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6

 

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, 2021

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 12, 2021:  322,429,123

 

 

 


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, 2021 and October 31, 2020.

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended January 31, 2021 and 2020.

 

4

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity for the three months ended January 31, 2021 and 2020.

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended January 31, 2021 and 2020.

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements.

 

7

 

 

 

 

 

Item 2.

 

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

 

21

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk.

 

35

 

 

 

 

 

Item 4.

 

Controls and Procedures.

 

35

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings.

 

36

 

 

 

 

 

Item 1A.

 

Risk Factors.

 

37

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

38

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities.

 

39

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures.

 

39

 

 

 

 

 

Item 5.

 

Other Information.

 

39

 

 

 

 

 

Item 6.

 

Exhibits.

 

40

 

 

 

 

 

Signatures

 

 

 

42

 

 

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,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents, unrestricted

 

$

178,570

 

 

$

149,867

 

Restricted cash and cash equivalents - short-term

 

 

12,252

 

 

 

9,233

 

Accounts receivable, net

 

 

10,021

 

 

 

9,563

 

Unbilled receivables

 

 

8,243

 

 

 

8,041

 

Inventories

 

 

61,901

 

 

 

50,971

 

Other current assets

 

 

7,422

 

 

 

6,306

 

Total current assets

 

 

278,409

 

 

 

233,981

 

Restricted cash and cash equivalents - long-term

 

 

18,772

 

 

 

32,952

 

Inventories - long-term

 

 

4,586

 

 

 

8,986

 

Project assets

 

 

164,593

 

 

 

161,809

 

Property, plant and equipment, net

 

 

35,304

 

 

 

36,331

 

Operating lease right-of-use assets, net

 

 

8,524

 

 

 

10,098

 

Goodwill

 

 

4,075

 

 

 

4,075

 

Intangible assets, net

 

 

19,643

 

 

 

19,967

 

Other assets

 

 

18,488

 

 

 

15,339

 

Total assets

 

$

552,394

 

 

$

523,538

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

14,594

 

 

$

21,366

 

Current portion of operating lease liabilities

 

 

955

 

 

 

939

 

Accounts payable

 

 

8,034

 

 

 

9,576

 

Accrued liabilities

 

 

10,763

 

 

 

15,681

 

Deferred revenue

 

 

18,728

 

 

 

10,399

 

Preferred stock obligation of subsidiary

 

 

 

 

 

938

 

Total current liabilities

 

 

53,074

 

 

 

58,899

 

Long-term deferred revenue

 

 

25,579

 

 

 

31,501

 

Long-term preferred stock obligation of subsidiary

 

 

 

 

 

18,265

 

Long-term operating lease liabilities

 

 

8,327

 

 

 

9,817

 

Long-term debt and other liabilities

 

 

78,051

 

 

 

150,651

 

Total liabilities

 

 

165,031

 

 

 

269,133

 

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

   January 31, 2021 and October 31, 2020)

 

 

59,857

 

 

 

59,857

 

Total equity:

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.0001 par value); 337,500,000 shares authorized as of January 31, 2021 and October 31, 2020; 322,412,296 and 294,706,758 shares issued and outstanding as of January 31, 2021 and October 31, 2020, respectively

 

 

32

 

 

 

29

 

Additional paid-in capital

 

 

1,538,311

 

 

 

1,359,454

 

Accumulated deficit

 

 

(1,210,156

)

 

 

(1,164,196

)

Accumulated other comprehensive loss

 

 

(681

)

 

 

(739

)

Treasury stock, Common, at cost (58,080 and 56,411 shares as of January 31, 2021

   and October 31, 2020, respectively)

 

 

(462

)

 

 

(432

)

Deferred compensation

 

 

462

 

 

 

432

 

Total stockholders’ equity

 

 

327,506

 

 

 

194,548

 

Total liabilities and stockholders' equity

 

$

552,394

 

 

$

523,538

 

 

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,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Product

 

$

 

 

$

 

Service and license

 

 

4,913

 

 

 

5,612

 

Generation

 

 

4,891

 

 

 

5,442

 

Advanced Technologies

 

 

5,073

 

 

 

5,210

 

Total revenues

 

 

14,877

 

 

 

16,264

 

Costs of revenues:

 

 

 

 

 

 

 

 

Product

 

 

2,366

 

 

 

2,016

 

Service and license

 

 

5,099

 

 

 

1,618

 

Generation

 

 

7,115

 

 

 

5,557

 

Advanced Technologies

 

 

3,915

 

 

 

3,792

 

Total costs of revenues

 

 

18,495

 

 

 

12,983

 

Gross (loss) profit

 

 

(3,618

)

 

 

3,281

 

Operating expenses:

 

 

 

 

 

 

 

 

Administrative and selling expenses

 

 

8,932

 

 

 

5,266

 

Research and development expenses

 

 

1,823

 

 

 

1,155

 

Total costs and expenses

 

 

10,755

 

 

 

6,421

 

Loss from operations

 

 

(14,373

)

 

 

(3,140

)

Interest expense

 

 

(2,545

)

 

 

(3,277

)

Loss on extinguishment of debt

 

 

(11,156

)

 

 

 

Loss on extinguishment of preferred stock obligation of subsidiary

 

 

(934

)

 

 

 

Change in fair value of common stock warrant liability

 

 

(15,974

)

 

 

(34,245

)

Other (expense) income, net

 

 

(978

)

 

 

531

 

Loss before provision for income taxes

 

 

(45,960

)

 

 

(40,131

)

Provision for income taxes

 

 

 

 

 

(20

)

Net loss

 

 

(45,960

)

 

 

(40,151

)

Series B preferred stock dividends

 

 

(800

)

 

 

(931

)

Net loss attributable to common stockholders

 

$

(46,760

)

 

$

(41,082

)

Loss per share basic and diluted:

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders

 

$

(0.15

)

 

$

(0.20

)

Basic and diluted weighted average shares outstanding

 

 

312,109,888

 

 

 

202,216,493

 

 

 

 

Three Months Ended January 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(45,960

)

 

$

(40,151

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

58

 

 

 

(49

)

Total comprehensive loss

 

$

(45,902

)

 

$

(40,200

)

 

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, 2020

 

 

294,706,758

 

 

$

29

 

 

$

1,359,454

 

 

#

 

$

(1,164,196

)

 

$

(739

)

 

$

(432

)

 

$

432

 

 

$

194,548

 

Sale of common stock, net of fees

 

 

25,000,000

 

 

 

3

 

 

 

156,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

156,366

 

Orion warrant exercises

 

 

2,700,000

 

 

 

 

 

 

21,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,824

 

Common stock issued, non-employee compensation

 

 

2,734

 

 

 

 

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

Stock issued under benefit plans, net of taxes paid upon vesting        of restricted stock awards

 

 

4,521

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Share based compensation

 

 

 

 

 

 

 

 

1,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,417

 

Preferred dividends — Series B

 

 

 

 

 

 

 

 

(800

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(800

)

Effect of foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58

 

 

 

 

 

 

 

 

 

58

 

Adjustment for deferred compensation

 

 

(1,669

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

30

 

 

 

 

Release of a share reserve

 

 

(48

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(45,960

)

 

 

 

 

 

 

 

 

 

 

 

(45,960

)

Balance, January 31, 2021

 

 

322,412,296

 

 

$

32

 

 

$

1,538,311

 

 

 

 

$

(1,210,156

)

 

$

(681

)

 

$

(462

)

 

$

462

 

 

$

327,506

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

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

 

 

 

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,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(45,960

)

 

$

(40,151

)

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

 

 

 

 

 

 

 

 

Share-based compensation

 

 

1,417

 

 

 

488

 

Depreciation and amortization

 

 

5,604

 

 

 

4,630

 

Change in fair value of common stock warrant liability

 

 

15,974

 

 

 

34,245

 

Non-cash charge for extinguishment of preferred stock obligation of subsidiary

 

 

934

 

 

 

(475

)

Non-cash interest expense on preferred stock and debt obligations

 

 

1,566

 

 

 

1,591

 

Non-cash charge for extinguishment of debt

 

 

7,156

 

 

 

 

Operating lease expense

 

 

378

 

 

 

156

 

Operating lease payments

 

 

(284

)

 

 

(211

)

Unrealized foreign currency losses (gains)

 

 

848

 

 

 

(84

)

Other non-cash transactions, net

 

 

628

 

 

 

308

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(458

)

 

 

(2,301

)

Unbilled receivables

 

 

(3,466

)

 

 

554

 

Inventories

 

 

(8,602

)

 

 

(5,780

)

Other assets

 

 

(954

)

 

 

(1,141

)

(Decrease) Increase in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(1,887

)

 

 

(2,481

)

Accrued liabilities

 

 

(5,618

)

 

 

(816

)

Deferred revenue, royalty & license fee income

 

 

2,407

 

 

 

4,962

 

Net cash used in operating activities

 

 

(30,317

)

 

 

(6,506

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(204

)

 

 

(64

)

Project asset expenditures

 

 

(4,387

)

 

 

(7,624

)

Project asset acquisition

 

 

 

 

 

(611

)

Net cash used in investing activities

 

 

(4,591

)

 

 

(8,299

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(82,292

)

 

 

(15,535

)

Proceeds from debt, net of debt discount

 

 

 

 

 

66,862

 

Payment of deferred financing costs

 

 

 

 

 

(2,455

)

Common stock issued for stock plans and related expenses

 

 

8

 

 

 

 

Payment of preferred dividends and return of capital

 

 

(800

)

 

 

(3,385

)

Repayment of preferred stock obligation of subsidiary

 

 

(21,541

)

 

 

 

Common stock issuance, net of fees

 

 

156,363

 

 

 

 

Proceeds from sale of common stock and warrant exercises, net

 

 

654

 

 

 

3,502

 

Net cash provided by financing activities

 

 

52,392

 

 

 

48,989

 

Effects on cash from changes in foreign currency rates

 

 

58

 

 

 

(49

)

Net increase in cash, cash equivalents and restricted cash

 

 

17,542

 

 

 

34,135

 

Cash, cash equivalents and restricted cash-beginning of period

 

 

192,052

 

 

 

39,778

 

Cash, cash equivalents and restricted cash-end of period

 

$

209,594

 

 

$

73,913

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash interest paid and early prepayment charge

 

$

8,185

 

 

$

558

 

Noncash financing and investing activity:

 

 

 

 

 

 

 

 

Operating lease liabilities

 

 

1,336

 

 

 

489

 

Operating lease right-of-use assets

 

 

1,336

 

 

 

489

 

Net noncash reclassifications from project assets to inventory

 

 

2,072

 

 

 

2,756

 

Warrant exercises

 

 

21,170

 

 

 

25,994

 

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

 

 

47

 

 

 

9

 

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

 

 

839

 

 

 

495

 

 

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. Founded in 1969, FuelCell Energy is a manufacturer of clean fuel cell power platforms delivering power and thermal energy and capable of delivering hydrogen, long-duration hydrogen energy storage, and carbon capture applications. We develop turn-key distributed power generation solutions and operate and provide comprehensive service for the life of the power plant. FuelCell Energy is focused on growing its global presence in delivering environmentally responsible distributed baseload power solutions through its proprietary, molten-carbonate and solid oxide fuel cell technologies. We are working to expand the proprietary technologies that we have developed over the past five decades into new product platforms, applications, markets and geographies. Our mission and purpose is to utilize our proprietary, state-of-the-art fuel cell platforms to enable a world empowered by clean energy and contribute to climate change mitigation. FuelCell Energy’s platforms are capable of reducing the global environmental footprint of baseload power generation by providing environmentally responsible solutions for reliable electrical power, distributed hydrogen, electrolysis, long-duration hydrogen-based energy storage, carbon capture, microgrid applications, hot water, steam, and chilling. Our customer base includes utility companies, municipalities, universities, hospitals, government entities/military bases and a variety of industrial and commercial enterprises. Our leading geographic markets are currently the United States and South Korea, and we are pursuing opportunities in other countries around the world.

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, 2021 and 2020 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, 2020 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, 2020, 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 in conformity with GAAP 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. 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, 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. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

Liquidity

 

Our principal sources of cash have been sales of our common stock through public equity offerings, proceeds from third party debt such as borrowings under our credit facilities, project financing and tax monetization transactions, proceeds from the sale of our projects as well as research and development and service and license agreements with third parties. We have utilized this cash to develop and construct power plants, perform research and development on Advanced Technologies, pay down existing outstanding indebtedness, and meet our other cash and liquidity needs.

 

As of January 31, 2021, unrestricted cash and cash equivalents totaled $178.6 million compared to $149.9 million as of October 31, 2020.

 

In December 2020, the Company closed an underwritten offering of 25.0 million shares of the Company’s common stock. Net proceeds to the Company were approximately $156.4 million after deducting underwriting discounts and commissions and other offering expensesProceeds from this offering have been utilized as follows:

 

 

Extinguishment of Senior Secured Debt: On December 7, 2020, the Company paid $87.3 million to settle the outstanding principal, accrued but unpaid interest, prepayment premium, fees, costs and other expenses due and owing to the Orion Agent and the lenders under the Orion Facility and the Orion Credit Agreement (in each case as defined elsewhere herein) and related loan documents. Concurrently, the Orion Agent released all of the collateral from the liens granted under the security documents associated with the Orion Facility, which included the release of $11.2 million of restricted cash to the Company.

7


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

 

Extinguishment of the Series 1 Preferred Shares: On December 17, 2020, the Company paid all amounts owed to Enbridge Inc. (“Enbridge”) under the Series 1 Preferred Shares (as defined elsewhere herein), totaling Cdn. $27.4 million, or approximately $21.5 million in U.S. dollars. Following such payment, Enbridge surrendered its shares in FCE Ltd. (as defined elsewhere herein) and the related Guarantee and January 2020 Letter Agreement (in each case, as defined elsewhere herein) were terminated.

 

Working Capital: The remaining $47.5 million of proceeds from the offering was included in unrestricted cash and may be used to accelerate the development and commercialization of our solid oxide platform and for project development, project financing, debt service, working capital support and other general corporate purposes.

 

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 portfolio, including by meeting conditions required to timely commence operation of new projects, operating its generation portfolio in compliance with minimum performance guarantees and operating its generation 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 and to successfully commercialize our Advanced Technologies platforms, including our solid oxide platform, (vii) implement the product cost reductions necessary to achieve profitable operations, (viii) manage working capital and the Company's unrestricted cash balance and (ix) access the capital markets to raise funds through the sale of equity securities, convertible notes, and other equity-linked instruments, all of which will require an increase in authorized shares, and/or other debt instruments.

 

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 lower-cost 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 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.

 

As of January 31, 2021, we had 15,093,242 shares of common stock available for issuance, excluding treasury stock, of which 5,185,674 shares were reserved for issuance under various warrants and equity awards, upon conversion of preferred stock, and under our employee stock purchase and equity incentive plans. The limited number of shares of our common stock available for issuance will limit our ability to raise capital in the equity markets and satisfy obligations with shares instead of cash, which could adversely affect our business and operations. We are seeking stockholder approval to increase the number of shares of common stock we are authorized to issue at the Company’s Annual Meeting of Stockholders on April 8, 2021, but such approval may not be obtained.

Note 2.  Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13 (ASU 2016-13), “Measurement of Credit Losses (Topic 326) on Financial Instruments,” which replaces the existing incurred impairment model for trade receivables with an expected loss model which requires the use of forward-looking information to calculate expected credit loss estimates. The Company adopted ASU 2016-13 as of November 1, 2020, which had no impact on the Company’s Consolidated Financial Statements.

 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 Company’s financial statements when adopted.

Note 3.  Revenue Recognition

Contract Balances

 

Contract assets as of January 31, 2021 and October 31, 2020 were $20.4 million and $16.9 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 represents amounts recognized as revenue offset by customer billings.

 

8


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

Contract liabilities as of January 31, 2021 and October 31, 2020 were $44.3 million and $41.9 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. The Company has discontinued revenue recognition of the deferred license revenue related to the terminated POSCO Energy License Agreements (as defined elsewhere herein) given the pending arbitration and will continue to evaluate this deferred revenue in future periods (for more information, refer to Note 18. “Commitment and Contingencies”). As of January 31, 2021, $22.2 million related to the terminated POSCO Energy License Agreements is included within Long-term deferred revenue on the accompanying Consolidated Balance Sheets. The net change in contract liabilities represents customer billings offset by revenue recognized.

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, 2021, the Company’s total remaining performance obligations for service agreements were $141.7 million, for license agreements were $22.2 million and for Advanced Technologies contracts were $44.1 million in the aggregate. 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.

Note 4.  Accounts Receivable, Net and Unbilled Receivables

Accounts receivable, net and Unbilled receivables as of January 31, 2021 and October 31, 2020 consisted of the following (in thousands):

 

 

 

January 31,

 

 

October 31,

 

 

 

2021

 

 

2020

 

Commercial Customers:

 

 

 

 

 

 

 

 

Amount billed

 

$

8,409

 

 

$

7,329

 

Unbilled receivables (1)

 

 

7,262

 

 

 

7,063

 

 

 

 

15,671

 

 

 

14,392

 

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

 

 

 

 

 

 

 

 

Amount billed

 

 

1,612

 

 

 

2,234

 

Unbilled receivables

 

 

981

 

 

 

978

 

 

 

 

2,593

 

 

 

3,212

 

Accounts receivable, net and unbilled receivables

 

$

18,264

 

 

$

17,604

 

 

(1)

Additional long-term unbilled receivables of $12.1 million and $8.9 million are included within “Other Assets” as of January 31, 2021 and October 31, 2020, respectively.

(2)

Total U.S. government accounts receivable, including unbilled receivables, outstanding as of January 31, 2021 and October 31, 2020 were $1.0 million and $1.1 million, respectively.

 

We bill customers for power platform and power platform component sales based on certain contractual milestones being reached. We bill service agreements based on the contract price and billing terms of the contracts. Generally, our Advanced Technologies contracts are billed based on actual revenues recorded, typically in the subsequent month. Some Advanced Technologies contracts are billed based on contractual milestones or costs incurred. Unbilled receivables relate to revenue recognized on customer contracts that have not been billed.

The Company had no allowance for doubtful accounts as of January 31, 2021 and October 31, 2020. 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.

Note 5.  Inventories

Inventories (short and long-term) as of January 31, 2021 and October 31, 2020 consisted of the following (in thousands):

 

 

 

January 31,

 

 

October 31,

 

 

 

2021

 

 

2020

 

Raw materials

 

$

25,776

 

 

$

21,726

 

Work-in-process (1)