10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-33059

FUEL TECH, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation of organization) 20-5657551
(I.R.S. Employer Identification Number)

Fuel Tech, Inc.
27601 Bella Vista Parkway
Warrenville, IL 60555-1617
630-845-4500
(Address and telephone number of principal executive offices)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ 
Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of April 28, 2010 there were outstanding 24,213,467 shares of Common Stock, par value $0.01 per share, of the registrant.

FUEL TECH, INC.
Form 10-Q for the three-month period ended March 31, 2010

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009	1
	Condensed Consolidated Statements of Operations for the Three- Month Periods Ended March 31, 2010 and 2009	2
	Condensed Consolidated Statements of Cash Flows for the Three- Month Periods Ended March 31, 2010 and 2009	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	Controls and Procedures	16
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 6.	Exhibits	17
SIGNATURES		18
EX-10.1
EX-31.1
EX-31.2
EX-32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FUEL TECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

	March 31,			December 31,
	2010			2009
	(Unaudited)			(Note B)
Assets
Current assets:
Restricted cash	$	75		$	200
Cash and cash equivalents		21,432			20,965
Accounts receivable, net of allowance for doubtful accounts of $70 and $70, respectively		19,918			17,877
Inventories		806			450
Deferred income taxes		636			636
Prepaid expenses and other current assets		2,300			2,294
Total current assets		45,167			42,422
Equipment, net of accumulated depreciation of $15,050 and $14,562, respectively		14,925			15,549
Goodwill		21,051			21,051
Other intangible assets, net of accumulated amortization of $3,036 and $2,817, respectively		6,530			6,749
Deferred income taxes		4,659			4,183
Other assets		2,405			2,308
Total assets	$	94,737		$	92,262
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt	$	2,925		$	2,925
Accounts payable		5,671			5,824
Accrued liabilities:
Employee compensation		741			671
Other accrued liabilities		3,427			2,424
Total current liabilities		12,764			11,844
Other liabilities		2,221			2,196
Total liabilities		14,985			14,040
Shareholders’ equity:
Common stock, $.01 par value, 40,000,000 shares authorized, 24,211,967 and 24,211,967 shares issued, respectively		242			242
Additional paid-in capital		126,838			125,458
Accumulated deficit		(47,614	)		(47,828	)
Accumulated other comprehensive income		210			269
Nil coupon perpetual loan notes		76			81
Total shareholders’ equity		79,752			78,222
Total liabilities and shareholders’ equity	$	94,737		$	92,262

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)

	Three Months Ended
	March 31
	2010			2009
Revenues	$	17,617		$	17,317
Costs and expenses:
Cost of sales		9,500			11,374
Selling, general and administrative		7,480			8,254
Research and development		146			154
		17,126			19,782
Operating income/(loss)		491			(2,465	)
Interest expense		(44	)		(30	)
Interest income		1			16
Other (expense)		(92	)		(124	)
Income/(Loss) before taxes		356			(2,603	)
Income tax (expense)/benefit		(142	)		1,041
Net income/(loss)	$	214		$	(1,562	)
Net income/(loss) per Common Share:
Basic	$	0.01		$	(0.06	)
Diluted	$	0.01		$	(0.06	)
Weighted-average number of Common Shares outstanding:
Basic		24,212,000			24,112,000
Diluted		24,431,000			24,112,000

See notes to condensed consolidated financial statements.

2

FUEL TECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

	Three Months Ended
	March 31
	2010			2009
Operating activities
Net cash provided by operating activities	$	685		$	6,504
Investing activities
Acquisition of business		—			(22,490	)
Decrease in restricted cash		125			—
Purchases of equipment and patents		(307	)		(883	)
Net cash used in investing activities		(182	)		(23,373	)
Financing activities
Proceeds from short-term borrowings		—			3
Issuance of deferred shares		28			21
Proceeds from exercise of stock options and warrants		—			27
Redemption of nil coupon loan note		(5	)		—
Net cash provided by financing activities		23			51
Effect of exchange rate fluctuations on cash		(59	)		(15	)
Net increase (decrease) in cash and cash equivalents		467			(16,833	)
Cash and cash equivalents at beginning of period		20,965			28,149
Cash and cash equivalents at end of period	$	21,432		$	11,316
Supplemental disclosure of cash flow information:
Increase in contingent consideration payable				$	2,307

See notes to condensed consolidated financial statements.

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FUEL TECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(in thousands, except share and per-share data)
(Unaudited)

Note A: Nature of Business

Fuel Tech, Inc. (Fuel Tech or the Company) is a fully integrated company that uses a suite of advanced technologies to provide boiler optimization, efficiency improvement and air pollution reduction and control solutions to utility and industrial customers worldwide. Originally incorporated in 1987 under the laws of the Netherlands Antilles as Fuel-Tech N.V., Fuel Tech became domesticated in the United States on September 30, 2006, and continues as a Delaware corporation with its corporate headquarters at 27601 Bella Vista Parkway, Warrenville, Illinois, 60555-1617. Fuel Tech maintains an Internet website at www.ftek.com. Fuel Tech’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 are made available through our website as soon as reasonably practical after electronically filed or furnished to the Securities and Exchange Commission. Also available on the Fuel Tech’s website are the Company’s Corporate Governance Guidelines and Code of Ethics and Business Conduct, as well as the charters of the Audit and Compensation & Nominating committees of the Board of Directors. All of these documents are available in print without charge to stockholders who request them. Information on our website is not incorporated into this report.

Fuel Tech’s special focus is the worldwide marketing of its nitrogen oxide (NOx) reduction and FUEL CHEM^® processes. The Air Pollution Control (APC) technology segment reduces NOx emissions in flue gas from boilers, incinerators, furnaces and other stationary combustion sources by utilizing combustion optimization techniques and Low NOx and Ultra Low NOx Burners; Over-Fire Air systems, NOxOUT^® and HERT™ High Energy Reagent Technology™ SNCR systems; systems that incorporate ASCR^™ (Advanced Selective Catalytic Reduction) technology including CASCADE^™; ULTRA^™ and NOxOUT-SCR^® processes; and Ammonia Injection Grids (AIG) and the Graduated Straightening Grid (GSG™). The FUEL CHEM^® technology segment improves the efficiency, reliability and environmental status of combustion units by controlling slagging, fouling and corrosion, as well as the formation of sulfur trioxide, ammonium bisulfate, particulate matter (PM_2.5), carbon dioxide, NOx and unburned carbon in fly ash through the addition of chemicals into the fuel or via TIFI^® Targeted In-Furnace Injection^™ programs. Fuel Tech has other technologies, both commercially available and in the development stage, all of which are related to APC and FUEL CHEM technology segments or are similar in their technological base. Fuel Tech’s business is materially dependent on the continued existence and enforcement of worldwide air quality regulations.

Note B: Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the balance sheet and results of operations for the periods covered have been included and all significant intercompany transactions and balances have been eliminated. The results of operations of all acquired businesses have been consolidated for all periods subsequent to the date of acquisition.

The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in Fuel Tech’s Annual Report on
Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission.

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Note C: Revenue Recognition Policy

Revenues from the sales of chemical products are recorded when title transfers, either at the point of shipment or at the point of destination, depending on the contract with the customer.

Fuel Tech uses the percentage of completion method of accounting for equipment construction and license contracts that are sold within the APC technology segment. Under the percentage of completion method, revenues are recognized as work is performed based on the relationship between actual construction costs incurred and total estimated costs at completion. Revisions in completion estimates and contract values in the period in which the facts giving rise to the revisions become known can influence the timing of when revenues are recognized under the percentage of completion method of accounting. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. As of March 31, 2010 the Company had one construction contract in progress that was identified as a loss contract in the amount of $171.

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

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

Fuel Tech has installed over 550 units with APC technology and has never failed to meet a performance guarantee when the customer has provided the required operating conditions for the project. As part of the project implementation process, we perform system start-up and optimization services that effectively serve as a test of actual project performance. We believe that this test, combined with the accuracy of the modeling that is performed, enables revenue to be recognized prior to the receipt of formal customer acceptance.

Accounts receivable includes unbilled receivables, representing revenues recognized in excess of billings on uncompleted contracts under the percentage of completion method of accounting. At March 31, 2010 and December 31, 2009, unbilled receivables were approximately $7,963 and $8,466, respectively. Billings in excess of costs and estimated earnings on uncompleted contracts were $672 and $373, at March 31, 2010 and December 31, 2009, respectively. Such amounts are included in other accrued liabilities on the consolidated balance sheet.

Note D: Cost of Sales

Cost of sales includes all internal and external engineering costs, equipment and chemical charges, inbound and outbound freight expenses, internal and site transfer costs, installation charges, purchasing and receiving costs, inspection costs, warehousing costs, project personnel travel expenses and other direct and indirect expenses specifically identified as project- or product line-related, as appropriate (e.g., test equipment depreciation and certain insurance expenses). Certain depreciation and amortization expenses related to tangible and intangible assets, respectively, are also allocated to cost of sales.

Note E: Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily include the following categories except where an allocation to the cost of sales line item is warranted due to the project- or product-line nature of a portion of the expense category: salaries and wages, employee benefits, non-project travel, insurance, legal, rent, accounting and auditing, recruiting, telephony, employee training, Board of Directors’ fees, auto rental, office supplies, dues and subscriptions, utilities, real estate taxes, commissions and bonuses, marketing materials, postage and business taxes. Departments comprising the selling, general and administrative line item primarily include the functions of executive management, finance and accounting, investor relations, regulatory affairs, marketing, business development, information technology, human resources, sales, legal and general administration.

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Note F: Earnings per Share Data

Basic earnings per share excludes the dilutive effects of stock options and warrants and of the nil coupon non-redeemable convertible unsecured loan notes. Diluted earnings per share includes the dilutive effect of stock options and warrants and of the nil coupon non-redeemable convertible unsecured loan notes. The following table sets forth the weighted-average shares used in calculating the earnings per share for the three-month periods ended March 31, 2010 and 2009:

	Three Months Ended March 31
	2010		2009
Basic weighted-average shares		24,212,000		24,112,000
Conversion of unsecured loan notes		7,000		—
Unexercised options and warrants		212,000		—
Diluted weighted-average shares		24,431,000		24,112,000

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Note G: Total Comprehensive Income (Loss)

Total comprehensive income (loss) for Fuel Tech is comprised of net income and the impact of foreign currency translation as follows:

	Three Months Ended March 31
	2010			2009
Comprehensive income:
Net income/(loss)	$	214			($1,562	)
Foreign currency translation		(59	)		(15	)
	$	155			($1,577	)

Note H: Stock-Based Compensation

Fuel Tech has a stock-based employee compensation plan, referred to as the Fuel Tech, Inc. Incentive Plan (Incentive Plan), under which awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Awards, Bonuses or other forms of share-based or non-share-based awards or combinations thereof. Participants in the Incentive Plan may be Fuel Tech’s directors, officers, employees, consultants or advisors (except consultants or advisors in capital-raising transactions) as the directors determine are key to the success of Fuel Tech’s business. The amount of shares that may be issued or reserved for awards to participants under a 2004 amendment to the Incentive Plan is 12.5% of outstanding shares calculated on a diluted basis. At March 31, 2010, Fuel Tech has 467,000 stock options available for issuance under the Incentive Plan.

Fuel Tech utilizes the Black-Scholes option-pricing model to estimate the fair value of stock option grants. The Company recorded stock-based compensation expense for the three-month periods ended March 31, 2010 and 2009 of $1,352 and $1,396, respectively.

The awards granted under the Incentive Plan have a 10-year life and they vest as follows: 50% after the second anniversary of the award date, 25% after the third anniversary, and the final 25% after the fourth anniversary of the award date. Fuel Tech calculates stock compensation expense based on the grant date fair value of the award and recognizes expense on a straight-line basis over the four-year service period of the award.

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.

7

Stock option activity for Fuel Tech’s Incentive Plan for the three months ended March 31, 2010 was as follows:

						Weighted-
				Weighted-		Average
	Number			Average		Remaining			Aggregate
	of			Exercise		Contractual			Intrinsic
	Options			Price		Term			Value
Outstanding on January 1, 2010		3,051,125		$	15.28
Granted		—			—
Exercised		—			—
Expired or forfeited		(125,750	)	$	17.56
Outstanding on March 31, 2010		2,925,375		$	15.18		6.7	years	$	1,866
Exercisable on March 31, 2010		2,006,000		$	14.55		6.0	years	$	1,866

Non-vested stock award activity for all plans for the three months ended March 31, 2010 was as follows:

	Non-vested
	Stock
	Outstanding
Outstanding on January 1, 2010		1,267,125
Granted		—
Released		(231,000	)
Expired or forfeited		(116,750	)
Outstanding on March 31, 2010		919,375

As of March 31, 2010, there was $6,727 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Incentive Plan. That cost is expected to be recognized over a period of four years.

In addition to the Incentive Plan, Fuel Tech has a Deferred Compensation Plan for Directors (Deferred Plan). This Deferred Plan, as originally approved, provided for deferral of directors’ fees in the form of either cash with interest or as “phantom stock” units, in either case, however, to be paid out only as cash and not as stock at the elected time of payout. In the second quarter of 2007, Fuel Tech obtained stockholder approval for an amendment to the Deferred Plan to provide that instead of phantom stock units paid out only in cash, the deferred stock unit compensation may be paid out in shares of Fuel Tech Common Stock. Under the guidance of ASC 718-10, this plan modification required that Fuel Tech account for awards under the plan for the receipt of Fuel Tech Common Stock, as equity awards as opposed to liability awards. For the three months ended March 31, 2010, Fuel Tech recorded stock-based compensation expense of $28 with a credit of the same amount to additional paid-in capital representing the fair value of the stock awards granted.

At March 31, 2010, Fuel Tech had 2,362,000 stock options with exercise prices per share that were not dilutive for the purpose of inclusion in the calculation of diluted earnings per share.

Note I: Debt

On June 30, 2009, Fuel Tech entered into a $25,000 revolving credit facility (the Facility) with JPMorgan Chase Bank, N.A (JPM Chase). The Facility has a term of two years through June 30, 2011, is unsecured, bears interest at a rate of LIBOR plus a spread range of 250 basis points to 375 basis points, as determined under a formula related to the Company’s leverage ratio, and

8

has the Company’s Italian subsidiary, Fuel Tech S.r.l., as a guarantor. Fuel Tech can use this Facility for cash advances and standby letters of credit. As of March 31, 2010, there were no outstanding borrowings on this Facility.

At its inception, the Facility contained several debt covenants with which the Company must comply on a quarterly or annual basis, including: an annual capital expenditure limit of $10,000 and a minimum net income for the quarterly period ended September 31, 2009 of $750. For subsequent periods, the Facility covenants included an annual capital expenditure limited of $10,000, a maximum funded debt to EBITDA ratio of 2.75:1.0 for the quarterly period ended March 31, 2010 and a maximum funded debt to EBITDA ratio of 1.5:1.0 for all succeeding quarterly periods until the facility expires. Maximum funded debt is defined as all borrowed funds, outstanding standby letters of credit and bank guarantees. EBITDA includes after tax earnings with add backs for interest expense, income taxes, and depreciation and amortization expenses. In addition, the Company must maintain a minimum tangible net worth of $42,000, adjusted upward for 50% of net income generated and 100% of all capital issuances.

As of March 31, 2010, the Company was in compliance with all debt covenants of the Facility, including a year-to-date capital expenditure amount of $307 and a tangible net worth amount of $52,171 which was above the required amount of $49,064 by $3,107.

Beijing Fuel Tech Environmental Technologies Company, Ltd. (Beijing Fuel Tech), a wholly-owned subsidiary of Fuel Tech, has a revolving credit facility (the China Facility) agreement with JPM Chase for RMB 35 million (approximately $5,000), which expires on June 30, 2010. The facility is unsecured, bears interest at a rate of 120% of the People’s Bank of China (PBOC) Base Rate and does not contain any material debt covenants. Beijing Fuel Tech can use this facility for cash advances and bank guarantees. As of March 31, 2010, Beijing Fuel Tech has borrowings outstanding in the amount $2,925, which bears interest at 5.8% .

At March 31, 2010, the Company had outstanding standby letters of credit and bank guarantees, predominantly to customers, totaling approximately $963 in connection with contracts in process. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments. At March 31, 2010, there were no cash borrowings under the revolving credit facility and approximately $24,037 was available.

In the event of default on either the Facility or the China Facility, the cross default feature in each allows the lending bank to accelerate the payment of any amounts outstanding and may, under certain circumstances, allow the bank to cancel the facility. If the Company were unable to obtain a waiver for a breach of covenant and the bank accelerated the payment of any outstanding amounts, such acceleration may cause the Company’s cash position to deteriorate or, if cash on hand were insufficient to satisfy the payment due, may require the Company to obtain alternate financing to satisfy the accelerated payment.

Note J: Business Segment and Geographic Disclosures

Fuel Tech segregates its financial results into two reportable segments representing two broad technology segments as follows:

• The Air Pollution Control technology segment, which includes the Low- and Ultra-low NOx Burners, over-fire air systems, HERT system, NOxOUT^®, CASCADE^™, AIG, GSG™, 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 CHEM^® technology segment, which uses chemical processes for the control of slagging, fouling, corrosion, opacity, acid plume and sulfur trioxide-related issues in furnaces and boilers through the addition of chemicals into the fuel using TIFI^® Targeted In-Furnace Injection™ technology.

The “Other” classification includes those profit and loss items not allocated by Fuel Tech to each reportable segment. Further, there are no intersegment sales that require elimination.

Fuel Tech evaluates performance and allocates resources based on reviewing gross margin by reportable segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Fuel Tech does not review assets by reportable segment, but rather, in aggregate for Fuel Tech as a whole.

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Reporting segment revenues and gross margin are provided below.

Three months ended	Air Pollution		FUEL CHEM®
March 31, 2010	Control Segment		Segment		Other			Total
Revenues from external customers	$	8,214	$	9,403	$	—		$	17,617
Cost of sales		5,258		4,242		—			9,500
Gross margin		2,956		5,161		—			8,117
Selling, general and administrative		—		—		7,480			7,480
Research and development		—		—		146			146
Operating income (loss)	$	2,956	$	5,161		($7,626	)	$	491

Three months ended	Air Pollution		FUEL CHEM
March 31, 2009	Control Segment		Segment		Other			Total
Revenues from external customers	$	8,820	$	8,497	$	—		$	17,317
Cost of sales		6,319		5,055		—			11,374
Gross margin		2,501		3,442		—			5,943
Selling, general and administrative		—		—		8,254			8,254
Research and development		—		—		154			154
Operating income (loss)	$	2,501	$	3,442		($8,408	)		($2,465	)

Information concerning Fuel Tech’s operations by geographic area is provided below. Revenues are attributed to countries based on the location of the customer. Assets are those directly associated with operations of the geographic area.

	Three months ended March 31
	2010		2009
Revenues:
United States	$	15,041	$	14,338
Foreign		2,576		2,979
	$	17,617	$	17,317
	March 31,		December 31,
	2010		2009
Assets:
United States	$	84,497	$	82,261
Foreign		10,240		10,001
	$	94,737	$	92,262

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Note K: Contingencies

Fuel Tech issues a standard product warranty with the sale of its products to customers. Fuel Tech’s recognition of warranty liability is based, generally, on analyses of warranty claims experience in the preceding years. 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.

Changes in the warranty liability for the three months ended March 31, 2010 are summarized below:

Aggregate product warranty liability at January 1, 2010	$	199
Aggregate accruals related to product warranties		30
Aggregate reductions for payments		(35	)
Aggregate product warranty liability at March 31, 2010	$	194

Note L: Income Tax

Fuel Tech had unrecognized tax benefits as of December 31, 2009 in the amount of $870. This amount included $840 of unrecognized tax benefits which, if ultimately recognized, will reduce Fuel Tech’s annual effective tax rate. There has been no material changes in unrecognized tax benefits during the quarter ended March 31, 2010.

Note M: Recently Adopted Accounting Pronouncements

In February 2010, the Financial Accounting Standards Board (FASB) issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements for the quarter ended March 31, 2010.

In January 2010, the FASB issued authoritative guidance that expands the required disclosures about fair value measurements. This guidance provides for new disclosures requiring the Company to (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separately information about purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements. This guidance also provides clarification of existing disclosures requiring the Company to (i) determine each class of assets and liabilities based on the nature and risks of the investments rather than by major security type and (ii) for each class of assets and liabilities, disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 fair value measurements. This guidance became effective for Fuel Tech on January 1, 2010, except for the presentation of purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements, which is effective for Fuel Tech on January 1, 2011, and did not have a material impact on the Company’s consolidated financial statements. The guidance pertaining to the presentation of purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements is not expected to have a material impact on the Company’s consolidated financial statements.

Note N: Business Acquisitions

Fuel Tech accounts for its acquisitions as purchases in accordance with ASC 805. Accordingly, in connection with each acquisition, the purchase price is allocated to the estimated fair values of all acquired tangible and intangible assets and assumed liabilities as of the date of the acquisition.

Advanced Combustion Technology, Inc.

On January 5, 2009, Fuel Tech completed its acquisition of substantially all of the assets of Advanced Combustion Technology, Inc. (ACT or the ACT Acquisition) for approximately $22,500 in cash, including transaction costs, plus future consideration if certain financial performance is achieved. In connection with the final determination of the Adjustment Calculation (as defined

11

in the asset purchase agreement) related to the net working capital amount, Fuel Tech paid ACT an additional $1,523 on July 23, 2009. All of the goodwill recognized is expected to be deductible for income tax purposes. Operating results related to the acquisition of substantially all of the assets of ACT and all of the related goodwill are reported as part of the APC Technology segment. Acquisition related costs, including out-of-pocket expenses related to the transaction, were insignificant.

Below is a breakdown of amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed as a result of the Company’s acquisition of ACT:

Identifiable assets acquired and
liabilities assumed
Accounts receivable	5,928
Identifiable intangible assets	5,817
Other assets	247
Contingent consideration	2,307
Accounts payable	(2,673	)
Other current liabilities	(402	)
Total identifiable net assets	8,917
Goodwill	15,880
Total net assets recorded	24,797

At March 31, 2009, the Company recorded a contingent consideration accrual representing the fair value, weighted-average probability of future consideration expected to be paid in connection with the acquisition of substantially all of the assets of ACT of $2,307. The contingent consideration arrangement requires the Company to pay ACT a pro rata amount of up to $4,000 annually for the achievement of a minimum annual gross margin dollar level (the Hurdle) of $10,000, $11,000 and $12,000 in fiscal 2009, 2010 and 2011, respectively. In addition, the Company is required to pay ACT thirty-five percent (35%) of all qualifying gross margin dollars above the annual Hurdle rate for each of the three years. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is between $0 and $4,000 in any one year, and $0 and $12,000 in total, not including the amount related to the thirty-five percent (35%) sharing of qualifying gross margin dollars above the pre-determined Hurdle. The fair value of the contingent consideration arrangement of $2,307 was calculated using a probability of payout for each of the three years and included only twenty-five percent (25%) of the weighted-average, probable three-year aggregate payout as up to seventy-five percent (75%) of the contingent consideration is subject to forfeiture.

Note O: Goodwill

Goodwill is allocated to each of Fuel Tech’s reporting units after considering the nature of the net assets giving rise to the goodwill and how each reporting unit would enjoy the benefits and synergies of the net assets acquired. Fuel Tech has two reporting units which are reported in the FUEL CHEM segment and the APC technology segment. As of March 31, 2010 and December 31, 2009, goodwill allocated to the FUEL CHEM technology segment was $1,723 and $1,723, respectively, while goodwill allocated to the APC Technology segment was $19,328 and $19,328, respectively.

12

FUEL TECH, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Revenues for the three months ended March 31, 2010 and 2009 were $17,617 and $17,317, respectively. The 2% increase versus the prior year is due primarily due to the FUEL CHEM technology segment.

The Air Pollution Control (APC) technology segment generated revenues of $8,214 for the three months ended March 31, 2010, a decrease of $606, or 7%, from the prior year due to an across-the-board slowdown of capital project orders for pollution control equipment from our customer base. The decline can be attributed to the on-going regulatory uncertainty after the July 2008 decision by the U.S. District of Columbia Court of Appeals (the “Court”) to vacate the Clean Air Interstate Rule (CAIR) and the pending future of the remanded Rule, which is now scheduled for mid year 2010. The sluggish economy has reduced electrical demand by industrial customers, has resulted in lowered utility emission levels and allowed utilities to defer APC projects. In addition this economy decreased the cash flows and earnings for utilities and industrial customers and necessitated certain deferrals of their capital project spending and resulted in a suppressed level of orders for Fuel Tech’s APC segment in the first quarter of 2010. The Company expects APC orders to increase substantially in the latter half of 2010.

Consolidated APC backlog at March 31, 2010 was $21,000 versus backlog at March 31, 2009 of approximately $14,300. Substantially all of the backlog as of March 31, 2010 should be recognized as revenue in fiscal 2010, although the timing of such revenue recognition in 2010 is subject to the timing of the expenses incurred on existing projects.

The FUEL CHEM technology segment generated revenues of $9,403 for the three months ended March 31, 2010, an increase of $906, or 11%, versus the prior year. This increase is primarily attributed to the recognition of $2,000 in risk share revenue from a successful FUEL CHEM demonstration performed in 2009. Despite a flat year in 2009 in terms of revenues generated, the near-term decrease in demand for electricity, largely related to the U.S. economic recession, has dictated that certain Fuel Tech customers shut down or scale back certain boiler operations. This, in turn, has resulted in certain FUEL CHEM programs being temporarily turned off or being operated at reduced levels. Despite the near-term economic environment, the marketplace acceptance for Fuel Tech’s patented TIFI^® Targeted In-Furnace Injection™ technology remains strong, both domestically and abroad, particularly on coal-fired units, which represent the largest market opportunity for the technology.

The FUEL CHEM technology segment revolves around the unique application of specialty chemicals to improve the efficiency, reliability and environmental status of plants operating in the electric utility, industrial, pulp and paper, and waste-to-energy markets. FUEL CHEM programs are currently in place on over 90 combustion units, treating a wide variety of solid and liquid fuels, including coal, heavy oil, biomass and municipal waste.

Cost of sales as a percentage of revenue for the quarters ended March 31, 2010 and 2009 was 54% and 66%, respectively. The cost of sales percentage for the APC technology segment decreased to 64% from 72% in the comparable prior-year period, primarily due to an increase in higher margin project mix. For the FUEL CHEM technology segment, the cost of sales percentage decreased to 45% from 59% for the comparable prior-year quarter due to a reduction in variable costs related to operating customer units. FUEL CHEM gross margins increased to 55% primarily due to the recognition of $2,000 in risk share revenue from a successful demonstration program. As this risk share payment was contingent in nature, costs associated with this demonstration program were recognized in the prior period.

Selling, general and administrative expenses (SG&A) for the quarters ended March 31, 2010 and 2009 were $7,480 and $8,254, respectively. Of the $774 decrease in SG&A for the quarter versus the prior year, $507 is due to the reduction and restructuring of the workforce that became effective during the second half of 2009. Also contributing to this decrease was $434 in outside fees/services due to cost containment measures and a $95 in space rental that was eliminated in 2009 due to the purchase and relocation of the corporate headquarters. Partially offsetting these amounts was an increase of $269 in expenses related to our China subsidiary as overall business activity has increased significantly as evidenced by recent announced contracts.

Research and development expenses for the quarters ended March 31, 2010 and 2009 were $146 and $154, respectively. The Company has maintained its R&D expenditures at a conservative level in the wake of the current economic environment. Fuel Tech continues its efforts in the pursuit of commercial applications for its technologies outside of its traditional markets, and in the development and analysis of new technologies that could represent incremental market opportunities.

13

The $32 change in other (income)/expense is due largely to the impact of foreign exchange rates related to balances denominated in foreign currencies along with a loss on write-off of assets located at the Company’s prior headquarters facility.

Income tax (expense)/benefit for the quarters ended March 31, 2010 and 2009 was ($142) and $1,041, respectively, and reflective of the Company’s net income or loss for the respective quarters.

Liquidity and Sources of Capital

At March 31, 2010, Fuel Tech had cash and cash equivalents and short-term investments of $21,432 and working capital of $32,403 versus $20,965 and $30,578 at December 31, 2009, respectively. Operating activities generated $685 of cash for the three months ended March 31, 2010, primarily due to the add back of non-cash items including stock compensation expense of $1,352, depreciation expense of $939 and amortization expense of $219, and decreases in accounts receivable, inventory and prepaid expenses of $2,041, $355, and $116, respectively. Partially offsetting these items were a decrease in accounts payable of $153, due to timing of vendor payments, and a decrease in income tax provision of $476.

Investing activities used cash of $182 during the three months ended March 31, 2010, the majority of which was used for capital expenditures, primarily to support and enhance the operations of the FUEL CHEM technology segment.

On June 30, 2009, Fuel Tech entered into a $25,000 revolving credit facility (the Facility) with JPMorgan Chase Bank, N.A (JPM Chase). The Facility has a term of two years through June 30, 2011, is unsecured, bears interest at a rate of LIBOR plus a spread range of 250 basis points to 375 basis points, as determined under a formula related to the Company’s leverage ratio, and has the Company’s Italian subsidiary, Fuel Tech S.r.l., as a guarantor. Fuel Tech can use this Facility for cash advances and standby letters of credit. As of March 31, 2010, there were no outstanding borrowings on this Facility.

At its inception, the Facility contained several debt covenants with which the Company must comply on a quarterly or annual basis, including: an annual capital expenditure limit of $10,000 and a minimum net income for the quarterly period ended September 31, 2009 of $750. For subsequent periods, the Facility covenants included an annual capital expenditure limited of $10,000, a maximum funded debt to EBITDA ratio of 2.75:1.0 for the quarterly period ended March 31, 2010 and a maximum funded debt to EBITDA ratio of 1.5:1.0 for all succeeding quarterly periods until the facility expires. Maximum funded debt is defined as all borrowed funds, outstanding standby letters of credit and bank guarantees. EBITDA includes after tax earnings with add backs for interest expense, income taxes, and depreciation and amortization expenses. In addition, the Company must maintain a minimum tangible net worth of $42,000, adjusted upward for 50% of net income generated and 100% of all capital issuances.

As of March 31, 2010, the Company was in compliance with all debt covenants of the Facility, including a year-to-date capital expenditure amount of $307 and a tangible net worth amount of $52,171 which was above the required amount of $49,064 by $3,107.

Beijing Fuel Tech Environmental Technologies Company, Ltd. (Beijing Fuel Tech), a wholly-owned subsidiary of Fuel Tech, has a revolving credit facility (the “China Facility”) agreement with JPM Chase for RMB 35 million (approximately $5,000), which expires on June 30, 2010. The facility is unsecured, bears interest at a rate of 120% of the People’s Bank of China (PBOC) Base Rate and does not contain any material debt covenants. Beijing Fuel Tech can use this facility for cash advances and bank guarantees. As of March 31, 2010, Beijing Fuel Tech has borrowings outstanding in the amount $2,925, which bears interest at 5.8%.

At March 31, 2010, the Company had outstanding standby letters of credit and bank guarantees, predominantly to customers, totaling approximately $963 in connection with contracts in process. Fuel Tech is committed to reimbursing the issuing bank for any payments made by the bank under these instruments. At March 31, 2010, there were no cash borrowings under the revolving credit facility and approximately $24,037 was available.

In the event of default on either the Facility or the China Facility, the cross default feature in each allows the lending bank to accelerate the payment of any amounts outstanding and may, under certain circumstances, allow the bank to cancel the facility. If the Company were unable to obtain a waiver for a breach of covenant and the bank accelerated the payment of any outstanding amounts, such acceleration may cause the Company’s cash position to deteriorate or, if cash on hand were insufficient to satisfy the payment due, may require the Company to obtain alternate financing to satisfy the accelerated payment.

The Company generated cash from financing activities during the three months ended March 31, 2010 of $23, primarily from the non cash stock based compensation from the issuance of directors’ deferred shares of stock.

14

In the opinion of management, Fuel Tech’s expected near-term revenue growth will be driven by the timing of penetration of the coal-fired utility marketplace via utilization of its TIFI technology, by utility and industrial entities’ adherence to the NOx reduction requirements of the various domestic environmental regulations, and by the expansion of both business segments in non-U.S. geographies. Fuel Tech expects its liquidity requirements to be met by the operating results generated from these activities.

Contingencies and Contractual Obligations

Fuel Tech issues a standard product warranty with the sale of its products to customers as discussed in Note K. The change in the warranty liability balance during the three months ended March 31, 2010 was not material.

15

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech’s current expectations regarding future growth, results of operations, cash flows, performance and business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. Fuel Tech has tried to identify forward-looking statements by using words such as “anticipate,” “believe,” “plan,” “expect,” “estimate,” “intend,” “will,” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed in Fuel Tech’s Annual Report on Form 10-K for the year ended December 31, 2009 in Item 1A under the caption “Risk Factors,” which could cause Fuel Tech’s actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in Fuel Tech’s filings with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk Management

Fuel Tech’s earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. We do not enter into foreign currency forward contracts nor into foreign currency option contracts to manage this risk due to the immaterial nature of the transactions involved.

Fuel Tech is also exposed to changes in interest rates primarily due to its long-term debt arrangement (refer to Note G to the consolidated financial statements). A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not have a materially adverse effect on interest expense during the upcoming year ended December 31, 2010.

Item 4. Controls and Procedures

Fuel Tech maintains disclosure controls and procedures and internal controls designed to ensure (a) that information required to be disclosed in Fuel Tech’s filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) that such information is accumulated and communicated to management, including the principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure.

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

16

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

The risk factors included in our Annual Report on Form 10-K for fiscal year ended December 31, 2009 have not materially changed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 6. Exhibits

a. Exhibits (all filed herewith)

10.1	Transition Agreement, dated April 1, 2009, between Fuel Tech, Inc. and John F. Norris Jr.
31.1	Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2	Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32	Certification of CEO and CFO pursuant to Section 906 of Sarbanes-Oxley Act of 2002

17

FUEL TECH, INC.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 6, 2010	By:	/s/ Douglas G. Bailey
		Douglas G. Bailey
		President and Chief Executive Officer (Principal Executive Officer)
Date: May 6, 2010	By:	/s/ Ellen T. Albrecht
		Ellen T. Albrecht
		Vice President and Controller (Principal Financial Officer)

18

EX-10.1

Exhibit 10.1

TRANSITION AGREEMENT

This Transition Agreement (“Agreement”) is entered into on April 1, 2010, between Fuel Tech, Inc., a Delaware corporation (“Fuel Tech” or “Company”) and Johnny F. Norris Jr. (“Mr. Norris”). Each of Fuel Tech and Mr. Norris, intending to be legally bound, agree as follows:

1.	Transition Duties. Effective immediately, Mr. Norris resigns from his position as President and Chief Executive Officer of Fuel Tech. From the date of this Agreement until May 20, 2010 (the “Transition Period”), Mr. Norris will remain employed by Fuel Tech in the capacity of Executive Advisor, reporting directly to the interim President and Chief Executive Officer of Fuel Tech, and will assist in such matters as may be requested by him or his designate during the Transition Period. Through the end of the Transition Period, Mr. Norris will continue to receive his current monthly base salary, and shall continue to participate in the Fuel Tech 401(k) Plan and other health and welfare benefits extended to Fuel Tech domestic U.S. employees generally in accordance with the terms and conditions of each of the health and welfare benefit plans through which such benefits are made available to such employees. On May 20, 2010, Mr. Norris shall retire from Fuel Tech.
2.	Director Status. Mr. Norris will continue to serve as a director on the Board of Directors of Fuel Tech until May 20, 2010. With respect to those subsidiaries or affiliated companies of Fuel Tech for which Mr. Norris currently serves as a director or in any other legal capacity, Mr. Norris will continue to serve in each such capacity for each of those subsidiaries or affiliated companies until requested by the Company to resign or May 20, 2010, whichever occurs first.
3.	Separation Agreement. On May 20, 2010, Fuel Tech and Mr. Norris will enter into the Separation Agreement attached as Exhibit A to this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

FUEL TECH, INC.

By:	/s/ Douglas G. Bailey	/s/ Johnny F. Norris Jr.
	Douglas G. Bailey	Johnny F. Norris Jr.
	Chairman of the Board

EXHIBIT A

SEPARATION AGREEMENT

     This Separation Agreement (“Agreement”) is made and entered into as of the date indicated below between Fuel Tech, Inc. (“Fuel Tech” or the “Company”) and Mr. Johnny F. Norris Jr. (“Mr. Norris”).

     Fuel Tech and Mr. Norris wish to provide for the termination of their employment relationship and all agreements that may have existed between them, and fully and finally to settle all matters encompassed by the release set forth below, without any admission of any kind by either party.

     Therefore, in consideration of the mutual promises and agreements set forth in this Agreement, Fuel Tech and Mr. Norris agree as follows:

I. EMPLOYMENT SEPARATION

     A. Separation Date. Effective May 20, 2010 (“Separation Date”), Mr. Norris agrees that he resigned his employment and all offices and positions within the Company and with any affiliated or related entities of the Company including, but not limited to, the position of Executive Advisor. As of the Separation Date, Mr. Norris shall be deemed to have retired from the Company.

     B. Separation. Effective on the Separation Date, Mr. Norris shall have no duties and no authority to make any representations or commitments on behalf of the Company as an employee of the Company or in any capacity whatsoever. Thereafter, Mr. Norris shall have no further rights deriving from his employment by the Company, and shall not be entitled to any further compensation or non-vested benefits, except as provided in this Agreement.

II. CONSIDERATION

     In exchange for the promises contained in Section III, and the Waiver and Release of Claims and Covenant Not To Sue set forth in Section IV, and subject to the terms and conditions set forth in this Agreement, Fuel Tech agrees to provide Mr. Norris with the compensation set forth in this Section II (“Consideration”).

     A. Severance Payment.

          1. Fuel Tech will pay Mr. Norris a total severance payment amount equal to Five Hundred Thousand Dollars ($500,000.00) (the “Severance Payment”). The Severance Payment shall be paid in equal installments twice a month, on or about the 1^st and 15^th day of the month, over a period of twelve (12) months, until the Severance Payment is fully paid. Subject to Fuel Tech’s internal deadlines for submitting payroll requests, the first Severance Payment installment shall be paid on or about the 1^st or 15^th day of the calendar month, as applicable, after the expiration of the Revocation Period (as that term is defined below). Mr. Norris will cease to be eligible for any Fuel Tech benefits (other than those specifically described herein) as of the Separation Date.

          2. Mr. Norris acknowledges that continuation healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) can provide for

continued group health coverage to eligible employees and their dependents. In the event, in accordance with COBRA requirements and to the extent provided by COBRA, Mr. Norris elects to enroll in COBRA to continue his medical, dental, or vision healthcare coverages that were in effect through the Company’s group healthcare plans as of the day preceding the Separation Date, Fuel Tech shall reimburse Mr. Norris his out of pocket COBRA premium cost actually paid by him that is associated with his acquiring those COBRA benefits for a period of eighteen (18) months from the Separation Date (“Reimbursement Period”). Otherwise, all costs and expenses incurred by Mr. Norris associated with continuing COBRA coverage after the Reimbursement Period shall be his sole responsibility and at his sole cost and expense. Each COBRA premium reimbursement request submitted by Mr. Norris shall be paid by Fuel Tech within thirty (30) days after its receipt provided that the reimbursement request is accurate, in a form and substance required by Fuel Tech, and accompanied by suitable supporting documentation as requested by Fuel Tech.

     B. Acknowledgment. Mr. Norris acknowledges that the Consideration provided in this Agreement is good and valuable consideration in exchange for this Agreement, and includes payments to which Mr. Norris is not otherwise entitled.

     C. Withholding. The Company will withhold from each Severance Payment installment payment payable to Mr. Norris under Section II of this Agreement all appropriate deductions for employee benefits, if applicable, and the amounts necessary for the Company to satisfy its withholding obligations under applicable federal, state and local laws, rules and regulations.

     D. Revocation. Mr. Norris’ receipt of the Consideration including, without limitation, the Severance Payment, is conditioned upon his unrevoked execution of the Agreement and acceptance of the general waiver, release and covenant not to sue contained within the Agreement. Mr. Norris acknowledges and agrees that he has had at least twenty-one (21) days before the Separation Date to review the Agreement and seven (7) days after executing it to revoke the execution (the “Revocation Period”). If the execution is revoked, then Mr. Norris will not be entitled to receive the Consideration. Mr. Norris must provide written notice of the revocation of the executed Agreement to Albert G. Grigonis, Vice President, General Counsel & Secretary of Fuel Tech, Inc. within the seven (7) day Revocation Period.

III. MR. NORRIS’ COVENANTS TO FUEL TECH

     The parties desire to provide for the protection of the business, good will, confidential information, relationships and other proprietary rights of Fuel Tech. Accordingly, Mr. Norris agrees to the following:

     A. Property of Fuel Tech. By the Separation Date, Mr. Norris will return to Fuel Tech all Company property including, but not limited to, all business cards, identification cards, files, computer hardware, software, equipment and disks, keys, Company owned or leased vehicles, credit cards, and records.

     B. Cooperation. After the Separation Date, Mr. Norris agrees to make himself reasonably available to Fuel Tech to respond to requests for information pertaining to or relating to the Company or any of its agents, officers, directors or employees, that may be within the knowledge of Mr. Norris. Mr. Norris will cooperate fully in connection with any and all existing or future depositions and/or litigations or investigations brought by or against Fuel Tech, Mr. Norris or any of the Company’s agents, officers, directors or employees, whether administrative,

civil or criminal in nature, in which and to the extent the Company deems Mr. Norris’ cooperation necessary. In the event that Mr. Norris is subpoenaed in connection with any litigation or investigation involving the Company, he will immediately notify Fuel Tech, and shall give the Company an opportunity to respond to such notice before taking any action or making any decision in connection with such subpoena. Any violation of this Subsection will be deemed to be a material breach of this Agreement. In addition to any other remedies available to Fuel Tech at law or equity, a violation of this Subsection by Mr. Norris will also authorize the Company to terminate any payments under this Agreement, and will obligate him to return all monies paid to him hereunder.

     C. Confidential Information. Mr. Norris acknowledges that he has had access to confidential Company business information, including, but not limited to, future business plans and financial information (“Confidential Information”) and which is not generally known outside the Company. For all time, Mr. Norris agrees that he shall not, without the proper written authorization of the Company, directly or indirectly use, divulge, furnish or make accessible to any person any Confidential Information, but instead shall keep all Confidential Information strictly and absolutely confidential. Mr. Norris will use reasonable and prudent care to safeguard and prevent the unauthorized use or disclosure of Confidential Information. Mr. Norris shall return to Fuel Tech all Confidential Information, including but not limited to any and all copies, reproductions, notes or extracts of Confidential Information.

     D. Non-Solicitation/Competition. For twelve (12) months following the Separation Date, Mr. Norris agrees that he will not, directly or indirectly, as an employee, agent, member, director, partner, consultant or contractor or in any other individual or representative capacity: (i) solicit any “Protected Individual,” as defined below, for other employment or engagement, induce or attempt to induce any Protected Individual to terminate his or her employment, hire or engage any Protected Individual, or otherwise interfere or attempt to interfere in any way in the relationship between Fuel Tech and such Protected Individual; or (ii) engage anywhere in the United States in any activity competitive with the “Business of Fuel Tech,” as defined below. For purposes of this Agreement, “Protected Individual” means an individual who is or was an employee, consultant or contractor of Fuel Tech and with whom Mr. Norris had business contact at any time during Mr. Norris’ employment or about whom Mr. Norris received Confidential Information; provided that a former employee, consultant or contractor will only be considered a “Protected Individual” for six (6) months after the last date he or she was employed by or provided services to Fuel Tech. Also for purposes of this Agreement, “Business of Fuel Tech” means air pollution control; the development and use of specialty chemicals for improving the efficiency, reliability, and environmental status of plants operating in the electric utility, industrial, pulp and paper, and waste-to-energy markets; and any other business activity as of the Separation Date that Fuel Tech conducts or has expended significant time and resources preparing to conduct (provided such preparations were known to Mr. Norris during his employment).

     Further, Mr. Norris expressly acknowledges that the terms of this Subsection are material to this Agreement, and if Mr. Norris breaches the terms of this Subsection, Mr. Norris shall be responsible for all damages and, at the election of Fuel Tech, the return of all consideration allocated thereto, as described in the various Subsections of this Section, without prejudice to any other rights and remedies that Fuel Tech may have.

     In addition, Mr. Norris acknowledges and agrees that the Confidential Information and special knowledge acquired during Mr. Norris’ employment with the Company is valuable and

unique, and that breach by Mr. Norris of the provisions of this Agreement as described in this Subsection will cause the Company irreparable injury and damage, and that the Company cannot be reasonably or adequately compensated by money damages for such injury and damage. Mr. Norris, therefore, expressly agrees that the Company shall be entitled to injunctive or other equitable relief in order to prevent a breach of this Agreement or any part thereof, in addition to such other remedies legally available to the Company. Mr. Norris expressly waives the claim that the Company has an adequate remedy at law.

IV. GENERAL WAIVER, RELEASE AND COVENANT NOT TO SUE

     A. General Waiver and Release by Mr. Norris.

          1. As a material inducement to Fuel Tech to enter into this Agreement, and in consideration of Fuel Tech’s promise to make the payments set forth in this Agreement, except for Fuel Tech’s obligations to Mr. Norris under that certain Indemnity Agreement dated December 7, 2006 between Mr. Norris and the Company, Mr. Norris hereby knowingly and voluntarily releases and forever discharges Fuel Tech, and all of its affiliates, parents, subsidiaries and related entities, and all of its past, present and future respective agents, officers, directors, shareholders, employees, attorneys and assigns from any federal, state or local charges, claims, demands, actions, liabilities, suits, or causes of action, at law or equity or otherwise and any and all rights to or claims for continued employment after the Separation Date, attorneys fees or damages (including contract, compensatory, punitive or liquidated damages) or equitable relief, which he may ever have had, has now or may ever have or which Mr. Norris’ heirs, executors or assigns can or shall have, against any or all of them, whether known or unknown, on account of or arising out of Mr. Norris’ employment with Fuel Tech or his separation from the Company.

          2. This release includes, but is not limited to rights and claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, Employee Retirement Income Security Act, the Age Discrimination in Employment Act (“ADEA”) as amended by the Older Workers Benefit Protection Act, the Fair Labor Standards Act, any state or local human rights statute or ordinance, any claims or rights of action relating to breach of contract, public policy, personal or emotional injury, defamation, additional compensation, or fringe benefits. Mr. Norris specifically waives the benefit of any statute or rule of law that, if applied to this Agreement, would otherwise exclude from its binding effect on any claims not now known by Mr. Norris to exist. This release does not purport to waive claims arising under these laws after the date of this Agreement. If the release provisions of Section IV are held invalid for any reason whatsoever, Mr. Norris agrees to execute such documents as may be necessary to make the release provisions valid or, at the option of the Company, agrees to return any consideration received under the terms of this Agreement and that the Company is released from any obligations under this Agreement.

     B. Covenant Not to Sue. Mr. Norris covenants and agrees not to sue or bring any action, whether federal, state, or local, judicial or administrative, now or at any future time, against Fuel Tech, its affiliates, parents, subsidiaries, or its or their related entities or its or their respective agents, directors, officers or employees, with respect to any claim released hereby. Nevertheless, this Agreement does not purport to limit any right Mr. Norris may have to file a charge under the ADEA or other civil rights statute or to participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission or other investigatory agency (each an “Enforcement Agency”). This Agreement does, however, waive and release any

right Mr. Norris may have to recover individual damages in any future proceeding conducted by an Enforcement Agency on his behalf.

V. NON-DISPARAGEMENT

     Mr. Norris agrees not to make any statement to any third party that disparages or defames the products, services, operations or policies of Fuel Tech, or its subsidiaries or their affiliated companies, or any of the officers, directors, or employees of any of them (collectively “Fuel Tech Parties”). Fuel Tech agrees to use commercially reasonable efforts to advise its senior officers to not, in the course and scope of their employment, make any statement to any non-Fuel Tech Parties that disparages or defames Mr. Norris. Mr. Norris agrees that the preceding sentence shall not prevent any of the Fuel Tech Parties from making references concerning or otherwise discussing the business performance of any of the Fuel Tech Parties during Mr. Norris’ tenure to any non-Fuel Tech Parties or making any disclosures required by law. If either party materially breaches this Section V, the non-breaching party shall be entitled to all rights and remedies permitted by law.

VI. MISCELLANEOUS PROVISIONS

     A. Venue and Choice of Law. This Agreement shall be governed by the laws of the State of Illinois except for its conflict of law provisions. The parties agree that the exclusive venue for enforcement of this Agreement shall be in any state court of DuPage County, Illinois or the United States District Court for the Northern District of Illinois, at the choice of the enforcing party and subject to any removal rights either party may enjoy. Both parties waive any objections they may have and give their consent to venue and personal jurisdiction in these courts.

     B. Amendment. Any amendment to this Agreement shall only be made in writing and signed by the parties.

     C. Waiver. No claim or right arising out of a breach or default under this Agreement can be discharged by a waiver of that claim or right unless the waiver is in writing signed by the party hereto to be bound by such waiver. A waiver by any party of a breach or default by the other party of any provision of this Agreement shall not be deemed a waiver of future compliance with such provision, and such provision shall remain in full force and effect.

     D. Notice. All notices, requests, demands and other communications under the Agreement shall be in writing and delivered in person or sent by certified mail, postage prepaid, and properly addressed as follows:

To Mr. Johnny F. Norris Jr:
2140 Wingate Drive
Delaware, Ohio 43015

To Fuel Tech:

Fuel Tech, Inc.
27601 Bella Vista Parkway
Warrenville, IL 60555
Attn: Mr. Douglas G. Bailey

With a copy to: Albert G Grigonis, Vice President,
General Counsel & Secretary at the same Fuel Tech address

The parties agree to notify each other promptly in writing of any change in mailing address.

     E. Payment in the Event of Death. In the event of Mr. Norris’ death after the Separation Date and his unrevoked execution of this Agreement, any part of the Severance Payment that has not yet been paid to him will be paid to his estate in a manner as required by law.

     F. Entire Agreement. Fuel Tech and Mr. Norris each represent and warrant that no promise or inducement has been offered or made except as set forth in this Agreement, and that the consideration stated in this Agreement is the sole consideration for this Agreement. This Agreement is a complete agreement and states fully all agreements, understandings, promises and commitments as between Mr. Norris and the Company as to the separation of Mr. Norris from employment by Fuel Tech. This Agreement supersedes any prior agreements, whether oral or written, between Mr. Norris and Fuel Tech as to its subject matter. Except as expressly provided herein, Mr. Norris is not entitled to any other or further compensation or remuneration.

     G. Limited Severability. If any Section or Subsection of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, in whole or in part, then such provision shall be deemed to be modified or restricted in the manner necessary to render the same valid and enforceable, and this Agreement shall be construed and enforced to the maximum extent permitted by law, if any.

     H. Voluntary Agreement and Advice of Counsel. Mr. Norris hereby certifies that he has read the terms of this Agreement, that he has been informed by Fuel Tech, through this document, that he should discuss this Agreement with an attorney of his own choice, and that he understands its terms and effects. Mr. Norris further certifies that he has the intention of performing his obligations under this Agreement in exchange for the Consideration described herein, which he acknowledges as adequate and satisfactory to him. Neither the Company nor any of its agents, representatives or attorneys have made any representations to Mr. Norris concerning the terms or effects of this Agreement or the general waiver, release and covenant not to sue it provides for other than those contained herein.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates set forth below. The effective date of this Agreement (“Effective Date”) shall be the last signature date shown below.

Mr. Johnny F. Norris Jr.	Fuel Tech, Inc.
	By:
	Its:
Date:	Date:

EX-31.1

Exhibit 31.1

I, Douglas G. Bailey, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Fuel Tech, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2010	By:	/s/ Douglas G. Bailey
		Douglas G. Bailey
		President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

I, Ellen T. Albrecht, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Fuel Tech, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2010	By:	/s/ Ellen T. Albrecht
		Ellen T. Albrecht
		Vice President and Controller (Principal Financial Officer)

EX-32

Exhibit 32

     The undersigned in their capacities as Chief Executive Officer and Principal Financial Officer of the Registrant do hereby certify that:

     (i) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (ii) information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in the report.

Date: May 6, 2010	By:	/s/ Douglas G. Bailey
		Douglas G. Bailey
		President and Chief Executive Officer (Principal Executive Officer)
Date: May 6, 2010	By:	/s/ Ellen T. Albrecht
		Ellen T. Albrecht
		Vice President and Controller (Principal Financial Officer)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (the “Act”) this certification accompanies the Report and shall not, except to the extent required by the Act, be deemed filed by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Fuel Tech, Inc. and will be retained by Fuel Tech, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.