||||||||||||
Stock
compensation expense
|
1,805
|
1,80544
|
||||||||||||||||||||||||||
Balance
at December 31, 2006
|
22,086,728
|
$
|
221
|
$
|
103,122
|
$
|
(56,044
|
)
|
$
|
79
|
-
|
$
|
-
|
$
|
277
|
$
|
47,655
|
2006
|
2005
|
2004
|
||||||||
For
the years ended December 31
|
||||||||||
OPERATING
ACTIVITIES
|
||||||||||
Net
income
|
$
|
6,826
|
$
|
7,588
|
$
|
1,572
|
||||
Adjustments
to reconcile net income to net cash provided
by operating activities:
|
||||||||||
Depreciation
|
1,961
|
1,566
|
1,225
|
|||||||
Amortization
|
118
|
127
|
137
|
|||||||
Provision
for doubtful accounts
|
-
|
26
|
92
|
|||||||
Loss
on equipment disposals/impaired assets
|
-
|
32
|
109
|
|||||||
Deferred
income tax
|
(1,235
|
)
|
(2,978
|
)
|
(1,520
|
)
|
||||
Current
stock compensation expense
|
1,805
|
-
|
-
|
|||||||
Changes
in operating assets and liabilities:
|
||||||||||
Accounts
receivable
|
(3,491
|
)
|
(5,901
|
)
|
(1,355
|
)
|
||||
Inventories
|
155
|
(47
|
)
|
-
|
||||||
Prepaid
expenses, other current assets
|
||||||||||
and
other noncurrent assets
|
(1,046
|
)
|
(439
|
)
|
(197
|
)
|
||||
Accounts
payable
|
1,139
|
3,788
|
461
|
|||||||
Accrued
liabilities and other
|
||||||||||
noncurrent
liabilities
|
1,927
|
6,278
|
125
|
|||||||
Other
|
-
|
3
|
65
|
|||||||
Net
cash provided by operating activities
|
8,159
|
10,043
|
714
|
|||||||
INVESTING
ACTIVITIES
|
||||||||||
Proceeds
from sale of equipment
|
-
|
-
|
13
|
|||||||
Purchases
of short-term investments
|
(2,000
|
)
|
(3,500
|
)
|
-
|
|||||
Purchases
of equipment and patents
|
(2,017
|
)
|
(2,792
|
)
|
(2,080
|
)
|
||||
Net
cash used in investing activities
|
(4,017
|
)
|
(6,292
|
)
|
(2,067
|
)
|
||||
FINANCING
ACTIVITIES
|
||||||||||
Proceeds
from exercise of stock options and warrants
|
3,826
|
1,230
|
34
|
|||||||
Income
tax benefit from exercise of stock options
|
5,944
|
1,488
|
-
|
|||||||
Net
cash provided by financing activities
|
9,770
|
2,718
|
34
|
|||||||
Effect
of exchange rate fluctuations on cash
|
118
|
(125
|
)
|
38
|
||||||
Net
increase (decrease) in cash and cash equivalents
|
14,030
|
6,344
|
(1,281
|
)
|
||||||
Cash
and cash equivalents at beginning of year
|
10,375
|
4,031
|
5,312
|
|||||||
Cash
and cash equivalents at end of year
|
$
|
24,405
|
$
|
10,375
|
$
|
4,031
|
Description
of Other Intangible
|
Amortization
period
|
(in
thousands)
|
|||||||||
2066
|
2005
|
||||||||||
Customer
list
|
15
years
|
$
|
1,198
|
$
|
1,198
|
||||||
Patent
asset
|
10
years
|
1,063
|
1,013
|
||||||||
Covenant
not to compete
|
6
years
|
100
|
100
|
||||||||
Total
cost
|
$
|
2,361
|
$
|
2,311
|
|||||||
Less
accumulated amortization
|
1,205
|
1,087
|
|||||||||
Total
net intangible asset value
|
$
|
1,156
|
$
|
1,224
|
Description
of Equipment
|
Depreciable
life
|
(in
thousands)
|
||||||||
2006
Equipment
Cost
|
2005
Equipment
Cost
|
|||||||||
Field
equipment
|
3-4
years
|
$
|
8,365
|
$
|
7,487
|
|||||
Computer
equipment and software
|
2-3
years
|
2,857
|
2,805
|
|||||||
Furniture
and fixtures
|
3-10
years
|
1,652
|
1,631
|
|||||||
Vehicles
|
3
years
|
22
|
22
|
|||||||
Total
cost
|
$
|
12,896
|
$
|
11,945
|
||||||
Less
accumulated depreciation
|
8,845
|
7,900
|
||||||||
Total
net book value
|
$
|
4,051
|
$
|
4,045
|
2006
|
2005
|
2004
|
||||||||
Basic
weighted-average shares
|
21,491
|
20,043
|
19,517
|
|||||||
Conversion
of unsecured loan notes
|
46
|
59
|
85
|
|||||||
Unexercised
options and warrants
|
2,650
|
2,964
|
2,553
|
|||||||
Diluted
weighted-average shares
|
24,187
|
23,066
|
22,155
|
(in
thousands)
|
2006
|
2005
|
|||||
Costs
incurred on uncompleted contracts
|
$
|
18,696
|
$
|
12,020
|
|||
Estimated
earnings
|
13,810
|
11,442
|
|||||
Earned
revenue
|
32,506
|
23,462
|
|||||
Less
billings to date
|
31,524
|
25,179
|
|||||
Total
|
$
|
982
|
$
|
(1,717
|
)
|
||
Classified
as follows:
|
|||||||
Costs
and estimated earnings in excess of billings
on uncompleted contracts
|
$
|
3,615
|
$
|
2,272
|
|||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
(2,633
|
)
|
(3,989
|
)
|
|||
Total
|
$
|
982
|
$
|
(1,717
|
)
|
Origin
of income (loss) before taxes
|
2006
|
2005
|
2004
|
|||||||
United
States
|
$
|
13,279
|
$
|
7,823
|
$
|
1,218
|
||||
Foreign
|
(1,511
|
)
|
(654
|
)
|
(1,052
|
)
|
||||
Income
before taxes
|
$
|
11,768
|
$
|
7,169
|
$
|
166
|
2006
|
2005
|
2004
|
||||||||
Current:
|
||||||||||
Federal
|
$
|
144
|
$
|
582
|
$
|
20
|
||||
State
|
29
|
455
|
94
|
|||||||
Other
|
60
|
34
|
-
|
|||||||
Total
current
|
$
|
233
|
1,071
|
114
|
||||||
Deferred:
|
||||||||||
Federal
|
4,314
|
2,179
|
1,512
|
|||||||
State
|
180
|
630
|
204
|
|||||||
Change
in valuation allowance
|
215
|
(4,299
|
)
|
(3,236
|
)
|
|||||
Total
deferred
|
4,709
|
(1,490
|
)
|
(1,520
|
)
|
|||||
Income
tax expense (benefit)
|
$
|
4,942
|
$
|
(419
|
)
|
$
|
(1,406
|
)
|
2006
|
2005
|
2004
|
||||||||
Provision
at the U.S. federal statutory rate
|
$
|
4,119
|
$
|
2,509
|
$
|
58
|
||||
State
taxes, net of federal benefit
|
187
|
369
|
94
|
|||||||
Foreign
losses without tax benefit
|
588
|
263
|
368
|
|||||||
Research
credits
|
(229
|
)
|
(339
|
)
|
-
|
|||||
Other
|
62
|
1,078
|
-
|
|||||||
Valuation
allowance adjustment
|
215
|
(4,299
|
)
|
(1,926
|
)
|
|||||
Income
tax benefit
|
$
|
4,942
|
$
|
(419
|
)
|
$
|
(1,406
|
)
|
2006
|
2005
|
2004
|
||||||||
Provision
at the U.S. federal statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
||||
State
taxes, net of federal benefit
|
1.6
|
%
|
5.1
|
%
|
56.6
|
%
|
||||
Foreign
losses without tax benefit
|
5.0
|
%
|
3.7
|
%
|
221.7
|
%
|
||||
Research
credits
|
(1.9
|
)%
|
(4.7
|
)%
|
-
|
%
|
||||
Other
|
.5
|
%
|
15.1
|
%
|
-
|
%
|
||||
Valuation
allowance adjustment
|
1.8
|
%
|
(60.0
|
)%
|
(1,160.3
|
)%
|
||||
Income
tax benefit
|
42.0
|
%
|
(5.8
|
)%
|
(847.0
|
)%
|
2006
|
2005
|
||||||
Deferred
tax assets:
|
|||||||
Research
and development credit
|
$
|
2,296
|
$
|
1,663
|
|||
Net
operating loss carryforwards
|
2,116
|
2,268
|
|||||
Accrued
liability for compensation
|
537
|
344
|
|||||
Stock
compensation expense
|
526
|
-
|
|||||
Equipment
|
379
|
159
|
|||||
Alternative
minimum tax credit
|
284
|
261
|
|||||
Warranty
reserve
|
180
|
94
|
|||||
Accounts
receivable
|
57
|
57
|
|||||
Deferred
rent liability
|
37
|
42
|
|||||
Vacation
accrual
|
33
|
28
|
|||||
Charitable
contribution
|
14
|
8
|
|||||
Research
and development asset
|
9
|
-
|
|||||
Total
deferred tax assets
|
6,468
|
4,924
|
|||||
Valuation
allowances for deferred tax assets
|
(260
|
)
|
(45
|
)
|
|||
Deferred
tax assets net of valuation allowances
|
$
|
6,208
|
$
|
4,879
|
|||
Deferred
tax liabilities:
|
|||||||
Patents
|
(65
|
)
|
(54
|
)
|
|||
Goodwill
|
(286
|
)
|
(203
|
)
|
|||
Total
deferred tax liabilities
|
(351
|
)
|
(257
|
)
|
|||
Net
deferred tax asset
|
$
|
5,857
|
$
|
4,622
|
|||
Net
deferred tax assets and liabilities are recorded as follows within
the
consolidated balance sheets:
|
|||||||
Current
assets
|
$
|
4,972
|
$
|
3,043
|
|||
Long-term
assets
|
885
|
1,579
|
|||||
Net
deferred tax asset
|
$
|
5,857
|
$
|
4,622
|
2007
|
$
|
2,325
|
||
2008
|
1,480
|
|||
2009
|
220
|
|||
2010
|
309
|
|||
2011
|
884
|
|||
2012
|
40
|
|||
2021
|
117
|
|||
2025
|
670
|
|||
$
|
6,045
|
For
the year ended (in thousands)
|
2005
|
2004
|
|||||
Net
income as reported
|
$
|
7,588
|
$
|
1,572
|
|||
Deduct:
Total
stock-based compensation expense determined under fair value based
method
for all awards, net of related tax effects
|
952
|
765
|
|||||
Pro
forma net income
|
$
|
6,636
|
$
|
807
|
|||
Basic
and diluted income per share:
|
|||||||
Basic
- as reported
|
$
|
.38
|
$
|
.08
|
|||
Basic
- pro forma
|
$
|
.33
|
$
|
.04
|
|||
Diluted
- as reported
|
$
|
.33
|
$
|
.07
|
|||
Diluted
- pro forma
|
$
|
.29
|
$
|
.04
|
2006
|
2005
|
2004
|
||||||||
Expected
dividend yield
|
0.00
|
%
|
0.00
|
%
|
0.00
|
%
|
||||
Risk-free
interest rate
|
4.64
|
%
|
4.38
|
%
|
3.60
|
%
|
||||
Expected
volatility
|
60.7
|
%
|
48.0
|
%
|
62.3
|
%
|
||||
Expected
life of option
|
5.2
years
|
4.0
years
|
4.0
years
|
2006
|
2005
|
2004
|
|||||||||||||||||
Number
of
Options
|
Weighted-
Average
Exercise
Price
|
Number
of
Options
|
Weighted-
Average
Exercise
Price
|
Number
of
Options
|
Weighted-
Average
Exercise
Price
|
||||||||||||||
Outstanding
at beginning of year
|
2,799,000
|
$
|
4.29
|
2,810,000
|
$
|
3.24
|
2,447,050
|
$
|
3.00
|
||||||||||
Granted
|
1,094,000
|
22.06
|
557,000
|
7.84
|
408,000
|
4.67
|
|||||||||||||
Exercised
|
(1,332,925
|
)
|
2.88
|
(529,250
|
)
|
2.32
|
(19,425
|
)
|
1.74
|
||||||||||
Expired
or forfeited
|
(145,875
|
)
|
5.91
|
(38,750
|
)
|
5.97
|
(25,625
|
)
|
4.82
|
||||||||||
Outstanding
at end of year
|
2,414,200
|
$
|
13.02
|
2,799,000
|
$
|
4.29
|
2,810,000
|
$
|
3.24
|
||||||||||
Exercisable
at end of year
|
711,450
|
$
|
5.22
|
1,687,375
|
$
|
2.87
|
1,806,125
|
$
|
2.65
|
||||||||||
Weighted-average
fair value of
|
|||||||||||||||||||
options
granted during the year
|
$
|
12.53
|
$
|
3.35
|
$
|
2.31
|
Number
of
Options
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding
on January 1, 2006
|
2,799,000
|
$
|
4.29
|
||||||||||
Granted
|
1,094,000
|
22.06
|
|||||||||||
Exercised
|
(1,332,925
|
)
|
2.88
|
$
|
16,417
|
||||||||
Expired
or forfeited
|
(145,875
|
)
|
5.92
|
||||||||||
Outstanding
on December 31, 2006
|
2,414,200
|
$
|
13.02
|
8.35
years
|
$
|
31,422
|
|||||||
Exercisable
on December 31, 2006
|
711,450
|
$
|
5.22
|
6.24
years
|
$
|
3,714
|
|||||||
Weighted-average
fair value of
|
|||||||||||||
options
granted during 2006
|
$
|
12.53
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Range
of
Exercise
Prices
|
Number
of
Options
|
Weighted-Average
Remaining
Contractual Life |
Weighted-Average
Exercise
Price
|
Number
of
Options
|
Weighted-Average
Exercise
Prices
|
|||||||||||
$2.55
- $5.10
|
709,200
|
6.39
years
|
$
|
3.87
|
485,450
|
$
|
3.64
|
|||||||||
$5.11
- $10.20
|
611,000
|
8.09
years
|
$
|
7.44
|
166,000
|
$
|
5.98
|
|||||||||
$10.21
- $17.84
|
317,500
|
9.31
years
|
$
|
13.66
|
60,000
|
$
|
15.95
|
|||||||||
$17.85
- $25.49
|
776,500
|
9.94
years
|
$
|
25.49
|
||||||||||||
$2.55
- $25.49
|
2,414,200
|
8.35
years
|
$
|
13.02
|
711,450
|
$
|
5.22
|
Nonvested
Stock Outstanding
|
Weighted-Average
Fair
Value
|
||||||
Outstanding
on January 1, 2006
|
1,111,625
|
$
|
2.82
|
||||
Granted
|
1,094,000
|
12.53
|
|||||
Released
|
(362,500
|
)
|
3.59
|
||||
Expired
or forfeited
|
(140,375
|
)
|
2.75
|
||||
Outstanding
on December 31, 2006
|
1,702,750
|
$
|
8.90
|
Year
of Payment
|
Amount
|
|||
2007
|
$
|
521
|
||
2008
|
466
|
|||
2009
|
361
|
|||
2010
|
34
|
|||
2011
|
6
|
|||
Thereafter
|
0
|
Year
of Payment
|
Amount
|
|||
2007
|
$
|
81
|
||
2008
|
81
|
|||
2009
|
81
|
|||
2010
|
7
|
|||
2011
|
-
|
|||
Thereafter
|
-
|
·
|
in
support of the warranty period defined in the contract, or
|
·
|
in
support of the system performance criteria that are defined in the
contract
|
(in
thousands)
|
2006
|
2005
|
2004
|
|||||||
Aggregate
product warranty liability at beginning of year
|
$
|
247
|
$
|
137
|
$
|
176
|
||||
Aggregate
accruals related to product warranties
|
280
|
160
|
663
|
|||||||
Aggregate
reductions for payments
|
(55
|
)
|
(50
|
)
|
(701
|
)
|
||||
Aggregate
product warranty liability at end of year
|
$
|
472
|
$
|
247
|
$
|
137
|
For
the year ended
December
31, 2006
|
Nitrogen
Oxide Reduction
|
Fuel
Treatment Chemical
|
Other
|
Total
|
|||||||||
Net
sales from external customers
|
$
|
46,454
|
$
|
28,661
|
$
|
-
|
$
|
75,115
|
|||||
Cost
of sales
|
26,328
|
11,932
|
169
|
38,429
|
|||||||||
Gross
margin
|
20,126
|
16,729
|
(169
|
)
|
36,686
|
||||||||
Selling,
general and administrative
|
-
|
-
|
23,901
|
23,901
|
|||||||||
Research
and development
|
-
|
-
|
2,052
|
2,052
|
|||||||||
Operating
income (loss)
|
$
|
20,126
|
$
|
16,729
|
$
|
(26,122
|
)
|
$
|
10,733
|
For
the year ended
December
31, 2005
|
Nitrogen
Oxide Reduction
|
Fuel
Treatment Chemical
|
Other
|
Total
|
|||||||||
Net
sales from external customers
|
$
|
32,650
|
$
|
20,272
|
$
|
6
|
$
|
52,928
|
|||||
Cost
of sales
|
16,744
|
10,096
|
278
|
27,118
|
|||||||||
Gross
margin
|
15,906
|
10,176
|
(272
|
)
|
25,810
|
||||||||
Selling,
general and administrative
|
-
|
-
|
17,414
|
17,414
|
|||||||||
Research
and development
|
-
|
-
|
1,241
|
1,241
|
|||||||||
Operating
income (loss)
|
$
|
15,906
|
$
|
10,176
|
$
|
(18,927
|
)
|
$
|
7,155
|
For
the year ended
December
31, 2004
|
Nitrogen
Oxide Reduction
|
Fuel
Treatment Chemical
|
Other
|
Total
|
|||||||||
Net
sales from external customers
|
$
|
14,602
|
$
|
16,216
|
$
|
14
|
$
|
30,832
|
|||||
Cost
of sales
|
8,458
|
7,797
|
311
|
16,566
|
|||||||||
Gross
margin
|
6,144
|
8,419
|
(297
|
)
|
14,266
|
||||||||
Selling,
general and administrative
|
-
|
-
|
12,775
|
12,775
|
|||||||||
Research
and development
|
-
|
-
|
1,355
|
1,355
|
|||||||||
Operating
income (loss)
|
$
|
6,144
|
$
|
8,419
|
$
|
(14,427
|
)
|
$
|
136
|
For
the years ended December 31 (in thousands)
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Net
sales:
|
||||||||||
United
States
|
$
|
57,628
|
$
|
41,721
|
$
|
26,093
|
||||
Foreign
|
17,487
|
11,207
|
4,739
|
|||||||
$
|
75,115
|
$
|
52,928
|
$
|
30,832
|
December
31
|
2006
|
|
2005
|
|
2004
|
|||||
Assets:
|
||||||||||
United
States
|
$
|
62,190
|
$
|
39,959
|
$
|
21,641
|
||||
Foreign
|
3,470
|
4,116
|
2,187
|
|||||||
$
|
65,660
|
$
|
44,075
|
$
|
23,828
|
For
the quarters ended:
|
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||
(in
thousands, except share data)
|
|||||||||||||
2006
(a)
|
|||||||||||||
Net
sales
|
$
|
17,121
|
$
|
19,759
|
$
|
20,173
|
$
|
18,062
|
|||||
Cost
of sales
|
9,056
|
10,112
|
10,042
|
9,219
|
|||||||||
Net
income
|
1,350
|
1,958
|
2,060
|
1,458
|
|||||||||
Net
income per Common Share:
|
|||||||||||||
Basic
|
$
|
0.07
|
$
|
0.09
|
$
|
0.09
|
$
|
0.07
|
|||||
Diluted
|
$
|
0.06
|
$
|
0.08
|
$
|
0.09
|
$
|
0.06
|
|||||
2005
(b)
|
|||||||||||||
Net
sales
|
$
|
12,051
|
$
|
11,780
|
$
|
12,821
|
$
|
16,276
|
|||||
Cost
of sales
|
6,397
|
6,053
|
6,467
|
8,201
|
|||||||||
Net
(loss) income
|
753
|
3,172
|
1,048
|
2,615
|
|||||||||
Net
(loss) income per Common Share:
|
|||||||||||||
Basic
|
$
|
0.04
|
$
|
0.16
|
$
|
0.05
|
$
|
0.13
|
|||||
Diluted
|
$
|
0.03
|
$
|
0.14
|
$
|
0.05
|
$
|
0.11
|
Year
|
Balance
at
January
1
|
Charged
to costs and expenses
|
(Deductions)/Other
|
Balance
at
December
31
|
|||||||||
2004
|
$
|
311,000
|
92,000
|
(329,000
|
)
|
$
|
74,000
|
||||||
2005
|
$
|
74,000
|
26,000
|
50,000
|
$
|
150,000
|
|||||||
2006
|
$
|
150,000
|
-
|
-
|
$
|
150,000
|
Year
|
Balance
at
January
1
|
Charged
to costs and expenses
|
(Deductions)/Other
|
Balance
at
December
31
|
|||||||||
2004
|
$
|
7,580,000
|
-
|
(3,236,000
|
)
|
$
|
4,344,000
|
||||||
2005
|
$
|
4,344,000
|
-
|
(4,299,000
|
) |
$
|
45,000
|
||||||
2006
|
$
|
45,000
|
215,000
|
-
|
$
|
260,000
|
^^
|
3.1
|
Certificate
of Incorporation of Fuel Tech, Inc. filed September 30,
2006
|
^^
|
3.2
|
Certificate
of Conversion of Fuel Tech, Inc. filed September 30,
2006
|
^^
|
3.3
|
By-Laws
of Fuel Tech, Inc. adopted September 30, 2006
|
*
|
4.1
|
Instrument
Constituting US $19,200,000 Nil Coupon Non-Redeemable Convertible
Unsecured Loan Notes of Fuel-Tech N.V., dated December 21,
1989
|
*
|
4.2
|
First
Supplemental Instrument Constituting US $3,000,000 Nil Coupon
Non-Redeemable Convertible Unsecured Loan Notes of Fuel-Tech N.V.,
dated
July 10, 1990
|
**
|
4.3
|
Instrument
Constituting US $6,000,000 Nil Coupon Non-Redeemable Convertible
Unsecured
Loan Notes of Fuel-Tech N.V., dated March 12, 1993
|
**
|
4.4
|
Form
of Warrants issued April 30, 1998 evidencing right to purchase 3
million
shares of Fuel-Tech N.V. Common Stock.
|
^^^
|
4.5
|
Fuel
Tech, Inc. Incentive Plan as amended through June 3,
2004
|
o
|
4.6
|
Fuel
Tech, Inc. Form of Non-Executive Director Stock Option
Agreement.
|
o
|
4.7
|
Fuel
Tech, Inc. Form of Non-Qualified Stock Option
Agreement.
|
o
|
4.8
|
Fuel
Tech, Inc. Form of Incentive Stock Option Agreement.
|
^
|
4.9
|
The
Business Loan Agreement dated as of July 31, 2006 between Wachovia
Bank
N.A. and Fuel Tech, Inc.
|
**
|
10.1
|
Securities
Purchase Agreement dated as of March 23, 1998, between Fuel-Tech
N.V., and
the several Investors signatory thereto, including
exhibits.
|
#&
|
10.2
|
License
Agreement dated November 18, 1998 between The Gas Technology Institute
and
Fuel Tech, Inc. relating to the FLGR Process
|
#&
|
10.3
|
Amendment
No. 1, dated February 28, 2000, to License Agreement of November
18, 1998
between The Gas Technology Institute and Fuel Tech,
Inc.
|
oooo
|
10.4
|
Employment
Agreement as of February 28, 2006 between John (Johnny) F. Norris,
Jr. and
Fuel Tech, Inc.
|
^^^^
|
10.5
|
Form
of Indemnity Agreement between Fuel Tech, Inc. and its Directors
and
Officers
|
oo
|
19.0
|
Those
portions of the Proxy Statement to be distributed to Shareholders
of Fuel
Tech for the 2007 Annual Meeting of Shareholders of Fuel Tech, Inc.
specifically incorporated by reference into this Annual Report on
Form10-K.
|
o
|
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
o
|
23.2
|
Consent
of Independent Registered Public Accounting Firm
|
o
|
31.1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
o
|
31.2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
o
|
32.0
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
Filed
with Registration Statement on Form 20-F, No. 000-21724 on August
26,
1993, as amended
|
|
**
|
Filed
with Registrant’s Report on Form 6-K for the month of March
1998
|
†
|
Filed
with Registrant’s Report on Form 20-F for the year 1997
|
o
|
Filed
herewith
|
oo
|
Filed
with the Registrant’s definitive proxy material for its 2007 Annual
Meeting
|
oooo
|
Filed
with Registrant’s report on Form 10-K for the year 2006
|
#
|
Confidential
information removed and filed separately
|
&
|
Filed
with Registrant’s report on Form 10-K for the year 1999
|
^
|
Filed
with Registrant’s Form 8-K on August 10, 2006
|
^^
|
Filed
with Registrant’s Form 8-K on September 30, 2006
|
Filed
with Registration Statement on Form S-8 No. 333-137735 on October
2nd
2006
|
|
^^^^
|
Filed
with Registrant’s Form 8-K on February 7,
2007
|
Date: March 6, 2007 | By: | /s/ John F. Norris Jr. |
John F. Norris Jr. |
||
Chief
Executive Officer, President and
Director
|
Date: March 6, 2007 | By: | /s/ Vincent J. Arnone |
Vincent
J. Arnone
|
||
Chief
Financial Officer,
Sr. Vice President and Treasurer
|
/s/
Ralph E. Bailey
|
Executive
Chairman and Director
|
|
Ralph
E. Bailey
|
||
/s/
Douglas G. Bailey
|
Deputy
Chairman and Director
|
|
Douglas
G. Bailey
|
||
/s/
Thomas J. Shaw
|
Director
|
|
Thomas
J. Shaw
|
||
/s/
Miguel Espinosa
|
Director
|
|
Miguel
Espinosa
|
||
/s/
Samer S. Khanachet
|
Director
|
|
Samer
S. Khanachet
|
||
/s/
John D. Morrow
|
Director
|
|
John
D. Morrow
|
||
/s/
Thomas L. Jones
|
Director
|
|
Thomas
L. Jones
|
||
/s/
Charles W. Grinnell
|
Director,
Vice President, General Counsel and Corporate Secretary
|
|
Charles W. Grinnell |