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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended October 31, 2021

OR

For the transition period from                      to

Commission file number: 1-14204

Registrant’s telephone number, including area code: (203) 825-6000

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ◻

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ◻ No ☒

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 ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

As of April 30, 2021, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $3,226,456,793 based on the closing sale price of $9.71 as reported on the NASDAQ Global Market.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

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DOCUMENT INCORPORATED BY REFERENCE

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FUELCELL ENERGY, INC.

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Forward-Looking Statement Disclaimer

This Annual Report on Form 10-K contains statements that the Company believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). All statements other than statements of historical fact included in this Form 10-K, including statements regarding the Company’s future financial condition, results of operations, plans, objectives, expectations, future performance, business operations and business prospects, are forward-looking statements. Words such as “expects,” “anticipates,” “estimates,” “goals,” “projects,” “intends,” “plans,” “believes,” “predicts,” “should,” “seeks,” “will,” “could,” “would,” “may,” “forecast,” and similar expressions and variations of such words are intended to identify forward-looking statements and are included, along with this statement, for purposes of complying with the safe harbor provisions of the PSLRA. Forward-looking statements are neither historical facts, nor assurances of future performance. Instead, such statements are based only on our beliefs, expectations, and assumptions regarding the future. As such, the realization of matters expressed in forward-looking statements involves inherent risks and uncertainties. Such statements relate to, among other things, the following:

The forward-looking statements contained in this report are subject to risks and uncertainties, known and unknown, that could cause actual results and future events to differ materially from those set forth in or contemplated by the forward-looking statements, including, without limitation, the risks described under Item 1A - Risk Factors of this report and the following factors:

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We cannot assure you that:

The forward-looking statements contained herein speak only as of the date of this report and readers are cautioned not to place undue reliance on these forward-looking statements. Except for ongoing obligations to disclose material information under the federal securities laws, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statement to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.

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Risk Factor Summary

Our business is subject to numerous risks and uncertainties, including those described in Item 1A “Risk Factors”. These risks include, but are not limited to the following:

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General Information

Information contained in this report concerning the electric power supply industry and the distributed generation market, the distributed hydrogen market, the energy storage market and the carbon capture market, our general expectations concerning these industries and markets, and our position within these industries and markets are based on market research, industry publications, other publicly available information and assumptions made by us based on this information and our knowledge of these industries and markets, which we believe to be reasonable. Although we believe that the market

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research, industry publications and other publicly available information, including the sources that we cite in this report, are reliable, they have not been independently verified by us and, accordingly, we cannot assure you that such information is accurate in all material respects. Our estimates, particularly as they relate to our general expectations concerning the electric power supply industry and the distributed generation market, the distributed hydrogen market, the energy storage market and the carbon capture market, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the section of this report entitled “Item 1A - Risk Factors.”

As used in this report, all degrees refer to Fahrenheit (“F”); kilowatt (“kW”) and megawatt (“MW”) numbers designate nominal or rated capacity of the referenced power plant which is the design rated output of the referenced power plant as of the date of initiation of commercial operations; “efficiency” or “electrical efficiency” means the ratio of the electrical energy generated in the conversion of a fuel to the total energy contained in the fuel (lower heating value, the standard for power plant generation, assumes the water in the product is in vapor form; as opposed to higher heating value, which assumes the water in the product is in liquid form, net of parasitic load); kW means 1,000 watts; MW means 1,000,000 watts; “kilowatt hour” (“kWh”) is equal to 1kW of power supplied to or taken from an electric circuit steadily for one hour; and one British Thermal Unit (“Btu”) is equal to the amount of heat necessary to raise one pound of pure water from 59^oF to 60^oF at a specified constant pressure.

All dollar amounts are in U.S. dollars unless otherwise noted.

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Business Overview

Headquartered in Danbury, Connecticut, FuelCell Energy has leveraged five decades of research and development to become a global leader in delivering environmentally responsible distributed baseload power platform solutions through our proprietary fuel cell technology. As an innovator and an American manufacturer of clean fuel cell power platforms, our current commercial technology delivers clean, distributed generation and distributed hydrogen, as well as heat, carbon separation and utilization, and water. We plan to increase our investment in developing and commercializing future technologies expected to deliver hydrogen and long duration hydrogen-based energy storage through our solid oxide technologies, as well as carbon capture solutions.

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As a leading global manufacturer of proprietary fuel cell technology platforms, we are uniquely positioned to serve customers worldwide with sustainable products and solutions for businesses, utilities, governments, and municipalities. Our solutions are designed to enable a world empowered by clean energy, enhancing the quality of life for people around the globe. We target large-scale power users with our megawatt-class installations globally, and currently offer sub-megawatt solutions for smaller power consumers in Europe. To provide a frame of reference, one megawatt is adequate to continually power approximately 1,000 average sized U.S. homes. Our customer base includes utility companies, municipalities, universities, hospitals, government entities/military bases and a variety of industrial and commercial enterprises. Projects for utility companies are known as front of the meter (“FTM”) and projects for all non-utility customers are known as behind the meter (“BTM”). Our leading geographic markets are currently the United States and South Korea, and we are pursuing opportunities in other countries around the world. Our product offerings drive our mission to help our customers realize their environmental goals, strengthen resiliency, manage energy and other commodity costs, and deliver valuable goods and services to their customers.

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Our History

FuelCell Energy was founded in 1969 by Bernard Baker and Martin Klein, who had a powerful vision for the future of energy. The Company, which is now based in Connecticut, was founded as a New York corporation to provide applied research and development services on a contract basis. We completed our initial public offering in 1992 and reincorporated in Delaware in 1999. We began selling stationary fuel cell power plants commercially in 2003. From the development and commercialization of a new type of battery to the deployment of the initial SureSource platform, we have been a pioneer in technologies focused on solving some of the world’s most critical challenges around safe and clean energy. This history of technological leadership drives our culture of innovation and sense of purpose.

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Product Platforms and Applications Overview

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Our multi-featured platforms can be configured to provide a number of value streams, including electricity, high quality usable heat, water and hydrogen, and to concentrate and separate CO₂ from industrial applications using fossil fuels. We

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are focused on using our proprietary technology to pursue the following four significant industry applications, each of which we believe is important to the achievement of the global energy transition currently underway:

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See the section below entitled “Our Product Platforms and Applications” for more information.

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Our Market Opportunity

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Climate initiatives are driving the global push to reduce greenhouse gases, including CO₂, nitrogen oxides (“NOx”) and sulfur oxides (“SOx”). We believe there exists a large and increasing total addressable market opportunity for FuelCell Energy given the solutions we have commercially available today and the solutions that are in development for commercialization, which are focused on addressing global climate change, air quality, emissions, and the need for resilient and reliable power.

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Through the unique capabilities of our platforms, we can isolate and remove CO₂ from exhaust streams, provide distributed hydrogen cost effectively to further advance the transportation industry’s shift to hydrogen powered vehicles, and provide industrial and utility customers with a secure and local supply of hydrogen. Hydrogen is also an effective medium for the storage of energy, and we are positioned to provide a highly efficient and environmentally favorable hydrogen-based long-duration energy storage solution. We believe hydrogen-based storage is environmentally superior to a mineral-based storage solution such as lithium-ion batteries. Additionally, through the deployment of our megawatt and sub-megawatt platform solutions, we can deliver the benefits of clean distributed power generation, including the desirable value stream of thermal energy, and avoid the need for massive, long distance transmission infrastructure and the risks that the traditional transmission grid creates.

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See the section below entitled “Our Markets” for information regarding our existing and target markets.

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Our Durable Competitive Advantages

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Given the long history of investment in and deployment of our solutions, we believe we have the following competitive advantages:

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Our Business Strategy and Business Updates

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In 2019, we launched our “Powerhouse” strategy to strengthen our business, maximize operational efficiencies and position us for future growth focused on three key pillars – “Transform, Strengthen and Grow.”

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Summary – Fiscal Year 2021 Business Updates

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We made substantial progress in achieving the key initiatives reflected in the “Transform” and “Strengthen” phases of our strategy in fiscal year 2021. This included raising capital in the equity markets during the fiscal year and the repayment of $82.3 million of debt obligations under our now extinguished credit facility with Orion Energy Partners Investment Agent, LLC and its affiliated lenders and the payment of $21.5 million to satisfy in full our obligations under the terms of the preferred stock of our Canadian subsidiary, FCE FuelCell Energy, Ltd. We ended fiscal year 2021 with an unrestricted cash balance of $432.2 million compared to an unrestricted cash balance of $149.9 million at the end of fiscal year 2020.

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From an operations perspective, we consistently increased our factory production rates during the year in order to meet our backlog requirements and are currently operating at a 45 MW per year annualized production rate on a single production shift. In addition, we continued to build out our generation backlog, with our San Bernardino project reaching commercial operations in the third quarter of our fiscal year and our Groton and LIPA Yaphank projects nearing commercial operations as the date of this report. We also invested in improving fleet performance during the year with additional module deployments and maintenance activities.

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From a research and development perspective, we increased our activities around commercializing our solid oxide platforms and demonstrated higher electrical efficiency hydrogen production with our solid oxide electrolysis platform at our headquarters in Connecticut. Additionally, we continued our joint research with EMRE on fuel cell carbon capture solutions and recently extended our joint development agreement with EMRE through April 2022. We also invested in improvement initiatives with respect to our core molten carbonate technology in response to issues we were seeing in the field. We identified improvement opportunities ranging from improved thermal management by reducing internal temperature to improving the performance of our electrical balance of plant and began to implement design changes to our commercial platforms which are expected to improve overall product performance. Specific to our stack modules, these improvements centered around delivering more uniform temperature distribution within the stack modules with the intent of improving output over the life of the modules to achieve the product’s expected design life.

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Finally, from a human capital perspective, we strengthened our team across the Company and added key leadership positions including a Chief People Officer and a Chief Marketing Officer. Our global headcount stood at 382 employees as of October 31, 2021 compared to 316 employees as of October 31, 2020. With the foundational execution in fiscal year 2021 and growth initiatives planned for fiscal year 2022, we expect to continue to expand our global team.

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Fiscal Year 2022 Strategy Updates

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As noted above, we have made substantial progress in achieving the key initiatives reflected in the “Transform” and “Strengthen” phases of our strategy. This includes financial liquidity and capital structure improvements, enhanced operational performance through hiring of key talent, investment in our operating fleet, execution against our project backlog, implementation of lean manufacturing techniques, and achievement of certain targeted cost reductions. Going forward, we are increasing our focus on growth, commercial capability, and the required investment to commercially access our targeted addressable markets. As such, the “Powerhouse” strategy has evolved to reflect these areas of focus under the pillars of “Grow”, “Scale” and “Innovate.”

Grow — Penetrate Significant Market Opportunities

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Scale — Scale Our Existing Platform to Support Growth

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Innovate — Innovate for the Future

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Our Value Proposition

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We are working to deploy our unique and differentiated energy solutions to help customers decarbonize power and produce hydrogen, while protecting the environment and adapting to new resource challenges. This purpose drives our strategic focus that advances our work and delivers value to our customers.

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This is how we measure value to our customers:

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Our Sustainability Commitment

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Our platforms have a direct impact on reducing the global environmental footprint of baseload power generation. However, our platforms do not stop at power delivery as they are designed to go beyond power, delivering hydrogen, carbon separation, water, and thermal energy in various applications. As a result of our platforms’ ability to deliver multiple value streams, we help our customers reduce their emissions on-site without buying remote carbon/environmental offsets. In the future, we plan to commercialize our hydrogen, long-duration energy storage, and carbon capture technologies intended to drive next generation solutions to help customers attain their decarbonization goals.

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Our patented products offer a sustainable alternative to traditional internal combustion-based power generation. Traditional power plants create harmful emissions, such as NOx, SOx and particulate matter, that are a serious public health concern and have a direct impact on the communities in which these plants operate. Alternatively, our power platforms use a combustion-free power generation process that is virtually free of pollutants. Our platforms are highly efficient and environmentally friendly products that support the “Triple Bottom Line” concept of sustainability, consisting of environmental, social, and economic considerations.

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As an enterprise, we are proud that, in October 2018, we were certified ISO 14001:2015 compliant, having demonstrated the establishment of and adherence to an environmental management system standard. We believe that we are the only fuel cell manufacturer to have received this certification.

Our commitment to sustainability is also evident in the design, manufacturing, installation and on-going servicing of our fuel cell power platforms, which are engineered for recycling and re-use. We start with a commitment to sustainability best practices as part of our corporate culture, then apply this core belief to the design, manufacture, installation and servicing of our fuel cell power platforms. For example, when our plants reach the end of their useful lives, we have the capability to refurbish and re-use certain parts and also recycle most of what we cannot re-use. This is a departure from other combustion-based power generation methods that typically produce a significant amount of unrecyclable waste which increases landfill use. The balance of plant (“BOP”) is designed to have an operating life of 25-to-30 years, at which time metals such as steel and copper are reclaimed for scrap value. For context, by weight, approximately 93% of the entire power plant can be re-used or recycled at the end of its useful life.

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Our Current Products

Our core fuel cell products offer clean, highly efficient and affordable power generation for customers. The plants are scalable for multi-megawatt utility applications, microgrid applications, distributed hydrogen, or use of the platform’s thermal attributes for on-site heat and chilling applications for a broad range of applications.

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Our commercial product line includes:

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Our global SureSource product line is uniformly based on the same carbonate fuel cell technology, and offers the following advantages:

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Product Efficiency

The electrical efficiency of our carbonate fuel cell solutions ranges from approximately 47% to 60% upon initial operations of our platforms depending on the configuration. When configured for CHP, our system efficiencies can potentially reach up to 90%, depending on the application. Our solutions are designed to deliver high electrical efficiency where the power is used, avoiding transmission. Transmission line losses average about 5% for the U.S. grid, which represents inefficiency, results in additional emissions, and is a hidden cost to ratepayers. In addition, overhead transmission lines have contributed to the ignition of wildfires in certain geographies.

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Our Product Platforms and Applications

We are focused on using our proprietary technology to pursue the following four significant industry applications:

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Distributed Generation

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Our proprietary, patented SureSource platforms generate electricity directly from a hydrogen-rich fuel, such as natural gas or biogas. This multi-fuel capability enables the SureSource platform to leverage the established natural gas infrastructure that is readily available in our existing and target markets, compared to some types of fuel cells that can only operate on high purity hydrogen. Our proprietary technology also allows us to utilize on-site biogas and renewable natural gas, the application of which is rapidly expanding around the world, to fuel our platforms.

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We market different configurations and applications of our SureSource platform to meet specific market needs, including:

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Distributed Hydrogen

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SureSource platforms are configurable to deliver on-site hydrogen for transportation, industrial applications, natural gas blending, and repowering combustion-based equipment with zero carbon hydrogen. The SureSource Hydrogen platform utilizes proprietary fuel cells configured to simultaneously generate three value streams — power generation, hydrogen,

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and water. When operated on biogas or renewable natural gas, SureSource Hydrogen systems produce renewable hydrogen, also known as Green Hydrogen, but, even when fueled with natural gas, our platforms produce hydrogen with a lower carbon and criteria pollutant impact when compared to conventional steam methane reforming (“SMR”) applications because of the use of internal heat instead of burning fuel to provide heat for reforming and steam generation.  Heat and steam are byproducts of fuel cell operation, allowing Trigeneration platforms to produce hydrogen without water consumption (in fact with net water production) and with a low carbon footprint. Adding carbon separation or carbon capture to the SureSource Hydrogen platform when fueled with natural gas will deliver Blue Hydrogen (i.e., hydrogen produced with carbon capture). The following figure illustrates the concept of the SureSource Hydrogen platform and identifies typical applications for our distributed hydrogen application.

Trigeneration Distributed Hydrogen Platform

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Additionally, we are in the process of commercializing a solution based on our SureSource platform that is designed to produce hydrogen through Reformer-Electrolyzer-Purifier operation (“REP”). REP combines reforming and electrolysis into one unit based on our carbonate fuel cell platform, with the hydrogen output being produced from natural gas and water. The economics of the REP system have the potential to be highly attractive for distributed hydrogen in certain markets and could provide competitive distributed hydrogen for many applications in the near-term. Adding carbon separation or carbon capture to the SureSource REP platform when fueled with natural gas will deliver Blue Hydrogen.

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Long Duration Hydrogen-Based Energy Storage and Electrolysis

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We are in the process of commercializing a solution for long duration energy storage using our proprietary solid oxide electrolysis technology which is expected to enable production of hydrogen with high electrical efficiency. We believe that our platform will deliver higher efficiency than other competitors and competing technologies with or without the addition of waste heat.

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Our solid oxide stacks are designed to alternate between electrolysis and power generation mode, with one of our design goals being better integration of the intermittent power generation sources of wind and solar into the modern electrical

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grid via long duration storage of energy. Hydrogen-based long duration energy storage has the ability to transform the way intermittent resources are supported with combustion energy sources for continuous power. Instead of producing power from fuel and air, a solid oxide fuel cell stack in electrolysis mode splits water into hydrogen and oxygen using supplied electricity. The hydrogen can be stored as compressed gas, creating the ability to produce a virtually limitless supply. When the grid needs to discharge power, the stored hydrogen will be sent back to the same solid oxide stacks, which react it with air to produce power and to regenerate the water, which will be stored for the next cycle.

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Long duration hydrogen-based energy storage can be achieved without the need to add excessive amounts of conventional battery capacity, a capacity that is reliant on rare earth minerals such as Lithium and Cobalt, both of which have supply constraints for broad adoption, require extensive mining and present long-term disposal challenges post-use. Long duration hydrogen-based energy storage is expected to be required at large scale in order to manage the forecasted high penetration of intermittent renewable resources globally, and this water/hydrogen-based approach of our solid oxide fuel cell/solid oxide electrolysis cell/reversible solid oxide fuel cell technology has the potential to be a key enabler of long duration hydrogen-based energy storage. We believe hydrogen as an energy storage medium is superior to mineral-based storage platforms.

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We are also developing advanced electrolysis systems based on our solid oxide electrolysis platform, which can operate at higher electrical efficiency than currently available electrolysis technologies. Applications for this technology include hydrogen for production for mobility, industrial users, repowering existing combustion generation assets, as well as large scale hydrogen production from curtailed renewable or nuclear power.

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We are currently operating a sub scale demonstration project of this technology in our Danbury test facility and have been awarded a pilot program to provide a packaged 150 kg/day system for demonstration at Idaho National Laboratory which we expect to be placed in service during 2022.

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Carbon Capture, Separation and Utilization

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The production of additional power during the carbon capture process, as opposed to consuming power, differentiates the SureSource Capture system from other forms of carbon capture. This added revenue attribute could make the SureSource Capture system more cost effective than other systems which are being considered for carbon capture. SureSource Capture systems can be implemented incrementally, managing capital outlay to match decarbonization objectives and regulatory requirements. Since our solution generates a return on capital resulting from the fuel cell's production of electricity compared to an increase in operating expense required by other carbon capture technologies, it can extend the life of existing power plants and be economically applied to industrial thermal systems.

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We have a Joint Development Agreement with EMRE which was effective October 31, 2019 and executed in fiscal year 2020 (as amended from time to time, the “EMRE Joint Development Agreement”). Under this agreement, we have engaged in exclusive research and development efforts with EMRE to evaluate and develop new and/or improved carbonate fuel cells to reduce carbon dioxide emissions from industrial and power sources. Effective as of October 31, 2021, we entered into a six-month extension to the EMRE Joint Development Agreement which allows for the continuation of research intended to enable incorporation of design improvements to our current fuel cell design with the goal of using such improvements in a future demonstration of the technology for capturing carbon. The term of the EMRE Joint Development Agreement will now continue until April 30, 2022.

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Our Business Model

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Our business model is based on multiple revenue streams, including power platform and component sales; recurring service revenue, mainly through long-term service agreements; recurring electricity, capacity, and renewable energy credit sales under power purchase agreements (“PPAs”) and tariffs for projects we retain in our generation operating portfolio; and revenue from public and private industry research contracts related to the development of our Advanced Technologies which are discussed in more detail below.

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We are a complete solutions provider, controlling the design, manufacturing, sales, installation, operations, and maintenance of our patented fuel cell technology under long-term power purchase and service agreements. When utilizing long-term PPAs, the end-user of the power or utility hosts the installation and only pays for power as it is delivered, avoiding up-front capital investment. We also develop projects and sell equipment directly to customers, providing a complete solution of engineering, installing, and servicing the fuel cell power plant under an engineering, procurement, and construction agreement (“EPC”) and a long-term maintenance and service agreement. (See the sections below entitled “Engineering, Procurement and Construction” and “Service and Warranty Agreements” for more information.) We maintain the long-term recurring service obligation and associated revenues running conterminous with the life of such projects.

Historically, in the United States, customers or developers typically purchased our fuel cell power plants outright.  As the size of our fuel cell projects has grown and the availability of project capital has improved, project structures in the U.S. have transitioned to predominantly PPAs. Customers and developers generally have the option to either purchase our fuel cell platforms outright or enter into a PPA under which the customer or developer (i.e. the end-user of the power) commits to purchase power as it is produced for an extended period of time, typically 10 to 20 years. We may elect to retain ownership of a project or we may elect to sell all or some of the project to a third party.  If a project or project asset is sold, revenue from the sale is recognized and reflected in the Product revenues line item of our Consolidated Statements of Operations and Comprehensive Loss, and we recognize revenue separately for the long-term maintenance and service agreement with respect to the project over the term of that agreement. If a project is retained, we recognize electricity, capacity and/or renewable energy credits monthly over the term of the PPA. We report the financial performance of retained projects as Generation revenues and cost of generation revenues in our Consolidated Statements of Operations and Comprehensive Loss.

Our decision to retain certain projects is based in part on the recurring, predictable cash flows these projects can offer us, the proliferation of PPAs in the industry and the potential access to capital.  Retaining PPAs affords us the full benefit of future cash flows under the PPAs, which are expected to be higher than if we sell the projects, although it requires more upfront capital investment and financing.  As of October 31, 2021, our operating portfolio of retained projects totaled 34.0 MW with an additional 41.3 MW under development or construction. We plan to continue to grow this portfolio prudently and in a balanced manner, while also selling projects to customers or project investors when selling presents the best value and opportunity for our capital needs or meets the customer’s desired ownership structure.

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We operate and maintain our project platforms for the life of the project regardless of the ownership structure. For all operating fuel cell platforms not operating under a PPA, customers enter into long-term service agreements with us, some of which have terms of up to 20 years. We report the revenue earned under long-term maintenance and service agreements as Service agreements and license revenues in our Consolidated Statements of Operations and Comprehensive Loss.

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Internationally, South Korea and Europe have historically been product sale markets for the Company; however, we have not recognized meaningful product sales revenues in these geographies since 2018. Our activities in South Korea have been impacted by our prior dispute with POSCO Energy and, until fiscal year 2021, we moderated our investment in business development in Europe due to limited resources.  Increasing product sales is a focus area for fiscal year 2022 and beyond.  As a result of entering into a settlement agreement with POSCO Energy and its subsidiary, Korea Fuel Cell Co., Ltd. (“KFC”), on December 20, 2021 (the “Settlement Agreement”), we have confirmed our full access to the South Korean and broader Asian markets for sales of our products and plan to aggressively pursue sales in these markets, which we see as key to our future growth. (See the section below entitled “License Agreements and Royalty Income; Relationship with POSCO Energy – License Agreements and Disputes with POSCO Energy; Settlement Agreement” for more information related to the terms of the Settlement Agreement.)

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Advanced Technologies Programs

Our Advanced Technologies programs include research and development or demonstration programs funded by third parties. We undertake both privately funded and publicly funded research and development to develop and grow these opportunities, reduce product and output costs, and expand our technology portfolio. Our Advanced Technologies programs are currently focused on developing and commercializing solutions that advance solid oxide fuel cells, distributed hydrogen, and carbon capture. We report the revenue earned under these programs as Advanced Technologies contract revenues in our Consolidated Statements of Operations and Comprehensive Loss.

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We have historically worked on technology development with various U.S. government departments and agencies, including the DOE, the Department of Defense (“DOD”), the Environmental Protection Agency (“EPA”), the Defense Advanced Research Projects Agency (“DARPA”), the Office of Naval Research (“ONR”), and the National Aeronautics and Space Administration (“NASA”). Government funding, principally from the DOE, provided 8%, 9% and 6% of our revenue for the fiscal years ended October 31, 2021, 2020, and 2019, respectively.

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We have been working with EMRE since 2013 to develop and commercialize our carbon capture solution which is an application of our core carbonate technology.  

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Beyond the DOE and EMRE funding, we intend to prudently invest capital to accelerate commercialization of solid oxide fuel cells, carbon capture and separation, long-duration energy storage, and REP solutions, as discussed below in more detail in the section entitled “Company Funded Research and Development”.

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Company Funded Research and Development

In addition to research and development performed under research contracts, including, as described under the heading “Advanced Technologies Programs” above, we also fund our own research and development activities to support the commercial fleet with product enhancements and improvements. We work to continuously improve and mature our products and implement lessons learned into our product designs and manufacturing process subsequent to introduction. We also invest in improvement initiatives with respect to our core molten carbonate technology. Recently, we identified improvement opportunities ranging from improved thermal management by reducing internal temperature to improving the performance of our electrical balance of plant and began to implement design changes to our commercial platforms which are expected to improve overall product performance. As it relates to our fuel cell modules, these improvements centered around delivering more uniform temperature distribution within the stack modules with the intent of improving output over the life of the modules to achieve the product’s expected design life. Continued extension of design life and output of our modules over time is a core research and development focus. In addition, we are also investing in commercializing technologies such as carbon capture and separation, REP, solid oxide fuel cells, and solid oxide electrolysis cells for hydrogen production and energy storage as we believe these technologies represent significant future market opportunities.

Company funded research and development is included in Research and development expenses (operating expenses) in our consolidated financial statements. The total research and development expenditures in the Consolidated Statement of Operations and Comprehensive Loss, including third party and Company-funded expenditures, are as follows:

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Our Markets

We target distinct markets and applications, including:

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The utilities and independent power producers market has historically been our largest market with customers that include utilities on the East and West coasts of the United States, such as UIL Holdings Corporation, Inc. (owned by Avangrid, Inc., a wholly owned subsidiary of Iberdrola), the Long Island Power Authority (“LIPA”) and Southern California Edison. In Europe, utility customers include E.ON Connecting Energies, one of the largest utilities in the world. In South Korea, we are contracted to operate and maintain a 20 MW power plant project (comprised of five SureSource 3000 plants) for Korea Southern Power Company (“KOSPO”).

Our SureSource power platforms are producing power for a variety of industrial, commercial, municipal and government customers, including manufacturing facilities, pharmaceutical processing facilities, universities, healthcare facilities and wastewater treatment facilities. These institutions expect efficient, clean and continuous power to reduce operating expenses, reduce greenhouse gas emissions and avoid pollutant emissions to meet their sustainability goals, while boosting resiliency and limiting dependence on the distribution grid. CHP applications further support economic and sustainability initiatives by minimizing or avoiding the use of combustion-based boilers for heat. Our SureSource power platforms are unique in their ability to run on biogas.

Increasing Biogas Application Market Demand

With the growing market for anaerobic digestion (the production of biogas from the breakdown of biodegradable materials in the absence of oxygen) and increasingly stringent regulations regarding air quality, we see a growing market opportunity that is perfectly suited for our fuel cell design. SureSource power platforms operating on biogas are an especially compelling value proposition as they convert a waste product into clean electricity and heat, while reducing or eliminating flaring, which addresses certain economic, environmental justice, and sustainability challenges faced by our customers and the communities in which they operate.

Biogas is generated by the decay of organic material (i.e., biomass). This decaying organic material releases methane, or biogas. As a harmful greenhouse gas, biogas cannot be released directly into the atmosphere. Flaring creates pollutants and wastes this potential fuel source. Capturing and using biogas as a fuel addresses these challenges and provides a carbon-neutral renewable fuel source. Our patented, proprietary clean-up skid, SureSource Treatment^TM, provides an economical and reliable system for treating biogas for use on-site at the biogas production facility. Examples of producers of biogas as part of their operations include wastewater treatment facilities, food and beverage processors and agricultural operations.

Our SureSource power platforms convert this biogas into electricity and heat efficiently and economically. Wastewater treatment facilities with anaerobic digesters are an attractive market for our SureSource solution including the power platform as well as treatment of the biogas. Many wastewater treatment plants currently flare biogas produced in the anaerobic digestion process, emitting NOx, SOx and particulate matter into the atmosphere, which does not meet many air quality regulations. Since our fuel cells operate on the biogas produced by the wastewater treatment process and the heat is used to support daily operations at the wastewater treatment facility, the overall thermal efficiency of these installations is high, supporting economics and sustainability. In addition, the fuel cell does not emit the harmful NOx, SOx and particulate matter that come out of a flare or that would result from the use of traditional combustion-based power generation. The unique chemistry of carbonate fuel cells allows them to use low Btu on-site biogas with no reduction in output or efficiency compared to operation on natural gas. We have developed proprietary biogas cleanup and contaminant monitoring equipment which, combined with the inherent suitability of the carbonate fuel cell chemistry, gives us an advantage in on-site biogas applications. Our SureSource 1500 and SureSource 3000 power platforms were the first systems certified to California Air Resource Board emissions standards under the Distributed Generation Certification Program for operation with on-site biogas within the state of California.

Microgrid and resiliency applications

Our fuel cell solutions are also well suited for microgrid applications, either as the sole source of power generation or integrated with other forms of power generation. We have fuel cells operating as microgrids at universities and

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municipalities, including one university microgrid owned by Clearway Energy and a municipal-based microgrid owned by UIL Holdings Corporation, in addition to the microgrid at a municipal location in Santa Rita, California. For the municipal-based system in Woodbridge, Connecticut owned by UIL Holdings Corporation, under normal operation, the fuel cell supplies power to the grid. If the grid is disrupted, the fuel cell plant will automatically disconnect from the grid and power a number of critical municipal buildings. Heat from this municipal-based fuel cell platform is used by the local high school. Our fuel cell based microgrids have also continued to operate during public safety power shutoffs events in California.

Geographic Market Presence and Market Expansion Targets

We market our products primarily in the United States, Europe and South Korea, and we are also pursuing expanding opportunities in other countries around the world.

We target for expansion and development markets and geographic regions that:

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Our business model focuses on providing these markets and geographic regions with highly efficient and affordable distributed generation that delivers de-centralized power in a low-carbon, virtually pollutant-free manner. Geographic markets that meet these criteria and where we are already well established include the Northeastern United States and California. We have also installed and are operating plants in Europe and Asia, mainly South Korea, in addition to North America.

We have made significant progress in reducing costs and creating markets since the commercialization of our products in 2003, with more than 220 MW of our SureSource technology currently installed and operating as of October 31, 2021.

We believe that we can accelerate and expand the adoption of our distributed power generation solutions through:

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Levelized Cost of Energy

Our fuel cell projects deliver power at a rate comparable to pricing from the grid in our targeted markets. Policy programs that help to support adoption of clean distributed power generation often lead to below-grid pricing. We measure power costs by calculating the Levelized Cost of Energy (“LCOE”) over the life of the project.

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There are several primary elements to LCOE for our fuel cell projects, including:

Given the level of integration in our business model of manufacturing, installing and operating fuel cell power platforms, there are multiple areas and opportunities for cost reductions. We are actively managing and reducing costs in all three LCOE areas, including cost reduction initiatives with respect to system components and raw materials, advanced lean manufacturing principles, improvements in lifetime product costs through continued system and platform engineering, and improvements in output and efficiency. We are also investing in platform design to reduce overall EPC cost associated with the installation of our platforms.

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Manufacturing and Service Facilities

We operate a 167,000 square-foot manufacturing facility in Torrington, Connecticut where we produce the individual cell packages and assemble the fuel cell modules. This facility also houses our global service center. Our completed modules are conditioned in Torrington and shipped directly to customer sites. We continue to make investments in various manufacturing areas to improve production throughput and annualized production rate. Currently, we are operating at a 45 MW per year annualized production rate on a single production shift. Maximum annualized capacity (module manufacturing, final assembly, testing and conditioning) is 100 MW per year under the Torrington facility’s current configuration when being fully utilized. The Torrington facility is sized to accommodate the eventual annualized production capacity of up to 200 MW per year with additional capital investment in machinery, equipment, tooling and inventory.

We design and manufacture the core SureSource fuel cell components that are stacked on top of each other to build a fuel cell stack. For megawatt-scale power plants, four fuel cell stacks are combined to build a 1.4 MW fuel cell module. To complete the power platform, the fuel cell module or modules are combined with the balance of plant (“BOP”). The mechanical BOP processes the incoming fuel such as natural gas or biogas and includes various fuel handling and processing equipment such as pipes and blowers. The electrical BOP processes the power generated for use by the customer and includes electrical interface equipment such as an inverter. The BOP components are either purchased directly from suppliers or the manufacturing is outsourced based on our designs and specifications. This strategy allows us to leverage our manufacturing capacity, focusing on the critical aspects of the power plant where we have specialized knowledge and expertise and possess extensive intellectual property. BOP components are shipped directly to a project site and are then assembled with the fuel cell module into a complete power plant.

The Torrington production and service facility and the Danbury corporate headquarters and research and development facility are ISO 9001:2015 and ISO 14001:2015 certified and our Field Service operation (which maintains the installed fleet of our platforms) is ISO 9001:2015 certified, reinforcing the tenets of our quality management system and our core values of safety, continuous improvement, and commitment to quality, environmental stewardship, and customer satisfaction. Sustainability is promoted throughout our organization. We manufacture SureSource products and manage them through end-of-life using environmentally friendly business processes and practices, certified to ISO 14001:2015. We continually strive to improve how we plan and execute across the entire product life cycle. We maintain a chain of custody and responsibility of our SureSource products throughout the product life cycle and strive for “cradle-to-cradle” sustainable business practices, incorporating sustainability in our corporate culture. We utilize “Design for Environment” principles in the design, manufacture, installation and servicing of our power platforms. Design for Environment principles aim to reduce the overall human health and environmental impact of a product, process or service, when such impacts are considered across the product’s lifecycle.  When our platforms reach the end of their useful lives, we can refurbish and re-use certain parts and then recycle most of what we cannot re-use. By weight, approximately 93% of the entire power plant can be re-used or recycled at the end of its useful life.

We have a manufacturing and service facility in Taufkirchen, Germany that has the capability to perform final module assembly for up to 20 MW per year of sub-megawatt fuel cell power platforms to service the European market. Our European service activities are also operated out of this location. Our operations in Europe are certified under both ISO 9001:2015 and ISO 14001:2015.

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We have a research and development, and small scale manufacturing facility in Calgary, Alberta, Canada that is focused on the engineering and development of our solid oxide fuel cell (“SOFC”) and solid oxide electrolysis cell (“SOEC”) stack technology. This facility includes equipment for the manufacturing of solid oxide cells and stacks, including an advanced automated stack manufacturing line which has been developed to ensure that the labor and overhead which are

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required to produce these technologies are optimized for efficiency and complement the low direct material cost of the stack. We intend to make additional investment in the Calgary facility to expand our SOFC and SOEC manufacturing capacity.

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Raw Material Sourcing and Supplier Relationships

We use various commercially available raw materials and components to construct a fuel cell module, including nickel and stainless steel, which are key inputs in our manufacturing process. Our fuel cell stack raw materials are sourced from multiple vendors and are not considered precious metals. We have a global integrated supply chain with qualified sources of supply, many of which are located locally in the regions in which we have established manufacturing and service operations including Europe and Asia.

Despite a somewhat volatile nickel market and increased pricing pressure on stainless steel direct materials, we have employed strategic inventory purchases and negotiated fixed-price supply contracts which have helped mitigate the impact to our product cost. Primarily driven by the consequential impact of the COVID-19 pandemic, we are also seeing extended shipping lead-times and pricing pressure on transportation and logistics. We have implemented several initiatives to mitigate the effect of these impacts by optimizing domestic supplier shipping volumes, leveraging competition across multiple qualified freight forwarders, establishing selective direct relationships with steamship lines, and aggregating shipments with qualified suppliers.

While we manufacture the fuel cells in our Torrington facility, the electrical and mechanical BOPs are assembled by and procured from several suppliers. All of our suppliers must undergo a stringent and rigorous qualification process. We continually evaluate and qualify new suppliers as we diversify our supplier base in our pursuit of lower costs, security of supply, and consistent quality. We purchase mechanical and electrical BOP components from third party vendors, based on our own proprietary designs.

Assuring the absence of conflict minerals in our power platforms is a continuing initiative. Our fuel cells, including the fuel cell components and completed fuel cell module, do not utilize any 3TG minerals (i.e., tin, tungsten, tantalum and gold) that are classified as conflict minerals. We utilize componentry in the BOP such as computer circuit boards that utilize trace amounts of 3TG minerals. For perspective, total shipments in fiscal year 2020 weighed approximately 1.3 million pounds, of which only 6.0 pounds, or 0.000480%, represented 3TG minerals, so the presence of these minerals is negligible. Our conflict mineral disclosure filed with the Securities and Exchange Commission (“SEC”) on Form SD contains specific information on the actions we are taking to avoid the use of conflict minerals.

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Overall, as we continue to grow our business, we remain focused on improving quality, increasing the competitive supply landscape, maintaining existing supplier relationships, as well as building strong new key supplier relationships to expand our supply chain options.

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Engineering, Procurement and Construction

We provide customers with complete turn-key solutions, including development, engineering, procurement, construction, interconnection and operations for our fuel cell projects. From an EPC standpoint, we have an extensive history of safe and timely delivery of turn-key projects. We have developed relationships with many design firms and licensed general contractors and have a repeatable, safe, and efficient execution philosophy that has been successfully demonstrated in numerous jurisdictions, both domestically and abroad, all with an exemplary safety record. The ability to rapidly and safely execute installations minimizes high-cost construction period financing and can assist customers in certain situations when the Commercial Operations Date is time sensitive.

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Services and Warranty Agreements

We offer a comprehensive portfolio of services, including engineering, project management and installation, and long-term operating and maintenance programs, including trained technicians that remotely monitor and operate our platforms around the world, 24 hours a day and 365 days a year. We directly employ field technicians to service the power platforms and maintain service centers near our customers to support the high Availability of our platforms.

For all operating fuel cell platforms not under a PPA, customers purchase long-term service agreements (“LTSAs”), some of which have terms of up to 20 years. Pricing for LTSAs is based upon the value of service assurance and the markets in which we compete and includes all future maintenance and fuel cell module exchanges. Each model of our SureSource power platform has a design life of 25-to-30 years. The fuel cell modules, with legacy modules having a 5-year cell design life and current production modules having a 7-year cell design life, go through periodic replacement, while the BOP systems, which consist of conventional mechanical and electrical equipment, are maintained over the life of the project.

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Under the typical provisions of both our LTSAs and PPAs, we provide services to monitor, operate and maintain power platforms to meet specified performance levels. Operations and maintenance is a key driver for power platforms to deliver their projected revenue and cash flows. The service aspects of our business model provide a recurring and predictable revenue stream for the Company. We have committed future production for scheduled fuel cell module exchanges under LTSAs and PPAs through the year which have expiration dates through 2042. The pricing structure of the LTSAs incorporates these scheduled fuel cell module exchanges and the committed nature of this production facilitates our production planning. Many of our PPAs and LTSAs include guarantees for system performance, including electrical output and heat rate. Should the power platform not meet the minimum performance levels, we may be required to replace the fuel cell module with a new or used replacement module and/or pay performance penalties. Our goal is to optimize the power platforms to meet expected operating parameters throughout their contracted service terms.

In addition to our service agreements, we provide a warranty for our products against manufacturing or performance defects for a specific period of time. The warranty term in the U.S. is typically 15 months after shipment or 12 months after acceptance of our products. We accrue for estimated future warranty costs based on historical experience.

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Competition

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The market for clean energy is highly competitive. Many factors, including government incentives and specific market dynamics, affect how clean energy can deliver outcomes for customers in a given region. While clean energy often competes against the electric grid, which is readily available to prospective customers and supplied by traditional centralized power plants, including coal, gas, hydro, and nuclear plants, clean energy is increasingly able to compete with the grid and long-distance transmission of electricity in terms of levelized cost of electricity. Clean energy sources that customers may consider beyond our solutions include products such as wind turbines, solar arrays, and hydro facilities, as well as a range of hydrogen and fuel cell solutions from both incumbent and developing competitors.

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Our platforms are based on a range of technologies and target a variety of applications, each of which have incumbent and developing competitors. Several companies in the U.S. are engaged in fuel cell development, although, to our knowledge, we are the only domestic company engaged in manufacturing and deployment of stationary natural gas or biogas fueled carbonate fuel cells. In addition to different types of stationary fuel cells, some other technologies that compete in the distributed generation marketplace include micro-turbines, turbines, and reciprocating gas engines.

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Our stationary fuel cell platforms also compete against large scale solar and wind technologies, although we complement the unreliable intermittent nature of solar and wind power with the continuous, reliable power output of our fuel cells. Utility scale solar and wind power require specific geographies and weather profiles, require transmission for utility-scale applications, and require a source of back up capacity for when the sun or wind is not available. They also require a significant amount of land compared to our fuel cell power plants, making it difficult to site megawatt-class solar and wind projects in urban areas, unlike our solutions. While fuel cells emit negligible amounts of NOx, SOx and particulate matter, fuel cells do emit some carbon dioxide when fueled with natural gas or carbon-neutral biogas, but less per kWh compared to other less-efficient systems. In many markets, baseload fuel cells avoid more emissions than wind or solar systems of similar capacity because they operate for many more hours of the day compared to these intermittent resources.

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Product development cycles are long and product quality and efficiency are critical to success. Research and development investments are crucial in this business, as are focused intellectual property strategies and protection of such, as new technologies and solutions could make our solutions less competitive.

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We continue to invest in exploring new ways of further improving the efficiency and effectiveness of our platforms. Our objective is to continue to improve our competitive position, including innovating in areas like hydrogen and solid oxide, in order to add value for customers looking for clean and renewable energy and to aid in their decarbonization goals.

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Backlog

Backlog represents definitive agreements executed by the Company and our customers. Project awards are not included in our backlog.

Backlog as of October 31, 2021 and 2020 consisted of the following (in thousands):

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Service and generation backlog as of October 31, 2021, had a weighted average term of approximately 17 years, with weighting based on dollar backlog and utility service contracts of up to 20 years in duration at inception. Generally, our government funded and privately funded research and development contracts are subject to the risk of termination at the convenience of the contract counterparty.

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Generation backlog is the largest component of our total commercial backlog, reflecting revenues from projects with PPAs in place and of which we have retained ownership. Under a PPA, the utility or end-user of the power (and other attributes such as capacity and renewable energy credits) commits to purchase power as it is produced for an extended period of time, typically 10-to-20 years. With the project being retained, electricity, capacity and/or renewable energy credits are recognized monthly over the term of the PPA. We report the financial performance of retained project assets as generation revenue and cost of generation revenues.

Our backlog amount outstanding is not indicative of amounts to be earned in the upcoming fiscal year. The specific elements of backlog may vary in terms of timing and revenue recognition from less than one year to up to 20 years.

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We may choose to sell or retain operating project assets on the balance sheet, thus creating variability in timing of revenue recognition. Accordingly, the timing and the nature of our business makes it difficult to predict what portion of our backlog will be filled in the next fiscal year.

License Agreements and Royalty Income; Relationship with POSCO Energy

License Agreement with EMRE

EMRE and FuelCell Energy began working together in 2016 under an initial joint development agreement with a focus on better understanding the fundamental science behind carbonate fuel cells for use in advanced applications and specifically how to increase efficiency in separating and concentrating carbon dioxide from the exhaust of natural gas-fueled power generation.

In June 2019, we entered into a license agreement with EMRE to facilitate the further development of our SureSource Capture^TM product (the “EMRE License Agreement”). Pursuant to the EMRE License Agreement, the Company granted EMRE and its affiliates a non-exclusive, worldwide, fully-paid, perpetual, irrevocable, non-transferable license and right to use our patents, data, know-how, improvements, equipment designs, methods, processes and the like to the extent it is useful to research, develop and commercially exploit carbonate fuel cells in applications in which the fuel cells concentrate carbon dioxide from industrial and power sources and for any other purpose attendant thereto or associated therewith, in

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exchange for a $10 million payment. Such right and license is sublicenseable to third parties performing work for or with EMRE or its affiliates but shall not otherwise be sublicenseable.

The EMRE License Agreement facilitated the execution of the EMRE Joint Development Agreement, pursuant to which we have engaged in exclusive research and development efforts with EMRE to evaluate and develop new and/or improved carbonate fuel cells to reduce carbon dioxide emissions from industrial and power sources, in exchange for (a) payment of (i) an exclusivity and technology access fee of $5.0 million, (ii) up to $45.0 million for research and development efforts, and (iii) milestone-based payments of up to $10.0 million to be paid only if certain technological milestones are met (which had not been met as of October 31, 2021), and (b) certain licenses.

Effective as of October 31, 2021, the Company and EMRE agreed, among other things, to extend the term of the EMRE Joint Development Agreement for an additional six months, ending on April 30, 2022 (unless terminated earlier). This extension allows for the continuation of research that would enable incorporation of design improvements to our current fuel cell design in order to support a decision to use the improvements in a future demonstration of the technology for capturing carbon at ExxonMobil’s Rotterdam refinery in the Netherlands and provides additional time to achieve the first milestone under the EMRE Joint Development Agreement.

License Agreements and Disputes with POSCO Energy; Settlement Agreement

From approximately 2007 through 2015, we relied on POSCO Energy to develop and grow the South Korean and Asian markets for our products and services.

Through June of 2020, we recorded license fees and were entitled to receive royalty income from POSCO Energy pursuant to manufacturing and technology transfer agreements entered into with POSCO Energy, including the Alliance Agreement dated February 7, 2007 (and amendments thereto), the Technology Transfer, License and Distribution Agreement dated February 7, 2007 (and amendments thereto), the Stack Technology Transfer and License Agreement dated October 27, 2009 (and amendments thereto), and the Cell Technology Transfer and License Agreement dated October 31, 2012 (and amendments thereto) (collectively, the “License Agreements”). The Cell Technology Transfer and License Agreement (“CTTA”) provided POSCO Energy with the exclusive technology rights to manufacture, sell, distribute and service our SureSource 300, SureSource 1500 and SureSource 3000 fuel cell technology in the South Korean and broader Asian markets. POSCO Energy built a cell manufacturing facility in Pohang, South Korea which became operational in late 2015, but is no longer operating.

In October 2016, the Company and POSCO Energy extended the terms of certain of the License Agreements to be consistent with the term of the CTTA, which was to expire on October 31, 2027. The CTTA required POSCO Energy to pay us a 3.0% royalty on POSCO Energy net product sales, as well as a royalty on scheduled fuel cell module replacements under service agreements for modules that were built by POSCO Energy and installed at plants in Asia under the terms of long-term service agreements (“LTSAs”) between POSCO Energy and its customers. Due to certain actions and inactions of POSCO Energy, we have not realized any new material revenues, royalties or new projects developed by POSCO Energy since late 2015.

In March 2017, we entered into a memorandum of understanding (“MOU”) with POSCO Energy to permit us to directly develop the Asian fuel cell business, including the right for us to sell SureSource solutions in South Korea and the broader Asian market. In June 2018, POSCO Energy advised us in writing that it was terminating the MOU effective July 15, 2018. Pursuant to the terms of the MOU, notwithstanding its termination, we continued to execute on sales commitments in Asia secured in writing prior to July 15, 2018, including the 20 MW power plant installed for KOSPO.

In November 2019, POSCO Energy spun-off its fuel cell business into a new entity, Korea Fuel Cell Co., Ltd. (“KFC”), without our consent. As part of the spin-off, POSCO Energy transferred manufacturing and service rights under the License Agreements to KFC, but retained distribution rights and severed its own liability under the License Agreements. We formally objected to POSCO Energy’s spin-off, and POSCO Energy posted a bond to secure any liabilities to us arising out of the spin-off. In September 2020, the Korean Electricity Regulatory Committee found that POSCO Energy’s spin-off of the fuel cell business to KFC may have been done in violation of South Korean law.

On February 19, 2020, we notified POSCO Energy in writing that it was in material breach of the License Agreements by (i) its actions in connection with the spin-off of the fuel cell business to KFC, (ii) its suspension of performance through its cessation of all sales activities since late 2015 and its abandonment of its fuel cell business in Asia, and (iii) its disclosure of material nonpublic information to third parties and its public pronouncements about the fuel cell business on television and in print media that have caused reputational damage to the fuel cell business, our Company and our products. We also notified POSCO Energy that, under the terms of the License Agreements, it had 60 days to fully cure its breaches to our satisfaction and that failure to so cure would lead to termination of the License Agreements. Further, on March 27, 2020,

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we notified POSCO Energy of additional instances of its material breach of the License Agreements based on POSCO Energy’s failure to pay royalties required to be paid in connection with certain module exchanges.

On April 27, 2020, POSCO Energy initiated a series of three arbitration demands against us at the International Court of Arbitration of the International Chamber of Commerce seated in Singapore, in which it alleged certain warranty defects in a sub-megawatt conditioning facility at its facility in Pohang, South Korea and sought combined damages of approximately $3.3 million. Prior to filing the arbitrations, POSCO Energy obtained provisional attachments from the Seoul Central District Court attaching certain revenues owed to us by KOSPO as part of such warranty claims, which delayed receipt of certain payments owed to us. POSCO Energy subsequently sought additional provisional attachments on KOSPO revenues from the Seoul Central District Court based on unspecified warranty claims in an additional amount of approximately $7 million, and additional provisional attachments on KOSPO revenues from the Seoul Central District Court based on its alleged counterclaims in the license termination arbitration described below in an additional amount of approximately $110 million. As of October 31, 2021, outstanding accounts receivable due from KOSPO were $11.2 million. POSCO Energy posted a bond in the amount of $46 million to secure any damages to us resulting from the attachments.

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On June 28, 2020, we terminated the License Agreements and filed a demand for arbitration against POSCO Energy and KFC in the International Court of Arbitration of the International Chamber of Commerce based on POSCO Energy’s (i) failure to exercise commercially reasonable efforts to sell our technology in the South Korean and Asian markets, (ii) disclosure of our proprietary information to third parties, (iii) attack on our stock price, and (iv) spin-off of POSCO Energy’s fuel cell business into KFC without our consent. We requested that the arbitral tribunal (a) confirm through declaration that POSCO Energy’s exclusive license to market our technology and products in South Korea and Asia is null and void as a result of the breaches of the License Agreements and that we had the right to pursue direct sales in these markets, (b) order POSCO Energy and KFC to compensate us for losses and damages suffered in the amount of more than $200 million, and (c) order POSCO Energy and KFC to pay our arbitration costs, including counsel fees and expenses. We retained outside counsel on a contingency basis to pursue our claims, and outside counsel entered into an agreement with a litigation finance provider to fund the legal fees and expenses of the arbitration. In October 2020, POSCO Energy filed a counterclaim in the arbitration (x) seeking approximately $880 million in damages based on allegations that we misrepresented the capabilities of our fuel cell technology to induce POSCO Energy to enter into the License Agreements and failed to turn over know-how sufficient for POSCO Energy to successfully operate its business; (y) seeking a declaration that the License Agreements remained in full force and effect and requesting the arbitral tribunal enjoin us from interfering in POSCO Energy’s exclusive rights under the License Agreements and (z) seeking an order that we pay POSCO Energy’s arbitration costs, including counsel fees and expenses.

We discontinued revenue recognition of the deferred license revenue related to the License Agreements in July 2020 given the then-pending arbitrations.

On August 28, 2020, POSCO Energy filed a complaint in the Court of Chancery of the State of Delaware (the “Court”) purportedly seeking to enforce its rights as a stockholder of the Company to inspect and make copies and extracts of certain books and records of the Company and/or the Company’s subsidiaries pursuant to Section 220 of the Delaware General Corporation Law and/or Delaware common law. POSCO Energy alleged that it was seeking to inspect these documents for a proper purpose reasonably related to its interests as a stockholder of the Company, including investigating whether our Board of Directors and management breached their fiduciary duties of loyalty, due care, and good faith.  POSCO Energy sought an order of the Court permitting POSCO Energy to inspect and copy the demanded books and records, awarding POSCO Energy reasonable costs and expenses, including reasonable attorney’s fees incurred in connection with the matter, and granting such other and further relief as the Court deemed just and proper. On July 9, 2021, the Court issued a post-trial ruling denying POSCO Energy’s demand to inspect the Company’s books and records because POSCO Energy lacked a proper purpose. The Court held that the totality of the circumstances, including the fact that this complaint was the seventh legal action POSCO Energy initiated against us within the span of nine months, confirmed that POSCO Energy’s purpose in initiating the books and records demand and filing the complaint was not proper. As this dispute was resolved by the Court as described above, it did not require resolution pursuant to, and was not part of, the Settlement Agreement described below.

On September 14, 2020, POSCO Energy filed a complaint in the United States District Court for the Southern District of New York (the “SD Court”) alleging that we delayed the removal of restrictive legends on certain share certificates held by POSCO Energy in 2018, thus precluding POSCO Energy from selling the shares and resulting in claimed losses in excess of $1,000,000. On September 16, 2021, the SD Court ruled in our favor on a motion for summary judgement dismissing all four counts of POSCO Energy’s complaint regarding share certificates held by POSCO Energy in 2018, but granted POSCO Energy leave to file an amended complaint.

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In order to resolve the disputes described above (other than the books and records dispute which was resolved by the Court), on December 20, 2021, we entered into the Settlement Agreement with POSCO Energy and KFC (POSCO Energy and KFC may be collectively referred to herein as “PE Group”). The Settlement Agreement provides, among other things, that the parties will cooperate in good faith to effect a market transition to us of the molten carbonate fuel cell business in Korea in accordance with the terms and conditions of the Settlement Agreement. To that end, the Settlement Agreement provides that any and all past, current, or potential disputes and claims between us, on the one hand, and POSCO Energy and KFC, on the other, of any nature whatsoever, whether known or unknown, asserted or not asserted, based on actions or omissions of any party on or before the date of Settlement Agreement are fully and finally settled, including such disputes and claims, directly or indirectly, in connection with the legal disputes (other than the books and records dispute which was resolved by the Court) and License Agreements described above, with the exception of (i) an unfiled claim by us in the amount of approximately $1.8 million with respect to certain royalties we believe are owed by POSCO Energy with respect to replacement modules deployed by POSCO Energy at Gyenonggi Green Energy and other sites for which POSCO Energy has not paid royalties, and (ii) an unfiled claim by POSCO Energy in an unknown amount with respect to a series of purchase orders for materials and components which began in 2014 under a supply chain contract, both of which claims remain unsettled. We do not believe the claim by POSCO Energy with respect to purchase orders for materials and components under the supply chain contract has merit and we retain the right to file a counterclaim for damages we believe we have incurred with respect to such supply chain contract. With respect to the attachments described above, the Settlement Agreement provides that, within five days of the date of the Settlement Agreement, POSCO Energy will file an application with the Seoul Central District Court to revoke the attachments. Thereafter, we expect to promptly receive the outstanding KOSPO accounts receivable of approximately $11.2 million held by the Seoul Central District Court.

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Under the Settlement Agreement, the parties have also agreed that, within five days of the date thereof, we will withdraw our objection to the spin-off of KFC from POSCO Energy, and that the License Agreements are not terminated, but instead are deemed to be amended such that POSCO Energy and KFC only have the right (i) to provide maintenance and repair services to PE Group’s existing customers on existing molten carbonate power generation and thermal projects under LTSAs currently in force as well as LTSAs that have expired and are pending renewal as of the settlement date (collectively, “Existing LTSAs”), (ii) to supply replacement modules purchased from us only for their existing customers for existing molten carbonate power generation and thermal projects under Existing LTSAs and (iii) to own, operate and maintain all facilities and factories solely for the purposes set forth in (i) and (ii) above (collectively, the “Right to Service License”). POSCO Energy and KFC further agree that, as of the date of the Settlement Agreement, the License Agreements are deemed to be amended such that we exclusively enjoy all rights as to our technology in Korea and Asia, other than the Right to Service License. The Settlement Agreement further provides that the License Agreements will terminate automatically upon sixty days prior written notice to PE Group if (i) we enter into a business collaboration agreement with a Korean company to construct, assemble, manufacture, market, sell, distribute, import, export, install, commission, service, maintain, or repair products incorporating our technology, or otherwise conduct our business, in the Korean market; or (ii) we expand the capacity of our existing Korean entity such as to perform such activities itself. In the event of the termination of the License Agreements, the license granted to PE Group under the Right to Service License will continue notwithstanding the termination of the License Agreements, except that PE Group’s right to own, operate, and maintain all facilities and factories for the purpose of servicing any orders or requests made by us will terminate. For the avoidance of doubt, pursuant to the terms of the Settlement Agreement, PE Group has no right to manufacture modules or any other product incorporating our technology under the License Agreements as amended, the Right to Service License or otherwise unless requested and authorized by us to do so.

The Settlement Agreement further provides that, in order to service its existing customers under the Existing LTSAs, KFC will place a firm, non-cancelable order for twelve SureSource 3000 modules within two weeks after the date of the Settlement Agreement and an additional firm, non-cancelable order for eight SureSource 3000 modules on or before June 30, 2022, all at a price of $3.0 million per module. In addition, KFC agrees to use commercially reasonable efforts to order fourteen additional SureSource 3000 modules by December 31, 2022, at a price of $3.0 million per module if ordered by such date. If KFC materially breaches the Settlement Agreement by failing to make timely and full payment for the modules for which KFC is required to place orders under the Settlement Agreement and does not cure such material breach within fifteen days of notice of such breach by us, the License Agreements and the Right to Service License granted to PE Group will be terminated. If we materially breach the Settlement Agreement by failing to supply the modules for which KFC is required to place orders under the Settlement Agreement, as long as KFC has made the payment for such modules and has otherwise satisfied its contractual obligations for those modules and such material breach is not cured within sixty days after notice from PE Group, PE Group will have the right to terminate the Settlement Agreement. With respect to any other alleged breach, material or otherwise, of the Settlement Agreement, the parties’ exclusive remedy consists solely of general damages.

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Pursuant to the Settlement Agreement, with respect to new modules to be supplied by us and deployed by PE Group to its existing customers, we will provide our standard warranty against module defects until the earlier of eighteen months from the date of shipment or twelve months from the date of installation. As part of the global settlement of the disputes among the parties and subject to the qualifications set forth in the Settlement Agreement, we will reimburse PE Group for any annual output penalty amount paid by PE Group to its customers pursuant to Existing LTSAs (whether such Existing LTSA is extended or renewed), caused by a shortfall or defect in the new modules for a period of up to seven years. The maximum annual reimbursement obligation with regard to any PE Group customer for any new module provided by us will not exceed an amount equal to 7.5% per year of the module purchase price. We will not be required to reimburse PE Group for any penalty paid by PE Group under the Existing LTSAs that is not caused by a shortfall or defect in the modules to be supplied by us including, without limitation, any shortfall or defect caused by a site-related problem, a problem with the balance of plant, or other components of the project.

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Although we have the exclusive and unrestricted right under the Settlement Agreement to perform, pursue, and otherwise conduct our business in relation to new fuel cell projects (including new projects with PE Group’s existing customers) in Korea and Asia, the parties have agreed that, except as further provided in the Settlement Agreement with respect to PE Group’s existing customers Noeul Green Energy and Godeok Green Energy, we will not engage in discussions with PE Group’s existing customers regarding Existing LTSAs without PE Group’s consent. The parties have further agreed that if PE Group cannot enter into an agreement with its existing customers to extend or renew Existing LTSAs by December 31, 2022, PE Group will cooperate with us so that we may discuss and, at our sole discretion, enter into an extension of an Existing LTSA, a new LTSA to replace an Existing LTSA, or a module sales agreement with PE Group’s existing customers; provided that (i) should we enter into such an arrangement with a PE Group existing customer, and (ii) we are required to provide replacement modules to such existing customer under such arrangement, and (iii) PE Group has not already deployed all or some the modules that PE Group ordered under Settlement Agreement, we will purchase the number of required replacement modules from PE Group at a price of $3.0 million per module (to the extent such modules are available and have not yet been deployed). The purchase of such replacement modules by us is contingent upon the modules being in proper condition as determined by inspection process to be agreed by the parties. Any modules purchased by us from PE Group under these terms will be included as part of the firm orders KFC is required to make pursuant to the Settlement Agreement.

With respect to operations and maintenance agreements, the Settlement Agreement provides that KFC will have the right of first refusal on providing operation and maintenance services on commercially reasonable terms for new LTSAs entered into by us in Korea for a period of the first to occur of either twenty-four months after the date of the Settlement Agreement or until such time as we engage a third party capable of providing such services in Korea. If we and KFC agree that KFC should provide operation and maintenance services pursuant to the right of first refusal, we and KFC will enter into one or more operation and maintenance agreements that reflect commercially reasonable terms and conditions as agreed by us and KFC at that time.

With respect to BOP, KFC currently has eight units of BOP available, and the Settlement Agreement provides that we have the option to purchase such units of BOP for any new molten carbonate fuel cell projects within Korea at a price of KRW 2,550,000,000 per unit. We will also have a non-exclusive, non-transferrable, non-sublicensable license to use the intellectual property imbedded in the BOP units in Korea in consideration for a reasonable license fee to be separately agreed by the parties. Detailed terms and conditions of BOP and related software and firmware supply will be discussed and agreed in good faith in separate BOP supply agreements in the event we exercise our option to purchase any of such BOP.

As noted above, we retained outside counsel on a contingency basis to pursue our claims against POSCO Energy and KFC, and outside counsel entered into an agreement with a litigation finance provider to fund the legal fees and expenses of the arbitration proceedings brought by us against POSCO Energy and KFC. As we have entered into the Settlement Agreement, we are required to remit fees to our counsel, Wiley Rein, LLP (“Wiley”), subject to the terms of our engagement letter with Wiley. On December 23, 2021, we agreed that we will pay Wiley a total of $24.0 million to satisfy all obligations to Wiley under our engagement letter, of which $14.0 million will be paid on or before December 30, 2021, $5.0 million will be paid on or before March 30, 2022, and $5.0 million will be paid on or before June 30, 2022.

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Regulatory and Legislative Environment

Distributed generation addresses certain power generation issues that central generation does not and legal, legislative and regulatory policy can impact deployment of distributed generation. The policies that affect our products are not always the same as those imposed on our competitors, and while some policies can make our products less competitive, others may provide an advantage. Certain utility policies may also pose barriers to our installation or interconnection with the utility grid, such as backup, standby or departing load charges that make installation of our products less economically attractive for our customers. Regulatory and legislative support can take the form of policy, incentive programs, and defined sustainability initiatives such as Renewable Portfolio Standards (“RPS”).

Various states and municipalities in the U.S. have adopted programs for which our products qualify, including programs supporting self-generation, clean air power generation, combined heat and power applications, carbon reduction, grid resiliency/microgrids and utility ownership of fuel cell projects.

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Many states in the U.S. have enacted legislation adopting Clean Energy Standards (“CES”) or RPS mechanisms. Under these standards, regulated utilities and other load serving entities are required to procure a specified percentage of their total electricity sales to end-user customers from eligible resources according to a set schedule. CES and RPS, and their implementing regulations, vary significantly from state to state, particularly with respect to the percentage of renewable energy required to achieve the state’s mandate, the definition of eligible clean and renewable energy resources, and the extent to which renewable energy credits (certificates representing the generation of renewable energy) qualify for CES or RPS compliance. Fuel cells using biogas qualify as renewable power generation technology in all of the CES and RPS states in the U.S., and some states specify that fuel cells operating on natural gas are also eligible for these initiatives in recognition of the high efficiency and low pollutants of fuel cells. Most states are introducing legislation or regulations that seek to reduce the consumption of electricity generated using fossil fuels in favor of zero carbon resources. Additionally, utility regulators are looking for non-wire alternatives to build reliability and resiliency to the grid, which also presents a potential opportunity.

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In February 2018, the U.S. Congress reinstated the 30% Investment Tax Credit (“ITC”) for fuel cells and extended and significantly expanded the existing Carbon Oxide Sequestration Credit. The ITC phased down to 26% in 2020 and was scheduled to phase down to 22% by 2022 and expire in 2023. The reinstatement of the ITC for fuel cells provided equal access to tax incentives for U.S. fuel cell manufacturers when compared to other clean energy solutions. The ITC phase down was extended by two years pursuant to the Consolidated Appropriations Act, 2021 passed by Congress in December 2020 and signed by the President on December 27, 2020, thus extending the 26% ITC until 2022 and the expiration to 2025.

Internationally, South Korea has an RPS to promote clean energy, reduce carbon emissions, and develop local manufacturing of clean energy generation products to accelerate economic growth. The RPS is designed to increase new and renewable power generation to 10% of total power generation by 2023 from 2% when the RPS began in 2012. Twenty-two of the largest power generators are obligated to achieve the RPS requirements in their generation or purchase offsetting renewable energy certificates. Financial penalties are levied by the government for non-compliance. European governments are supportive of hydrogen-based generation and efficient CHP applications. Italy adopted a system to promote energy efficiency with Italian “White Certificates” (Energy Efficiency Certificates) that are tradable certificates, for which fuel cells qualify, to promote energy savings expressed in tons of oil equivalent saved. Germany, the United Kingdom and the Netherlands provide tax incentives, grants and waivers of regulatory fees for clean energy installations. Additionally, large energy-intensive industry sectors and the aviation sector in European Union countries above a certain size qualify for the ETS (Emissions Trading Scheme) and are subject to a cap-and-trade requirement for carbon emissions.

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Government Regulation

Our Company and our products are subject to various federal, provincial, state and local laws and regulations relating to, among other things, land use, safe working conditions, handling and disposal of hazardous and potentially hazardous substances and emissions of pollutants into the atmosphere. Emissions of SOx and NOx from our power plants are substantially lower than conventional combustion-based generating stations and are far below existing and proposed regulatory limits. The primary emissions from our power plants, assuming no cogeneration application, are humid flue gas that is discharged at temperatures of 700-800° F, water that is discharged at temperatures of 10-20° F above ambient air temperatures, and CO₂ in per-kW hour amounts that are, due to the high efficiency of fuel cells, significantly less than conventional fossil fuel central generation power plants. Depending on the jurisdiction, whether our plants require water discharge permits is dependent upon whether the discharge is directed to a storm drain or wastewater system.

We are also subject to federal, state, provincial and/or local regulation with respect to, among other things, siting. Furthermore, utility companies and several states in the U.S. have created and adopted, or are in the process of creating and adopting, interconnection regulations covering both technical and financial requirements for the interconnection of fuel cell power plants to utility grids. Our power plants are designed to meet all applicable laws, regulations and industry standards for use in the international markets in which we operate. Our SureSource solutions are CARB 2007 certified, and our SureSource 1500 and SureSource 3000, when operating on biogas, are certified for the CARB 2013 Biogas standard.

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Proprietary Rights and Licensed Technology

Our intellectual property consists of patents, trade secrets, institutional knowledge and know-how that we believe is a competitive advantage and represents a barrier to entry for potential competitors. We have extensive experience in designing, manufacturing, operating and maintaining fuel cell power plants. This experience cannot be easily or quickly replicated and, combined with our trade secrets, proprietary processes and patents, safeguards our intellectual property rights.

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As of October 31, 2021, we (excluding our subsidiaries) had 113 U.S. patents and 222 patents in other jurisdictions covering our fuel cell technology (in certain cases covering the same technology in multiple jurisdictions), with patents directed to various aspects of our SureSource technology, SOFC technology, PEM fuel cell technology and applications thereof. As of October 31, 2021, we also had 45 patent applications pending in the U.S. and 92 patent applications pending in other jurisdictions.

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As of October 31, 2021, our subsidiary, Versa Power Systems, Ltd. (“Versa”), had 30 U.S. patents and 85 international patents covering SOFC technology (in certain cases covering the same technology in multiple jurisdictions). As of October 31, 2021, Versa also had 5 pending U.S. patent applications and 16 patent applications pending in other jurisdictions. In addition, as of October 31, 2021, our subsidiary, FuelCell Energy Solutions, GmbH, had license rights to 2 U.S. patents and 7 patents outside the U.S. (in certain cases covering the same technology in multiple jurisdictions) for carbonate fuel cell technology licensed from Fraunhofer IKTS.

We continue to innovate, and no patent expiration, either individually or in the aggregate, is expected to have any material impact on our current or anticipated operations.

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Certain of our U.S. patents are the result of government-funded research and development programs, including our DOE programs. U.S. patents we own that resulted from government-funded research are subject to the government potentially exercising “march-in” rights. We believe that the likelihood of the U.S. government exercising these rights is remote and would only occur if we ceased our commercialization efforts and there was a compelling national need to use the patents.

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Significant Customers and Information about Geographic Areas

We contract with a concentrated number of customers for the sale of our products and for research and development. For the years ended October 31, 2021, 2020 and 2019, our top customers, EMRE, Connecticut Light and Power, KOSPO, the DOE, UIL Holdings Corporation, Pfizer, Inc. and Dominion Bridgeport Fuel Cell, LLC, accounted for an aggregate of

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79%, 80% and 77%, respectively, of our total annual consolidated revenue. Revenue percentage by major customer for the last three fiscal years is as follows:

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See Item 7 – “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 – “Financial Statements and Supplementary Data” for further information regarding our revenue and revenue recognition policies.

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We have marketing and manufacturing operations both within and outside the United States. We source raw materials and BOP components from a diverse global supply chain. In fiscal year 2021, the foreign country with the greatest concentration risk was South Korea, accounting for 12% of our consolidated net revenues. While we plan to aggressively pursue sales of our products in South Korea as a result of the Settlement Agreement with POSCO Energy and KFC, we are also in the process of diversifying our sales mix from both a customer specific and geographic perspective as part of our overall strategic plan.

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The international nature of our operations subjects us to a number of risks, including fluctuations in exchange rates, adverse changes in foreign laws or regulatory requirements and tariffs, taxes, and other trade restrictions. See Item 1A “Risk Factors” – “We are subject to risks inherent in international operations.” See also Note 17. “Segment Information,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for information about our net sales by geographic region for the years ended October 31, 2021, 2020, and 2019. See also Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for other information about our operations and activities in various geographic regions.

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Human Capital Resources

Our Team

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As a company, we believe in delivering clean innovative solutions by enabling a work environment that stimulates collaboration and engagement, and promoting a performance-based culture with three main goals:  

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As of October 31, 2021, we had 382 full-time employees, of which 171 were located at the Torrington, Connecticut manufacturing facility; 177 were located at the Danbury, Connecticut facility or other field offices within the U.S., and 34 were located abroad; and 3 part-time employees.

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Diversity and Inclusion

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We are committed to our continued efforts to increase diversity and foster an inclusive work environment that supports the global workforce and the communities we serve. We recruit the best qualified employees regardless of gender, ethnicity or other protected traits and it is our policy to fully comply with all laws (domestic and foreign) applicable to discrimination in the workplace. Our diversity, equity and inclusion principles are also reflected in our employee training and policies.

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We continue to enhance our diversity, equity and inclusion policies which are guided by our executive leadership team and overseen by our Board of Directors.

Compensation and Benefits

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As part of our compensation philosophy, we believe that we must offer and maintain market competitive compensation and benefit programs for all of our employees in order to attract and retain superior and diverse talent. In addition to competitive base wages, additional programs include an annual Management Incentive Plan, Long-Term Equity Incentive Plans, a Company matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, employee assistance programs and a flexible hybrid work environment.

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Workforce Health and Safety

We take workplace safety very seriously. Under our robust safety program, we are constantly evaluating our safety protocols in an effort to keep our facilities safe for our employees and visitors.

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We are committed to environmental, health and safety (EH&S) excellence. Our Environmental Management System is certified to ISO 14001:2015, and our Occupational Health & Safety Management System is certified to ISO 45001:2018.

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Our EH&S core principles are:

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We are also in the process of performing life cycle analyses on our products, as well as our production and office locations, and developing a roadmap to net zero carbon emissions.

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Our safety performance is excellent and is demonstrated by experience modification rates (EMR) below the industry average of 1.0 for the last 5 years: 2016: 0.81, 2017: 0.65, 2018: 0.62, 2019: 0.65, and 2020: 0.59. Effective October 31^st, 2021, our EMR for 2021 is 0.68. We have maintained an “A” rating since 2016 providing “Safety Tier 1” performance with ISNetworld, a database for online contractor safety management designed to streamline companies' and contractors' compliance pre-qualification processes.

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During fiscal year 2021, we launched a proactive response to the COVID-19 pandemic by mandating vaccinations while allowing for qualified religious and/or medical exemptions with weekly testing protocols. As of October 31, 2021, 97% of our employees were fully vaccinated (according to Centers for Disease Control and Prevention (“CDC”) guidelines). We also commenced a hybrid work model to those eligible, while taking the necessary actions to secure the safety of our employees, our corporate community as a whole and the communities in which our team members live, and to adhere to CDC recommendations regarding social distancing, mask wearing/mandates, and regular testing for those unvaccinated employees.

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Despite the many challenges created by COVID-19, we did not implement any furlough, layoff or shared work programs in 2021. We continue to evaluate our ability to operate in light of resurgences of COVID-19 and the advisability of continuing operations based on federal, state, and local guidance, evolving data concerning the pandemic and the best interests of our employees, their families, customers and shareholders.

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Available Information

We file annual, quarterly and current reports, proxy statements and other information electronically with the SEC. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are made available free of charge through the “Investors” section of the Company’s website (http://www.fuelcellenergy.com) as soon as practicable after such material is electronically filed with, or furnished to, the SEC. Material contained on our website is not incorporated by reference in this report. Our executive offices are located at 3 Great Pasture Road, Danbury, CT 06810. The SEC also maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC located at http://www.sec.gov.

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We rely on project financing for our generation operating portfolio which includes debt and tax equity financing arrangements to realize the benefits provided by investment tax credits and accelerated tax depreciation. In the event that interest rates rise or there are changes in tax policy, our financial results could be harmed.

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Rising interest rates may increase our cost of capital. Part of our business strategy is to generate positive cash flows after debt service from our generation operating portfolio. Rising interest rates may have an adverse impact on the cost of debt and thus result in lower cash flows after debt service than we realize today. We also expect that projects we retain in our generation operating portfolio will receive capital from tax equity investors who derive a significant portion of their economic returns through tax benefits. Tax equity investors are generally entitled to substantially all of the project’s tax benefits, such as those provided by the U.S. investment tax credit (“ITC”) and Modified Accelerated Cost Recovery System or bonus depreciation. Our ability to obtain additional financing in the future depends on the continued confidence of financing sources in our business model and the continued availability of tax benefits applicable to our products. If we are unable to enter into tax equity financing agreements with attractive pricing terms, or at all, we may not be able to obtain the capital needed to finance the build out of our generation assets which would impact our overall liquidity and our business, financial condition and results of operations.

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Unanticipated increases or decreases in business growth may result in adverse financial consequences for us.

We operate a 167,000 square-foot manufacturing facility in Torrington, Connecticut where we produce the individual cell packages and assemble the fuel cell modules. The maximum annualized capacity (module manufacturing, final assembly, testing and conditioning) is 100 MW per year under the Torrington facility’s current configuration when being fully utilized. The Torrington facility is sized to accommodate the eventual annualized production capacity of up to 200 MW per year with additional capital investment in machinery, equipment, tooling and inventory.

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We have a manufacturing and service facility in Taufkirchen, Germany that has the capability to perform final module assembly for up to 20 MW per year of sub-megawatt fuel cell power platforms to service the European market. Our European service activities are also operated out of this location. In addition, we have a research and development facility in Calgary, Alberta, Canada that is focused on the engineering and development of the Company’s SOFC and SOEC technology. This facility includes equipment for the manufacturing of solid oxide cells and stacks, including an advanced automated stack manufacturing line which has been developed to ensure that the labor and overhead which are required to produce these technologies are optimized for efficiency and complement the low direct material cost of the stack.

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If our business grows more quickly than we anticipate, our existing and planned manufacturing facilities may become inadequate and we may need to seek out new or additional space, or retrofit or further equip our existing facilities, at considerable cost to us. If our business does not grow as quickly as we expect, our existing and planned manufacturing facilities would, in part, represent excess capacity for which we may not recover the cost. In that circumstance, our revenues may be inadequate to support our committed costs and our planned growth, and our gross margins and business strategy would be adversely affected.

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We are subject to risks in international operations, including risks pursuant to our settlement agreement with POSCO Energy Co., Ltd. (“POSCO Energy”) and Korea Fuel Cell Co., Ltd. (“KFC”) and our ongoing relationship with them.

Since we market our products both inside and outside the U.S., our success depends in part on our ability to secure international customers and our ability to manufacture products that meet foreign regulatory and commercial requirements in target markets, as well as the ability to provide service to our international customers. We have not recognized meaningful product sales revenue to customers located outside the U.S. since 2018. With the recent settlement of our litigation with POSCO Energy and KFC, we expect to make significant product sales into South Korea and, with our renewed emphasis on marketing our products in European markets, we expect to make future product sales there as well.  We have limited experience developing and manufacturing our products to comply with the commercial and legal requirements of international markets. In addition, we are subject to tariff regulations and requirements for export licenses, particularly with respect to the export of some of our technologies. We face numerous challenges in our international expansion, including the strain any future growth may place on management, service and operations teams and financial infrastructure.  We will face risk from complex and changing regulatory requirements, fluctuations in currency exchange rates, accounts receivable requirements and collections, difficulties in managing international operations, potentially adverse tax consequences, restrictions on repatriation of any earnings and the burdens of complying with a wide variety of international laws. In addition, with respect to South Korea, pursuant to the terms of the Settlement Agreement we may have to rely on POSCO Energy and KFC for some period to provide certain services, such as operations and maintenance services to any new customers, and we will need their cooperation to transition long term service agreements from their

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existing customers to us in the future.   Given the historical relationship among the parties with respect to certain actions and inactions by POSCO Energy and KFC and the prolonged litigation among the parties, there can be no guarantee that the parties will be able to successfully work together or that POSCO Energy and KFC will comply with the terms of the Settlement Agreement.   Any of these factors could adversely affect our results of operations and financial condition.

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If our goodwill and other intangible assets, long-lived assets (including project assets), or inventory become impaired, we may be required to record a significant charge to operations.

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We have recorded significant charges, and may in the future be required to record significant charges, to operations in our financial statements should we determine that our goodwill, other indefinite-lived intangible assets (i.e., in process research and development (“IPR&D”)), other long-lived assets (i.e., project assets, property, plant and equipment and definite-lived intangible assets), or inventory are impaired. Such charges might have a significant impact on our reported financial condition and results of operations. Project asset and property, plant and equipment impairment charges totaled approximately $5.0 million, $2.4 million and $20.4 million for the fiscal years ended October 31, 2021, 2020 and 2019, respectively.

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As required by accounting rules, we review our goodwill for impairment at least annually as of July 31 or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit that has goodwill is less than its carrying value. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill might not be recoverable include a significant decline in projections of future cash flows and lower future growth rates in our industry. We review IPR&D for impairment on an annual basis as of July 31 or more frequently if facts and circumstances indicate the fair value is less than the carrying value. If the technology has been determined to be abandoned or not recoverable, we would be required to record a charge reflecting impairment of the asset. We review inventory and long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. We consider a project asset commercially viable and recoverable if such project asset is anticipated to be sellable for a profit, or generates positive cash flows, in excess of the cost of the project asset once it is either fully developed or fully constructed. If any of our project assets are not considered commercially viable or costs are not deemed to be recoverable, we would be required to record a charge reflecting the impairment of such project assets.

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Our Advanced Technologies contracts are subject to the risk of termination by the contracting party and we may not realize the full amounts allocated under some contracts due to the lack of Congressional appropriations or early termination.

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A portion of our revenues has been derived from long-term cooperative agreements and other contracts with the DOE and other U.S. government agencies. These agreements are important to the continued development of our technology and our products. We also contract with private sector companies under certain Advanced Technologies contracts to develop strategically important and complementary offerings.

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Generally, our privately funded Advanced Technologies contracts, including our EMRE Joint Development Agreement, and our government research and development contracts are subject to the risk of termination at the convenience of the contracting party and may contain certain milestones and deliverables which we may not be able to meet if actual results differ materially from our original estimates. Furthermore, with respect to government-funded contracts, irrespective of the amounts allocated by the contracting agency, such contracts are subject to annual Congressional appropriations and the results of government or agency sponsored reviews and audits of our cost reduction projections and efforts. We can only receive funds under government-funded contracts ultimately made available to us annually by Congress as a result of the appropriations process. Accordingly, we cannot be sure whether we will receive the full amounts awarded under our privately funded, government research and development or other contracts. Termination of the contracts or failure to receive the full amounts under any of our Advanced Technologies contracts could materially and adversely affect our business prospects, results of operations and financial condition.

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Utility companies may resist the adoption of distributed generation and could impose customer fees or interconnection requirements on our customers that could make our products less desirable.

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Investor-owned utilities may resist adoption of distributed generation fuel cell plants as such plants are disruptive to the utility business model that primarily utilizes large central generation power plants and associated transmission and distribution. On-site distributed generation that is on the customer-side of the electric meter competes with the utility. Distributed generation on the utility-side of the meter generally has power output that is significantly less than central generation power plants and may be perceived by the utility as too small to materially impact its business, limiting its interest. Additionally, perceived technology risk may limit utility interest in stationary fuel cell power plants.

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Utility companies commonly charge fees to larger, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back up purposes. These fees could increase the cost to our customers of using our SureSource products and could make our products less desirable, thereby harming our business prospects, results of operations and financial condition.

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We depend on third party suppliers for the development and timely supply of key raw materials and components for our products.

We use various raw materials and components to construct a fuel cell module, including nickel and stainless steel that are critical to our manufacturing process. We also rely on third-party suppliers for the BOP components in our products. Suppliers must undergo a qualification process, which takes four to twelve months. We continually evaluate new suppliers, and we are currently qualifying several new suppliers. There are a limited number of suppliers for some of the key components of our products. In addition, to the extent the processes that our suppliers use to manufacture components are proprietary, we may be unable to obtain comparable components from alternative suppliers, all of which could harm our business prospects, results of operations and financial condition. We do not know whether we will be able to maintain long-term supply relationships with our critical suppliers, or secure new long-term supply relationships on terms that will allow us to achieve our objectives, if at all. A supplier’s failure to develop and supply components in a timely manner or to supply components that meet our quality, quantity or cost requirements or our technical specifications, or our inability to obtain alternative sources of these components on a timely basis or on terms acceptable to us, could each harm our ability to manufacture our SureSource products.  In addition, our supply chain has been, and may continue to be, adversely affected by the COVID-19 pandemic, which has created global shipping and logistics challenges. These challenges include extended shipping lead times and pricing pressures on transportation and logistics that have adversely impacted, and may continue to adversely impact, our ability to meet our production schedules and project deadlines, may result in additional and increased costs, or may otherwise adversely impact our business, results of operations and financial condition. If we are unable to pass these costs on to our customers or timely complete projects, we may experience reduced revenue and other adverse impacts on our business, results of operations and financial condition. Given that our customers and suppliers are facing similar global supply chain challenges, we expect continued difficulty in forecasting demand and supply needs for the foreseeable future. While we have implemented several initiatives to mitigate the effects of the COVID-19 pandemic on our business, our business, results of operations and financial condition may still be adversely impacted.

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Our business and operations may be adversely affected by the 2019 novel coronavirus (COVID-19) outbreak or other similar outbreaks.

Any outbreaks of contagious diseases, including the 2019 novel coronavirus (“COVID-19”) that was first detected in Wuhan, China in December 2019 and has since developed into an ongoing global pandemic, and other adverse public health developments in countries where we and our suppliers operate, could have a material and adverse effect on our business, financial condition and results of operations. These effects could include disruptions to or restrictions on our employees’ ability to travel, as well as temporary or prolonged closures of our facilities or the facilities of our customers, suppliers, or other vendors in our supply chain. In addition, COVID-19 has resulted in a widespread health crisis that has adversely affected, and may continue to adversely affect, the economies and financial markets of many countries, resulting in economic downturns that could affect demand for our products or our ability to obtain financing for our business or projects. COVID-19 may impact the health of our team members, directors or customers, reduce the availability of our workforce or those of companies with which we do business, or otherwise cause human impacts that may negatively impact our business. Any of these events, which may result in disruptions to our supply chain or customer demand, could materially and adversely affect our business and our financial results. The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted.

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Such developments may include the duration of the outbreak, new mutations of the virus, the continued efficacy of vaccines and the actions that may be taken by various governmental authorities in response to the outbreak, such as periodic quarantine or “shelter-in-place” orders and business closures imposed by various states within the United States, and the impact on the U.S. or global economy. For example, on March 18, 2020, in response to the escalating global COVID-19 outbreak, we temporarily suspended operations at our Torrington, Connecticut manufacturing facility, and also ordered those employees that could work from home to do so. We resumed operations in the manufacturing facility on June 22, 2020, and we established a phased-in return to work schedule commencing March 15, 2021 for those employees working from home that was completed April 19, 2021. However, we continue to evaluate our ability to operate in the event of resurgences of COVID-19 and the advisability of continuing operations, based on federal, state and local guidance, evolving data concerning the pandemic and the best interests of our employees, customers and stockholders. For example, given the continued elevated number of COVID-19 cases throughout the U.S. as a result of the highly transmissible Delta and Omicron variants, we have instituted policies to protect our employees and customers such as a mandatory vaccination policy which required all U.S. employees to be fully vaccinated by November 1, 2021 or seek a qualified religious and/or medical exemption with weekly testing protocols.  Accordingly, there can be no assurance that any of our facilities will remain open (in full or in part) or that our other operations will continue at full or limited capacity. If we again have to shut down production either due to a resurgence of the COVID-19 pandemic or due to an outbreak in one of our facilities, our project schedules and associated financing could be adversely affected. Further, we have experienced, and may continue to experience, increased costs and expenses, including as a result of (i) conducting daily “fitness-for-duty” assessments for employees, including symptom checks and providing personal protective equipment, (ii) the expansion of benefits to our employees, including the provision of additional time off for employees who have contracted COVID-19 or are required to be quarantined or who are unable to obtain childcare to return to work, and the reimbursement of expenses incurred while working from home, (iii) implementing increased health and safety protocols at all of our facilities, including increased cleaning/sanitization of workspaces, restricting visitor access, mandating social distancing guidelines and increasing the availability of sanitization products, and (iv) the increased cost of personal protective equipment. Although we believe the Company is currently considered an “essential” business in its operating markets, if any of the applicable exceptions or exemptions are curtailed or revoked in the future, or any of these exemptions or exceptions do not extend to any of our key suppliers, our business, operating results and financial condition could be adversely impacted. While we have attempted to continue business development activities during the pandemic, state and local shutdowns, shelter-in-place orders and travel restrictions have impeded our ability to meet with customers and solicit new business, and certain bids and solicitations in which we typically participate have been postponed. As a result, at this time, it is impossible to predict the overall impact of COVID-19 on our business, liquidity, capital resources, supply chain and financial results or its effect on clean energy demand, capital budgets of our customers, or demand for our products. Additionally, while we have continued to prioritize the health and safety of our team members and customers as we continue to operate during the pandemic, we face an increased risk of litigation related to our operating environments. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession that has occurred or may occur in the future because of the pandemic, or because the pandemic worsens again. Additional public health crises could also emerge in the future, including other pandemics or epidemics. Any such public health crisis could pose further risks to us and could also have a material adverse effect on our business, results of operations and financial position.

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Risks Related to Sales of our Products

We derive significant revenue from contracts awarded through competitive bidding processes involving substantial costs and risks. Our contracted projects may not convert to revenue, and our project awards and sales pipeline may not convert to contracts, which may have a material adverse effect on our revenue and cash flows.

We expect a significant portion of the business that we will seek in the foreseeable future will be awarded through competitive bidding against other fuel cell technologies and other forms of power generation. The competitive bidding process involves substantial costs and a number of risks, including the significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us and our failure to accurately estimate the resources and costs that will be required to fulfill any contract we win. In addition, following a contract award, we may encounter significant expense, delay or contract modifications or award revocation as a result of our competitors protesting or challenging contracts awarded to us in competitive bidding. Our failure to compete effectively in this procurement environment could adversely affect our revenue and/or profitability.

Some of the project awards we receive and orders we accept from customers require certain conditions or contingencies (such as permitting, interconnection, financing or regulatory approval) to be satisfied, some of which are outside of our

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control. Certain awards are cancelable or revocable at any time prior to contract execution. The time periods from receipt of an award to execution of a contract, or receipt of a contract to installation may vary widely and are determined by a number of factors, including the terms of the award, governmental policies or regulations that go into effect after the award, the terms of the customer contract and the customer’s site requirements. These same or similar conditions and contingencies may be required by financiers in order to draw on financing to complete a project. If these conditions or contingencies are not satisfied, or changes in laws affecting project awards occur, or awards are revoked or cancelled, project awards may not convert to contracts, and installations may be delayed or canceled. This could have an adverse impact on our revenue and cash flow and our ability to complete construction of a project.

We have signed product sales contracts, EPCs, PPAs and long-term service agreements with customers subject to contractual, technology, operating, commodity (i.e. natural gas) and fuel pricing risks as well as market conditions that may affect our operating results.

We apply the transfer of control over time revenue recognition method under Accounting Standards Codification Topic 606: Revenue from Contracts with Customers to certain service contracts which are subject to estimates. On a quarterly basis, we perform a review process to help ensure that total estimated contract costs include estimates of costs to complete that are based on the most recent available information. The amount of costs incurred on a cumulative to date basis as a function of estimated costs at completion is applied to contract consideration to determine the cumulative revenue that should be recognized to date.

We have contracted under long-term service agreements with certain customers to provide service on our products over terms up to 20 years. Under the provisions of these contracts, we provide services to maintain, monitor, and repair customer power plants to meet minimum operating levels. Pricing for service contracts is based upon estimates of future costs including future module exchanges. While we have conducted tests to determine the overall life of our products, we have not run certain of our products over their projected useful life or in all potential conditions prior to large scale commercialization. As a result, we cannot be sure that these products will last to their expected useful life or perform as anticipated in all conditions, which could result in warranty claims, performance penalties, maintenance and module replacement costs in excess of our estimates, losses on service contracts and/or a negative perception of our products. As a result of our products’ maturity, we have incurred and may continue to incur charges for warranty claims, performance penalties, maintenance and module replacement costs in excess of our estimates and losses on service contracts. Each of these risks could be material under these contracts and, as a result, we may experience diminished returns or be required to write off all or a portion of our capitalized costs in these project assets.

In certain instances, we have executed PPAs with the utility, end-user of the power or site host of the fuel cell power plant. We may then sell the PPA and power plant to a project investor or retain the project and collect revenue from the sale of power over the term of the PPA, recognizing electricity revenue as power is generated and sold. Our growing portfolio of project assets used to generate and sell power under PPAs and utility tariff programs exposes us to operational risks and uncertainties, including, among other things, lost revenues  due to prolonged outages, replacement equipment costs, risks associated with facility start-up operations, failures in the availability or acquisition of fuel (including natural gas and renewable natural gas), the impact of severe adverse weather conditions, natural disasters, terrorist attacks, cybersecurity attacks, risks of property damage or injury from energized equipment, availability of adequate water resources and ability to intake and discharge water, use of new or unproven technology, fuel commodity price risk and fluctuating market prices, and lack of alternative available fuel sources.

Our ability to proceed with projects under development and complete construction of projects on schedule and within budget may be adversely affected by escalating costs for materials and fuel (including natural gas and renewable natural gas), supply chain and logistics challenges, tariffs, labor and regulatory compliance, inability to obtain necessary permits, interconnections or other approvals on acceptable terms or on schedule and by other factors. If any development project or construction is not completed, is delayed or is subject to cost overruns, we could become obligated to make delay or termination payments or become obligated for other damages under contracts, experience diminished returns or be required to write off all or a portion of our capitalized costs in the project. Each of these events could have an adverse effect on our business, financial condition, results of operations and prospects.

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We extend product warranties for our products, which products are complex and could contain defects and may not operate at expected performance levels, which could impact sales and market adoption of our products, affect our operating results or result in claims against us.

We develop complex and evolving products and we continue to advance the capabilities of our fuel cell stacks. We now produce stacks in the United States with a net rated power output of 350 kilowatts when new and a 7-year cell design life. We provide for a warranty of our products for a specific period of time against manufacturing or performance defects. We accrue for warranty costs based on historical warranty claim experience; however, actual future warranty expenses may be greater than we have assumed in our estimates. We are still gaining field operating experience with respect to our products, and despite experience gained from our growing installed base and testing performed by us, our customers and our suppliers, issues have been and may continue to be found in existing or new products including module decay rates which have in the exceeded and may continue to exceed design expectations. This has resulted and may continue to result in a delay in recognition or loss of revenues and may result in loss of market share or failure to achieve broad market acceptance. The occurrence of defects has also caused and may continue to cause us to incur significant warranty, support and repair costs in excess of our estimates, could divert the attention of our engineering personnel from our product development efforts, and could harm our relationships with our customers. Although we seek to limit our liability, a product liability claim brought against us, even if unsuccessful, would likely be time consuming, could be costly to defend, and may hurt our reputation in the marketplace. Our customers could also seek and obtain damages from us for their losses.

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We currently face and will continue to face significant competition, including from products using other energy sources that may be lower priced or have preferred environmental characteristics.

We compete on the basis of our products’ reliability, efficiency, environmental considerations and cost. Technological advances in alternative energy products, improvements in the electric grid or other sources of power generation that use lower priced fuel or no fuel, or other fuel cell technologies may negatively affect the development or sale of some or all of our products or make our products less economically attractive, non- competitive or obsolete prior to or after commercialization. Significant decreases in the price of alternative technologies or grid delivered electricity, or significant increases in the price of our fuels could have a material adverse effect on our business because other generation sources could be more economically attractive to consumers than our products. Additionally, in certain markets, consumers and regulators have expressed a preference for zero-carbon generating resources over fueled resources, which could adversely affect sales of our products in such markets.

Other companies, some of which have substantially greater resources than ours, are currently engaged in the development of products and technologies that are similar to, or may be competitive with, our products and technologies. Several companies in the U.S. are engaged in fuel cell development, although we are the only domestic company engaged in manufacturing and deployment of stationary carbonate fuel cells. Other emerging fuel cell technologies include small or portable PEM fuel cells, stationary phosphoric acid fuel cells, stationary Solid Oxide Fuel Cells, and small residential Solid Oxide Fuel Cells. Any of these technologies and any of our competitors has the potential to capture market share in our target markets. There are also other potential fuel cell competitors internationally that could capture market share.

Other than fuel cell developers, we must also compete with companies that manufacture combustion-based distributed power equipment, including various engines and turbines, and have well-established manufacturing, distribution, operating and cost features. Electrical efficiency of these products can be competitive with our SureSource power plants in certain applications. Significant competition may also come from gas turbine companies and large scale solar and wind technologies.

Our plans are dependent on market acceptance of our products.

Our plans are dependent upon market acceptance of, as well as enhancements to, our products. Fuel cell systems represent an emerging market, and we cannot be sure that potential customers will accept fuel cells as a replacement for traditional power sources or non-fuel based power sources, hydrogen generation sources or storage. As is typical in a rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty and risk. Since the Distributed Generation, hydrogen and storage markets are still evolving, it is difficult to

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predict with certainty the size of these markets and their growth rates. The development of a market for our products may be affected by many factors that are out of our control, including:

If a sufficient market fails to develop or develops more slowly than we anticipate, we may be unable to recover the losses we will have incurred in the development of our products, and we may never achieve profitability.

Our products use inherently dangerous, flammable fuels, operate at high temperatures and use corrosive carbonate material, each of which could subject our business to product liability claims.

Our business exposes us to potential product liability claims that are inherent in products that use hydrogen. Our products utilize fuels such as natural gas and convert these fuels internally to hydrogen that is used by our products to generate electricity. Although our platforms do not combust fuels for the generation of electricity, the fuels we use are combustible and may be toxic. In addition, our SureSource products operate at high temperatures and use corrosive carbonate material, which could expose us to potential liability claims. Although we have incorporated a robust design and redundant safety features in our power plants, have established comprehensive safety, maintenance, and training programs, follow third-party certification protocols, codes and standards, and do not store natural gas or hydrogen at our power plants, we cannot guarantee that there will not be accidents. Any accidents involving our products or other hydrogen-using products could materially impede widespread market acceptance and demand for our products. In addition, we might be held responsible for damages beyond the scope of our insurance coverage. We also cannot predict whether we will be able to maintain adequate insurance coverage on acceptable terms.

Risks Related to Privacy, Data Protection and Cybersecurity

We are increasingly dependent on information technology, and disruptions, failures or security breaches of our information technology infrastructure could have a material adverse effect on our operations and the operations of our power plant platforms. In addition, increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services.

We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information and to manage a variety of business processes and activities, including communication with power plants owned by us or our customers and production, manufacturing, financial, logistics, sales, marketing and administrative functions. Additionally, we collect and store data that is sensitive to us and to third parties. Operating these information technology networks and systems and processing and maintaining this data, in a secure manner, are critical to our business operations and strategy. We depend on our information technology infrastructure to communicate internally and externally with employees, customers, suppliers and others. We also use information technology networks and systems to comply with regulatory, legal and tax requirements and to operate our fuel cell power plants. These information technology systems, many of which are managed by third parties or used in connection with shared service centers, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software,

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databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or other cybersecurity risks, telecommunication failures, user errors, natural disasters, terrorist attacks or other catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results, or our fuel cell power plant operations may be disrupted, exposing us to performance penalties under our contracts with customers.

In addition, information technology security threats — from user error to cybersecurity attacks designed to gain unauthorized access to our systems, networks and data — are increasing in frequency and sophistication. Cybersecurity attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.

Cybersecurity attacks could also include attacks targeting customer data or the security, integrity and/or reliability of the hardware and software installed in our products. We have experienced, and may continue  to experience in the future, cybersecurity attacks that have resulted in unauthorized parties gaining access to our information technology systems and networks and, in one instance, gaining control of the information technology system at one of our power plants. However, to date, no cybersecurity attack has resulted in any material loss of data, interrupted our day-to-day operations or had a material impact on our financial condition, results of operations or liquidity. While we actively manage information technology security risks within our control, there can be no assurance that such actions will be sufficient to mitigate all potential risks to our systems, networks and data. In addition to the direct potential financial risk as we continue to build, own and operate generation assets, other potential consequences of a material cybersecurity attack include reputational damage, litigation with third parties, disruption to systems, unauthorized release of confidential or otherwise protected information, corruption of data, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness, results of operations and financial condition. The amount of insurance coverage we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity attack.

Additionally, the legal and regulatory environment surrounding information security and privacy in the U.S. and international jurisdictions is constantly evolving. Violation or non-compliance with any of these laws or regulations, contractual requirements relating to data security and privacy, or our own privacy and security policies, either intentionally or unintentionally, or through the acts of intermediaries could have a material adverse effect on our brand, reputation, business, financial condition and results of operations, as well as subject us to significant fines, litigation losses, third-party damages and other liabilities.

Tax, Accounting, Compliance and Regulatory Risks

We are required to maintain effective internal control over financial reporting. Our management previously identified a material weakness in our internal control over financial reporting which was remediated in the fourth quarter of fiscal year 2020. If other control deficiencies are identified in the future, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports in a timely manner, which may adversely affect investor confidence in our Company and, as a result, the value of our common stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. Complying with Section 404 requires a rigorous compliance program as well as adequate time and resources. We may not be able to complete our internal control evaluation, testing and any required remediation in a timely fashion. Additionally, if we identify one or more material weaknesses in our internal control over financial reporting, we will not be able to assert that our internal controls are effective. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Our management previously identified a material weakness in our internal control over financial reporting which was remediated in the fourth quarter of fiscal year 2020. We cannot be certain that other material weaknesses and control deficiencies will not occur in the future. If other material weaknesses are identified in the future, or if we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially

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misstated and we could be subject to investigations or sanctions by regulatory authorities, which would require additional financial and management resources, and the value of our common stock could decline.

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To the extent we identify future weaknesses or deficiencies, there could be material misstatements in our consolidated financial statements and we could fail to meet our financial reporting obligations. As a result, our ability to obtain additional financing on favorable terms or at all could be materially and adversely affected which, in turn, could materially and adversely affect our business, our financial condition and the value of our common stock. If we are unable to assert that our internal control over financial reporting is effective in the future, investor confidence in the accuracy and completeness of our financial reports could be further eroded, which would have a material adverse effect on the price of our common stock.

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Our results of operations could vary as a result of changes to our accounting policies or the methods, estimates and judgments we use in applying our accounting policies.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that could lead us to reevaluate our methods, estimates and judgments.

In future periods, management will continue to reevaluate its estimates for contract margins, service agreements, loss accruals, warranty, performance guarantees, liquidated damages, inventory valuation allowances and allowance for doubtful accounts. Changes in those estimates and judgments could significantly affect our results of operations and financial condition. We will also adopt changes required by the Financial Accounting Standards Board and the SEC.

We may be affected by environmental and other governmental regulation.

We are subject to various federal, state and local laws and regulations relating to, among other things, land use, safe working conditions, handling and disposal of hazardous and potentially hazardous substances and emissions of carbon dioxide and pollutants into the atmosphere. Our business exposes us to the risk of harmful substances escaping into the environment, resulting in personal injury or loss of life, damage to or destruction of property, and natural resource damage. Depending on the nature of the claim, our current insurance policies may not adequately reimburse us for costs incurred in settling environmental damage claims, and in some instances, we may not be reimbursed at all. In addition, it is possible that industry-specific laws and regulations will be adopted covering matters such as transmission scheduling, distribution, emissions, and the characteristics and quality of our products, including installation and servicing. These regulations could limit the growth in the use of carbonate fuel cell products, decrease the acceptance of fuel cells as a commercial product and increase our costs and, therefore, the price of our products. We believe that our businesses are operating in compliance in all material respects with applicable environmental laws; however, these laws and regulations have changed frequently in the past and it is reasonable to expect additional and more stringent changes in the future. Accordingly, compliance with existing or future laws and regulations could have a material adverse effect on our business prospects, results of operations and financial condition. If we fail to comply with applicable environmental laws and regulations, governmental authorities may seek to impose fines and penalties on us or to revoke or deny the issuance or renewal of operating permits and private parties may seek damages from us. Under those circumstances, we might be required to curtail or cease operations, conduct site remediation or other corrective action, or pay substantial damage claims.

Given that some of our product configurations run on fossil fuels, we may be negatively impacted by CO₂-related changes in applicable laws, regulations, ordinances, rules or the requirements of the incentive programs on which we and our customers currently rely. Changes in any of the laws, regulations, ordinances or rules that apply to our installations and new technology could make it illegal or more costly for us or our customers to install and operate our products at particular sites. Additionally, our customers and potential customers’ energy procurement policies may prohibit or limit their willingness to procure our products. Our business prospects may be negatively impacted if we are prevented from completing new installations or our installations become more costly as a result of laws, regulations, ordinances, or rules applicable to our products, or by our customers’ and potential customers’ energy procurement policies.

In addition, certain of our products benefit from federal, state and local governmental incentives, mandates or other programs promoting clean energy generation. Any changes to or termination of these programs could reduce demand for our products, impair sales financing, and adversely impact our business, financial condition and results of operations.

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A negative government audit could result in an adverse adjustment of our revenue and costs and could result in civil and criminal penalties.

Government agencies, such as the Defense Contract Audit Agency, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure, and compliance with applicable laws, regulations, and standards. If the agencies determine through these audits or reviews that we improperly allocated costs to specific contracts, they will not reimburse us for these costs. Therefore, an audit could result in adjustments to our revenue and costs.

Further, although we have internal controls in place to oversee our government contracts, no assurance can be given that these controls are sufficient to prevent isolated violations of applicable laws, regulations and standards. If the agencies determine that we or one of our subcontractors engaged in improper conduct, we may be subject to civil or criminal penalties and administrative sanctions, payments, fines, and suspension or prohibition from doing business with the government, any of which could materially affect our results of operations and financial condition.

Exports of certain of our products are subject to various export control regulations and may require a license or permission from the U.S. Department of State, the U.S. Department of Energy or other agencies.

As an exporter, we must comply with various laws and regulations relating to the export of products, services and technology from the U.S. and other countries having jurisdiction over our operations. We are subject to export control laws and regulations, including the International Traffic in Arms Regulation, the Export Administration Regulation, and the Specially Designated Nationals and Blocked Persons List, which generally prohibit U.S. companies and their intermediaries from exporting certain products, importing materials or supplies, or otherwise doing business with restricted countries, businesses or individuals, and require companies to maintain certain policies and procedures to ensure compliance. We are also subject to the Foreign Corrupt Practices Act, which prohibits improper payments to foreign governments and their officials by U.S. and other business entities. Under these laws and regulations, U.S. companies may be held liable for their actions and actions taken by their strategic or local partners or representatives. If we, or our intermediaries, fail to comply with the requirements of these laws and regulations, or similar laws of other countries, governmental authorities in the United States or elsewhere, as applicable, could seek to impose civil and/or criminal penalties, which could damage our reputation and have a material adverse effect on our business, financial condition and results of operations.

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The Paycheck Protection Program loan received by us in 2020 and subsequently repaid by us in 2021 has resulted in an informal SEC inquiry into our financial disclosures and may subject us to challenges regarding qualification for the loan, enforcement actions, fines and penalties.

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On April 20, 2020, we entered into a Paycheck Protection Program Promissory Note, dated April 16, 2020 (the “PPP Note”), evidencing a loan to the Company from Liberty Bank under the CARES Act. Pursuant to the PPP Note, we received total proceeds of approximately $6.5 million on April 24, 2020 (the “PPP Loan”). In accordance with the requirements of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), the PPP Loan may have been fully forgiven if (i) proceeds were used to pay eligible payroll costs, rent, mortgage interest and utilities and (ii) full-time employee headcount and salaries were either maintained during the 24-week period following disbursement of the PPP Loan or restored by December 31, 2020. If not so maintained or restored, forgiveness of the PPP Loan would have been reduced in accordance with regulations issued by the SBA. In order to obtain the consent of the Orion Agent and the lenders under the Orion Credit Agreement (each as defined elsewhere in this document) to enter into the PPP Note, the Orion Agent and such lenders required us to apply for forgiveness within 30 days after the last day of the loan forgiveness period as designated under regulations in effect as of June 6, 2020. We used 100% of the proceeds of the PPP Loan to pay eligible payroll costs, and on October 29, 2020, we applied for forgiveness of the PPP Loan. However, with the repayment in full of all amounts owed to the Orion Agent and related lenders in December 2020, we were no longer required to pursue forgiveness of the PPP Loan. Additionally, since the time of the application for forgiveness, our financial circumstances changed substantially, such that we were no longer in need of forgiveness of the PPP Loan. While we believe we met all of the requirements of the CARES Act, as amended by the PPP Flexibility Act, for forgiveness, on February 11, 2021, we withdrew our application for forgiveness and repaid all amounts outstanding under the PPP Note, together with all accrued interest.

In addition, based on guidance from the United States Department of the Treasury, since the total PPP Loan proceeds exceeded $2.0 million, our forgiveness application is subject to audit by the SBA, including with respect to our certification that the economic uncertainty at the time of our application made our request for a PPP Loan necessary to support our ongoing operations. If we are found to have been ineligible to receive the PPP Loan under the PPP Note, or in violation of any of the laws or regulations that may apply to us in connection with the PPP Note, including the False Claims Act, we may be subject to enforcement actions, fines and penalties, including significant civil, criminal and administrative penalties. In addition, our receipt of the PPP Loan, our submission of a forgiveness application, and our withdrawal of our forgiveness application may result in adverse publicity and damage to our reputation, governmental investigations, inquiries, reviews and audits, such as the SEC inquiry described below, which could consume significant financial and management resources. Any of these events could harm our business, results of operations and financial condition.

On or about May 11, 2020, the Division of Enforcement of the SEC sent us an inquiry requesting that we voluntarily provide information to the SEC pertaining to our application and resulting PPP Loan and how the need for the PPP Loan compares with our filings, disclosures and financial condition. While this request for information was voluntary and we were not obligated to respond, we cooperated with the request for information and voluntarily provided information to the SEC. The SEC has not communicated with us in fiscal year 2021 about its inquiry.

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Risks Related to Our Need for Additional Capital

We will need to raise additional capital, and such capital may not be available on acceptable terms, if at all. If we do raise additional capital utilizing equity, existing stockholders will suffer dilution. If we do not raise additional capital, our business could fail or be materially and adversely affected.

The implementation of our business plan and strategy requires additional capital to fund operations as well as investment by us in project assets. If we are unable to raise additional capital in the amounts required, on terms acceptable to us, or at all, we will not be able to successfully implement our business plan and strategy. Our capital-intensive business model increases the risk that we will not be able to successfully implement our plans if we do not raise additional capital in the amounts required.

In addition, if we raise additional funds through further issuances of our common stock, or securities convertible into or exchangeable for shares of our common stock, into the public market, including shares of our common stock issued upon exercise of options or warrants, holders of our common stock could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of our then-existing capital stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and

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other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we cannot raise additional funds when we need them, our business and prospects could fail or be materially and adversely affected. In addition, if additional funds are not secured in the future, we will have to modify, reduce, defer or eliminate parts of our present and anticipated future projects, or sell some or all of our assets.

Risks Related to our Intellectual Property and Technology Licenses

We depend on our intellectual property, and our failure to protect that intellectual property could adversely affect our future growth and success.

Failure to protect our existing intellectual property rights may result in the loss of our exclusivity or the right to use our technologies. If we do not adequately ensure our freedom to use certain technology, we may have to pay others for rights to use their intellectual property, pay damages for infringement, misappropriation, or other violation, or be enjoined from using such intellectual property. We rely on patent, trade secret, trademark and copyright law to protect our intellectual property.

We previously licensed certain of our carbonate fuel cell manufacturing intellectual property to POSCO Energy on an exclusive basis in the South Korean and broader Asian markets, and pursuant to the terms of the Settlement Agreement with POSCO Energy, we plan to do so again on a limited, non-exclusive basis to enable module replacement to POSCO Energy’s existing LTSA customers only. (See the section above entitled “Business – License Agreements and Royalty Income; Relationship with POSCO Energy – License Agreements and Disputes with POSCO Energy; Settlement Agreement” for more information with respect to the limited license granted to POSCO Energy and KFC.) In addition, effective as of June 11, 2019, we entered into the EMRE License Agreement, pursuant to which we agreed, subject to the terms of the EMRE License Agreement, to grant EMRE and its affiliates a non-exclusive, worldwide, fully paid, perpetual, irrevocable, non-transferrable license and right to use our patents, data, know-how, improvements, equipment designs, methods, processes and the like to the extent it is useful to research, develop, and commercially exploit carbonate fuel cells in applications in which the fuel cells concentrate carbon dioxide from industrial and power sources and for any other purpose attendant thereto or associated therewith. Such right and license is sublicensable to third parties performing work for or with EMRE or its affiliates, but shall not otherwise be sublicensable. Furthermore, on November 5, 2019, we entered into the EMRE Joint Development Agreement, pursuant to which we agreed to grant EMRE and its affiliates a worldwide, non-exclusive, royalty-free, irrevocable, perpetual, sub-licensable, non-transferable (subject to certain exceptions) right and license to practice certain Company background intellectual property (to the extent not already licensed pursuant to  the EMRE License Agreement) for new carbonate fuel cell technology in carbon capture applications and hydrogen applications. We depend on POSCO Energy and EMRE to also protect our intellectual property rights, but we cannot assure you that POSCO Energy or EMRE will do so.

As of October 31, 2021, we (excluding our subsidiaries) had 113 U.S. patents and 222 patents in other jurisdictions covering our fuel cell technology (in certain cases covering the same technology in multiple jurisdictions), with patents directed to various aspects of our SureSource technology, SOFC technology, PEM fuel cell technology and applications thereof. As of October 31, 2021, we also had 45 patent applications pending in the U.S. and 92 patent applications pending in other jurisdictions. As of October 31, 2021, our subsidiary, Versa Power Systems, Ltd. (“Versa”), had 30 U.S. patents and 85 international patents covering SOFC technology (in certain cases covering the same technology in multiple jurisdictions). As of October 31, 2021, Versa also had 5 pending U.S. patent applications and 16 patent applications pending in other jurisdictions. In addition, as of October 31, 2021, our subsidiary, FuelCell Energy Solutions, GmbH, had license rights to 2 U.S. patents and 7 patents outside the U.S. (in certain cases covering the same technology in multiple jurisdictions) for carbonate fuel cell technology licensed from Fraunhofer IKTS.

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Some of our intellectual property is not covered by any patent or patent application and includes trade secrets and other know-how that is not able to be patented, particularly as it relates to our manufacturing processes and engineering design. In addition, some of our intellectual property includes technologies and processes that may be similar to the patented technologies and processes of third parties. If we are found to be infringing, misappropriating or otherwise violating third-party intellectual property, we do not know whether we will be able to obtain licenses to use such intellectual property on acceptable terms, if at all. Our patent position is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope, and enforceability of a particular patent.

We cannot assure you that any of the U.S. or international patents owned by us (including our subsidiaries) or other patents that third parties license to us will not be invalidated, circumvented, challenged, rendered unenforceable or licensed to others, or that any of our owned or licensed pending or future patent applications will be issued with the breadth of claim

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coverage sought by us or our licensors, if issued at all. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries.

We also seek to protect our proprietary intellectual property, including intellectual property that may not be patented or able to be patented, in part by confidentiality agreements and, if applicable, inventors’ rights agreements with our subcontractors, vendors, suppliers, consultants, strategic business associates and employees. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships. Certain of our intellectual property has been licensed to us on a non-exclusive basis from third parties that may also license such intellectual property to others, including our competitors. If our licensors are found to be infringing, misappropriating or otherwise violating third-party intellectual property, we do not know whether we will be able to obtain licenses to use the intellectual property licensed to us on acceptable terms, if at all.

If necessary or desirable, we may seek extensions of existing licenses or further licenses under the patents or other intellectual property rights of others. However, we can give no assurances that we will obtain such extensions or further licenses or that the terms of any offered licenses will be acceptable to us. The failure to obtain a license from a third party for intellectual property that we use at present could cause us to incur substantial liabilities, and to suspend the manufacture or shipment of products or our use of processes requiring the use of that intellectual property.

While we are not currently engaged in any intellectual property litigation, we could become subject to lawsuits in which it is alleged that we have infringed, misappropriated or otherwise violated the intellectual property rights of others or commence lawsuits against others who we believe are infringing, misappropriating or otherwise violating our rights or violating their agreements to protect our intellectual property. Our involvement in intellectual property litigation could result in significant expense to us, adversely affecting the development of sales of the challenged product or intellectual property and diverting the efforts of our technical and management personnel, whether or not that litigation is resolved in our favor.

The U.S. government has certain rights relating to our intellectual property, including the right to restrict or take title to certain patents.

Multiple U.S. patents that we own have resulted from government-funded research and are subject to the risk of exercise of “march-in” rights by the government. March-in rights refer to the right of the U.S. government or a government agency to exercise its non-exclusive, royalty-free, irrevocable worldwide license to any technology developed under contracts funded by the government if the contractor fails to continue to develop the technology. These “march-in” rights permit the U.S. government to take title to these patents and license the patented technology to third parties if the contractor fails to utilize the patents.

Risks Related to Our Common and Preferred Stock

Our stock price has been and could remain volatile.

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The market price for our common stock has been and may continue to be volatile and subject to extreme price and volume fluctuations in response to market and other factors, including the following, some of which are beyond our control:

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The closing price of our common stock on December 23, 2021 was $6.46. There can be no assurance that the current stock price will be maintained, and it is possible that our stock price could drop significantly. In the past, following periods of volatility in the market price of their stock, companies have been the subject of securities class action litigation. If we become involved in securities class action litigation in the future, it could result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business prospects, results of operations and financial condition.

Future sales of substantial amounts of our common stock could affect the market price of our common stock.

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Future sales of substantial amounts of our common stock, or securities convertible into or exchangeable for shares of our common stock, into the public market, including shares of our common stock issued upon exercise of options or warrants, or perceptions that those sales could occur, could adversely affect the prevailing market price of our common stock and our ability to raise capital in the future.

Provisions of Delaware and Connecticut law and of our certificate of incorporation and by-laws may make a takeover more difficult.

Provisions in our Certificate of Incorporation, as amended (“Certificate of Incorporation”), and Amended and Restated By-Laws (“By-laws”) and in Delaware and Connecticut corporate law may make it difficult and expensive for a third-party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and board of directors. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change in our management and board of directors.

Our By-laws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a judicial forum deemed favorable by the stockholder for disputes with us or our directors, officers or employees.

Our By-laws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our Certificate of Incorporation or our By-laws, any action to interpret, apply, enforce, or determine the validity of our Certificate of Incorporation or By-laws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s

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ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes against us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our By-laws to be inapplicable or unenforceable in such an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

The rights of our Series B Preferred Stock could negatively impact our cash flows and dilute the ownership interest of our stockholders.

The terms of our Series B Preferred Stock also provide rights to their holders that could negatively impact us. Holders of the Series B Preferred Stock are entitled to receive cumulative dividends at the rate of $50 per share per year, payable either in cash or in shares of our common stock. To the extent the dividend is paid in shares of our common stock, additional issuances could be dilutive to our existing stockholders and the sale of those shares could have a negative impact on the price of our common stock. A share of our Series B Preferred Stock may be converted at any time, at the option of the holder, into 0.5910 shares of our common stock (which is equivalent to an initial conversion price of $1,692 per share), plus cash in lieu of fractional shares. Furthermore, the conversion rate applicable to the Series B Preferred Stock is subject to additional adjustment upon the occurrence of certain events.

The Series B Preferred Stock ranks senior to our common stock with respect to payments upon liquidation, dividends, and distributions.

The rights of the holders of our Series B Preferred Stock rank senior to our obligations to our common stockholders. Upon our liquidation, the holders of Series B Preferred Stock are entitled to receive $1,000.00 per share plus all accumulated and unpaid dividends (the “Liquidation Preference”). Until the holders of Series B Preferred Stock receive the Liquidation Preference with respect to their shares of Series B Preferred Stock in full, no payment will be made on any junior shares, including shares of our common stock. The existence of senior securities such as the Series B Preferred Stock could have an adverse effect on the value of our common stock.

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General Risk Factors

Litigation could expose us to significant costs and adversely affect our business, financial condition, and results of operations.

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We are, or may become, party to various lawsuits, arbitrations, mediations, regulatory proceedings and claims, which may include lawsuits, arbitrations, mediations, regulatory proceedings or claims relating to commercial liability, product recalls, product liability, product claims, employment matters, environmental matters, breach of contract, intellectual property, indemnification, stockholder suits, derivative actions or other aspects of our business. Litigation (including the other types of proceedings identified above) is inherently unpredictable, and although we may believe we have meaningful defenses in these matters, we may incur judgments or enter into settlements of claims that could have a material adverse effect on our business, financial condition, and results of operations. The costs of responding to or defending litigation may be significant and may divert the attention of management away from our strategic objectives. There may also be adverse publicity associated with litigation that may decrease customer confidence in our business or our management, regardless of whether the allegations are valid or whether we are ultimately found liable.

Financial markets worldwide have experienced heightened volatility and instability which may have a material adverse impact on our Company, our customers and our suppliers.

Financial market volatility can affect the debt, equity and project finance markets. This may impact the amount of financing available to all companies, including companies with substantially greater resources, better credit ratings and more successful operating histories than ours. It is impossible to predict future financial market volatility and instability and the impact on our Company, and it may have a materially adverse effect on us for a number of reasons, such as:

Our future success will depend on our ability to attract and retain qualified management, technical, and other personnel.

Our future success is substantially dependent on the services and performance of our executive officers and other key management, engineering, scientific, manufacturing and operating personnel. The loss of the services of any such personnel could materially adversely affect our business. Our ability to achieve our commercialization plans and to increase production at our manufacturing facility in the future will also depend on our ability to attract and retain additional qualified personnel, and we cannot assure you that we will be able to do so. Recruiting personnel for the fuel cell industry is competitive. Our inability to attract and retain additional qualified personnel, or the departure of key employees, could materially and adversely affect our development, commercialization and manufacturing plans and, therefore, our business prospects, results of operations and financial condition. In addition, our inability to attract and retain sufficient personnel to quickly increase production at our manufacturing facility when and if needed to meet increased demand may adversely impact our ability to respond rapidly to any new product, growth or revenue opportunities. Our inability to attract and retain sufficient qualified personnel to staff our government or third party funded research contracts may result in our inability to complete such contracts or terminations of such contracts, which may adversely impact financial conditions and results of operations.

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We are subject to risks inherent in international operations.

Since we market our products both inside and outside the U.S., our success depends in part on our ability to secure international customers and our ability to manufacture products that meet foreign regulatory and commercial requirements in target markets. We have limited experience developing and manufacturing our products to comply with the commercial and legal requirements of international markets. In addition, we are subject to tariff regulations and requirements for export licenses, particularly with respect to the export of some of our technologies. We face numerous challenges in our international expansion, including unexpected changes in regulatory requirements and other geopolitical risks, fluctuations in currency exchange rates, longer accounts receivable requirements and collections, greater bonding and security requirements, difficulties in managing international operations, potentially adverse tax consequences, restrictions on repatriation of earnings and the burdens of complying with a wide variety of international laws. Any of these factors could adversely affect our results of operations and financial condition.

We source raw materials and parts for our products on a global basis, which subjects us to a number of potential risks, including the impact of export duties and quotas, trade protection measures imposed by the U.S. and other countries including tariffs, potential for labor unrest, changing global and regional economic conditions and current and changing regulatory environments. Changes to these factors may have an adverse effect on our ability to source raw materials and parts in line with our current cost structure.

Although our reporting currency is the U.S. dollar, we conduct our business and incur costs in the local currency of most countries in which we operate. As a result, we are subject to currency translation and transaction risk. Changes in exchange rates between foreign currencies and the U.S. dollar could affect our net sales and cost of sales and could result in exchange gains or losses. We cannot accurately predict the impact of future exchange rate fluctuations on our results of operations.

We could also expand our business into new and emerging markets, many of which have an uncertain regulatory environment relating to currency policy. Conducting business in such markets could cause our exposure to changes in exchange rates to increase, due to the relatively high volatility associated with emerging market currencies and potentially longer payment terms for our proceeds. Our ability to hedge foreign currency exposure is dependent on our credit profile with financial institutions that are willing and able to do business with us. Deterioration in our credit position or a significant tightening of the credit market conditions could limit our ability to hedge our foreign currency exposure and, therefore, result in exchange gains or losses.

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Global Market and New York Stock Exchange and a customized 14 company peer group. It assumes $100.00 invested on October 31, 2016 with dividends reinvested.

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Equity Compensation Plan Information

See Part III, Item 12 for information regarding securities authorized for issuance under our equity compensation plans.

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In Amendment No. 1, which became effective as of October 31, 2021, we and EMRE agreed, among other things, to extend the term of the Original Agreement for an additional six months, ending on April 30, 2022, unless terminated earlier in accordance with the provisions of the Original Agreement.  Amendment No. 1 allows for the continuation of research that would enable incorporation of design improvements to our current fuel cell design in order to support a decision to use the improvements in a future demonstration of the technology for capturing carbon at ExxonMobil’s Rotterdam refinery in the Netherlands (such demonstration, the “Rotterdam Project”) and provides additional time to achieve Milestone 1, as defined in the Original Agreement. Under the terms set forth in the Original Agreement, upon achievement by us of Milestone 1 to EMRE’s satisfaction, we would be entitled to receive a milestone payment of $5.0 million from EMRE. However, there can be no assurance that we will achieve Milestone 1 (or any other milestone) to EMRE’s satisfaction. (The Original Agreement, as amended by Amendment No. 1, is referred to herein as the “EMRE Joint Development Agreement”).

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In a related letter agreement between us and EMRE dated as of October 28, 2021 and executed on October 29, 2021 (the “EMRE Letter Agreement”), we agreed to invest with EMRE in the Rotterdam Project should EMRE move forward with the Rotterdam Project.  In the EMRE Letter Agreement, we agreed that, if (i) we achieve Milestone 1, as set forth in the Original Agreement, as amended by Amendment No. 1, and (ii) we execute a contractual agreement with EMRE to proceed with the Rotterdam Project, then at EMRE’s option, we will either make an investment in the amount of $5.0 million in the Rotterdam Project or discount EMRE’s purchase of our fuel cell module and detailed engineering design, as agreed to by the parties, required for the Rotterdam Project by $5.0 million.

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Franklin Park Tax Equity Financing Transaction

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We closed on a tax equity financing transaction in November 2021 with Franklin Park Infrastructure, LLC (“Franklin Park”) for the 7.4 MW fuel cell project (the “LIPA Yaphank Project”) located in Yaphank Long Island. Franklin Park’s tax equity commitment totals $12.4 million. 

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This transaction was structured as a “partnership flip”, which is a structure commonly used by tax equity investors in the financing of renewable energy projects. Under this partnership flip structure, a partnership, in this case YTBFC Holdco, LLC (the “Yaphank Partnership”), was organized to acquire from FuelCell Energy Finance II, LLC, our wholly-owned subsidiary, all outstanding equity interests in Yaphank Fuel Cell Park, LLC (the “Yaphank Project Company”) which in turn owns the LIPA Yaphank Project and is the party to the power purchase agreement and all project agreements. At the closing of the transaction, the Yaphank Partnership is owned by Franklin Park, holding Class A Units, and Fuel Cell Energy Finance Holdco, LLC, a subsidiary of FuelCell Energy Finance, LLC, holding Class B Units. The acquisition of the Yaphank Project Company by the Yaphank Partnership was funded in part by an initial draw from Franklin Park and funds contributed downstream to the Yaphank Partnership by us. The initial funding occurred on December 13, 2021, upon the satisfaction of certain conditions precedent (including the receipt of an appraisal and confirmation that the LIPA Yaphank Project would be eligible for the investment tax credit (“ITC”) under Section 48 of the Internal Revenue Code of 1986, as amended).  In connection with the initial closing, we were able to draw down approximately $3.2 million, of which approximately $0.4 million was used to pay closing costs, including title insurance expenses and legal and consulting fees. We are eligible to draw the remaining amount of the commitment, approximately $9.2 million, once the LIPA Yaphank Project achieves commercial operation.  When such funds are drawn down, the funds will be distributed upstream to us, as a reimbursement of prior construction costs incurred by us.

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Under a partnership flip structure, tax equity investors agree to receive a minimum target rate of return, typically on an after-tax basis. Prior to receiving a contractual rate of return or a date specified in the contractual arrangements, Franklin Park will receive substantially all of the non-cash value attributable to the LIPA Yaphank Project, which includes accelerated depreciation and Section 48(a) investment tax credits; however, we will receive a majority of the cash distributions (based on the operating income of the LIPA Yaphank Project), which are paid quarterly. After Franklin Park receives its contractual rate of return, we will receive approximately 95% of the cash and tax allocations. We (through a separate wholly owned entity) may enter into a back leverage debt financing transaction and use the cash distributions from the Yaphank Partnership to service the debt.  

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Under this partnership flip structure, after the fifth anniversary following commercial operations, we have an option to acquire all of the equity interests that Franklin Park holds in the Yaphank Partnership starting after Franklin Park receives its contractual rate of return (the anticipated “flip” date) after the LIPA Yaphank Project is operational. If we exercise this option, we will be required to pay the greater of the following: (i) the fair market value of Franklin Park's equity interest

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at the time the option is exercised or (ii) an amount equal 9.6% of Franklin Park’s capital contributions. This option payment is to be grossed up for federal taxes if it exceeds the tax basis of the Yaphank Partnership Class A Units.

Settlement Agreement with POSCO Energy Co., Ltd. and Korea Fuel Cell Co., Ltd.

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In order to resolve various commercial and legal disputes among POSCO Energy Co., Ltd. (“POSCO Energy”), Korea Fuel Cell Co., Ltd. (“KFC”) and us, on December 20, 2021, we entered into a Settlement Agreement (the “Settlement Agreement”) with POSCO Energy and KFC (POSCO Energy and KFC may be collectively referred to herein as “PE Group”). The Settlement Agreement provides, among other things, that the parties will cooperate in good faith to effect a market transition to us of the molten carbonate fuel cell business in Korea in accordance with the terms and conditions of the Settlement Agreement. To that end, the Settlement Agreement provides that any and all past, current, or potential disputes and claims between us, on the one hand, and POSCO Energy and KFC, on the other, of any nature whatsoever, whether known or unknown, asserted or not asserted, based on actions or omissions of any party on or before the date of Settlement Agreement are fully and finally settled, including such disputes and claims, directly or indirectly, in connection with the legal disputes and License Agreements described elsewhere herein, with the exception of (i) an unfiled claim by us in the amount of approximately $1.8 million with respect to certain royalties we believe are owed by POSCO Energy with respect to replacement modules deployed by POSCO Energy at Gyenonggi Green Energy and other sites for which POSCO Energy has not paid royalties, and (ii) an unfiled claim by POSCO Energy in an unknown amount with respect to a series of purchase orders for materials and components which began in 2014 under a supply chain contract, both of which claims remain unsettled. We do not believe the claim by POSCO Energy with respect to purchase orders for materials and components under the supply chain contract has merit and we retain the right to file a counterclaim for damages we believe we have incurred with respect to such supply chain contract. With respect to certain attachments obtained by POSCO Energy from the Seoul Central District Court with respect to certain revenues owed to us by Korea Southern Power Company (“KOSPO”) (which are described in more detail elsewhere herein), the Settlement Agreement provides that, within five days of the date of the Settlement Agreement, POSCO Energy will file an application with the Seoul Central District Court to revoke the attachments. Thereafter, we expect to promptly receive the outstanding KOSPO accounts receivable of approximately $11.2 million held by the Seoul Central District Court.

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Under the Settlement Agreement, the parties have also agreed that, within five days of the date thereof, we will withdraw our objection to the spin-off of KFC from POSCO Energy, and that the License Agreements are not terminated, but instead are deemed to be amended such that POSCO Energy and KFC only have the right (i) to provide maintenance and repair services to PE Group’s existing customers on existing molten carbonate power generation and thermal projects under long-term service agreements currently in force as well as long-term service agreements that have expired and are pending renewal as of the settlement date (collectively, “Existing LTSAs”), (ii) to supply replacement modules purchased from us only for their existing customers for existing molten carbonate power generation and thermal projects under Existing LTSAs and (iii) to own, operate and maintain all facilities and factories solely for the purposes set forth in (i) and (ii) above (collectively, the “Right to Service License”). POSCO Energy and KFC further agree that, as of the date of the Settlement Agreement, the License Agreements are deemed to be amended such that we exclusively enjoy all rights as to our technology in Korea and Asia, other than the Right to Service License. The Settlement Agreement further provides that the License Agreements will terminate automatically upon sixty days prior written notice to PE Group if (i) we enter into a business collaboration agreement with a Korean company to construct, assemble, manufacture, market, sell, distribute, import, export, install, commission, service, maintain, or repair products incorporating our technology, or otherwise conduct our business, in the Korean market; or (ii) we expand the capacity of our existing Korean entity such as to perform such activities itself. In the event of the termination of the License Agreements, the license granted to PE Group under the Right to Service License will continue notwithstanding the termination of the License Agreements, except that PE Group’s right to own, operate, and maintain all facilities and factories for the purpose of servicing any orders or requests made by us will terminate. For the avoidance of doubt, pursuant to the terms of the Settlement Agreement, PE Group has no right to manufacture modules or any other product incorporating our technology under the License Agreements as amended, the Right to Service License or otherwise unless requested and authorized by us to do so.

The Settlement Agreement further provides that, in order to service its existing customers under the Existing LTSAs, KFC will place a firm, non-cancelable order for twelve SureSource 3000 modules within two weeks after the date of the Settlement Agreement and an additional firm, non-cancelable order for eight SureSource 3000 modules on or before June 30, 2022, all at a price of $3.0 million per module. In addition, KFC agrees to use commercially reasonable efforts to order fourteen additional SureSource 3000 modules by December 31, 2022, at a price of $3.0 million per module if ordered by such date. If KFC materially breaches the Settlement Agreement by failing to make timely and full payment for the modules for which KFC is required to place orders under the Settlement Agreement and does not cure such material breach within fifteen days of notice of such breach by us, the License Agreements and the Right to Service License granted to PE

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Group will be terminated. If we materially breach the Settlement Agreement by failing to supply the modules for which KFC is required to place orders under the Settlement Agreement, as long as KFC has made the payment for such modules and has otherwise satisfied its contractual obligations for those modules and such material breach is not cured within sixty days after notice from PE Group, PE Group will have the right to terminate the Settlement Agreement. With respect to any other alleged breach, material or otherwise, of the Settlement Agreement, the parties’ exclusive remedy consists solely of general damages.

Pursuant to the Settlement Agreement, with respect to new modules to be supplied by us and deployed by PE Group to its existing customers, we will provide our standard warranty against module defects until the earlier of eighteen months from the date of shipment or twelve months from the date of installation. As part of the global settlement of the disputes among the parties and subject to the qualifications set forth in the Settlement Agreement, we will reimburse PE Group for any annual output penalty amount paid by PE Group to its customers pursuant to Existing LTSAs (whether such Existing LTSA is extended or renewed), caused by a shortfall or defect in the new modules for a period of up to seven years. The maximum annual reimbursement obligation with regard to any PE Group customer for any new module provided by us will not exceed an amount equal to 7.5% per year of the module purchase price. We will not be required to reimburse PE Group for any penalty paid by PE Group under the Existing LTSAs that is not caused by a shortfall or defect in the modules to be supplied by us including, without limitation, any shortfall or defect caused by a site-related problem, a problem with the balance of plant, or other components of the project.

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Although we have the exclusive and unrestricted right under the Settlement Agreement to perform, pursue, and otherwise conduct our business in relation to new fuel cell projects (including new projects with PE Group’s existing customers) in Korea and Asia, the parties have agreed that, except as further provided in the Settlement Agreement with respect to PE Group’s existing customers Noeul Green Energy and Godeok Green Energy, we will not engage in discussions with PE Group’s existing customers regarding Existing LTSAs without PE Group’s consent. The parties have further agreed that if PE Group cannot enter into an agreement with its existing customers to extend or renew Existing LTSAs by December 31, 2022, PE Group will cooperate with us so that we may discuss and, at our sole discretion, enter into an extension of an Existing LTSA, a new long-term service agreement to replace an Existing LTSA, or a module sales agreement with PE Group’s existing customers; provided that (i) should we enter into such an arrangement with a PE Group existing customer, and (ii) we are required to provide replacement modules to such existing customer under such arrangement, and (iii) PE Group has not already deployed all or some the modules that PE Group ordered under Settlement Agreement, we will purchase the number of required replacement modules from PE Group at a price of $3.0 million per module (to the extent such modules are available and have not yet been deployed). The purchase of such replacement modules by us is contingent upon the modules being in proper condition as determined by inspection process to be agreed by the parties. Any modules purchased by us from PE Group under these terms will be included as part of the firm orders KFC is required to make pursuant to the Settlement Agreement.

With respect to operations and maintenance agreements, the Settlement Agreement provides that KFC will have the right of first refusal on providing operation and maintenance services on commercially reasonable terms for new long-term service agreements entered into by us in Korea for a period of the first to occur of either twenty-four months after the date of the Settlement Agreement or until such time as we engage a third party capable of providing such services in Korea. If we and KFC agree that KFC should provide operation and maintenance services pursuant to the right of first refusal, we and KFC will enter into one or more operation and maintenance agreements that reflect commercially reasonable terms and conditions as agreed by us and KFC at that time.

With respect to balance of plant (“BOP”), KFC currently has eight units of BOP available, and the Settlement Agreement provides that we have the option to purchase such units of BOP for any new molten carbonate fuel cell projects within Korea at a price of KRW 2,550,000,000 per unit. We will also have a non-exclusive, non-transferrable, non-sublicensable license to use the intellectual property imbedded in the BOP units in Korea in consideration for a reasonable license fee to be separately agreed by the parties. Detailed terms and conditions of BOP and related software and firmware supply will be discussed and agreed in good faith in separate BOP supply agreements in the event we exercise our option to purchase any of such BOP.

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As previously disclosed, we retained outside counsel on a contingency basis to pursue our claims against POSCO Energy and KFC, and outside counsel entered into an agreement with a litigation finance provider to fund the legal fees and expenses of the arbitration proceedings brought by us against POSCO Energy and KFC. As we have entered into the Settlement Agreement, we are required to remit fees to our counsel, Wiley Rein, LLP (“Wiley”), subject to the terms of our engagement letter with Wiley. On December 23, 2021, we agreed that we will pay Wiley a total of $24.0 million to

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satisfy all obligations to Wiley under our engagement letter, of which $14.0 million will be paid on or before December 30, 2021, $5.0 million will be paid on or before March 30, 2022, and $5.0 million will be paid on or before June 30, 2022.

For additional information regarding our relationship and legal proceedings with POSCO Energy and KFC, please see the section entitled “Business – License Agreements and Royalty Income; Relationship with POSCO Energy – License Agreements and Disputes with POSCO Energy; Settlement Agreement.”

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There were no product revenues for the years ended October 31, 2021 and October 31, 2020. The primary reason for the lack of product revenues in recent years is that, in the United States, the Company chose to invest in retaining assets on its balance sheet and building its generation operating portfolio rather than selling these projects to customers or project investors,  with the goal of benefitting from the long-term cash flows under the PPAs relating to the retained projects. In addition, internationally, South Korea and Europe have historically been product sale markets for the Company; however, we have not recognized meaningful product revenues in these geographies since 2018. Our activities in South Korea have been impacted by our prior dispute with POSCO Energy and, until fiscal year 2021, we moderated our investment in business development in Europe due to limited resources.

Cost of product revenues decreased $1.9 million for the year ended October 31, 2021 to $8.0 million, compared to $9.9 million for the year ended October 31, 2020. Both periods were impacted by the under-absorption of fixed overhead costs due to low production volumes. Manufacturing variances, primarily related to low production volumes and unabsorbed overhead costs, totaled approximately $6.9 million for the year ended October 31, 2021 compared to approximately $8.7 million for the year ended October 31, 2020. The Company incurred approximately $2.1 million of manufacturing variances during the year ended October 31, 2020 due to the manufacturing facility shutdown, which negatively impacted overall gross margin. The decrease in manufacturing variances is primarily the result of increased production volumes during the year ended October 31, 2021.

For the year ended October 31, 2021, we operated at an annualized production rate of approximately 32.4 MW, which is an increase from the annualized production rate of 17.0 MW for the year ended October 31, 2020.  The fiscal year 2020 production rate was primarily a result of the manufacturing facility shutdown that was implemented in response to the COVID-19 pandemic.

As of October 31, 2021 and 2020, there was no product revenues backlog.

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Service agreements and license revenues

Service agreements and license revenues and associated cost of revenues for the years ended October 31, 2021 and 2020 were as follows:

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Revenues for the year ended October 31, 2021 from service agreements and license fee agreements decreased $5.3 million to $19.8 million from $25.1 million for the year ended October 31, 2020. The primary reasons for the change in revenue were as follows:  

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Cost of service and license revenues increased $0.2 million to $24.7 million for the year ended October 31, 2021 from $24.5 million for the year ended October 31, 2020. We record loss accruals for service agreements when the estimated cost of future module exchanges and maintenance and monitoring activities exceeds the remaining unrecognized consideration. Estimates for future costs on service agreements are determined by a number of factors including the estimated remaining life of the module(s), used replacement modules available, and future operating plans for the power platform. The net increase of approximately $1.6 million to the loss accrual in fiscal year 2021 was a result of the higher future cost estimates related to future module exchanges, as further described above, as well as earlier timing of exchanges of certain modules during the fiscal year compared to our prior estimates as a result of lower than expected performance.

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We work to continuously improve and mature our products and implement lessons learned into our product designs and manufacturing process subsequent to introduction. In 2021, we examined data related to module field performance, identified improvement opportunities and invested in improvement initiatives with respect to our core molten carbonate technology. We identified improvement opportunities ranging from improved thermal management by reducing internal temperature to improving the performance of our electrical balance of plant and began to implement design changes to our commercial platforms which are expected to improve overall product performance. As it relates to our fuel cell modules, these improvements centered around delivering more uniform temperature distribution within the stack modules with the intent of improving output over the life of the modules to achieve the product’s expected design life.

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Cost of service and license revenues for both years include planned maintenance activities, module exchanges and continued investment in the service fleet in order to improve performance. Cost of service agreements includes maintenance and operating costs and module exchanges.

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Overall gross loss from service agreements and license revenues was $4.9 million for the year ended October 31, 2021, which represents a decrease of $5.5 million from a gross profit of $0.6 million for the year ended October 31, 2020. The decrease is primarily a result of (i) the lack of revenue comparable to the revenue of $4.0 million associated with the EMRE Joint Development Agreement and $0.7 million associated with the POSCO Energy License Agreements, in each case recognized during the year ended October 31, 2020, and (ii) higher future cost estimates related to future module exchanges which resulted in a negative margin impact of approximately $2.6 million. These impacts to gross margin were partially offset by the favorable mix associated with module exchange activities as module exchanges in fiscal year 2021 were for higher margin projects, which increased margins by approximately $1.8 million. The overall gross margin was (25.0%) for the year ended October 31, 2021, compared to a gross margin of 2.3% for the year ended October 31, 2020. Gross margin decreased during the year ended October 31, 2021 as a result of decreased revenues and increased costs of revenues as described above.

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As of October 31, 2021, service agreements and license backlog totaled $125.9 million compared to $169.0 million as of October 31, 2020. This backlog is for service agreements of up to 20 years at inception and is expected to generate positive margins and cash flows based on current estimates. Service agreements and license backlog also includes $22.2 million of future license revenue.

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Generation revenues

Generation revenues and related costs for the years ended October 31, 2021 and 2020 were as follows:

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Revenues from generation for the year ended October 31, 2021 totaled $24.0 million, which represents an increase of $4.1 million from revenue recognized of $19.9 million for the year ended October 31, 2020 due to a larger operating portfolio, improved operating output of the generation fleet and sales of renewable energy credits. Generation revenues for the year ended October 31, 2021 and 2020 reflect revenue from electricity generated under our PPAs and the sale of renewable energy credits.

Cost of generation revenues totaled $36.0 million in the year ended October 31, 2021, which represents an increase from the year ended October 31, 2020, primarily due to higher plant maintenance costs in fiscal year 2021 in order to improve operating output and an increase in depreciation and amortization expense related to a higher installed base of operating assets in fiscal year 2021 compared to fiscal year 2020. Cost of generation revenues included depreciation and amortization of approximately $15.0 million and $13.9 million for the years ended October 31, 2021 and 2020, respectively, and the increase reflects accelerated depreciation expense recorded for module exchanges during the year ended October 31, 2021.

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Fiscal years 2021 and 2020 both included an impairment charge for the Triangle Street Project. In the fourth quarter of fiscal year 2020, we reviewed the Triangle Street Project and, as a result of output and revenue projections given then-current development plans, recorded an impairment charge of $2.4 million.  We performed an additional assessment during the fourth quarter of fiscal year 2021 and, as a result, recorded an additional impairment charge of $0.4 million. We use the Triangle Street Project as a development platform for our advanced applications. Because we use the platform for development activities, generation revenue has been negatively impacted.

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The Company also recorded an impairment charge in the fourth quarter of fiscal year 2021 for the two Long Island Power Authority (“LIPA”) project awards for which there are no executed PPAs (which are referred to as the LIPA Brookhaven and Clare Rose Projects), which totaled approximately $1.8 million, representing the full value of the project assets. The impairment charge for the LIPA Brookhaven and Clare Rose Projects was recorded because we made a decision to no longer pursue development of the two projects.

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The Company also recorded charges relating to the Toyota Project. In fiscal year 2021, the Company entered the construction phase of the 2.3 MW Toyota Project, however, our construction timeline for the project is delayed beyond the timeline required by our contract with Toyota and, as a result, we have incurred charges due to Toyota totaling approximately $1.0 million. In order to produce power and hydrogen for the off-takers (Toyota and Southern California Edison), the Company is required to procure renewable natural gas (“RNG”).  Sourcing and risk mitigation strategies have been reviewed including the probabilities of certain outcomes. It was determined in the fourth quarter of fiscal year 2021 that a potential source of RNG at favorable pricing was no longer sufficiently probable and that market pricing for RNG has significantly increased, resulting in the determination that the carrying value of the project asset is no longer recoverable.  While the Company is pursuing alternative sources of RNG, a $2.8 million impairment charge was recorded, which represents the carrying value of the project asset less the carrying value of inventory components that could be redeployed for alternative use. The Company may continue to incur such charges in future periods.

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Refer to Note 7. “Project Assets” to the Consolidated Financial Statements for more information on the impairment charges for the fiscal year ended October 31, 2021.

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The overall gross loss from generation revenues was $12.0 million for the year ended October 31, 2021, which represents an increase of $4.1 million from a gross loss of $7.9 million for the year ended October 31, 2020. This increase was a result of higher plant maintenance costs, depreciation expense, impairment charges and charges due to project delays, as discussed above.

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As of October 31, 2021 and 2020, generation backlog totaled $1.1 billion.

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Advanced Technologies contracts

Advanced Technologies contract revenues and related costs for the years ended October 31, 2021 and 2020 were as follows:

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Advanced Technologies contract revenues remained consistent for the year ended October 31, 2021 compared to the year ended October 31, 2020. Compared to the year ended October 31, 2020, Advanced Technologies contract revenues recognized under the EMRE Joint Development Agreement were approximately $1.3 million higher during the year ended October 31, 2021, reflecting continued performance under the EMRE Joint Development Agreement during the year ended October 31, 2021. However, the increased revenues under the EMRE Joint Development Agreement were offset by the $1.4 million less revenue recognized under government contracts during the year ended October 31, 2021 than during the year ended October 31, 2020. Cost of Advanced Technologies contract revenues increased $0.2 million to $16.5 million for the year ended October 31, 2021, compared to $16.3 million for the year ended October 31, 2020. Advanced Technologies contracts for the year ended October 31, 2021 generated a gross margin of $9.3 million compared to a gross margin of $9.5 million for the year ended October 31, 2020. The decrease in Advanced Technologies contract gross margin is related to the mix of government contracts, which resulted in a higher cost share incurred by the Company on such contracts in the year ended October 31, 2021 compared to the year ended October 31, 2020.

As of October 31, 2021, Advanced Technologies contract backlog totaled $40.8 million compared to $49.2 million at October 31, 2020.

Administrative and selling expenses

Administrative and selling expenses were $37.9 million and $26.6 million for the years ended October 31, 2021 and 2020, respectively. The year ended October 31, 2021 included higher legal expenses for tax equity financings (refer to Note 4. “Tax Equity Financing” to the Consolidated Financial Statements for more information regarding the tax equity financings), additional expense for shared-based compensation of $2.2 million primarily due to the grants made in August 2020 and November 2020 under our Long-Term Incentive Plans (refer to Note 18. “Benefit Plans” to the Consolidated Financial Statements for more information on the August and November 2020 grants), increased compensation expense and proxy mailing expenses associated with the Company’s annual stockholder meeting. The year ended October 31, 2020 also included a legal settlement of $2.2 million which was recorded as an offset to administrative and selling expenses.

Research and development expenses

Research and development expenses increased to $11.3 million for the year ended October 31, 2021 compared to $4.8 million for the year ended October 31, 2020. The increase relates to an increase in spending on the Company’s hydrogen commercialization initiatives compared to the year ended October 31, 2020. The year ended October 31, 2020 was impacted by restructuring initiatives implemented in 2019 and the reallocation of resources from Company-funded research and development projects to funded Advanced Technologies projects. During the year ended October 31, 2021, the Company successfully commenced operation and testing of a prototype solid oxide electrolysis hydrogen platform in Danbury, Connecticut.

Loss from operations

Loss from operations for the year ended October 31, 2021 was $64.9 million compared to $39.2 million for the year ended October 31, 2020. This increase was due to an increase in gross loss of $7.9 million and a $17.8 million increase in operating expenses for the year ended October 31, 2021.

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As discussed above, impacting gross loss for the year ended October 31, 2021 were (i) lower service gross margin primarily due to lower revenues and  higher cost of revenues resulting from, among other things, higher future cost estimates related to future module exchanges, whereas gross margin for the year ended October 31, 2020 included license revenues associated with the EMRE Joint Development Agreement which resulted in positive margins, (ii) lower generation gross margin primarily related to higher plant maintenance costs, increased depreciation expense, impairment charges and charges for project delays, and (iii) lower Advanced Technologies gross margin related to the mix of government contracts during the year ended October 31, 2021. These impacts were partially offset by lower manufacturing variances primarily resulting from increased production volumes.

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Operating expenses were higher in the period as administrative and selling expenses and research and development expenses both increased for the year ended October 31, 2021. Administrative and selling expenses included legal expenses for tax equity financings, additional share-based compensation expense under our Long Term Incentive Plans approved in August 2020 and November 2021, an increase in compensation expense, and proxy mailing expenses associated with the Company’s annual stockholder meeting. In addition, administrative and selling expenses for the year ended October 31, 2020 included a $2.2 million legal settlement that offset administrative and selling expenses and there was no comparable gain for the year ended October 31, 2021. Research and development expenses were higher due to an increase in spending on the Company’s hydrogen commercialization initiatives compared to the year ended October 31, 2020.

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Interest expense

Interest expense for the years ended October 31, 2021 and 2020 was $7.4 million and $15.3 million, respectively. Interest expense for both periods presented includes interest related to financing obligations for sale-leaseback transactions and on the outstanding loans associated with the Bridgeport Fuel Cell Project. Interest expense for both periods also includes interest for the amortization of the redeemable preferred stock of subsidiary fair value discount. Amounts owed pursuant to the terms of the redeemable preferred stock issued by FCE Ltd. (which is referred to elsewhere herein as the Series 1 Preferred Shares) were paid, in full, in December 2020. The decrease in interest expense for the year ended October 31, 2021 is primarily due to the repayment of the $80.0 million principal balance outstanding under the Orion Credit Agreement (as defined below), which was fully repaid in December 2020.

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Change in fair value of common stock warrant liability

The $16.0 million expense for the year ended October 31, 2021 represents an adjustment to the estimated fair value of the unexercised Orion Warrants outstanding during the year ended October 31, 2021, which were exercised, in full, during the year ended October 31, 2021. The $37.1 million expense for the year ended October 31, 2020 represents an adjustment to the estimated fair value of the Orion Warrants outstanding as of October 31, 2020. The expense is primarily a result of increases in the price of our common stock during the year ended October 31, 2020, which were used as an input to remeasure the Orion Warrants to fair value on a quarterly basis using a Black-Scholes model at October 31, 2020 for unexercised warrants as of October 31, 2020 and the dates of exercise compared to the stock price used in the Black-Scholes model upon the issuance of the Orion Warrants.

Loss (gain) on extinguishment of debt and financing obligation

The loss on extinguishment of debt for the year ended October 31, 2021 represents costs associated with the repayment of the $80.0 million principal balance outstanding under the Orion Credit Agreement. The loss on extinguishment of debt amount includes an early prepayment penalty of $4.0 million and the write-off of unamortized debt discounts and deferred finance costs of $7.1 million. The $1.8 million gain for the year ended October 31, 2020 represents the difference between the amount of the payoff of the lease and the repurchase of the UCI Fuel Cell, LLC project asset and the carrying amount of the financing obligation.

Loss on extinguishment of Series 1 preferred share obligation

A charge of $0.9 million was recorded in the year ended October 31, 2021 for the extinguishment of preferred stock obligation of subsidiary to recognize the difference between the amount of the payoff of the obligation and the carrying amount of the Series 1 Preferred Share obligation.

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Other (expense) income, net

Other (expense), net was ($0.7) million and Other income, net was $0.7 million for the years ended October 31, 2021 and 2020, respectively. Other (expense), net for the year ended October 31, 2021 primarily relates to a foreign exchange loss of $0.9 million related to the remeasurement of the Canadian Dollar denominated preferred stock obligation (the Series 1 Preferred Share obligation) of our U.S. Dollar functional currency Canadian subsidiary (FCE Ltd.) prior to the payoff of the preferred share obligation in December 2020. Other income, net for the year ended October 31, 2020 primarily relates to a net non-cash gain on the extinguishment accounting related to the modification of the Series 1 Preferred Shares in January 2020 including the extinguishment related to the embedded derivatives.

Provision for income taxes

We have not paid federal or state income taxes in several years due to our history of net operating losses, although we have paid foreign income and withholding taxes in South Korea. Income tax recorded for the years ended October 31, 2021 and 2020 was $2 thousand and $46 thousand, respectively.

Series B preferred stock dividends

Dividends recorded on our Series B Preferred Stock were $3.2 million and $3.3 million for the years ended October 31, 2021 and 2020, respectively.

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Net loss attributable to common stockholders and loss per common share

Net loss attributable to common stockholders represents the net loss for the period less the preferred stock dividends on the Series B Preferred Stock. For the years ended October 31, 2021 and 2020, net loss attributable to common stockholders was $104.3 million and $92.4 million, respectively, and loss per common share was $0.31 and $0.42, respectively. The increase in the net loss attributable to common stockholders for the year ended October 31, 2021 is primarily due to incurring (i)  a gross loss for fiscal year 2021 compared to a gross profit for fiscal year 2020, (ii) higher operating expenses for fiscal year 2021, (iii) an $11.2 million loss recorded on the extinguishment of the Orion Facility, and (iv) a $0.9 million charge for the extinguishment of the Series 1 Preferred Share obligation. These amounts were offset by lower interest expense due to repayment of the Orion Facility and a lower charge for the change in fair value of common stock warrant liability. The net loss attributable to common stockholders for the year ended October 31, 2020 reflected a $1.8 million gain on the extinguishment of a financing obligation.  There was no comparable gain recorded in the year ended October 31, 2021. The lower loss per common share for the year ended October 31, 2021 as compared to the year ended October 31, 2020 is due to the higher weighted average shares outstanding as of October 31, 2021 as a result of share issuances since October 31, 2020.

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In February 2021, the Company further reduced its debt by repaying the outstanding $6.5 million Paycheck Protection Program Promissory Note from Liberty Bank under the CARES Act.

On June 11, 2021, the Company entered into an Open Market Sale Agreement with Jefferies LLC and Barclays Capital Inc. with respect to an at the market offering program under which the Company may, from time to time, offer and sell shares of the Company’s common stock having an aggregate offering price of up to $500 million. From the date of the Open Market Sale Agreement through October 31, 2021, approximately 44.1 million shares were sold under the Open Market Sale Agreement at an average sales price of $8.56 per share, resulting in gross proceeds of $377.2 million, before deducting expenses and sales commissions. Net proceeds to the Company totaled approximately $369.7 million after deducting commissions and offering expenses totaling approximately $7.5 million. The remaining availability under the Open Market Sale Agreement as of the date of filing of this report is approximately $122.8 million. The Company plans to use the net proceeds from this offering to accelerate the development and commercialization of our Advanced Technologies products, including our solid oxide platform, for project development, for internal research and development, to invest in capacity expansion for solid oxide and carbonate fuel cell manufacturing, and for project financing, working capital support, and general corporate purposes.

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We believe that our unrestricted cash and cash equivalents, expected receipts from our contracted backlog, and release of short-term restricted cash less expected disbursements over the next twelve months will be sufficient to allow the Company to meet its obligations for at least one year from the date of issuance of these financial statements.

To date, we have not achieved profitable operations or sustained positive cash flow from operations. The Company’s future liquidity will depend on its ability to (i) timely complete current projects in process within budget, (ii) increase cash flows from its generation operating portfolio, including by meeting conditions required to timely commence operation of new projects, operating its generation operating portfolio in compliance with minimum performance guarantees and operating its generation operating portfolio in accordance with revenue expectations, (iii) obtain financing for project construction, (iv) obtain permanent financing for its projects once constructed, (v) increase order and contract volumes, which would lead to additional product sales, service agreements and generation revenues, (vi) obtain funding for and receive payment for research and development under current and future Advanced Technologies contracts, (vii) successfully commercialize its Advanced Technologies platforms, including its solid oxide, hydrogen and carbon capture platforms, (viii) implement the product cost reductions necessary to achieve profitable operations, (ix) manage working capital and the Company’s unrestricted cash balance and (x) access the capital markets to raise funds through the sale of equity securities, convertible notes, and other equity-linked instruments.

We are continually assessing different means by which to accelerate the Company’s growth, enter new markets, commercialize new products, and enable capacity expansion. Therefore, from time to time, the Company may consider and enter into agreements for one or more of the following: negotiated financial transactions, minority investments, collaborative ventures, license arrangements, joint ventures or other business transactions for the purpose(s) of geographic or manufacturing expansion and/or new product or technology development and commercialization.

Our business model requires substantial outside financing arrangements and satisfaction of the conditions of such financing arrangements to construct and deploy our projects and facilitate the growth of our business. The Company expects to seek long-term debt and tax equity (e.g., sale-leaseback and partnership transactions) for its project asset portfolio as these projects commence commercial operations. The proceeds of any such financing, if obtained, may allow the Company to

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fund other projects. We may also seek to obtain additional financing in both the debt and equity markets in the future. If financing is not available to us on acceptable terms if and when needed, or on terms acceptable to us or our lenders, if we do not satisfy the conditions of our financing arrangements, if we spend more than the financing approved for projects, if project costs exceed an amount that the Company can finance, or if we do not generate sufficient revenues or obtain capital sufficient for our corporate needs, we may be required to reduce or slow planned spending, reduce staffing, sell assets, seek alternative financing and take other measures, any of which could have a material adverse effect on our financial condition and operations.

Generation Operating Portfolio, Projects Assets and Backlog

To grow our generation operating portfolio, the Company will invest in developing and building turn-key fuel cell projects which will be owned by the Company and classified as project assets on the balance sheet. This strategy requires liquidity and the Company expects to continue to have increasing liquidity requirements as project sizes increase and more projects are added to backlog. We may commence building project assets upon the award of a project or execution of a multi-year PPA with an end-user that has a strong credit profile. Project development and construction cycles, which span the time between securing a PPA and commercial operation of the platform, vary substantially and can take years. As a result of these project cycles and strategic decisions to finance the construction of certain projects, we may need to make significant up-front investments of resources in advance of the receipt of any cash from the sale or long-term financing of such projects. To make these up-front investments, we may use our working capital, seek to raise funds through the sale of equity or debt securities, or seek other financing arrangements. Delays in construction progress and completing current projects in process within budget, or in completing financing or the sale of our projects may impact our liquidity in a material way.

Our generation operating portfolio (34.0 MW as of October 31, 2021) contributes higher long-term cash flows to the Company than if these projects had been sold. These projects currently generate approximately $26.0 million per year in annual revenue, but this amount may fluctuate from year to year depending on platform output, operational performance and management and site conditions. The Company plans to continue to grow this portfolio while also selling projects to investors. As of October 31, 2021, the Company had projects representing an additional 41.3 MW in various stages of development and construction, which projects are expected to generate operating cash flows in future periods, if completed. Retaining long-term cash flow positive projects, combined with our service fleet, is expected to result in reduced reliance on new project sales to achieve cash flow positive operations, however, operations and performance issues could impact results. We have worked with and are continuing to work with lenders and financial institutions to secure construction financing, long-term debt, tax equity and sale-leasebacks for our project asset portfolio, but there can be no assurance that such financing can be attained, or that, if attained, it will be retained and sufficient.

As of October 31, 2021, net debt outstanding related to project assets was $74.2 million. Future required payments totaled $43.2 million as of October 31, 2021. The outstanding financing obligations under our sale-leaseback transactions, which totaled $56.5 million as of October 31, 2021, include $34.8 million in excess of future required payments, not including amounts for the potential repurchase price of the project assets which is based on fair value.

Our generation operating portfolio provides us with the full benefit of future cash flows, net of any debt service requirements.

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The following table summarizes our generation operating portfolio as of October 31, 2021:

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