<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                  For the fiscal year ended: December 31, 2003
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from_________________to_______________

                          Commission File No. 000-21724

                                 FUEL-TECH N.V.
             (Exact name of registrant as specified in its charter)


      Netherlands Antilles                                  N/A
(State or other jurisdiction of               (I.R.S. Employer Identification
 incorporation of organization)                             Number)

          Fuel-Tech N.V.                               Fuel Tech, Inc.
           (Registrant)                           (U.S. Operating Subsidiary)
         Castorweg 22-24                        Suite 703, 300 Atlantic Street
 Curacao, Netherlands Antilles                        Stamford, CT 06901
          (599) 9-461-3754                              (203) 425-9830
          (Address and telephone number of principal executive offices)

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
 Common Stock $0.01 par value per share           The Nasdaq Stock Market, Inc.
          (Title of Class)                              (Name of Exchange
                                                       on Which Registered)

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  X     No
                                     ---       ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  X
                             ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 under the Securities Exchange Act of 1934).
                                 Yes  X     No
                                     ---       ---

The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the average bid and asked prices of June 30, 2003 was
$83,000,000. The aggregate market value of the voting stock held by
non-affiliates of the registrant based on the average bid and asked prices of
February 25, 2004 was $71,092,000.

Indicate number of shares outstanding of each of the registered classes of
Common Stock at February 25, 2004: 19,505,000 shares of Common Stock, $0.01 par
value.

                      Documents incorporated by reference:

Certain portions of the Proxy Statement for the annual meeting of stockholders
to be held in 2004 are incorporated by reference in Parts II, III, and IV
hereof.
<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>        <C>                                                                                    <C>

                                                                                                   Page
                                                    PART I

Item 1.    Business                                                                                   1
Item 2.    Description of Property                                                                    5
Item 3.    Legal Proceedings                                                                          5
Item 4.    Submission of Matters to Vote of Security Holders                                          5


                                                    PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters                      6
Item 6.    Selected Financial Data                                                                    8
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations      9
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk                                14
Item 8.    Financial Statements and Supplementary Data                                               15
Item 9.    Changes in and Disagreements with Accountants and Financial Disclosure                    31
Item 9A.   Controls and Procedures                                                                   31


                                                    PART III

Item 10.   Directors and Executive Officers of the Registrant                                        31
Item 11.   Executive Compensation                                                                    31
Item 12.   Security Ownership of Certain Beneficial Owners and Management                            31
Item 13.   Certain Relationships and Related Transactions                                            31
Item 14.   Principal Accounting Fees and Services                                                    31


                                                    PART IV

Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K                           32

Signatures and Certifications                                                                        34
</TABLE>

                                       ii
<PAGE>

                             TABLE OF DEFINED TERMS

<TABLE>
<CAPTION>
Term                                          Definition
<S>                                           <C>

ABC                                           American Bailey Corporation

ACUITIV(TM)                                   A trademark used to describe Fuel Tech's advanced visualization software

AES                                           Advanced Engineering Services

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

EPA                                           Environmental Protection Agency

EPRI                                          Electric Power Research Institute

FTI                                           Fuel Tech, Inc.

FUEL CHEM(R)                                  A trademark used to describe Fuel Tech's fuel and flue gas treatment processes,
                                              including its Targeted-In-Furnace-Injection programs for slagging, fouling and
                                              corrosion control and plume abatement

Fuel Tech                                     Fuel-Tech N.V. and its subsidiaries and affiliates

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(R)                             A trademark used to describe Fuel Tech's combination of NOxOUT and SCR

NOxOUT(R) Process                             A trademark used to describe Fuel Tech's SNCR process for the reduction of NOx

NOxOUT SCR(R)                                 A trademark used to describe Fuel Tech's use of urea as a catalyst reagent

NOxOUT ULTRA(R)                               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 Rulemaking Procedure

SNCR                                          Selective Non-Catalytic Reduction

TIFI                                          FUEL CHEM's Targeted-In-Furnace-Injection programs for slagging, fouling and
                                              corrosion control and plume abatement
</TABLE>

                                      iii
<PAGE>

                   Fuel Tech N.V. Subsidiaries and Affiliates
                               December 31, 2003

<TABLE>
<CAPTION>
<S>                                                                                               <C>

                                                            -------------
                                                           |    FTNV     |
                                                           | Netherlands |------------
                                                           |  Antilles   |            |
                                                            -------------             |  100%
                                                                  |  100%         ----------
                                                            -------------        |   PPI    |
                                                           |     FTI     |       | Delaware |
                                                           |Massachusetts|        ----------
                                                            -------------
             100%                   100%                          |       100%          100%
            ---------------------------------------------------------------------------
            |                      |                              |                   |
        ---------              ---------                     ------------         ----------
       |  FTJL   |            |   FTL   |                   |  HOLDINGS  |       | Srl Italy|
       | Jamaica |            |  Canada |                   | Netherlands|       |          |
       |         |            |         |                   |  Antilles  |       |          |
        ---------              ---------                     ------------         ----------
                                                                  |
                                                                  |  100%
                                                                  |
                                                             ------------
                                                            |            |
 ---------------------------------------------------------  |    BV      |
|                                                         | | Netherlands|
|   FTNV     - Fuel-Tech N.V.                             | |            |
|   FTI      - Fuel Tech, Inc.                            |  ------------
|   Holdings - Fuel Tech Holdings N.V.                    |      |
|   BV       - Fuel Tech BV                               |       - -    100%
|   GmbH     - Fuel Tech GmbH                             |          |
|   FTL      - Fuel Tech Targeted Injection Chemicals Ltd.|     ------------
|   FTJL     - Fuel Tech Jamaica Limited                  |    |            |
|   Srl      - Fuel Tech Srl                              |    |   GmbH     |
|   PPI      - Platinum Plus, Inc.                        |    |  Germany   |
|                                                         |    |            |
 ---------------------------------------------------------      ------------

</TABLE>


                                       iv
<PAGE>


PART I

 Forward Looking Statements

         Statements in this Form 10-K which are not historical facts, so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. 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. See "Risk Factors of the Business" in Item 1 and also Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

ITEM 1. BUSINESS

Fuel Tech

         Fuel-Tech N.V., including its subsidiaries ("Fuel Tech"), is a
technology company active in the air pollution control and specialty chemical
businesses through its wholly owned subsidiary Fuel Tech, Inc. ("FTI").
Fuel-Tech N.V., incorporated in 1987 under the laws of the Netherlands Antilles,
is registered at Castorweg 22-24 in Curacao under No. 1334/N.V. Fuel Tech
maintains an internet web site at http://www.fueltechnv.com.

Fuel Tech, Inc.

         FTI's special focus is the worldwide marketing of its nitrogen oxide
("NOx") reduction and FUEL CHEM Processes. The NOx reduction technologies, which
include the NOxOUT, NOxOUT CASCADE, and NOxOUT SCR processes, reduce NOx
emissions in flue gas from boilers, incinerators, furnaces and other stationary
combustion sources. The FUEL CHEM business uses chemical processes for slagging,
fouling, corrosion control and plume abatement in furnaces and boilers through
the addition of chemicals into the fuel or by Targeted-In-Furnace-Injection. FTI
has a number of other technologies, such as NOxOUT ULTRA, both commercial and in
the development stage, that are for the most part add-ons to the NOxOUT Process
or similar in their technological base. Additionally, Fuel Tech has a division
that was created to market its high-end visualization software product. This
product, commercially introduced in 2002, is marketed under the "ACUITIV" trade
name. FTI's business is materially dependent on the continued existence and
enforcement of worldwide air quality regulations.

American Bailey Corporation

         Ralph E. Bailey, Chairman, Chief Executive Officer and Managing
Director of Fuel Tech, and Douglas G. Bailey, Deputy Chairman of Fuel Tech, are
shareholders of American Bailey Corporation ("ABC"). Please refer to Note 8 to
the consolidated financial statements in this document. Additionally, see the
more detailed information relating to this subject under the caption "Certain
Relationships and Related Transactions" in Fuel Tech's Proxy Statement to be
distributed in connection with Fuel Tech's 2004 Annual General Meeting of
Shareholders, which information is incorporated by reference.

NOx Reduction

Regulations and Markets

         The domestic U.S. air pollution control market is the primary driver in
Fuel Tech's NOx reduction business. This market is dependant on air pollution
regulations and their continued enforcement. These regulations are based on the
Clean Air Act Amendments of 1990 (the "CAAA"), which require reductions in NOx
emissions on varying timetables with respect to various sources of emissions.
Under the SIP (State Implementation Plan) Call, a regulation promulgated under
the Amendments (discussed further below), over 1,000 utility and large
industrial boilers in 19 states are required, as an aggregate, to achieve a NOx
reduction target by May 31, 2004. Also, under European Union Directives, over
100 industrial units in Europe must achieve NOx reductions by 2005.

         In 1994, governors of 11 Northeastern states, known collectively as the
Ozone Transport Region, signed a Memorandum of Understanding requiring utilities
to reduce their NOx emissions by 55% to 65% from 1990 levels by May 1999. In
1998, the Environmental Protection Agency ("EPA") announced more stringent
regulations. The Ozone Transport SIP Call regulation, designed to mitigate the
effects of wind-aided ozone transported from the Midwestern and Southeastern
U.S. into the Northeastern non-attainment areas, requires, following the
litigation described below, 19 states to make even deeper aggregate reductions
of 85% from 1990 levels by May 31, 2004. Over 1,000 utility and large industrial
boilers are affected by these mandates. Additionally, most other states with
non-attainment areas are also required to meet ambient air quality standards for
ozone by 2007.

         Although the SIP Call was the subject of litigation, an appellate court
of the D.C. Circuit upheld the validity of this regulation. This court's ruling
was later affirmed by the U.S. Supreme Court.

         In February 2001, the U.S. Supreme Court, in a unanimous decision,
upheld EPA's authority to revise the National Ambient Air Quality Standard for
ozone to 0.080 parts per million averaged through an eight-hour period from the
current 0.120 parts per million for a one-hour period. This more stringent
standard provides clarity and impetus for air pollution control efforts well
beyond the current ozone attainment requirement of 2007. In keeping with this
trend, the Supreme Court, only days later, denied industry's attempt to stay the
SIP Call, effectively exhausting all means of appeal.

                                       1
<PAGE>

         On December 23, 2003. EPA proposed a new regulation that affects the
SIP Call states by calling for more NOx reductions in 2010 and 2015. Also, deep
NOx reductions are called for in 10 additional states outside the current SIP
Call region. The proposed rule, called "The Interstate Air Quality Rule," allows
a cap and trade format similar to the SIP Call.

Products

         Fuel Tech's NOxOUT Process is a Selective Non-Catalytic Reduction
("SNCR") process that uses non-hazardous urea as the reagent rather than
ammonia. The NOxOUT Process on its own is capable of reducing NOx by up to 40%
for utilities and by potentially significantly greater amounts for industrial
units in many types of plants with capital costs ranging from $6 - $20/kw for
utility boilers and with annualized operating costs ranging from $1,000 -
$1,500/ton of NOx removed.

         Fuel Tech's NOxOUT CASCADE Process uses catalyst as an add-on to the
NOxOUT Process to achieve performance similar to Selective Catalytic Reduction
("SCR"). Based on demonstrations, NOxOUT CASCADE's capital cost is less than
that of SCR, while operating costs are competitive with those experienced by
SCR.

         Fuel Tech's NOxOUT SCR Process utilizes urea as a catalyst reagent to
achieve NOx reductions of up to 90% from stationary combustion sources with
capital and operating costs competitive with equivalently sized, standard SCR
systems.

         Fuel Tech's NOxOUT ULTRA system is designed to convert urea to ammonia,
safely and economically, for use as a reagent in the SCR process for NOx
reduction. In this fashion, Fuel Tech intends to participate in the SCR segment
of the SIP Call driven market. Recent local hurdles in the ammonia permitting
process have raised concerns regarding the safety of ammonia storage in
quantities sufficient to supply SCR.

         Fuel Tech has sublicensed the Rich Reagent Injection Technology from
Reaction Engineering International, which has a direct license from the Electric
Power Research Institute. The technology has been proven in full-scale field
studies on cyclone-fired units to reduce NOx by 25-30%. The technology is a
generic SNCR process, whose applicability is outside the temperature range of
NOxOUT. The technology is seen as an add-on to Fuel Tech's NOxOUT systems, thus
potentially broadening the NOx reduction of the combined system to almost 50%
with a minimal additional capital requirement.

         Sales of the NOx reduction technologies were $25.4 million, $25.5
million, and $10.4 million for the years ended December 31, 2003, 2002, and
2001, respectively.

NOx Reduction Competition

         Competition with Fuel Tech's NOx reduction products can be expected
from combustion modifications, SCR and ammonia SNCR, among others.

         Combustion modifications, including low NOx burners, can be fitted to
most types of boilers with cost and effectiveness varying with specific boilers.
Combustion modifications may effect 20-50% NOx reduction economically with
capital costs ranging from $5 - $40/kw and levelized total costs ranging from
$300 - $1,500/ton of NOx removed. Such companies as Alstom, Foster Wheeler
Corporation, The Babcock & Wilcox Company and Steam Sales Corporation are active
competitors in the low-NOx burner business.

         SCR is an effective and proven method of control for the removal of up
to 90% of NOx. SCR has a high capital cost ranging from $55 - $150/kw on
retrofit coal applications. Such companies as Alstom, The Babcock & Wilcox
Company, Cormetech, Inc., Engelhard Corporation, Foster Wheeler Corporation,
Peerless Manufacturing Company, and the Siemens Westinghouse Power Corporation
are active SCR system providers, or providers of the catalyst itself.

         The use of ammonia as the reagent for the SNCR process was developed by
the ExxonMobil Corporation. Fuel Tech understands that the ExxonMobil patents on
this process have expired. This process can reduce NOx by 30% to 70% on
incinerators, but has limited applicability in the utility industry. Ammonia
system capital costs range from $15 - $22/kw, with annualized operating costs
ranging from $1,000 - $3,000/ton of NOx removed. These systems require the use
of stored ammonia, a hazardous substance.

         In addition to or in lieu of using the foregoing processes, certain
customers will elect to close or derate plants, purchase electricity from
third-party sources, switch from higher to lower NOx emitting fuels or purchase
NOx emission allowances.

                                       2
<PAGE>

FUEL CHEM

Product and Markets

         Fuel Tech's fireside and fuel additive programs, FUEL CHEM, help
improve furnace and boiler performance and reduce customer operating costs. The
technology offered by FUEL CHEM, through unique chemistries and application
approaches, offers the customer significant value and return on their
investment. FUEL CHEM offers in-fuel technologies and FTI's multi-patented,
Targeted-In-Furnace-Injection technology ("TIFI"). This latter approach, the key
FUEL CHEM technology, is a uniquely engineered and economical solution to
furnace slag formation, fouling, corrosion problems and plume abatement. FUEL
CHEM also markets a family of combustion catalysts, which can offer customers
the benefit of reducing unburned carbon, lowering excess air and improving
combustion efficiency. The FUEL CHEM technology is rapidly gaining credibility
in the coal-fired electric utility industry, especially within the segment fired
by slag-forming coal, as a viable, cost-effective approach to the prevention of
problems that can have a significant negative financial impact on a plant's
operation. Electric utilities, the pulp and paper industry and municipal solid
waste incinerator facilities make up the principal markets for the program.

         Sales of the FUEL CHEM products were $10.3 million, $7.1 million, and
$7.2 million for the years ended December 31, 2003, 2002, and 2001,
respectively.

Competition

         Competition for Fuel Tech's FUEL CHEM product line includes chemicals
sold by specialty chemical companies, such as GE Betz, Inc., primarily in the
traditional heavy-fuel-oil treatment area. No substantive competition currently
exists for Fuel Tech's technology for the TIFI of additives for the control of
slagging, fouling, and corrosion and for plume abatement, but there can be no
assurance that such lack of substantive competition will continue.

Advanced Engineering Services and ACUITIV

         Fuel Tech uses its advanced engineering services ("AES") to support the
sale of Fuel Tech's NOx reduction and FUEL CHEM systems, particularly through
the use of computational fluid dynamics ("CFD") tools. These CFD tools assist in
the prediction of the behavior of gas flows, thereby enhancing the
implementation of Fuel Tech's NOx reduction systems and the application of its
FUEL CHEM slag and corrosion control processes.

         In 2001 and 2002, Fuel Tech augmented its AES staff and equipment with
a view toward not only better serving Fuel Tech's own customers, but also
seeking other commercial applications for its services. Toward this goal, the
ACUITIV software product was commercially introduced on June 6, 2002. The
ACUITIV product offering provides customers in several industries including
automotive, aerospace and defense, chemical processing and energy, with the
ability to uncover new opportunities, improve designs, accelerate
decision-making and shorten product development time to market. The ACUITIV
product can provide solutions on laptop or desktop systems, or within virtual
reality environments. The software allows users to visualize complex data sets
in a virtual reality environment. Although the validity of the product has been
confirmed, Fuel Tech does not expect revenues related to this product to be
material for the upcoming year.

Intellectual Property

         See Item 2 "Description of Property" for information on Fuel Tech's
intellectual property and proprietary position, which are material to its
business.

Employees

         Fuel Tech has 90 full-time employees, 84 in North America and 6 in
Europe. Fuel Tech enjoys good relations with its employees and is not a party to
any labor management agreements.

Risk Factors of the Business

         Investors in Fuel Tech should be mindful of the following risk factors
relative to Fuel Tech's business.

(i)  Lack of Diversification

         Fuel Tech is engaged in two principal businesses; the marketing of
products to reduce air pollution and improve furnace and boiler performance, and
the licensing of software that allows users to visualize complex data sets. The
software business is in its infancy and its ultimate success is uncertain, while
an adverse development in Fuel Tech's air pollution control business as a result
of competition, technological change, government regulation, or any other factor
could have a significantly greater impact than if Fuel Tech maintained diverse
operations.

                                       3
<PAGE>

(ii) Competition

         Competition in the NOx control market will come from processes
utilizing low-NOx burners, over-fire air, flue gas recirculation, ammonia SNCR,
SCR and, with respect to particular uses of urea not infringing Fuel Tech's
patents, urea (see Item 2 "Description of Property"). Competition will also come
from business practices such as the purchase rather than the generation of
electricity, fuel switching, closure or derating of units, and sale or trade of
pollution credits. Utilization by customers of such processes or business
practices or combinations thereof may adversely affect Fuel Tech's pricing and
participation in the NOx Control market if customers elect to comply with
regulations by methods other than Fuel Tech's NOxOUT or NOxOUT CASCADE
processes. See above under this Item I the text under the captions "Products"
and "NOx Reduction Competition."

         Competition in the FUEL CHEM markets includes chemicals sold by
specialty chemical companies, such as GE Betz, Inc., primarily in the
traditional heavy-fuel-oil treatment area. As noted previously, no substantive
competition currently exists for Fuel Tech's technology for the TIFI of
additives for the control of slagging, fouling, and corrosion and for plume
abatement, however, there can be no assurance that such lack of substantive
competition will continue.

(iii) Dependence on Regulations and Enforcement

         Fuel Tech's business is primarily regulatory driven. That business will
be adversely impacted to the extent that regulations are repealed or amended to
significantly reduce the level of required NOx reduction, or to the extent that
regulatory authorities minimize enforcement. See also the text above under the
caption "Regulations and Markets."

(iv) Protection of Patents and Proprietary Rights

         Fuel Tech holds licenses to or owns a number of patents and has patents
pending. There can be no assurance that pending patent applications will be
granted or that outstanding patents will not be challenged or circumvented by
competitors. Certain critical technology relating to Fuel Tech's products is
protected by trademark and trade secret laws and confidentiality and licensing
agreements. There can be no assurance that such protection will prove adequate
or that Fuel Tech will have adequate remedies for disclosure of its trade
secrets or violations of its intellectual property rights. See Item 2
"Description of Property."

                                       4
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

         Fuel Tech's products are generally protected by U.S. and non-U.S.
patents. Fuel Tech owns 96 patents worldwide, with four patent applications
pending in the U.S. and 27 pending in non-U.S. jurisdictions. These patents
cover some 38 inventions, 27 associated with the NOx reduction business; three
associated with FUEL CHEM, one associated with ACUITIV and seven associated with
non-commercialized technologies. These inventions represent significant
enhancements of the application and performance of the technologies. Further,
Fuel Tech believes that the protection provided by the numerous claims in the
above referenced patents or patent applications is substantial, and affords Fuel
Tech a significant competitive advantage in its business. Accordingly, any
significant reduction in the protection afforded by these patents or any
significant development in competing technologies could have a material adverse
effect on Fuel Tech's business.

         Apart from its intellectual property, the property of Fuel Tech is not
material.

         Fuel Tech and its subsidiaries operate from leased office and
engineering facilities in Curacao, Netherlands Antilles; Batavia, Illinois;
Stamford, Connecticut; and Milan, Italy.

ITEM 3. LEGAL PROCEEDINGS

         Fuel Tech has no pending litigation material to its business.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         During the fourth quarter of 2003, no matters were submitted to a vote
of security holders.


                                       5
<PAGE>

                                     PART II
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market

         Fuel Tech's Common Shares have been traded since September 1993 on The
NASDAQ Stock Market, Inc. Fuel Tech's Common Shares are also traded on the
Berlin Stock Exchange.

Prices

         The table below sets forth the high and low sales prices during each
calendar quarter since January 2002.

                                                       High                Low
                                                       ----                ----
             2003
             ----
             Fourth Quarter                            5.52                2.89
             Third Quarter                             6.21                4.72
             Second Quarter                            5.85                3.07
             First Quarter                             5.00                3.01

             2002
             ----
             Fourth Quarter                            4.95                2.76
             Third Quarter                             6.64                3.95
             Second Quarter                            7.25                5.20
             First Quarter                             6.82                4.50

Dividends

         Fuel Tech has not to date paid dividends on its Common Shares and is
not expected to do so in the foreseeable future.

Holders

         Based on information from Fuel Tech's Transfer Agent, as of March 3,
2004, there were 373 registered holders of Fuel Tech's Common Shares. Management
believes that, on such date, there were approximately 1,700 beneficial holders
of Fuel Tech's Common Shares.

Transfer Agent

         The Transfer Agent and Registrar for the Common Shares is Mellon
Investor Services, LLC, 85 Challenger Road, Overpeck Centre, Ridgefield Park,
New Jersey 07660.

Exchange Controls

         Fuel Tech received a license of unlimited duration from the Central
Bank of the Netherlands Antilles to exempt it from foreign exchange controls in
dealings with parties outside of the Netherlands Antilles or with parties in the
Netherlands Antilles holding a similar license. Fuel Tech also received a
business license of unlimited duration that allows the securities of Fuel Tech
to be held by non-residents of the Netherlands Antilles. There are no other
restrictions on the rights of such non-residents as shareholders. The books of
Fuel Tech are maintained in U.S. dollars, however, there are transactions in
other currencies.

Taxation

         Under the Netherlands Antilles tax code applicable to Fuel Tech until
at least the fiscal year 2019, Fuel Tech's income taxes in the Netherlands
Antilles, which are based on profits exclusive of Dutch dividends received, are
computed at a rate of 2.4% on the first 100,000 Netherlands Antilles Guilders
(approximately $60,000) and 3% on the excess. Also, capital gains and losses are
not included in the taxable profit of Fuel Tech. Based on a tax ruling received
by Fuel Tech, Dutch dividends received will be taxed to Fuel Tech at a rate of
5.0% at source, and at 5.5% of the net Dutch dividends in the Netherlands
Antilles until at least the fiscal year 2005. Fuel-Tech N.V. is not now liable
for tax in any jurisdiction other than the Netherlands Antilles. The
subsidiaries of Fuel Tech are generally subject to the tax regimes of the
jurisdictions where they are incorporated and conduct operations but not in the
Netherlands Antilles.

         Dividends paid by Fuel Tech to U.S. persons who are not engaged in a
trade or business through a permanent establishment in the Netherlands Antilles
are currently not subject to tax in the Netherlands Antilles. Gain or loss
derived by a U.S. person from the sale or exchange of Fuel Tech's Common Shares
are exempt from Netherlands Antilles income tax. The tax treaty between the
United States and the Netherlands Antilles was terminated effective December 31,
1987.

                                       6
<PAGE>

Securities Authorized for Issuance Under Equity Compensation Plans

         The following table provides information for all equity compensation
plans as of the fiscal year ended December 31, 2003, under which the securities
of Fuel Tech were authorized for issuance:

<TABLE>
<CAPTION>
     <S>                              <C>                                <C>                         <C>
     -------------------------------- ---------------------------------- --------------------------- -------------------------------
                                                                                                        Number of securities
                                                                                                       remaining available for
                                        Number of Securities to be          Weighted-average            future issuance under
                                         issued upon exercise of            exercise price of         equity compensation plans
                                      outstanding options, warrants       outstanding options,          excluding securities
            Plan Category                       and rights                 warrants and rights          listed in column (a)
     -------------------------------- ---------------------------------- --------------------------- -------------------------------
                                                   (a)                             (b)                           (c)
     -------------------------------- ---------------------------------- --------------------------- -------------------------------
     Equity compensation plans
     approved by security
     holders (1)                                2,447,050                         $3.00                         6,000
     -------------------------------- ---------------------------------- --------------------------- -------------------------------
</TABLE>

(1) Includes Common Shares of Fuel Tech authorized for awards under Fuel Tech's
1993 Incentive Plan, as amended through August 3, 1999.


                                       7
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

         Selected financial data are presented below as of the end of and for
each of the fiscal years in the five-year period ended December 31, 2003. The
selected financial data should be read in conjunction with the audited
consolidated financial statements as of and for the year ended December 31,
2003, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

<TABLE>
<CAPTION>
                                                                             For the years ended December 31
                                                          --------------- ------------ ------------ ------------- ---------------
         STATEMENT of OPERATIONS DATA                               2003         2002         2001          2000            1999
                                                          --------------- ------------ ------------ ------------- ---------------

         (in thousands of U.S. dollars, except for
         share data)
         <S>                                              <C>             <C>          <C>          <C>           <C>

         Net sales                                              $ 35,736     $ 32,627     $ 17,672      $ 21,906        $ 33,325
         Selling, general and administrative and other
         costs and expenses                                       12,946       11,687        9,873         9,305           9,691
         Net income (loss)                                         1,120        3,057      (1,633)           415           3,008
                                                          --------------- ------------ ------------ ------------- ---------------

         Basic income (loss) per Common Share                      $ .06       $ 0.16     $ (0.09)        $ 0.02          $ 0.17
         Diluted income (loss) per Common Share                    $ .05       $ 0.14     $ (0.09)        $ 0.02          $ 0.16
         Weighted-average basic shares outstanding            19,637,000   19,350,000   18,592,000    18,396,000      17,752,000
         Weighted-average diluted shares outstanding          22,412,000   22,437,000   18,592,000    19,621,000      19,335,000

                                                                                       December 31
                                                          --------------- ------------ ------------ ------------- ---------------
         BALANCE SHEET DATA                                         2003         2002         2001          2000            1999
                                                          --------------- ------------ ------------ ------------- ---------------
         (in thousands of U.S. dollars, except for per
         share data)

         Working capital                                        $ 11,026     $ 13,947      $ 8,861      $ 12,542        $ 12,126
         Total assets                                             21,598       25,869       20,328        23,089          24,464
         Total liabilities                                         4,287        9,064        7,193         8,522          10,773
         Shareholders' equity                                     17,311       16,805       13,135        14,567          13,691
         Net tangible book value per share                      $   0.61     $   0.64      $  0.56      $   0.59        $   0.52
</TABLE>


Notes:

(1) Shareholders' equity includes outstanding nominal nil coupon non-redeemable
    perpetual loan notes. See Note 4 to the consolidated financial statements.

(2) Net tangible book value per share assumes full conversion of Fuel Tech's nil
    coupon non-redeemable perpetual loan notes into shares of Fuel Tech's Common
    Shares.

(3) Effective January 1, 2002, Fuel Tech adopted FASB (Financial Accounting
    Standards Board) Statement No. 142, "Goodwill and Other Intangible Assets."
    Under the guidance of this statement, goodwill and indefinite-lived
    intangible assets are no longer amortized but will be reviewed annually, or
    more frequently if indicators arise, for impairment. For the 12 months ended
    December 31, the following table depicts the impact on each of the prior
    years noted, had the non-amortization policy been applied.

<TABLE>
<CAPTION>
                                                            2001           2000            1999
                                                 -----------------------------------------------
                  <S>                            <C>                  <C>           <C>

                  Reported net income (loss)       $ (1,633,000)      $ 415,000     $ 3,008,000
                  Add back: Goodwill
                  amortization                          334,000         334,000         199,000
                                                 -----------------------------------------------
                  Adjusted net income (loss)       $ (1,299,000)      $ 749,000     $ 3,207,000
                                                 ===============================================
                  Basic earnings per share:
                  Reported net income (loss)             $ (.09)          $ .02           $ .17
                  Add back: Goodwill
                  amortization                              .02             .02             .01
                                                 -----------------------------------------------
                  Adjusted net income (loss)             $ (.07)          $ .04           $ .18
                                                 ===============================================
                  Diluted earnings per share:
                  Reported net income (loss)             $ (.09)          $ .02           $ .16
                  Add back: Goodwill
                  amortization                              .02             .02             .01
                                                 -----------------------------------------------
                  Adjusted net income (loss)             $ (.07)          $ .04           $ .17
                                                 ===============================================
</TABLE>

                                       8
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Background

         Fuel-Tech N.V. ("Fuel Tech") operates primarily in the air pollution
control business. It distributes its products through its direct sales force,
licensees and agents. Principal markets for its products are stationary
combustion sources that produce nitrogen oxide (NOx) and other emissions. Fuel
Tech sells its fuel treatment chemicals through its direct sales force and
agents to industrial and utility power-generation facilities.

         Fuel Tech currently generates revenues from the following three product
lines:

Nitrogen Oxide ("NOx") Reduction Technologies

         Fuel Tech markets several NOx reduction technologies to meet statutory
NOx reduction requirements worldwide. The near-term driver for growth in this
business is the Ozone Transport SIP (State Implementation Plan) Call, which
requires 19 states to decrease their NOx emissions by May 31, 2004. This
regulation impacts 700-800 utility boilers and 400-500 large industrial boilers
(see below for more detail on the SIP Call). Fuel Tech believes that the
implementation of the SIP Call will extend well beyond the May 31, 2004
implementation date.

Fuel Treatment Chemicals

         Fuel Tech's proprietary Targeted-In-Furnace-Injection (TIFI) technology
centers on the unique application of specialty chemicals to improve the
performance of combustion units. Specifically, this technology is used to reduce
slag formation, corrosion and opacity in boilers, furnaces and incinerators.
Fuel Tech believes its largest market opportunity for this product line is those
units burning Western coals, many of which have significant operational issues
related to the formation of slag.

Visualization Software

         In 2002, Fuel Tech introduced a software product, marketed under the
ACUITIV trade name, which allows users to visualize complex data sets in a three
dimensional immersive environment. The software is currently being marketed to
users of Computation Fluid Dynamics ("CFD") software, an engineering software
tool that aids users in predicting flows, such as liquid or gas streams. Fuel
Tech developed this software internally to make the design process of its NOx
reduction and fuel treatment chemical business more efficient and accurate.

         Fuel Tech licenses this product to end users on an annual or permanent
basis. Fuel Tech will not record license revenue until its capitalized software
development costs, with a balance of approximately $300,000 at December 31,
2003, are recovered. This product was introduced in mid-2002, and to date five
licenses have been sold. Fuel Tech expects demand for this product to increase
in 2004 as a version with increased functionality will be delivered during the
first half of the year. Fuel Tech does not believe, however, that it will
recognize significant revenues in 2004 from this product due to the cost
recovery requirement discussed above.

2003 versus 2002

         Net sales for the 12 months ended December 31, 2003 and 2002 were
$35,736,000 and $32,627,000, respectively. The improvement is primarily
attributable to the increase in Fuel treatment chemical revenues, as this
product line contributed revenues at a record level during 2003. Revenues
derived from Western coal-fired utility boilers had the largest year on year
impact, and positive contributions were attained from utilities burning oil,
both in the United States and in foreign locations. Fuel Tech believes that its
success on several Western coal-fired utility boilers, along with intensely
focused sales and marketing efforts and the utilization of strategic partners,
will lead to further penetration of the Western coal-fired utility market in the
near future. This market represents the largest market opportunity for the fuel
treatment chemical business and penetration into this market is a priority. The
Company's TIFI technology alleviates the slagging and fouling issues associated
with burning coals that are high in low-melting-point ash constituents, such as
sodium. Fuel Tech has received two additional orders for demonstrations on
coal-fired boilers in 2004, and additional orders are expected.

         NOx reduction project revenues in 2003 were at approximately the same
level as 2002. Even with the Environmental Protection Agency's (EPA) SIP (State
Implementation Plan) Call regulation in place, two factors led to a slowing of
equipment orders in the air pollution control business in the latter part of the
year. First, recent rulings related to New Source Review have caused our utility
customers to reassess their SIP Call compliance plans to ensure that they will
meet their overall NOx reduction requirements in the most cost-effective manner.
Although the Company expects this recent ruling to benefit business in the
future, the impact in the near-term is a delay in the receipt of orders. Second,
many utilities are experiencing significant capital constraints. This, coupled
with depressed NOx allowance prices for 2004, which are the result of weak
demand for power and the existence of a shortened ozone season, has caused some
utilities to delay capital spending and to meet their requirements on a
short-term basis through the purchase of allowances and other temporary means.
Based on these market factors, the air pollution control business did weaken
during the latter portion of 2003, and is expected to remain weak during the
first half of 2004. It is expected that the second half of 2004 will start to
show improvement, with increased strength in 2005 and 2006. Fuel Tech continues
to work cooperatively with critical customers as they look to finalize their
compliance plans.

                                       9
<PAGE>

         The "SIP Call," introduced in 1998, is the federal mandate that
required 22 states to reduce NOx emissions by May 2003. On March 3, 2000, an
appellate court of the D.C. Circuit upheld the validity of the SIP Call for 19
of the 22 states and, on June 22, 2000, the same court made a final ruling
upholding the EPA's SIP call regulation and denying the appeal of the states and
utilities. Although the NOx reduction requirement date was moved back one year
to May 31, 2004, 19 states were required to complete and issue their State
Implementation Plans for NOx reduction by October of 2000. These plans, which
the EPA had until October 2001 to approve, will potentially impact 700 to 800
utility boilers and 400 to 500 industrial units. Although the SIP Call was the
subject of litigation, an appellate court of the D.C. Circuit upheld the
validity of this regulation. This court's ruling was later affirmed by the U.S.
Supreme Court.

         In February 2001, the U.S. Supreme Court, in a unanimous decision,
upheld EPA's authority to revise the National Ambient Air Quality Standard for
ozone to 0.080 parts per million averaged through an eight-hour period from the
current 0.120 parts per million for a one-hour period. This more stringent
standard provides clarity and impetus for air pollution control efforts well
beyond the current ozone attainment requirement of 2007. In keeping with this
trend, the Supreme Court, only days later, denied industry's attempt to stay the
SIP Call, effectively exhausting all means of appeal.

         On December 23, 2003, EPA proposed a new regulation that affects the
SIP Call states by calling for more NOx reductions in 2010 and 2015. Also, deep
NOx reductions are called for in 10 additional states outside the current SIP
Call region. The proposed rule, called "The Interstate Air Quality Rule," allows
a cap and trade format similar to the SIP Call.

         Based on these regulatory developments, Fuel Tech expects to enjoy
continued demand for its air pollution technologies over the next several years.

         Cost of sales, as a percentage of net sales, for the 12-month period
ended December 31, 2003, was 61% versus 56% for the same period of the prior
year. This increase reflects a change in product mix within the NOx reduction
project business. A significantly larger percentage of the revenues for 2003
were generated by turnkey projects versus the comparable period in 2002. When
the Company is responsible for the turnkey installation of the equipment as part
of the project scope, the overall project margin becomes diluted. The
installation scope for a project carries a significantly lower margin than the
Company's traditional scope.

         Selling, general and administrative expenses were $11,659,000 and
$10,232,000, respectively, for the 12-month periods ended December 31, 2003 and
2002. The increase is due primarily to the addition of sales and marketing
resources for the fuel treatment chemical business. Market penetration of Fuel
Tech's TIFI technology in the coal-fired utility market remains a strategic
priority.

         Research and development expenses for the 12 months ended December 31,
2003 and 2002 were $1,287,000 and $1,455,000, respectively. Fuel Tech continues
to pursue commercial applications for technologies related to its core
businesses, with a particular focus on its FUEL CHEM, NOxOUT ULTRA and ACUITIV
technologies.

         Interest expense for the 12 months ended December 31, 2003 was reduced
to $25,000 from $136,000 in the prior 12-month period. In the second quarter of
the year, the Company paid off the entirety of its outstanding debt balance.

         Other income and expense for the 12-month period ended December 31,
2003 was $144,000 versus $139,000 for the same period in 2002.

         No provision for federal or state income taxes was recorded during the
12-month period ended December 31, 2003 due to the existence of net operating
loss carryforwards. An income tax benefit of $150,000 was recorded in 2002,
which represented a reduction of the reserve for prior years' state income tax
refunds receivable, as the related receivables were collected in 2002. Fuel Tech
has $17.5 million in U.S. federal income tax loss carryforwards as of December
31, 2003, the deferred tax benefit of which has been offset by a valuation
allowance in Fuel Tech's balance sheet.

         In the opinion of management, Fuel Tech's expected near-term revenue
growth will be driven by the timing of the penetration of the coal-fired utility
marketplace via utilization of its TIFI technology, and by various entity's
implementation of the NOx reduction requirements of the CAAA.

                                       10
<PAGE>

2002 versus 2001

         Net sales for the 12 months ended December 31, 2002 and 2001 were
$32,627,000 and $17,672,000, respectively. The improvement was attributable to
the increase in domestic NOx reduction utility project revenues, as project
bookings in the fourth quarter of 2001 and in 2002 generated revenues during
their various phases of completion. NOx reduction utility revenue in 2001 had
been negatively impacted by the delay in obtaining a final ruling on the
Environmental Protection Agency's (EPA) SIP (State Implementation Plan) Call
regulation. As discussed further below, the uncertainty regarding this
regulation has been lifted and Fuel Tech expects demand for its NOx reduction
technologies to continue to increase during the next few years. Fuel treatment
chemical revenues for the 12-month period ended December 31, 2002 continued to
be favorably impacted by shipments to utilities burning Western coals. Fuel Tech
believes that utilities burning Western coals represent the largest market
opportunity for its fuel treatment chemical business and that penetration into
this market is a priority. In addition to shipments to PacifiCorp, Fuel Tech's
strategic agreement partner, demonstrations with two Midwestern utilities, both
on coal-fired units, commenced during the year. All of these utilities are using
Fuel Tech's patented Targeted-In-Furnace-Injection (TIFI) process to control the
formation of slag deposits in boilers burning Western coals. More than
offsetting the improved performance in the coal-fired utility segment of this
market were the following two factors: first, the continued deterioration in the
oil-fired business, as the high price of oil as compared with the price of
natural gas caused customers in this segment to switch fuels, negatively
impacting results. Second, the use of low-slagging coal by one of Fuel Tech's
customers caused that customer to temporarily suspend treatment.

         Cost of sales, as a percentage of net sales, for the 12-month period
ended December 31, 2002 was 56% versus 51% for the same period of the prior
year. The increase reflects a change in product mix in 2002, in favor of the
lower margin NOx reduction project business.

         Selling, general and administrative expenses were $10,232,000 and
$8,708,000, respectively, for the 12-month periods ended December 31, 2002 and
2001. The increase was due primarily to revenue-related expenses, as revenue
increased significantly from the prior year, and secondarily to the addition of
sales and marketing personnel, both for the fuel treatment chemical and ACUITIV
businesses.

         Research and development expenses for the 12 months ended December 31,
2002 and 2001 were $1,455,000 and $1,165,000, respectively. Fuel Tech continues
to pursue commercial applications for its technologies outside of its
traditional markets, with a particular focus on its ACUITIV software and its
NOxOUT ULTRA process. The ACUITIV software product was commercially introduced
on June 6, 2002.

         Fuel Tech recorded a loss of $54,000 for the 12 months ended December
31, 2002 on its equity investment in Fuel Tech CS GmbH (FTCS), a 49% owned
entity, which served to reduce the investment value to zero. During the quarter
ended March 31, 2002, Fuel Tech recognized a gain of $250,000 on its equity
investment in Clean Diesel Technologies, Inc. (CDT), its 11.6% owned affiliate.
The gain resulted from CDT's repayment of the full principal amount of loans
made by Fuel Tech to CDT in 2000 and 2001. Because of the continuing losses
incurred by CDT, the carrying value of the loans was reduced to zero as of
December 31, 2001, based on Fuel Tech's pro-rata share of the losses incurred.

         During the 12 months ended December 31, 2001, Fuel Tech recognized a
$92,000 loss on its equity investment in FTCS, while a loss of $250,000 was
recorded on Fuel Tech's investment in CDT for the same period.

         Interest expense for the 12 months ended December 31, 2002 was reduced
to $136,000 from $245,000 in the prior 12-month period. The decrease is
attributable to a reduction in the average outstanding principal balance on Fuel
Tech's term loan, as well as to a reduction in short term interest rates.

         Other income and expense for the 12-month period ended December 31,
2002 was $139,000 versus $37,000 for the same period in 2001. The increase stems
largely from the elimination of goodwill amortization effective January 1, 2002,
which has been offset somewhat by reductions in interest income.

         An income tax benefit of $150,000 was recorded in 2002, which
represented a reduction of the reserve for prior years' state income tax refunds
receivable, as the related receivables were collected in 2002. No provision for
federal or state income taxes was recorded in any period due to the existence of
net operating loss carryforwards. Fuel Tech had $32.4 million in U.S. federal
income tax loss carryforwards as of December 31, 2002, the deferred tax benefit
of which has been offset by a valuation allowance in Fuel Tech's balance sheet.

                                       11
<PAGE>

Liquidity and Sources of Capital

         At December 31, 2003, Fuel Tech had cash and cash equivalents of
$7,812,000 and working capital of $11,026,000 versus $10,939,000 and $13,947,000
at the end of 2002. Operating activities provided $1,659,000 of cash in 2003
primarily due to Fuel Tech's operating profits. Investing activities, which used
cash of $2,372,000 during the year, were comprised of the continued investment
in equipment and intellectual property of $1,024,000, and by the acquisition of
a fuel additive business for $1,348,000. Financing activities used cash of
$2,452,000 during the year. Fuel Tech repaid its outstanding debt balance of
$1,800,000 during the year and purchased, for $940,000, 274,000 of its Common
Shares for retirement. Lastly, Fuel Tech generated cash from the exercise of
stock options in the amount of $323,000.

         Fuel Tech, Inc. (FTI) has a $10.0 million revolving credit facility
expiring July 31, 2004, which is collateralized by all personal property owned
by FTI. FTI can use this facility for cash advances and standby letters of
credit. Cash advances under this facility bear interest at the bank's prime
rate, or at an optional rate that can be selected by FTI which is based on the
bank's Interbank Offering Rate plus 2.25%. The $10.0 million revolving credit
facility was obtained via an amendment, effective December 31, 2002, that
increased the credit facility from $6.0 million to $10.0 million and extended
the agreement until July 31, 2004.

         Also, FTI had a term loan agreement with the same bank for a total
principal balance of $4.5 million. The principal balance was to be repaid in
quarterly installments of $225,000 commencing on December 31, 1999, with a final
principal payment of $1,575,000 due on January 31, 2003. The term loan was paid
in full on January 31, 2003.

         At December 31, 2003, the bank had provided standby letters of credit,
predominantly to customers, totaling approximately $458,000 in connection with
contracts in process. FTI is committed to reimbursing the issuing bank for any
payments made by the bank under these letters of credit. At December 31, 2003,
there were no cash borrowings under the revolving credit facility and
approximately $9,542,000 was available for utilization.

         Interest payments were $39,000, $156,000 and $250,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.

         Fuel Tech believes that it will have sufficient resources to fund its
growth and operations going forward.

                                       12
<PAGE>

Contractual Obligations and Commitments

         In its normal course of business, Fuel Tech enters into agreements that
obligate Fuel Tech to make future payments. The operating lease obligations
noted below are primarily related to supporting the normal operations of the
business and are not recognized as liabilities in Fuel Tech's consolidated
balance sheet in accordance with generally accepted accounting principles.

<TABLE>
<CAPTION>
     ---------------------------- -----------------------------------------------------------------------------------------------
                                                      Payments due by period in thousands of U.S. dollars
     ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
     <S>                          <C>                <C>                <C>                <C>                 <C>
         Contractual Cash                             Less than 1
           Obligations                Total               year            2-3 years           4-5 years          Thereafter
     ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
     Operating Leases                $ 1,107             $ 269              $ 388               $ 370               $ 80
     ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
     Total Contractual Cash
     Obligations                     $ 1,107             $ 269              $ 388               $ 370               $ 80
     ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
</TABLE>

         Fuel Tech, in the normal course of business, uses bank performance
guarantees and letters of credit in support of construction contracts with
customers as follows:

         -        in support of the warrantee period defined in the contract, or

         -        in support of the system performance criteria that are defined
                  in the contract

         In addition, Fuel Tech uses letters of credit as security for other
obligations as needed in the normal course of business. As of December 31, 2003,
Fuel Tech has outstanding bank performance guarantees and letters of credit as
noted in the table below:

<TABLE>
<CAPTION>
     ---------------------------- -----------------------------------------------------------------------------------------------
                                                 Commitment expiration by period in thousands of U.S. dollars
     ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
     <S>                          <C>                <C>                <C>                <C>                 <C>
                                                       Less than 1
      Commercial Commitments           Total               year            2-3 years           4-5 years          Thereafter
     ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
     Standby letters of
     credit and bank
     guarantees                       $ 476              $ 397               $ 79                 -                  -
     ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
</TABLE>

Critical Accounting Policies and Estimates

         The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require Fuel Tech to make estimates and assumptions. Fuel Tech believes that of
its significant accounting policies (see Note 1 to the consolidated financial
statements) the following involves a higher degree of judgment and complexity:

         Fuel Tech uses the percentage of completion method of accounting for
certain long-term equipment construction and license contracts. Under the
percentage of completion method, sales and gross profit are recognized as work
is performed based on the relationship between actual engineering hours and
equipment construction costs incurred and total estimated hours and costs at
completion. Since the financial reporting of these contracts depends on
estimates, which are assessed continually during the term of the contract,
recognized sales and profit are subject to revisions as the contract progresses
to completion. Revisions in profit estimates are reflected in the period in
which the facts that give rise to the revision become known.

Forward-Looking Information

         From time to time, information provided by Fuel Tech, statements made
by its employees or information included in its filings with the Securities and
Exchange Commission (including this Annual Report) may contain statements that
are not historical facts, so-called "forward-looking statements." These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Fuel Tech's actual future
results may differ significantly from those stated in any forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties, including, but not limited to, product demand, pricing, market
acceptance, litigation, risk of dependence on significant customers, third-party
suppliers and intellectual property rights, risks in product and technology
development and other risk factors detailed in this Annual Report and in Fuel
Tech's Securities and Exchange Commission filings.

                                       13
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Fuel Tech's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. Fuel Tech does not enter into
foreign currency forward contracts or 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 7 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, 2004.



                                       14
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS OF FUEL-TECH N.V.

We have audited the accompanying consolidated balance sheets of Fuel-Tech N.V.
as of December 31, 2003 and 2002, and the related consolidated statements of
operations, cash flows and shareholders' equity for each of the three years in
the period ended December 31, 2003. These consolidated financial statements are
the responsibility of Fuel Tech's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fuel-Tech N.V. at December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, Fuel Tech changed its method of accounting for goodwill to
conform with SFAS No. 142, "Goodwill and Other Intangible Assets," and effective
January 1, 2001, changed its method of accounting for derivative financial
instruments to conform with SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities."


/s/ Ernst & Young LLP
Chicago, Illinois
February 19, 2004

                                       15
<PAGE>

                                 Fuel-Tech N.V.

                           Consolidated Balance Sheets

                (in thousands of U.S. dollars, except share data)


<TABLE>
<CAPTION>
                                                                             2003             2002
                                                               ------------------------------------
<S>                                                            <C>                        <C>
December 31

ASSETS
Current assets:
   Cash and cash equivalents                                              $ 7,812          $10,939
   Accounts receivable, net of allowances for doubtful
    accounts of $401 and $107, respectively                                 6,095            8,849
   Inventories                                                                312              420
   Prepaid expenses and other current assets                                  795              744
                                                               ------------------------------------
Total current assets                                                       15,014           20,952

Equipment, net of accumulated depreciation of $6,165 and
    $5,118, respectively                                                    2,127            2,123
Goodwill, net of accumulated amortization of $924                           2,119            2,119
Other intangible assets, net of accumulated amortization of
    $24                                                                     1,274                -
Other assets                                                                1,064              675
                                                               ------------------------------------
Total assets                                                             $ 21,598         $ 25,869
                                                               ====================================


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                        $2,244           $5,065
   Accrued liabilities:
     Employee compensation                                                    797              802
     Other accrued liabilities                                                947            1,138
                                                               ------------------------------------
Total current liabilities                                                   3,988            7,005

Note payable                                                                    -            1,800
Other liabilities                                                             299              259
                                                               ------------------------------------
Total liabilities                                                           4,287            9,064

Shareholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized,
   19,621,503 and 19,613,817 shares issued, respectively                      196              196
Additional paid-in capital                                                 89,698           90,315
Accumulated deficit                                                       (72,030)         (73,150)
Accumulated other comprehensive income                                         48               10
Treasury stock                                                             (1,133)          (1,098)
Nil coupon perpetual loan notes                                               532              532
                                                               ------------------------------------
Total shareholders' equity                                                 17,311           16,805
                                                               ------------------------------------
Total liabilities and shareholders' equity                               $ 21,598         $ 25,869
                                                               ====================================
</TABLE>

See notes to consolidated financial statements.

                                       16
<PAGE>

                                 Fuel-Tech N.V.

                      Consolidated Statements of Operations

                (in thousands of U.S. dollars, except share data)

<TABLE>
<CAPTION>
                                                                                     2003             2002          2001
                                                                            --------------- ----------------- -------------
<S>                                                                         <C>             <C>               <C>
                 For the years ended December 31


                  Net revenues                                                     $35,736           $32,627       $17,672

                  Costs and expenses
                      Cost of sales                                                 21,789            18,232         8,996
                      Selling, general and administrative                           11,659            10,232         8,708
                      Research and development                                       1,287             1,455         1,165
                                                                            --------------- ----------------- -------------
                                                                                    34,735            29,919        18,869
                                                                            --------------- ----------------- -------------
                  Operating income (loss)                                            1,001             2,708        (1,197)

                  Income (loss) from equity interest in affiliates                       -               196          (342)
                  Interest expense                                                     (25)             (136)         (245)
                  Other income, net                                                    144               139            37
                                                                            --------------- ----------------- -------------
                  Income (loss) before taxes                                         1,120             2,907        (1,747)
                  Income tax benefit                                                     -               150           114
                                                                            --------------- ----------------- -------------
                  Net income (loss)                                                $ 1,120           $ 3,057       $(1,633)
                                                                            =============== ================= =============

                  Net income (loss) per Common Share
                       Basic                                                         $0.06             $0.16       $ (0.09)
                       Diluted                                                        0.05              0.14         (0.09)

                  Average number of Common Shares outstanding
                       Basic                                                    19,637,000        19,350,000    18,592,000
                       Diluted                                                  22,412,000        22,437,000    18,592,000
</TABLE>


See notes to consolidated financial statements.

                                       17
<PAGE>

                                 Fuel-Tech N.V.

                 Consolidated Statements of Shareholders' Equity

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                          Accumulated
                               Common Stock     Additional                   Other        Treasury Stock     Nil Coupon
                            ------------------   Paid-in    Accumulated  Comprehensive    --------------     Perpetual
                             Shares   Amount    Capital     Deficit      Income (Loss)     Shares  Amount     Loan Notes     Total
                            --------- -------- -----------  -----------  --------------    ------  ------    -----------  ----------
<S>                         <C>       <C>      <C>         <C>           <C>              <C>      <C>       <C>          <C>


Balance at January 1,
2001                          18,527     $185     $86,097   $ (74,574)            $ 97        94 $ (1,058)      $3,820    $14,567
                            --------------------------------------------------------------------------------------------------------
Comprehensive loss:
   Net loss                                                    (1,633)                                                     (1,633)
   Adjustment for fair
     value of
     derivative                                                                    (42)                                       (42)
   Foreign currency
     translation
     adjustments                                                                  (123)                                      (123)
                                                                                                                          ----------
Comprehensive loss                                                                                                         (1,798)
Conversion of nil coupon
   perpetual loan notes
   into common stock             200        2       1,220                                                       (1,222)         -
Exercise of stock options        216        3         403                                                                     406
                                                                                                                          ----------
Other                             41                                                         (30)     (40)                    (40)
                            --------------------------------------------------------------------------------------------------------
Balance at December 31,
  2001                        18,984     $190     $87,720    $(76,207)           $(68)        64 $ (1,098)      $2,598    $13,135
                            --------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                                   3,057                                                       3,057
   Adjustment for fair
     value of
     derivative                                                                    42                                          42
   Foreign currency
     translation
     adjustments                                                                   36                                          36
                                                                                                                          ----------
Comprehensive income                                                                                                        3,135
Conversion of nil coupon
   perpetual loan notes
   into common stock             387        4       2,062                                                      (2,066)          -
Exercise of stock options        243        2         533                                                                     535
Other                                                                                         46
                            ------------------------------------------------------------------------------------------------------
Balance at December 31,
  2002                        19,614     $196     $90,315    $(73,150)            $ 10       110 $(1,098)       $ 532     $16,805
                            ------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net income                                                   1,120                                                       1,120
   Foreign currency
     translation
     adjustments                                                                    38                                        38
                                                                                                                          --------
Comprehensive income                                                                                                       1,158
Exercise of stock options        282        3         320                                                                    323
Purchase of shares for
  retirement                    (274)      (3)       (937)                                                                  (940)
Other                                                                                          8     (35)                    (35)
                            ------------------------------------------------------------------------------------------------------
Balance at December 31,
  2003                        19,622     $196     $89,698    $(72,030)            $ 48       118 $(1,133)       $ 532    $17,311
                            ======================================================================================================
</TABLE>

See notes to consolidated financial statements.

                                       18
<PAGE>

                                 Fuel-Tech N.V.

                      Consolidated Statements of Cash Flows

                         (in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                2003              2002           2001
                                                            --------------------------------------------
<S>                                                         <C>                 <C>          <C>
For the years ended December 31

OPERATING ACTIVITIES
Net income (loss)                                                 $1,120         $3,057       $(1,633)
 Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
    Depreciation                                                   1,047            902           769
    Amortization                                                      65             41           375
    Provision for doubtful accounts                                  425            289            44
    Loss on equipment disposals/impaired assets                       32            186           156
    (Income) loss from equity interest in affiliates                   -           (196)          342
    Income tax benefit                                                 -           (150)            -
    Cash payments against German subsidiary closing reserve            -            (20)          (26)
    Cumulative translation gain                                        -              -           (90)

   Changes in operating assets and liabilities:
       Accounts receivable                                         2,329         (3,813)        2,110
       Inventories, prepaid expenses, other current assets
         and other noncurrent assets                                (382)          (214)          422
      Accounts payable, accrued liabilities, deferred
         revenue and other noncurrent liabilities                 (2,977)         2,912          (417)
      Other                                                            -              7             8
                                                            --------------------------------------------
Net cash provided by operating activities                          1,659          3,001         2,060

INVESTING ACTIVITIES
   Investment in and loans to CDT                                      -            250          (125)
   Proceeds from sale of equipment                                     -             17             -
   Acquisition of fuel additive business                          (1,348)             -             -
   Purchases of equipment and patents                             (1,024)        (1,338)       (1,016)
                                                            --------------------------------------------
Net cash used in investing activities                             (2,372)        (1,071)       (1,141)

FINANCING ACTIVITIES
     Proceeds from exercise of stock options                         323            535           406
     Purchase of treasury shares                                     (35)             -           (40)
     Purchase of shares to be retired                               (940)             -             -
     Repayment of borrowings                                      (1,800)          (900)         (900)
                                                            --------------------------------------------
Net cash used in financing activities                             (2,452)          (365)         (534)

Effect of exchange rate fluctuations on cash                          38             36           (34)
                                                            --------------------------------------------
Net (decrease) increase in cash and cash equivalents              (3,127)         1,601           351
Cash and cash equivalents at beginning of year                    10,939          9,338         8,987
                                                            --------------------------------------------
Cash and cash equivalents at end of year                         $ 7,812        $10,939        $9,338
                                                            ============================================
</TABLE>

See notes to consolidated financial statements.

                                       19
<PAGE>

Notes to Consolidated Financial Statements

1. Organization and Significant Accounting Policies

Organization

         Fuel-Tech N.V. ("Fuel Tech") is a holding company primarily in the
business of air pollution control. Fuel Tech's primary focus, through its wholly
owned subsidiary, Fuel Tech, Inc. ("FTI"), is on the worldwide marketing and
sale of its NOxOUT Process and related technologies as well as its FUEL CHEM
fuel treatment chemical product line. The NOxOUT Process reduces nitrogen oxide
("NOx") emissions from boilers, furnaces and other stationary combustion
sources. FUEL CHEM is based on Fuel Tech's proprietary
Targeted-In-Furnace-Injection technology in the unique application of specialty
chemicals to improve the performance of combustion units. Fuel Tech's business
is materially dependent on the continued existence and enforcement of air
quality regulations, particularly in the United States. Fuel Tech recently
introduced a software product under the ACUITIV trade name that allows users of
high-end engineering software to visualize complex data sets in an immersive,
virtual reality environment. Fuel Tech has expended significant resources in the
research and development of new technologies in building its proprietary
portfolio of air pollution control, fuel treatment chemicals, computer modeling
and advanced visualization technologies.

         For the years ended December 31, 2003, 2002, and 2001, 13%, 12%, and
25% of Fuel Tech's revenues, respectively, were derived from international
markets, principally in Europe and Asia.

Basis of Presentation

         The consolidated financial statements include the accounts of Fuel Tech
and its wholly owned subsidiaries. All intercompany transactions have been
eliminated.

Reclassifications

         Certain amounts included in prior year financial statements have been
reclassified to conform to the current year presentation.

Use of Estimates

         The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Foreign Currency Translation

         The functional currency for Fuel Tech's foreign subsidiaries is the
respective local currency. Accordingly, assets and liabilities are translated
into U.S. dollars at current exchange rates, and revenues and expenses are
translated using average rates of exchange prevailing during the year.
Adjustments resulting from translation of financial statements denominated in
currencies other than the U.S. dollar are included in accumulated other
comprehensive income or loss. Foreign currency transaction gains and losses are
included in the determination of net income.

Cash Equivalents and Financial Instruments

         Fuel Tech considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At December 31,
2003, substantially all of Fuel Tech's cash and cash equivalents are on deposit
with three financial institutions. All financial instruments are reflected in
the accompanying balance sheets at amounts that approximate fair market value.

Derivative Financial Instruments

         Effective January 1, 2001, Fuel Tech adopted SFAS 133, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. All derivatives, whether designated in hedging relationships
or not, are required to be recorded on the balance sheet at fair value. If the
derivative is designated as a fair value hedge, the changes in the fair value of
the derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of changes in the fair value of the derivative are
recorded in accumulated other comprehensive income or loss, and are recognized
in the income statement when the hedged item affects earnings. Ineffective
portions of changes in the fair value of cash flow hedges are recognized in
earnings.

                                       20
<PAGE>

Interest Rate Risk Management:

         Fuel Tech used an interest rate derivative instrument (an interest rate
swap) to manage exposure to interest rate changes. Fuel Tech had entered into an
interest rate swap transaction that fixed the rate of interest at 8.91% on
approximately 50% of the outstanding principal balance during the term of the
loan. The term of the swap was from October 22, 1999 until October 22, 2002, at
which date it expired. At the date of adoption, January 1, 2001, Fuel Tech
recorded the fair value of the interest rate swap, a credit of approximately
$20,000, as an "other liability" with a corresponding decrease to "accumulated
other comprehensive income."

Foreign Currency Risk Management:

         Fuel Tech's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. Fuel Tech does not enter into
foreign currency forward contracts or into foreign currency option contracts to
manage this risk due to the immaterial nature of the transactions involved.

Accounts Receivable

         Accounts receivable includes unbilled receivables, representing costs
and estimated earnings in excess of billings on contracts under the percentage
of completion method. At December 31, 2003 and 2002, unbilled receivables were
approximately $625,000 and $1,225,000, respectively. The allowance for doubtful
accounts is established based on Fuel Tech's historical level of write-off
activity and management's review of specific accounts at each reporting date.

Goodwill and Other Intangibles

         The goodwill recognized as a result of prior transactions was being
amortized by the straight-line method over periods of nine and 10 years.
Effective January 1, 2002, Fuel Tech adopted FASB (Financial Accounting
Standards Board) Statement No. 142, "Goodwill and Other Intangible Assets."
Under the guidance of this statement, goodwill and indefinite-lived intangible
assets will no longer be amortized but will be reviewed annually or more
frequently if indicators arise, for impairment. In connection with the adoption
of FASB No. 142, Fuel Tech completed the required transitional and annual
goodwill impairment testing using the market capitalization methodology. Based
on the testing performed, no impairment was indicated. The following is a
reconciliation of 2001 net earnings and basic and diluted earnings per share
between the amounts previously reported by Fuel Tech and the adjusted amounts
that would have been reported if SFAS No. 142 had been applied in prior periods.

                                                 For the year ended
                                                     December 31
                                                        2001
                                                 ------------------

              Reported net loss                      $  (1,633,000)
              Add back: Goodwill amortization              334,000
                                                 ------------------
              Adjusted net loss                      $  (1,299,000)
                                                 ==================
              Basic earnings per share:
              Reported net loss                             $ (.09)
              Add back: Goodwill amortization                  .02
                                                 ------------------
              Adjusted net loss                             $ (.07)
                                                 ==================
              Diluted earnings per share:
              Reported net loss                             $ (.09)
              Add back: Goodwill amortization                  .02
                                                 ------------------
              Adjusted net loss                             $ (.07)
                                                 ==================

         As of October 1, 2003, Fuel Tech completed its annual fair value
measurement test, and there was no evidence of impairment.

         On September 30, 2003, the Company's wholly-owned subsidiary, FTI,
acquired the fuel additive business of Martin Marietta Magnesia Specialties, LLC
(MMMS). The Company believes that this acquired business is an excellent
strategic fit with its fuel treatment chemical business. In addition, the
Company believes that it will be able to leverage its technology with the MMMS
customer base, which will improve program results and increase revenues from
these accounts. Concurrently with this transaction, FTI entered into a long-term
chemical supply agreement with MMMS.

                                       21
<PAGE>

         The acquisition of the fuel additive business from MMMS had no impact
on the Company's operating results for the quarter ended September 30, 2003. If
the business had been acquired at January 1, 2003, the impact on the financial
results of the Company on a year to date basis would not have been material.

         The aggregate purchase price was $1,348,000, paid in cash. The
following table summarizes the estimated fair values of the assets acquired.

------------------------------------------- ---------------------
           Asset Classification                Value Assigned
------------------------------------------- ---------------------
Equipment                                               $ 50,000
------------------------------------------- ---------------------
Intangible assets subject to amortization              1,298,000
------------------------------------------- =====================
Total                                                 $1,348,000
------------------------------------------- ---------------------


         The $1,298,000 was recorded as other intangible assets on the
consolidated balance sheet. This amount principally represents a customer
intangible asset that is being amortized over a period of 15 years. The
estimated amortization expense related to these intangible assets is expected to
approximate $100,000 per year for the five-year period ending December 31, 2008.

         Lastly, included with other assets on the consolidated balance sheet,
are third-party costs related to the development of patent rights. These costs
are being amortized by the straight-line method over a period of 10 years from
the date of patent issuance. Patent maintenance fees are charged to operations
as incurred. Further, the estimated amortization expense related to Fuel Tech's
intangible patent assets is expected to approximate $40,000 per year for the
five-year period ending December 31, 2008.

Equipment

         Equipment is stated on the basis of cost. Provisions for depreciation
are computed by the straight-line method, using estimated useful lives as
follows:

     Laboratory equipment.........................................5-10 years
     Furniture and fixtures.......................................3-10 years
     Field equipment...............................................3-4 years
     Vehicles........................................................3 years
     Computer equipment and software...............................2-3 years

Accounting for the Impairment of Long-Lived Assets

         Fuel Tech reviews long-lived assets and certain intangible assets for
impairment when events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. In the event the sum of the expected
undiscounted future cash flows resulting from the use of the asset is less than
the carrying amount of the asset, an impairment loss equal to the excess of the
asset's carrying value over its fair value is recorded. The impact of such
losses on Fuel Tech was $32,000 and $90,000 for the years ended December 31,
2003 and 2002, respectively, and such amounts are recorded in the "Other income,
net," line item in the consolidated statement of operations.

Revenue Recognition

         Fuel Tech uses the percentage of completion method of accounting for
certain long-term equipment construction and license contracts. Under the
percentage of completion method, sales and gross profit are recognized as work
is performed based on the relationship between actual engineering hours and
equipment construction costs incurred and total estimated hours and costs at
completion. Sales and gross profit are adjusted for revisions in completion
estimates and contract values in the period in which the facts giving rise to
the revisions become known. 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.

Distribution Costs

         Fuel Tech classifies shipping and handling costs in cost of sales in
the consolidated statement of operations.

                                       22
<PAGE>

Stock-Based Compensation

         Fuel Tech accounts for stock option grants in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." Under Fuel Tech's current plans, options may be granted at not
less than the fair market value on the date of grant, and therefore, no
compensation expense is recognized for the stock options granted.

         If compensation expense for Fuel Tech's plans had been determined based
on the fair value at the grant dates for awards under its plans, consistent with
the method described in SFAS No. 123, Fuel Tech's net income (loss) and income
(loss) per share would have been adjusted as follows for the years ended
December 31:

<TABLE>
<CAPTION>
             <S>                         <C>                        <C>              <C>                 <C>
             --------------------------- -------------------------- ---------------- ------------------- ---------------
             (in thousands, except                                        2003               2002              2001
             share data)
             --------------------------- -------------------------- ---------------- ------------------- ---------------
             Net income (loss)
             --------------------------- -------------------------- ---------------- ------------------- ---------------
                                         As reported                         $1,120              $3,057        $(1,633)
             --------------------------- -------------------------- ---------------- ------------------- ---------------
                                         As adjusted                            363               2,083         (2,329)
             --------------------------- -------------------------- ---------------- ------------------- ---------------

             --------------------------- -------------------------- ---------------- ------------------- ---------------
             Basic and diluted income
             (loss) per share:
             --------------------------- -------------------------- ---------------- ------------------- ---------------
                                         Basic - as reported                   $.06                $.16          $(.09)
             --------------------------- -------------------------- ---------------- ------------------- ---------------
                                         Basic - as adjusted                   $.02                $.11          $(.13)
             --------------------------- -------------------------- ---------------- ------------------- ---------------

             --------------------------- -------------------------- ---------------- ------------------- ---------------
                                         Diluted - as reported                 $.05                $.14          $(.09)
             --------------------------- -------------------------- ---------------- ------------------- ---------------
                                         Diluted - as adjusted                 $.02                $.09          $(.13)
             --------------------------- -------------------------- ---------------- ------------------- ---------------
</TABLE>


         In accordance with the provisions of SFAS No. 123, the "As adjusted"
disclosures include only the effect of stock options granted after 1994. The
application of the "As adjusted" disclosures presented above are not
representative of the effects SFAS No. 123 may have on such operating results in
future years due to the timing of stock option grants and considering that
options vest over a period of immediately to four years.

Basic and Diluted Earnings Per Common Share

         Basic earnings per share excludes the dilutive effects of stock options
and of the nil coupon non-redeemable convertible unsecured loan notes (see Note
4). Diluted earnings per share includes the dilutive effect of the nil coupon
non-redeemable convertible unsecured loan notes and of stock options and
warrants. The following table sets forth the weighted-average shares used at
December 31 in calculating earnings per share (in thousands):

<TABLE>
<CAPTION>
      ------------------------------------------------ ------------------------- ------------------------ ---------------------
                                                                2003                     2002                    2001
      ------------------------------------------------ ------------------------- ------------------------ ---------------------
      <S>                                              <C>                       <C>                      <C>
      Basic weighted-average shares                                    19,637                   19,350                18,592
      ------------------------------------------------ ------------------------- ------------------------ ---------------------
      Conversion of unsecured loan notes                                   85                       85                     -
      ------------------------------------------------ ------------------------- ------------------------ ---------------------
      Unexercised options and warrants                                  2,690                    3,002                     -
      ------------------------------------------------ ------------------------- ------------------------ ---------------------
      Diluted weighted-average shares                                  22,412                   22,437                18,592
      ------------------------------------------------ ========================= ======================== =====================
</TABLE>

                                       23
<PAGE>

2. Taxation

         At December 31, 2003, FTI had tax losses available for offset against
future years' earnings of approximately $17.5 million in the United States. In
2003, approximately $13.1 million in tax losses expired, and $1.8 million were
utilized. For financial statement purposes, a valuation allowance has been
recorded to offset the tax benefit of these carryforwards. Under the provisions
of the U.S. Tax Reform Act of 1986, utilization of Fuel Tech's U.S. federal
income tax loss carryforwards may be limited should ownership changes exceed 50%
within a three-year period. The U.S. federal tax loss carryforwards expire as
follows (in thousands):

                           2004                $ 4,639
                           2005                  5,467
                           2006                  1,987
                           2007                  2,325
                           2008                  1,480
                           2009                    220
                           2010                    309
                           2011                    884
                           2012                     40
                           2021                    117
                                               -------
                                               $17,468
                                               =======

         The components of income (loss) before taxes for the years ended
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
           --------------------------------------------- ------------------- ------------------- --------------------
           Origin of income (loss) before taxes                 2003                2002                2001
           --------------------------------------------- ------------------- ------------------- --------------------
           <S>                                           <C>                 <C>                 <C>
           United States                                             $2,210              $3,689                $  (9)
           --------------------------------------------- ------------------- ------------------- --------------------
           Foreign                                                   (1,090)               (782)              (1,738)
           --------------------------------------------- ------------------- ------------------- --------------------
           Income (loss) before taxes                                $1,120              $2,907              $(1,747)
           --------------------------------------------- =================== =================== ====================
</TABLE>

         A reconciliation between the (benefit) provision for income taxes
calculated at the U.S. federal statutory income tax rate and the consolidated
(benefit) provision in the consolidated statements of operations for the years
ended December 31 is as follows (in thousands):

------------------------------------ -----------  ----------  -----------
                                          2003        2002         2001
------------------------------------ -----------  ----------  -----------
Provision (benefit) at the U.S.
federal statutory rate                     $ 392      $1,040        $(611)
------------------------------------ -----------  ----------  -----------
Foreign losses without tax benefit           382         274          608
------------------------------------ -----------  ----------  -----------
Valuation allowance adjustment              (774)     (1,314)           -
------------------------------------ -----------  ----------  -----------
State income taxes                             -        (150)           -
------------------------------------ -----------  ----------  -----------
Foreign (benefit) income taxes                 -           -         (114)
------------------------------------ -----------  ----------  -----------
Other                                          -           -            3
------------------------------------ -----------  ----------  -----------
(Benefit) provision for income taxes       $   -      $ (150)      $ (114)
------------------------------------ ===========  ==========  ===========


         Fuel Tech did not record a financial impact from income taxes in 2003.
The income tax benefit of $150,000 that was recorded in 2002 represented a
reduction in the reserve for prior years' state income tax refunds receivable,
as the refunds were collected in 2002. The benefit of $114,000 recorded in 2001
was related to its Italian subsidiary.

         The reduction in the valuation allowance in 2003 and 2002 results
primarily from the utilization of tax loss carryforwards where a valuation
allowance had previously been provided.

         Temporary differences arising from treating income and expense items
for financial reporting purposes differently than for tax return purposes are
not material.

                                       24
<PAGE>

3. COMMON SHARES

         At December 31, 2003, Fuel Tech had 19,621,503 Common Shares issued,
with an additional 84,787 shares reserved for issuance upon conversion of the
nil coupon non-redeemable convertible unsecured loan notes (see Note 4) and
2,447,050 shares reserved for issuance upon the exercise of stock options,
1,436,050 of which are currently exercisable (see Note 5).

4. NIL COUPON NON-REDEEMABLE CONVERTIBLE UNSECURED LOAN NOTES

         At December 31, 2003 and 2002, Fuel Tech had $533,500 principal amount
of nil coupon non-redeemable convertible unsecured perpetual loan notes (the
"Loan Notes") outstanding. The Loan Notes are convertible at any time into
Common Shares at rates of $6.50 or $11.43 per share. The Loan Notes bear no
interest and have no maturity date. They are generally repayable only in the
event of Fuel Tech's dissolution and, accordingly, have been classified within
shareholders' equity in the accompanying balance sheet.

         During 2002, Loan Notes in the principal amount of $2,125,000 were
converted into 185,937 Common Shares. There were no conversions in 2003.

5. STOCK OPTIONS AND WARRANTS

         Fuel Tech has granted stock options under the 1993 Incentive Plan
("1993 Plan"). Under the 1993 Plan, 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 1993 Plan may be such of 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 1998 amendment to the 1993 Plan is 12.5% of outstanding
shares. In 2003, 2002 and 2001, 475,500, 424,000 and 472,500 options,
respectively, were granted to employees and directors.

         The Black-Scholes option-pricing model was used to estimate the fair
value of employee stock options for the FAS No. 123 proforma disclosure in Note
1. This model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, option-pricing models require the input of highly subjective
assumptions including the expected stock price volatility. Because Fuel Tech's
employee stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.

         The fair value of each option grant, for "As adjusted" disclosure
purposes in Note 1, was estimated on the date of grant using the modified
Black-Scholes option pricing model with the following weighted-average
assumptions:

                                                2003        2002         2001
                                             -------     -------      -------
         Expected dividend yield               0.00%       0.00%        0.00%
         Risk-free interest rate               2.80%       2.60%        4.40%
         Expected volatility                   59.1%       74.7%       115.1%
         Expected life of option             4 years     4 years      4 years

         The following table presents a summary of Fuel Tech's stock option
activity and related information for the years ended December 31:

<TABLE>
<CAPTION>
                                                  2003                          2002                          2001
                                        Number         Weighted-        Number         Weighted-         Number      Weighted-
                                          of            Average           of            Average            of         Average
                                        Options     Exercise Price      Options      Exercise Price     Options    Exercise Price
                                    ---------------------------------------------------------------------------------------------
<S>                                 <C>             <C>                <C>           <C>                <C>        <C>

                                    ---------------------------------------------------------------------------------------------
                                    ---------------------------------------------------------------------------------------------
 Outstanding at beginning of year         2,207,000         $  2.71       2,155,500          $  2.34      2,052,000      $  2.34
 Granted                                    475,500            3.93         424,000             5.82        472,500         2.15
 Exercised                                 (207,950)           2.16        (243,250)            2.20       (215,500)        1.89
 Expired or forfeited                       (27,500)           3.99        (129,250)            6.23       (153,500)        2.71
                                    ---------------------------------------------------------------------------------------------
 Outstanding at end of year               2,447,050         $  3.00       2,207,000          $  2.71      2,155,500      $  2.34
                                    ---------------------------------------------------------------------------------------------

 Exercisable at end of year               1,436,050         $  2.28       1,220,625          $  2.30      1,086,250      $  2.66
 Weighted -average fair value of
   options granted during the year                          $  1.89                          $  3.31                     $  1.66
</TABLE>

                                       25
<PAGE>

         The following table summarizes information about stock options
outstanding at December 31, 2003:

<TABLE>
<CAPTION>
                                      Options Outstanding                                            Options Exercisable
         -----------------------------------------------------------------------------------------------------------------------
                                                      Weighted-Average      Weighted-                              Weighted-
              Range of           Number of              Remaining            Average            Number of           Average
          Exercise Prices         Options            Contractual Life      Exercise Price       Options         Exercise Price
         -----------------------------------------------------------------------------------------------------------------------
         <S>                   <C>                   <C>                   <C>               <C>                <C>
          $1.47 - $3.26            1,528,050           5.58 years             $   1.90                                 $   1.92
                                                                                                 1,256,050
          $3.60 - $6.27              919,000           8.96 years             $   4.84             180,000             $   4.83
                              --------------                                                --------------
          $1.47 - $6.27            2,447,050           6.85 years             $   3.00           1,436,050             $   2.28
         -----------------------------------------------------------------------------------------------------------------------
</TABLE>

         In addition to the above, Fuel Tech has 2,562,500 warrants outstanding
to purchase Common Shares at an exercise price of $1.75. The warrants expire on
April 30, 2008.

6. Commitments

Operating Leases

         Fuel Tech leases office space, autos and certain equipment under
agreements expiring on various dates through 2009. Future minimum lease payments
at December 31, 2003 are as follows (in thousands):

         --------------------------------- ------------------------
                 Year of Payment                   Amount
         --------------------------------- ------------------------
                       2004                         $269
         --------------------------------- ------------------------
                       2005                          194
         --------------------------------- ------------------------
                       2006                          194
         --------------------------------- ------------------------
                       2007                          186
         --------------------------------- ------------------------
                       2008                          184
         --------------------------------- ------------------------
                    Thereafter                        80
         --------------------------------- ------------------------

         For the years ended December 31, 2003, 2002 and 2001, rent expense
approximated $618,000, $584,000 and $581,000, respectively.

Performance Guarantees

         The majority of Fuel Tech's long-term equipment construction contracts
contain language guaranteeing that the performance of the system that is being
sold to the customer will meet specific criteria. On occasion, bank performance
guarantees and letters of credit are issued to the customer in support of the
construction contracts as follows:

         -        in support of the warrantee period defined in the contract, or
         -        in support of the system performance criteria that are defined
                  in the contract

         As of December 31, 2003, Fuel Tech has outstanding bank performance
guarantees and letters of credit in the amount of $356,000 in support of
equipment construction contracts that have not completed their final acceptance
test or that are still operating under a warranty period. Management of Fuel
Tech believes that these projects will be successfully completed and that there
will not be a materially adverse impact on Fuel Tech's operations from these
bank performance guarantees and letters of credit.

                                       26
<PAGE>

7. DEBT FINANCING

         FTI has a $10.0 million revolving credit facility expiring July 31,
2004, which is collateralized by all personal property owned by FTI. FTI can use
this facility for cash advances and standby letters of credit. Cash advances
under this facility bear interest at the bank's prime rate, or at an optional
rate that can be selected by FTI which is based on the bank's Interbank Offering
Rate plus 2.25%. The $10.0 million revolving credit facility was obtained via an
amendment, effective December 31, 2002, that increased the credit facility from
$6.0 million to $10.0 million and extended the agreement until July 31, 2004.

         Also, FTI had a term loan agreement with the same bank for a total
principal balance of $4.5 million. The principal balance was to be repaid in
quarterly installments of $225,000 commencing on December 31, 1999, with a final
principal payment of $1,575,000 due on January 31, 2003. The term loan was paid
in full on January 31, 2003.

         At December 31, 2003, the bank had provided standby letters of credit,
predominantly to customers, totaling approximately $458,000 in connection with
contracts in process. FTI is committed to reimbursing the issuing bank for any
payments made by the bank under these letters of credit. At December 31, 2003,
there were no cash borrowings under the revolving credit facility and
approximately $9,542,000 was available for utilization.

         Interest payments were $39,000, $156,000 and $250,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.

8. RELATED PARTY TRANSACTIONS

         Fuel Tech has an 11.6% common stock ownership interest in Clean Diesel
Technologies, Inc. (CDT), at December 31, 2003. Fuel Tech is precluded from
selling its interest in CDT except pursuant to a registration statement, or in a
broker/dealer transaction within the limitations of Rule 144 of the Securities
and Exchange Commission, or in an exempt private placement within the
limitations of Rule 144 of the Securities and Exchange Commission. Fuel Tech's
investment in CDT, whose shares are publicly traded on the OTC Bulletin Board
and the Alternative Investment Market of the London Stock Exchange, had a market
value of $5.2 million at December 31, 2003, which is not reflected on Fuel
Tech's balance sheet.

         On August 3, 1995, Fuel Tech signed a Management and Services Agreement
with CDT. According to the agreement, CDT is to reimburse Fuel Tech for
management, services and administrative expenses incurred by Fuel Tech on behalf
of CDT. Additionally, Fuel Tech charges CDT an additional 3% of such costs
annually.

         For the years ended December 31, 2003, 2002 and 2001, $69,000, $69,000
and $73,000, respectively, was charged to CDT as a management fee.

         On November 11, 1998, a pre-existing $495,000 demand note, with
interest at 8%, and a $500,000 bridge loan and interest thereon of $20,000 were
converted into 2,029 shares of Series A Convertible Preferred stock in CDT. Each
preferred share was convertible into 333.33 shares of CDT common stock. In April
2000 Fuel Tech purchased 300 additional convertible preferred shares of CDT for
$225,000, which had the same convertible provisions noted above. As a result of
the continuing losses incurred by CDT, Fuel Tech recorded a loss of $225,000 in
2000 based on its pro-rata share of CDT's operating results for the year. The
CDT common and preferred stock has no carrying value in Fuel Tech's balance
sheet as of December 31, 2003 and 2002, and the 11.6% investment is being
accounted for using the cost method.

         In November 2000, Fuel Tech committed to lend CDT $250,000 as part of a
$1.0 million loan facility between CDT, Fuel Tech and other entities. In
December 2000, Fuel Tech loaned CDT $125,000 as its share of the first $500,000
draw down under the terms of the loan facility. This amount was included in the
prepaid expenses and other current assets line item on the consolidated balance
sheet as of December 31, 2000. In March 2001, Fuel Tech loaned CDT $125,000 as
its share of the second $500,000 draw down under the terms of the loan facility.
The principal balance on both loan installments, with accrued interest at 10%
per annum, was payable on May 14, 2002. For its participation in the loan
facility and for its $250,000 contribution, Fuel Tech received 25,000 warrants
to purchase CDT common stock. The warrants have an exercise price of $2.00 and
can be exercised on or before November 14, 2010. Because of the continuing
losses incurred by CDT, the carrying value of the loans was reduced to $0 as of
December 31, 2001 based on Fuel Tech's pro-rata share of the losses incurred.
Consequently, a $250,000 loss was recorded during 2001. In the first quarter of
2002, CDT repaid the entire amount of the loans plus interest. The payment of
the $250,000 principal value of the loan was recorded as income in the first
quarter of 2002, along with approximately $24,000 in interest income. The value
assigned to these warrants on the consolidated balance sheet at December 31,
2003 and 2002, is not significant.

                                       27
<PAGE>

         Pursuant to an assignment agreement of certain technology to CDT, Fuel
Tech is due royalties from CDT of 2.5% of CDT's annual revenue from sales of
CDT's Platinum Fuel Catalyst, commencing in 1998. The royalty obligation expires
in 2008. CDT may terminate the royalty obligation to Fuel Tech by payment of $12
million commencing in 1998 and declining annually to $1,090,910 in 2008. CDT as
assignee and owner will maintain the technology at its own expense. To date,
Fuel Tech has received approximately $9,000 in royalties. Fuel Tech intends to
record royalties from CDT on a cash basis.

         On April 30, 1998, FTI entered into an agreement with American Bailey
Corporation (ABC) for it to provide certain management and consulting services
to FTI. Principals of ABC currently own 24% of Fuel Tech's Common Shares and
also own warrants to purchase an additional 2.6 million shares, which expire on
April 30, 2008. No fees were to be payable under the agreement for the first 24
months. This agreement was amended in 1999 to extend its term to April 30, 2002,
and provide for the payment of a management fee of $10,417 per month commencing
September 1, 1999, through May 1, 2000, and $20,833 per month until the
termination of the agreement. The agreement was further amended effective May 1,
2002 to increase the management fee to $29,167 per month until the termination
of the agreement as of April 30, 2004. Effective January 1, 2004, this agreement
was terminated.

         As of January 1, 2004, two former employees of ABC who were Directors
of Fuel Tech became employees of FTI. Concurrently, in early 2004, a new
agreement was put in place between FTI and ABC. Effective January 1, 2004, a
compensation agreement was established whereby ABC will reimburse FTI for
certain services that employees of FTI will provide to ABC.

9. DEFINED CONTRIBUTION PLAN

         Fuel Tech has a retirement savings plan available for all U.S.
employees who have met minimum length-of-service requirements. Fuel Tech's
contributions are determined based upon amounts contributed by Fuel Tech's
employees with additional contributions made at the discretion of Fuel Tech's
Board of Directors. Costs related to this plan were $341,000, $180,000 and
$150,000 in 2003, 2002 and 2001, respectively.

                                       28
<PAGE>

10. BUSINESS SEGMENT, GEOGRAPHIC AND QUARTERLY FINANCIAL DATA

BUSINESS SEGMENT FINANCIAL DATA

         Fuel Tech's business is organized into two operating segments providing
air pollution control chemicals and equipment and software. The software segment
does not meet the materiality test for disclosure purposes.

         Information concerning Fuel Tech's operations by geographic area is
provided below. Operating earnings represent sales less cost of products sold
and operating expenses. Foreign operating expenses include direct expenses
incurred outside of the United States of foreign corporations controlled by Fuel
Tech plus an allocation of domestic selling and general expenses directly
related to the foreign operations. Assets are those directly associated with
operations of the geographic area.

<TABLE>
<CAPTION>
For the years ended December 31                                        2003               2002                 2001
                                                                 -------------------------------------------------------
<S>                                                              <C>                <C>                 <C>

Revenues:
    United States                                                  $ 30,965,000       $ 28,724,000         $ 13,246,000
    Foreign                                                           4,771,000          3,903,000            4,426,000
                                                                 --------------    ---------------     ----------------
                                                                   $ 35,736,000       $ 32,627,000         $ 17,672,000
                                                                 ==============    ===============     ================

Operating income (loss):
    United States                                                   $ 1,075,000        $ 2,654,000         $ (1,143,000)
    Foreign                                                             (74,000)            54,000              (54,000)
                                                                 --------------    ---------------     ----------------
                                                                    $ 1,001,000        $ 2,708,000         $ (1,197,000)
                                                                 ==============    ===============     ================

December 31                                                            2003               2002                2001
                                                                 -------------------------------------------------------
Assets:
    United States                                                  $ 19,487,000       $ 24,393,000         $ 18,952,000
    Foreign                                                           2,111,000          1,476,000            1,376,000
                                                                 ---------------   ---------------     ----------------
                                                                   $ 21,598,000       $ 25,869,000         $ 20,328,000
                                                                 ==============    ===============     ================
</TABLE>

QUARTERLY FINANCIAL DATA

Set forth below are the unaudited quarterly financial data for the fiscal years
ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>
For the quarter ended:                                March 31          June 30         September 30       December 31
                                                    ---------------------------------------------------------------------
<S>                                                 <C>                 <C>             <C>                <C>

(in thousands, except share data)

2003:
    Net sales                                             $ 8,036          $ 9,968           $ 10,178            $ 7,554
    Cost of sales                                           5,409            6,411              5,592              4,377
    Net (loss) income                                        (517)             600              1,317               (280)
    Net (loss) income per Common Share:
       Basic                                                ($.03)            $.03               $.07              ($.01)
       Diluted                                              ($.03)            $.03               $.06              ($.01)

2002:
    Net sales                                             $ 5,221          $ 8,021            $ 8,033           $ 11,352
    Cost of sales                                           2,583            4,130              4,462              7,057
    Net income                                                312            1,029                379              1,337
    Net income per Common Share:
       Basic                                                 $.02             $.05               $.02               $.07
       Diluted                                               $.01             $.05               $.02               $.06
</TABLE>

                                       29
<PAGE>

11. PARENT COMPANY FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Balance Sheets (at December 31)                                       2003               2002
                                                                 --------------    ---------------
<S>                                                              <C>               <C>
Assets:

    Receivable and other current assets                            $    96,000        $    72,000
    Investments in subsidiaries                                     15,233,000         16,915,000
                                                                 --------------    ---------------
    Total assets                                                   $15,329,000        $16,987,000
                                                                 ==============    ===============

Liabilities and shareholders' equity:

Liabilities:

    Accounts payable and accrued expenses                          $    90,000        $   182,000

Shareholders' equity                                                15,239,000         16,805,000
                                                                 --------------    ---------------
Total liabilities and shareholders' equity                         $15,329,000        $16,987,000
                                                                 ==============    ===============
</TABLE>

<TABLE>
<CAPTION>

Satements of Operations (for the years ended December 31)             2003              2002                 2001
                                                                 --------------    ---------------     ----------------
<S>                                                              <C>               <C>                 <C>
    Loss from operations                                           $  (763,000)       $  (710,000)       $    (952,000)
    Interest and other income, net                                           -            222,000              129,000
    Income (loss) from equity investment in subsidiary               1,883,000          3,545,000             (810,000)
                                                                 --------------    ---------------     ----------------
    Net income (loss)                                              $ 1,120,000        $ 3,057,000        $  (1,633,000)
                                                                 ==============    ===============     ================


Statements of Cash Flow (for the years ended December 31)             2003               2002                2001
                                                                 --------------    ---------------     ----------------

Operating activities:
    Net cash used in operating activities                          $  (880,000)       $  (757,000)       $    (521,000)
                                                                 --------------    ---------------     ----------------

Investing activities:
    Investment in and loans to CDT                                           -            250,000             (125,000)
                                                                 --------------    ---------------     ----------------
    Net cash provided by (used in) investing activities                      -            250,000             (125,000)

Financing activities:
    Dividend from FTI                                                1,532,000            (28,000)             280,000
    Exercise of stock options                                          323,000            535,000              406,000
    Purchase of treasury stock/other                                   (35,000)                 -              (40,000)
    Purchase of shares to be retired                                  (940,000)                 -                    -
                                                                 --------------    ---------------     ----------------
    Net cash provided by investing activities                          880,000            507,000              646,000

    Net decrease in cash and cash equivalents                                -                  -                    -

    Cash and cash equivalents at beginning of period                         -                  -                    -
                                                                 --------------    ---------------     ----------------
    Cash and cash equivalents at end of period                     $         -        $         -        $           -
                                                                 ==============    ===============     ================
</TABLE>

Basis of Presentation:

         In the parent company financial statements, Fuel Tech's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. Fuel Tech's share of net income of
its unconsolidated subsidiaries is included in consolidated income using the
equity method. The parent company financial statements should be read in
conjunction with Fuel Tech's consolidated financial statements.

                                       30
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

None

ITEM 9a. CONTROLS AND PROCEDURES

         The Company maintains disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in the
Company'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. The Company's management,
with the participation of its principal executive and financial officers, has
evaluated the effectiveness of the Company's disclosure controls and procedures
as of the end of the period covered by this Annual Report on Form 10-K. The
Company's principal executive and financial officers have concluded, based on
such evaluations, that such disclosure controls and procedures were effective
for the purpose for which they were designed as of the end of such period.

         There was no change in the Company's internal control over financial
reporting that was identified in connection with such evaluations that occurred
during the period covered by this Annual Report on Form 10-K that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information required by this Item will be set forth under the captions
"Election of Directors," "Directors and Executive Officers of Fuel Tech,"
"Compensation Committee," "Audit Committee," and "Financial Experts" in Fuel
Tech's Proxy Statement related to the 2004 Annual General Meeting of
Shareholders (the `Proxy Statement") and is incorporated by reference.

         Fuel Tech has adopted a Code of Ethics and Business Conduct (the
"Code") that applies to all employees, officers and directors, including the
Chief Executive Officer, Chief Financial Officer and Controller. A copy of the
Code is available free of charge to any person on written or telephone request
to Fuel Tech's Investor Relations at the address or telephone number set out in
Fuel Tech's Annual Report to Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

         Information required by this Item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated by reference
excluding, however, the information under the captions "Report of the Board of
Directors on Executive Compensation" and "Performance Graph," which is not
incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information required by this Item will be set forth under the caption
"Principal Shareholders and Stock Ownership of Management" in the Proxy
Statement and is incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information required by this Item will be set forth under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

         Information required by this Item will be set forth under the caption
"Approval of Appointment of Auditors" in the Proxy Statement and is incorporated
by reference.

                                       31
<PAGE>

                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K


(a)     (1) Financial Statements

         The financial statements identified below and required by Part II, Item
8 of this Form 10-K are set forth above.

<TABLE>
<CAPTION>
         <S>                                                                                                              <C>
         Report of Independent Auditors
         Consolidated Balance Sheets as of December 31, 2003 and 2002
         Consolidated Statements of Operations for Years Ended December 31, 2003, 2002 and 2001
         Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2003, 2002 and 2001
         Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
         Notes to Consolidated Financial Statements

         (2) Financial Statement Schedules
</TABLE>

         Schedules have been omitted because of the absence of the conditions
under which they are required or because the required information where material
is shown in the financial statements or the notes thereto.

         (3) Exhibits
<TABLE>
<CAPTION>
<S>           <C>

+    1.0      Articles of Association of Fuel-Tech N.V. (in Dutch and English) as amended through April 27, 1998
*    2.1      Instrument Constituting US $19,200,000 Nil Coupon Non-Redeemable Convertible Unsecured Loan Notes of Fuel-Tech N.V.,
                 dated December 21, 1989
*    2.2      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
**   2.3      Instrument Constituting US $6,000,000 Nil Coupon Non-Redeemable Convertible Unsecured Loan Notes of Fuel-Tech N.V.,
                 dated March 12, 1993
**   2.4      Form of Warrants issued April 30, 1998 evidencing right to purchase 3 million shares of Fuel-Tech N.V. common stock.
*    3.1      Form of Indemnity Agreement between Fuel-Tech N.V. and directors and officers
*    3.2      Fuel Tech, Inc. Form of 1992 Substitute Stock Option Agreement
*    3.3      Fuel-Tech N.V. Form of 1992 Substitute Stock Option Agreement
*    3.4      Fuel-Tech N.V. Form of 1993 Stock Option Agreement as amended through August 3, 1999
&    3.5      The 1993 Incentive Plan of Fuel-Tech N.V. as amended through August 3, 1999
*    3.6      License Implementation Agreement dated June 10, 1991 among NFT, Nalco Fuel Tech, B.V., and Foster Wheeler Energy
                 Corporation
*    3.7      License Implementation Agreement dated April 23, 1991 among NFT, Nalco Fuel Tech, B.V., and R-C Environmental Services
                 & Technologies, a division of Research Cottrell, Inc.
*    3.8      License Implementation Agreement dated December 20, 1990 between NFT and RJM Corporation
*    3.9      License Implementation Agreement dated May 22, 1991 among NFT, Nalco Fuel Tech, B.V., and Wheelabrator Air Pollution
                 Control, Inc.
*   3.10      Agreement dated July 3, 1990 between NFT and Arcadian Corporation
*   3.11      License Agreement dated September 12, 1991 between NFT and BP Chemicals Inc.
*   3.12      Agreement dated November 5, 1990 between NFT and Cargill, Incorporated
*   3.13      Agreement dated August 30, 1990 between NFT and Nitrochem, Inc.
*   3.14      License Agreement dated December 27, 1990 between NFT and Union Oil Company of California dba Unocal
*   3.15      Agreement dated September 30, 1990 between NFT and W.H. Shurtleff Company
**  3.16      Securities Purchase Agreement dated as of March 23, 1998, between Fuel-Tech N.V., and the several Investors signatory
                 thereto, including exhibits.
#&  3.18      License Agreement dated November 18, 1998 between The Gas Technology Institute and Fuel Tech, Inc. relating to the
                 FLGR Process
#&  3.19      Amendment No. 1, dated February 28, 2000, to License Agreement of November 18, 1998 between The Gas Technology
                 Institute and Fuel Tech, Inc.
 ooo3.20      The Amended and Restated Business Loan Agreement dated as of August 31, 1999 between Bank of America, National
                 Association and FTI; as amended through December 31, 2002
 oo 19.2      Those portions of the Proxy Statement to be distributed to Shareholders of Fuel Tech for the 2004 Annual General
                 Meeting of Shareholders of Fuel-Tech N.V. specifically incorporated by reference into this Annual Report on Form
                 10-K.
  o 23.1      Consent of Ernst & Young LLP
  o 31.1      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
</TABLE>

                                       32
<PAGE>
<TABLE>
<CAPTION>
<S>           <C>

  o 31.2      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  o 32        Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*             Filed with Registration Statement on Form 20-F, No. 000-21724 of 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            To be filed with the Registrant's definitive proxy material for its 2003 Annual General Meeting
ooo           Filed with Registrant's report on Form 10-K for the year 2002
#             Confidential information removed and filed separately
&             Filed with Registrant's report on Form 10-K for the year 1999
</TABLE>

(b)  Reports on Form 8-K

<TABLE>
<CAPTION>
<S>    <C>
-      The Company filed form 8-K on October 28, 2003. This filing included the Company's third quarter 2003 earnings press release.
-      The Company filed form 8-K on December 23, 2003. This filing announced the Company's initiation of a program to purchase
       its common stock.
</TABLE>


                                       33
<PAGE>

                          SIGNATURES AND CERTIFICATIONS

         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: March 15, 2004       By: /s/ Ralph E. Bailey
                               -------------------
                               Ralph E. Bailey
                               Chairman, Managing Director
                               and Chief Executive Officer


Date: March 15, 2004       By: /s/ Vincent J. Arnone
                               ---------------------
                               Vincent J. Arnone
                               Chief Financial Officer,
                               Vice President and
                               Treasurer



                                       34
<PAGE>

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of
Fuel-Tech N.V. and in the capacities and on the date indicated.

Date: March 15, 2004
<TABLE>
<CAPTION>
<S>                                        <C>

       /s/ Ralph E. Bailey                  Chairman, Managing Director and Chief Executive Officer
           Ralph E. Bailey                  (Principal Executive Officer)

       /s/ Vincent J. Arnone                Chief Financial Officer, Vice President and Treasurer
           Vincent J. Arnone                (Principal Financial and Accounting Officer)

        /s/ Douglas G. Bailey               Managing Director
            Douglas G. Bailey

        /s/ Thomas J. Shaw                  Managing Director
            Thomas J. Shaw

        /s/ Miguel Espinosa                 Managing Director
            Miguel Espinosa

        /s/ Samer S. Khanachet              Managing Director
            Samer S. Khanachet

        /s/ Charles W. Grinnell             Managing Director, Vice President, General Counsel and Corporate Secretary
            Charles W. Grinnell

       Tarma Trust Management N.V.          Managing Director
       By: /s/ Robert W. Huyzen
               Robert W. Huyzen
               Managing Director
</TABLE>