UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended January 31, 2020

OR

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

For the transition period from             to

Commission file number: 1-14204

 

FUELCELL ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

06-0853042

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3 Great Pasture Road

Danbury, Connecticut

 

06810

(Address of principal executive offices)

 

(Zip Code)

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

FCEL

 

The Nasdaq Stock Market LLC

(Nasdaq Global Market)

 

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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

Number of shares of common stock, par value $0.0001 per share, outstanding as of March 11, 2020:  210,968,852

 

 

 

 


FUELCELL ENERGY, INC.

FORM 10-Q

Table of Contents

 

 

 

 

 

Page

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements.

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of January 31, 2020 and October 31, 2019.

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended January 31, 2020 and 2019.

 

4

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity for the three months ended January 31, 2020 and 2019.

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended January 31, 2020 and 2019.

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements.

 

7

 

 

 

 

 

Item 2.

 

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

 

23

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk.

 

39

 

 

 

 

 

Item 4.

 

Controls and Procedures.

 

39

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings.

 

41

 

 

 

 

 

Item 1A.

 

Risk Factors.

 

41

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

42

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities.

 

42

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures.

 

42

 

 

 

 

 

Item 5.

 

Other Information.

 

42

 

 

 

 

 

Item 6.

 

Exhibits.

 

43

 

 

 

 

 

Signatures

 

 

 

44

 

 

2

 


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

 

FUELCELL ENERGY, INC.

Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

 

 

January 31,

 

 

October 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents, unrestricted

 

$

38,254

 

 

$

9,434

 

Restricted cash and cash equivalents - short-term

 

 

8,178

 

 

 

3,473

 

Accounts receivable, net

 

 

5,593

 

 

 

3,292

 

Unbilled receivables

 

 

7,523

 

 

 

7,684

 

Inventories

 

 

58,433

 

 

 

54,515

 

Other current assets

 

 

6,805

 

 

 

5,921

 

Total current assets

 

 

124,786

 

 

 

84,319

 

Restricted cash and cash equivalents - long-term

 

 

27,481

 

 

 

26,871

 

Inventories - long-term

 

 

6,797

 

 

 

2,179

 

Project assets

 

 

147,924

 

 

 

144,115

 

Property, plant and equipment

 

 

39,794

 

 

 

41,134

 

Operating lease right-of-use assets, net

 

 

10,276

 

 

 

-

 

Goodwill

 

 

4,075

 

 

 

4,075

 

Intangible assets

 

 

20,939

 

 

 

21,264

 

Other assets

 

 

9,327

 

 

 

9,489

 

Total assets

 

$

391,399

 

 

$

333,446

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

8,660

 

 

$

21,916

 

Current portion of operating lease liabilities

 

 

1,149

 

 

 

-

 

Accounts payable

 

 

14,117

 

 

 

16,943

 

Accrued liabilities

 

 

8,958

 

 

 

11,452

 

Deferred revenue

 

 

15,341

 

 

 

11,471

 

Preferred stock obligation of subsidiary

 

 

945

 

 

 

950

 

Total current liabilities

 

 

49,170

 

 

 

62,732

 

Long-term deferred revenue

 

 

29,797

 

 

 

28,705

 

Long-term preferred stock obligation of subsidiary

 

 

16,721

 

 

 

16,275

 

Long-term operating lease liabilities

 

 

9,466

 

 

 

-

 

Long-term debt and other liabilities

 

 

161,804

 

 

 

90,140

 

Total liabilities

 

 

266,958

 

 

 

197,852

 

Redeemable Series B preferred stock (liquidation preference of $64,020 as of

   January 31, 2020 and October 31, 2019)

 

 

59,857

 

 

 

59,857

 

Total equity:

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.0001 par value); 225,000,000 shares

   authorized as of January 31, 2020 and October 31, 2019;

   210,965,829 and 193,608,684 shares issued and outstanding as of January 31, 2020

   and October 31, 2019, respectively

 

 

21

 

 

 

19

 

Additional paid-in capital

 

 

1,180,499

 

 

 

1,151,454

 

Accumulated deficit

 

 

(1,115,240

)

 

 

(1,075,089

)

Accumulated other comprehensive loss

 

 

(696

)

 

 

(647

)

Treasury stock, Common, at cost (34,194 and 42,496 shares as of January 31, 2020

   and October 31, 2019, respectively)

 

 

(437

)

 

 

(466

)

Deferred compensation

 

 

437

 

 

 

466

 

Total stockholders’ equity

 

 

64,584

 

 

 

75,737

 

Total liabilities and stockholders' equity

 

$

391,399

 

 

$

333,446

 

 

See accompanying notes to consolidated financial statements

3

 


 

 

FUELCELL ENERGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

 

 

Three Months Ended January 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Product

 

$

 

 

$

 

Service and license

 

 

5,612

 

 

 

11,772

 

Generation

 

 

5,442

 

 

 

1,479

 

Advanced Technologies

 

 

5,210

 

 

 

4,532

 

Total revenues

 

 

16,264

 

 

 

17,783

 

Costs of revenues:

 

 

 

 

 

 

 

 

Product

 

 

2,016

 

 

 

3,422

 

Service and license

 

 

1,618

 

 

 

12,319

 

Generation

 

 

5,557

 

 

 

1,636

 

Advanced Technologies

 

 

3,792

 

 

 

2,611

 

Total costs of revenues

 

 

12,983

 

 

 

19,988

 

Gross profit (loss)

 

 

3,281

 

 

 

(2,205

)

Operating expenses:

 

 

 

 

 

 

 

 

Administrative and selling expenses

 

 

5,266

 

 

 

6,759

 

Research and development expenses

 

 

1,155

 

 

 

6,280

 

Total costs and expenses

 

 

6,421

 

 

 

13,039

 

Loss from operations

 

 

(3,140

)

 

 

(15,244

)

Interest expense

 

 

(3,277

)

 

 

(2,464

)

Change in fair value of common stock warrant liability

 

 

(34,245

)

 

 

 

Other income, net

 

 

531

 

 

 

160

 

Loss before provision for income taxes

 

 

(40,131

)

 

 

(17,548

)

Provision for income taxes

 

 

(20

)

 

 

 

Net loss

 

 

(40,151

)

 

 

(17,548

)

Series B preferred stock dividends

 

 

(931

)

 

 

(800

)

Series C preferred stock deemed dividends and redemption value adjustment

 

 

 

 

 

(9,005

)

Series D preferred stock deemed dividends and redemption accretion

 

 

 

 

 

(5,685

)

Net loss attributable to common stockholders

 

$

(41,082

)

 

$

(33,038

)

Loss per share basic and diluted:

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders

 

$

(0.20

)

 

$

(3.97

)

Basic and diluted weighted average shares outstanding

 

 

202,216,493

 

 

 

8,321,702

 

 

 

 

Three Months Ended January 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(40,151

)

 

$

(17,548

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(49

)

 

 

7

 

Total comprehensive loss

 

$

(40,200

)

 

$

(17,541

)

 

See accompanying notes to consolidated financial statements.

4

 


 

FUELCELL ENERGY, INC.

Consolidated Statements of Changes in Equity

(Unaudited)

(Amounts in thousands, except share amounts)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Deferred

Compensation

 

 

Total

Equity

 

Balance, October 31, 2019

 

 

193,608,684

 

 

$

19

 

 

$

1,151,454

 

 

$

(1,075,089

)

 

$

(647

)

 

$

(466

)

 

$

466

 

 

$

75,737

 

Share based compensation

 

 

 

 

 

 

 

 

488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

488

 

Orion warrant exercises

 

 

9,396,320

 

 

 

1

 

 

 

25,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,994

 

Sale of common stock, net of fees

 

 

7,938,228

 

 

 

1

 

 

 

3,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,502

 

Taxes paid upon vesting of restricted stock

   awards, net of stock issued under benefit

   plans

 

 

2,585

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

Preferred dividends — Series B

 

 

 

 

 

 

 

 

(931

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(931

)

Adjustment for deferred compensation

 

 

20,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

(29

)

 

 

-

 

Effect of foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49

)

 

 

 

 

 

 

 

 

(49

)

Net loss attributable to FuelCell Energy, Inc.

 

 

 

 

 

 

 

 

 

 

 

(40,151

)

 

 

 

 

 

 

 

 

 

 

 

(40,151

)

Balance, January 31, 2020

 

 

210,965,829

 

 

$

21

 

 

$

1,180,499

 

 

$

(1,115,240

)

 

$

(696

)

 

$

(437

)

 

$

437

 

 

$

64,584

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Deferred

Compensation

 

 

Total

Equity

 

Balance, October 31, 2018

 

 

7,972,686

 

 

$

1

 

 

$

1,073,463

 

 

$

(990,867

)

 

$

(403

)

 

$

(363

)

 

$

363

 

 

$

82,194

 

Share based compensation

 

 

 

 

 

 

 

 

987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

987

 

Fee adjustment for common stock issuance

 

 

 

 

 

 

 

 

90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90

 

Taxes paid upon vesting of restricted stock

   awards, net of stock issued under benefit

   plans

 

 

1,946

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 

Series C convertible preferred stock

   conversions

 

 

127,829

 

 

 

 

 

 

1,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,974

 

Series C convertible preferred stock

   adjustment for beneficial conversion feature

 

 

 

 

 

 

 

 

6,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,586

 

Series C convertible stock redemption value

   adjustments

 

 

 

 

 

 

 

 

(8,550

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,550

)

Series D convertible preferred stock

   conversions

 

 

932,144

 

 

 

 

 

 

4,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,334

 

Series D convertible preferred stock

   redemption accretion

 

 

 

 

 

 

 

 

(3,793

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,793

)

Preferred dividends — Series B

 

 

 

 

 

 

 

 

(800

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(800

)

Impact of the adoption of Topic 606

 

 

 

 

 

 

 

 

 

 

 

(6,654

)

 

 

 

 

 

 

 

 

 

 

 

(6,654

)

Effect of foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Net loss attributable to FuelCell Energy, Inc.

 

 

 

 

 

 

 

 

 

 

 

(17,548

)

 

 

 

 

 

 

 

 

 

 

 

(17,548

)

Balance, January 31, 2019

 

 

9,034,605

 

 

$

1

 

 

$

1,074,318

 

 

$

(1,015,069

)

 

$

(396

)

 

$

(363

)

 

$

363

 

 

$

58,854

 

 

See accompanying notes to consolidated financial statements.

5

 


 

FUELCELL ENERGY, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

 

 

 

Three Months Ended January 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(40,151

)

 

$

(17,548

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Share-based compensation

 

 

488

 

 

 

982

 

Loss from change in fair value of embedded derivatives

 

 

-

 

 

 

22

 

Depreciation and amortization

 

 

4,630

 

 

 

2,199

 

Change in fair value of common stock warrant liability

 

 

34,245

 

 

 

 

Gain on Series 1 preferred stock extinguishment

 

 

(475

)

 

 

 

Non-cash interest expense on preferred stock and debt obligations

 

 

1,591

 

 

 

1,574

 

Operating lease expense

 

 

156

 

 

 

 

Operating lease payments

 

 

(211

)

 

 

 

Unrealized foreign exchange gains

 

 

(84

)

 

 

(12

)

Other non-cash transactions, net

 

 

308

 

 

 

187

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,301

)

 

 

1,329

 

Unbilled receivables

 

 

554

 

 

 

(7,828

)

Inventories

 

 

(5,780

)

 

 

(1,227

)

Other assets

 

 

(1,141

)

 

 

139

 

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(2,481

)

 

 

(152

)

Accrued liabilities

 

 

(816

)

 

 

2,532

 

Deferred revenue

 

 

4,962

 

 

 

5,845

 

Net cash used in operating activities

 

 

(6,506

)

 

 

(11,958

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(64

)

 

 

(1,591

)

Project asset expenditures

 

 

(7,624

)

 

 

(12,633

)

Project asset acquisition

 

 

(611

)

 

 

 

Net cash used in investing activities

 

 

(8,299

)

 

 

(14,224

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(15,535

)

 

 

(1,610

)

Proceeds from debt, net of debt discount

 

 

66,862

 

 

 

17,250

 

Payment of deferred financing costs

 

 

(2,455

)

 

 

(485

)

Payment of preferred dividends and return of capital

 

 

(3,385

)

 

 

(1,036

)

Common stock issued for stock plans and related expenses

 

 

 

 

 

31

 

Proceeds from sale of common stock and warrant exercises, net

 

 

3,502

 

 

 

-

 

Net cash provided by financing activities

 

 

48,989

 

 

 

14,150

 

Effects on cash from changes in foreign currency rates

 

 

(49

)

 

 

7

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

34,135

 

 

 

(12,025

)

Cash, cash equivalents and restricted cash-beginning of period

 

 

39,778

 

 

 

80,239

 

Cash, cash equivalents and restricted cash-end of period

 

$

73,913

 

 

$

68,214

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash interest paid

 

$

558

 

 

$

827

 

Noncash financing and investing activity:

 

 

 

 

 

 

 

 

Series C preferred share conversions

 

 

 

 

 

1,974

 

Series D preferred share conversions

 

 

 

 

 

4,334

 

Operating lease liabilities

 

 

489

 

 

 

 

Operating lease right-of-use assets

 

 

489

 

 

 

 

Net noncash reclasses from project assets to inventory

 

 

2,756

 

 

 

 

Warrant exercises

 

 

25,994

 

 

 

 

Accrued purchase of fixed assets, cash to be paid in subsequent period

 

 

9

 

 

 

107

 

Accrued purchase of project assets, cash to be paid in subsequent period

 

 

495

 

 

 

2,050

 

 

See accompanying notes to consolidated financial statements.

 

6

 


 

FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

Note 1.  Nature of Business and Basis of Presentation

FuelCell Energy, Inc., together with its subsidiaries (the “Company”, “FuelCell Energy”, “we”, “us”, or “our”), is a leading integrated fuel cell company with a growing global presence in delivering environmentally-responsible distributed baseload power solutions through our proprietary, molten-carbonate fuel cell technology. We develop turn-key distributed power generation solutions and operate and provide comprehensive service for the life of the power plant. We are working to expand the proprietary technologies that we have developed over the past five decades into new products, markets and geographies. Our mission and purpose remains to utilize our proprietary, state-of-the-art fuel cell power plants to reduce the global environmental footprint of baseload power generation by providing environmentally responsible solutions for reliable electrical power, hot water, steam, chilling, hydrogen, micro-grid applications, and carbon capture.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information.  Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.  In the opinion of management, all normal and recurring adjustments necessary to fairly present the Company’s financial position and results of operations as of and for the three months ended January 31, 2020 and 2019 have been included.  All intercompany accounts and transactions have been eliminated.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.  The balance sheet as of October 31, 2019 has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto for the fiscal year ended October 31, 2019, which are contained in the Company’s Annual Report on Form 10-K previously filed with the SEC.  The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

Use of Estimates

The preparation of financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, contract loss accruals, excess, slow-moving and obsolete inventories, product warranty accruals, loss accruals on service agreements, share-based compensation expense, fair values, allowance for doubtful accounts, depreciation and amortization, impairment of goodwill and in-process research and development intangible assets, impairment of long-lived assets (including project assets), lease liabilities and right-of-use (“ROU”) assets and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Liquidity

 

The Company’s future liquidity will be dependent on its ability to (i) timely complete current projects in process within budget, including approved amounts that have been financed, as financing does not cover overages, (ii) increase cash flows from its generation portfolio, including by meeting conditions required to timely commence operations of new projects and operating its generation portfolio in compliance with minimum performance guarantees, (iii) obtain approval of and receive funding for project construction under its Credit Agreement with Orion Energy Partners Investment Agent, LLC and its affiliated lenders and meet conditions for release of funds, (iv) increase order and contract volumes, which would lead to additional product sales and services agreements, (v) obtain funding for and receive payment for research and development under current and future Advanced Technology contracts, including achieving a $5 million technological performance milestone under its Joint Development Agreement with ExxonMobil Research and Engineering Company (“EMRE”) during calendar year 2020, and (vi) implement the cost reductions necessary to achieve profitable operations. Our business model requires substantial outside financing arrangements and satisfaction of the conditions of such financing arrangements to deploy our projects and facilitate the growth of our business. If financing is not available to us on acceptable terms if and when needed, if we do not satisfy the conditions of our financing arrangements or if we spend more than the financing approved for projects, we may be required to reduce planned spending, sell assets, seek alternative financing and take other measures, which could have a material adverse effect on our financial condition and operations.

 

The key definitive agreements which support the Company’s future liquidity position include:

 

 

On October 31, 2019, the Company and certain of its subsidiaries as guarantors entered into a $200.0 million senior secured credit facility with Orion Energy Partners Investment Agent, LLC, as Administrative Agent and Collateral Agent (the “Agent”), and its affiliates, Orion Energy Credit Opportunities Fund II, L.P., Orion Energy Credit Opportunities Fund II GPFA, L.P., and Orion Energy Credit Opportunities Fund II PV, L.P., as lenders (the “Orion Facility”).  The Orion Facility is structured as a delayed draw term loan to be provided by the lenders.  In conjunction with the closing of the Orion Facility, on October 31, 2019, the Company drew down $14.5 million (the “Initial Funding”). The Company drew down an additional $65.5 million on November 22, 2019 (the “Second Funding”). The Company may draw the remainder of the Orion Facility, $120.0 million, over the first 18 months following the Initial Funding and subject to the Agent’s approval to fund: (i) construction costs, inventory and other capital expenditures of additional fuel cell projects with contracted cash flows (under power purchase agreements (“PPAs”) with creditworthy counterparties) that meet or exceed a mutually agreed coverage ratio; and (ii) inventory, working capital, and other costs that may be required to be delivered by the Company on purchase orders, service agreements, or other binding customer agreements with creditworthy counterparties.

7


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

 

 

On November 5, 2019, the Company signed a two-year Joint Development Agreement (“JDA”) with EMRE, pursuant to which the Company will continue 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 after certain technological milestones are met, and (b) certain licenses.

 

As of January 31, 2020, we had 14,034,171 shares of common stock available for issuance, of which 10,275,873 shares were reserved for issuance under various convertible securities, options, and warrants, under our stock purchase and incentive plans, and under our at-the-market sales plan. The limited number of shares available for issuance limits our ability to raise capital in the equity markets and satisfy obligations with shares instead of cash, which could adversely impact our ability to fund our business and operations.  We must obtain stockholder approval to increase the number of shares of common stock we are authorized to issue under our Certificate of Incorporation, as amended.  In our definitive proxy statement, which was filed on February 14, 2020, the Board of Directors has requested that our stockholders vote to approve a 112,500,000 increase in the number of authorized shares of common stock, which would bring the total number of authorized shares of common stock to 337,500,000.

 

While there can be no assurances, we anticipate raising additional required capital from new and existing investors and lenders. We expect to work with lenders and financial institutions to secure long-term debt, tax equity and sale-leasebacks for our project asset portfolio as we achieve the commercial operation dates for these projects. This financing, if received, may allow the Company to recycle capital from these projects by reinvesting the capital in other projects (subject to the approval of the lenders and the Agent under the Orion Facility) and to pay down the Orion Facility over time.  There can be no assurance that the Company can obtain such financing on terms acceptable to the Company or that the lenders and the Agent under the Orion Facility will consent to such financing.  If the Company is unable to obtain such financing or raise additional capital, the Company may reduce its expenditures or slow its project spending. If the Company cannot obtain such financing, cannot obtain such financing on terms acceptable to the Company, or cannot obtain the necessary consents to such financing under the Orion Facility, it would negatively impact the Company’s business model, operations, and liquidity.  It should also be noted that the lenders and the Agent under the Orion Facility have broad approval rights over our ability to draw, allocate and use funds from the Orion Facility, including funds in our unrestricted cash and cash equivalents accounts that are expected to be spent for project asset development and to satisfy service and maintenance obligations.

 

We believe that our cash flows from our existing backlog, including PPAs, service agreements and Advanced Technology contracts, combined with our current unrestricted cash and cash equivalents, cash which is expected to become unrestricted upon our performance of certain milestones under our financing agreements with PNC Energy Capital, LLC (“PNC”), and available borrowings under the Orion Facility will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Note 2.  Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

The Company adopted Accounting Standards Update Codification (“ASC”), “Leases” (“Topic 842” or “ASC 842”) on November 1, 2019.  ASC 842, including all the related amendments subsequent to its issuance, supersedes the prior guidance for lease accounting and requires lessees to recognize a ROU asset representing the right to use an underlying asset and a lease liability representing the obligation to make lease payments over the lease term for substantially all leases, as well as disclose key quantitative and qualitative information about leasing arrangements.  Upon adoption, the Company recognized an operating lease liability of approximately $10.3 million and corresponding operating lease ROU assets of approximately $10.1 million.  There was no cumulative effect of the adoption recorded to accumulated deficit. There was no significant net effect on the Consolidated Statements of Operations.  Refer to Note 11. “Leases” for additional information on the Company’s adoption of ASC 842.

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers (Topic 606)”.  The adoption of Topic 606 by the Company on November 1, 2018 using the modified retrospective transition method resulted in a cumulative effect adjustment that increased Accumulated deficit by $6.7 million.

Recent Accounting Guidance Not Yet Effective

There is no recent accounting guidance not yet effective that is expected to have a material impact on the financial statements when adopted.

8

 


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Note 3.  Revenue Recognition

Contract Balances

 

Contract assets as of January 31, 2020 and October 31, 2019 were $10.7 million and $11.3 million, respectively.  The contract assets relate to the Company’s rights to consideration for work completed but not billed. These amounts are included on a separate line item as Unbilled receivables, and balances expected to be billed later than one year from the balance sheet date are included within Other assets on the accompanying Consolidated Balance Sheets. The net change in contract assets represent amounts recorded as revenue offset by customer billings.

 

Contract liabilities as of January 31, 2020 and October 31, 2019 were $45.1 million and $40.2 million, respectively.  The contract liabilities relate to the advance billings to customers for services that will be recognized over time and in some instances for deferred revenue relating to license performance obligations that will be recognized at a future point in time.   These amounts are included within Deferred revenue and Long-term deferred revenue on the accompanying Consolidated Balance Sheets.  The net change in contract liabilities represents customer billings offset by revenue recorded.

Remaining Performance Obligations

Remaining performance obligations are the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied.  As of January 31, 2020, the Company’s total remaining performance obligations for service agreements, license agreements and Advanced Technologies contracts were $202.0 million.  License revenue recognized over time will be recognized over the remaining term of the applicable license agreement.  License revenue recognized at a point in time will be recognized when the first specified upgrade that has been developed is delivered and when the second specified upgrade is developed and delivered. Service revenue in periods in which there are no module replacements is expected to be relatively consistent from period to period, whereas module replacements will result in an increase in revenue when replacements occur. Advanced technologies revenue will be recognized as costs are incurred.

 

The Company has elected practical expedients in the accounting guidance that allow for revenue to be recorded in the amount that the Company has a right to invoice, if that amount corresponds directly with the value to the customer of the Company's performance to date, and not to disclose related unsatisfied performance obligations. Generation sales, to the extent the related power purchase agreements are within the scope of Topic 606, fall into this category, as these sales are recognized as revenue in the period the Company provides the electricity and completes the performance obligation, which is the same as the monthly amount billed to customers.  Revenue recognition for the Joint Development Agreement with EMRE also falls into this category where revenue is recorded consistent with the amounts invoiced for research performed.

Note 4.  Accounts Receivable, Net and Unbilled Receivables

Accounts receivable, net and Unbilled receivables as of January 31, 2020 and October 31, 2019 consisted of the following:

 

 

 

January 31,

 

 

October 31,

 

 

 

2020

 

 

2019

 

Commercial Customers:

 

 

 

 

 

 

 

 

Amount billed

 

$

3,790

 

 

$

2,227

 

Unbilled receivables (1)

 

 

5,770

 

 

 

6,139

 

 

 

 

9,560

 

 

 

8,366

 

Advanced Technologies (including U.S. government(2)):

 

 

 

 

 

 

 

 

Amount billed

 

 

1,803

 

 

 

1,065

 

Unbilled receivables

 

 

1,753

 

 

 

1,545

 

 

 

 

3,556

 

 

 

2,610

 

Accounts receivable, net and unbilled receivables

 

$

13,116

 

 

$

10,976

 

 

(1)

Additional long-term unbilled receivables of $3.2 million and $3.6 million are included within “Other Assets” as of January 31, 2020 and October 31, 2019, respectively.

(2)

Total U.S. government accounts receivable, including unbilled receivables, outstanding as of January 31, 2020 and October 31, 2019 were $2.0 million and $1.2 million, respectively.

Accounts receivable are presented net of an allowance for doubtful accounts. There was no allowance for doubtful accounts as of January 31, 2020 and October 31, 2019.  Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all collection efforts have failed and it is deemed unlikely that the amount will be recovered.

9

 


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Note 5.  Inventories

Inventories as of January 31, 2020 and October 31, 2019 consisted of the following:

 

 

 

January 31,

 

 

October 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

23,472

 

 

$

25,466

 

Work-in-process (1)

 

 

41,758

 

 

 

31,228

 

Inventories

 

$

65,230

 

 

$

56,694

 

 

(1)

Work-in-process includes the standard components of inventory used to build the typical modules or module components that are intended to be used in future project asset construction or power plant orders or for use under the Company’s service agreements.  Included in work-in-process as of January 31, 2020 and October 31, 2019 was $25.9 million and $23.5 million, respectively, of completed standard components.

Additional long-term inventory of $6.8 million as of January 31, 2020 includes modules that are contractually required to be segregated for use as replacement modules for two specific project assets, which are expected to be utilized beyond twelve months from January 31, 2020.  Long-term inventory of $2.2 million as of October 31, 2019 was for a module segregated for use as a replacement module for the Bridgeport Fuel Cell Project.

Raw materials consist mainly of various nickel powders and steels, various other components used in producing cell stacks and purchased components for balance of plant.  Work-in-process inventory is comprised of material, labor, and overhead costs incurred to build fuel cell stacks and modules, which are subcomponents of a power plant.

The Company incurred excess plant capacity and manufacturing variances of $1.7 million and $3.2 million for the three months ended January 31, 2020 and 2019, respectively, which were included within product cost of revenues on the Consolidated Statements of Operations.

Note 6.  Project Assets

Project assets as of January 31, 2020 and October 31, 2019 were $147.9 million and $144.1 million, respectively.  Project assets as of January 31, 2020 and October 31, 2019 included seven completed, commissioned installations generating power with respect to which the Company has a PPA with an aggregate carrying value of $56.3 million and $71.8 million as of January 31, 2020 and October 31, 2019, respectively.  Certain of these assets are the subject of sale-leaseback arrangements with PNC, which are accounted for under the financing method.  Project asset depreciation was approximately $2.6 million and $1.1 million for the three months ended January 31, 2020 and 2019, respectively.

The Project assets balance as of January 31, 2020 and October 31, 2019 also includes installations with an aggregate value of 76.1 million and $84.9 million, respectively, which are being developed and constructed by the Company under existing PPAs that have not been placed in service.

Project construction costs incurred for long-term project assets are reported as investing activities in the Consolidated Statements of Cash Flows. The proceeds received from the sale and subsequent leaseback of project assets are classified as “Cash flows from financing activities” within the Consolidated Statements of Cash Flows and are classified as a financing obligation within “Current portion of long-term debt” and “Long-term debt and other liabilities” on the Consolidated Balance Sheets (refer to Note 16. “Debt and Financing Obligation” for more information).

Note 7.  Goodwill and Intangible Assets

As of January 31, 2020 and October 31, 2019, the Company had goodwill of $4.1 million that was recorded in connection with the 2012 acquisition of Versa Power Systems, Inc. (“Versa”) and intangible assets of $20.9 million and $21.3 million, respectively, that were recorded in connection with the 2012 Versa acquisition and the 2019 Bridgeport Fuel Cell Project acquisition. The Versa intangible asset consists of indefinite-lived in-process research and development intangible assets (“IPR&D”) for cumulative research and development efforts associated with the development of solid oxide fuel cells stationary power generation. The Company recorded $12.3 million as an intangible asset during fiscal year 2019 in connection with the Bridgeport Fuel Cell Project acquisition in May 2019 related to an acquired PPA that had favorable terms.  The balance for the PPA intangible asset was $11.3 million and $11.7 million as of January 31, 2020 and October 31, 2019, respectively.  Amortization expense for the Bridgeport Fuel Cell Project related intangible asset for the three months ended January 31, 2020 was $0.3 million.

10

 


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Note 8.  Other Current Assets

Other current assets as of January 31, 2020 and October 31, 2019 consisted of the following:

 

 

 

January 31,

 

 

October 31,

 

 

 

2020

 

 

2019

 

Advance payments to vendors (1)

 

$

2,658

 

 

$

1,899

 

Prepaid expenses and other