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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 July 31, 2017

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

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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

  (Do not check if a smaller reporting company)

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 $.0001 per share, outstanding as of September 6, 2017:  61,485,741

 


 

FUELCELL ENERGY, INC.

FORM 10-Q

Table of Contents

 

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of July 31, 2017 and October 31, 2016

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended July 31, 2017 and 2016

 

4

 

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the nine months ended July 31, 2017 and 2016

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended July 31, 2017 and 2016

 

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

 

37

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

39

 

 

 

 

 

Item 1A.

 

Risk Factors

 

39

 

 

 

 

 

Item 6.

 

Exhibits

 

54

 

 

2


FUELCELL ENERGY, INC.

Consolidated Balance Sheets

(Unaudited)

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

 

  

 

July 31,

 

 

October 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents, unrestricted

 

$

35,683

 

 

$

84,187

 

Restricted cash and cash equivalents - short-term

 

 

4,605

 

 

 

9,437

 

Accounts receivable, net

 

 

26,316

 

 

 

24,593

 

Inventories

 

 

71,984

 

 

 

73,806

 

Other current assets

 

 

6,011

 

 

 

10,181

 

Total current assets

 

 

144,599

 

 

 

202,204

 

Restricted cash and cash equivalents - long-term

 

 

33,480

 

 

 

24,692

 

Project assets

 

 

67,201

 

 

 

47,111

 

Property, plant and equipment, net

 

 

41,876

 

 

 

36,640

 

Goodwill

 

 

4,075

 

 

 

4,075

 

Intangible asset

 

 

9,592

 

 

 

9,592

 

Other assets

 

 

16,445

 

 

 

16,415

 

Total assets

 

$

317,268

 

 

$

340,729

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

21,738

 

 

$

5,010

 

Accounts payable

 

 

8,757

 

 

 

18,475

 

Accrued liabilities

 

 

13,122

 

 

 

20,900

 

Deferred revenue

 

 

8,971

 

 

 

6,811

 

Preferred stock obligation of subsidiary

 

 

862

 

 

 

802

 

Total current liabilities

 

 

53,450

 

 

 

51,998

 

Long-term deferred revenue

 

 

19,430

 

 

 

20,974

 

Long-term preferred stock obligation of subsidiary

 

 

14,380

 

 

 

12,649

 

Long-term debt and other liabilities

 

 

70,338

 

 

 

80,855

 

Total liabilities

 

 

157,598

 

 

 

166,476

 

Redeemable preferred stock (liquidation preference of $64,020 as of July 31, 2017 and

   October 31, 2016)

 

 

59,857

 

 

 

59,857

 

Total equity:

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.0001 par value); 125,000,000 and 75,000,000 shares

   authorized as of July 31, 2017 and October 31, 2016, respectively;

   60,972,037 and 35,174,424 shares issued and outstanding as of July 31, 2017

   and October 31, 2016, respectively

 

 

6

 

 

 

4

 

Additional paid-in capital

 

 

1,033,744

 

 

 

1,004,566

 

Accumulated deficit

 

 

(933,554

)

 

 

(889,630

)

Accumulated other comprehensive loss

 

 

(383

)

 

 

(544

)

Treasury stock, Common, at cost (88,861 and 21,527 shares as of July 31, 2017

   and October 31, 2016, respectively)

 

 

(280

)

 

 

(179

)

Deferred compensation

 

 

280

 

 

 

179

 

Total shareholders’ equity

 

 

99,813

 

 

 

114,396

 

Total liabilities and shareholders' equity

 

$

317,268

 

 

$

340,729

 

 

See accompanying notes to consolidated financial statements.

3


FUELCELL ENERGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts in thousands, except share, per share and related party revenue amounts)

 

 

Three Months Ended July 31,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Product (including $0.1 million and $12.0 million of related party revenues)

 

$

611

 

 

$

13,681

 

Service and license (including $1.3 million and $2.3 million of related party revenues)

 

 

4,809

 

 

 

4,280

 

Generation

 

 

1,690

 

 

 

200

 

Advanced technologies

 

 

3,248

 

 

 

3,555

 

Total revenues

 

 

10,358

 

 

 

21,716

 

Costs of revenues:

 

 

 

 

 

 

 

 

Product

 

 

4,266

 

 

 

13,740

 

Service and license

 

 

4,453

 

 

 

4,087

 

Generation

 

 

1,500

 

 

 

197

 

Advanced technologies

 

 

2,765

 

 

 

3,258

 

Total costs of revenues

 

 

12,984

 

 

 

21,282

 

Gross (loss) profit

 

 

(2,626

)

 

 

434

 

Operating expenses:

 

 

 

 

 

 

 

 

Administrative and selling expenses

 

 

6,310

 

 

 

5,458

 

Research and development expenses

 

 

5,394

 

 

 

5,299

 

Total costs and expenses

 

 

11,704

 

 

 

10,757

 

Loss from operations

 

 

(14,330

)

 

 

(10,323

)

Interest expense

 

 

(2,279

)

 

 

(1,373

)

Other (expense) income, net

 

 

(393

)

 

 

749

 

Loss before provision for income taxes

 

 

(17,002

)

 

 

(10,947

)

Benefit (provision) for income taxes

 

 

1

 

 

 

(120

)

Net loss

 

 

(17,001

)

 

 

(11,067

)

Net loss attributable to noncontrolling interest

 

 

 

 

 

57

 

Net loss attributable to FuelCell Energy, Inc.

 

 

(17,001

)

 

 

(11,010

)

Preferred stock dividends

 

 

(800

)

 

 

(800

)

Net loss attributable to common shareholders

 

$

(17,801

)

 

$

(11,810

)

Loss per share basic and diluted:

 

 

 

 

 

 

 

 

Net loss per share attributable to common shareholders

 

$

(0.31

)

 

$

(0.38

)

Basic and diluted weighted average shares outstanding

 

 

57,420,050

 

 

 

31,015,658

 

 

 

 

Three Months Ended July 31,

 

 

 

2017

 

 

2016

 

Net loss

 

 

(17,001

)

 

 

(11,067

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

199

 

 

 

(228

)

Total comprehensive loss

 

$

(16,802

)

 

$

(11,295

)

 

See accompanying notes to consolidated financial statements.

4


FUELCELL ENERGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts in thousands, except share, per share and related party revenue amounts)

 

 

Nine Months Ended July 31,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Product (including $0.4 million and $37.3 million of related party revenues)

 

$

3,155

 

 

$

54,178

 

Service and license (including $4.2 million and $6.9 million of related party revenues)

 

 

24,337

 

 

 

20,840

 

Generation

 

 

5,409

 

 

 

533

 

Advanced technologies

 

 

14,876

 

 

 

8,228

 

Total revenues

 

 

47,777

 

 

 

83,779

 

Costs of revenues:

 

 

 

 

 

 

 

 

Product

 

 

11,525

 

 

 

53,247

 

Service and license

 

 

22,878

 

 

 

21,527

 

Generation

 

 

3,909

 

 

 

596

 

Advanced technologies

 

 

9,895

 

 

 

8,298

 

Total costs of revenues

 

 

48,207

 

 

 

83,668

 

Gross (loss) profit

 

 

(430

)

 

 

111

 

Operating expenses:

 

 

 

 

 

 

 

 

Administrative and selling expenses

 

 

18,797

 

 

 

18,939

 

Research and development expenses

 

 

16,172

 

 

 

15,720

 

Restructuring expense

 

 

1,355

 

 

 

 

Total costs and expenses

 

 

36,324

 

 

 

34,659

 

Loss from operations

 

 

(36,754

)

 

 

(34,548

)

Interest expense

 

 

(6,856

)

 

 

(3,200

)

Other expense, net

 

 

(270

)

 

 

(110

)

Loss before provision for income taxes

 

 

(43,880

)

 

 

(37,858

)

Provision for income taxes

 

 

(44

)

 

 

(402

)

Net loss

 

 

(43,924

)

 

 

(38,260

)

Net loss attributable to noncontrolling interest

 

 

 

 

 

165

 

Net loss attributable to FuelCell Energy, Inc.

 

 

(43,924

)

 

 

(38,095

)

Preferred stock dividends

 

 

(2,400

)

 

 

(2,400

)

Net loss attributable to common shareholders

 

$

(46,324

)

 

$

(40,495

)

Loss per share basic and diluted:

 

 

 

 

 

 

 

 

Net loss per share attributable to common shareholders

 

$

(1.01

)

 

$

(1.41

)

Basic and diluted weighted average shares outstanding

 

 

45,903,033

 

 

 

28,680,596

 

 

 

 

Nine Months Ended July 31,

 

 

 

2017

 

 

2016

 

Net loss

 

 

(43,924

)

 

 

(38,260

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

161

 

 

 

(26

)

Total comprehensive loss

 

$

(43,763

)

 

$

(38,286

)

 

See accompanying notes to consolidated financial statements.

5


FUELCELL ENERGY, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

 

 

Nine Months Ended July 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(43,924

)

 

$

(38,260

)

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

 

 

 

 

 

 

 

 

Share-based compensation

 

 

3,432

 

 

 

2,530

 

Loss (gain) from change in fair value of embedded derivatives

 

 

94

 

 

 

(16

)

Depreciation

 

 

6,502

 

 

 

3,583

 

Interest expense on preferred stock and debt obligations

 

 

4,607

 

 

 

2,193

 

Unrealized foreign exchange losses

 

 

1,052

 

 

 

41

 

Other non-cash transactions, net

 

 

165

 

 

 

303

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,296

)

 

 

26,590

 

Inventories

 

 

(5,460

)

 

 

(12,450

)

Project assets

 

 

 

 

(15,459

)

Other assets

 

 

85

 

 

 

108

 

(Decrease) increase in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(8,147

)

 

 

(196

)

Accrued liabilities

 

 

(7,547

)

 

 

(145

)

Deferred revenue

 

 

616

 

 

 

(15,333

)

Net cash used in operating activities

 

 

(57,821

)

 

 

(46,511

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(10,469

)

 

 

(3,962

)

Project asset expenditures

 

 

(12,796

)

 

 

(6,505

)

Cash acquired from asset acquisition

 

 

633

 

 

 

 

Net cash used in investing activities

 

 

(22,632

)

 

 

(10,467

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(7,467

)

 

 

(9,549

)

Proceeds from debt

 

 

17,891

 

 

 

44,781

 

Payment of deferred financing costs

 

 

(119

)

 

 

(994

)

Payment of preferred dividends and return of capital

 

 

(3,102

)

 

 

(3,125

)

Cash received for common stock issued for stock plans

 

 

86

 

 

 

177

 

Proceeds from sale of common stock, prefunded warrants and warrant exercises, net

 

 

28,455

 

 

 

68,785

 

Net cash provided by financing activities

 

 

35,744

 

 

 

100,075

 

Effects on cash from changes in foreign currency rates

 

 

161

 

 

 

(26

)

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

 

 

(44,548

)

 

 

43,071

 

Cash, cash equivalents and restricted cash-beginning of period

 

 

118,316

 

 

 

85,740

 

Cash, cash equivalents and restricted cash-end of period

 

$

73,768

 

 

$

128,811

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash interest paid

 

$

2,022

 

 

$

1,295

 

Noncash financing and investing activity:

 

 

 

 

 

 

 

 

Common stock issued for Employee Stock Purchase Plan in settlement of prior

   year accrued employee contributions

 

$

50

 

 

$

105

 

Noncash reclass of inventory to project assets

 

$

7,282

 

 

 

 

Assumption of debt in conjunction with asset acquisition

 

$

2,289

 

 

$

 

Acquisition of project assets

 

$

2,386

 

 

$

 

Accrued purchase of fixed assets, cash paid in subsequent period

 

$

1,581

 

 

$

453

 

Accrued purchase of project assets, cash paid in subsequent period

 

$

2,597

 

 

$

 

 

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.  We design, manufacture, install, operate and service ultra-clean, efficient and reliable stationary fuel cell power plants.  Our SureSource power plants predictably generate electricity and usable high quality heat for commercial, industrial, government and utility customers.  We have commercialized our stationary carbonate fuel cells and are also pursuing the complementary development of planar solid oxide fuel cells and other fuel cell technologies.  Our operations are funded primarily through sales of equity instruments to strategic investors or in public markets, corporate and project level debt financing and local or state government loans or grants.  In order to produce positive cash flow from operations, we need to be successful at increasing annual order volume and production and in our cost reduction efforts.

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 our financial position and results of operations as of and for the three and nine months ended July 31, 2017  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 accounting principles generally accepted in the United States of America have been condensed or omitted.  The balance sheet as of October 31, 2016 has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended October 31, 2016, which are contained in our 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.

Certain reclassifications have been made to conform to the current year presentation.  The Company has adopted Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest effective January 31, 2017, and retrospective application is required which resulted in a reclassification in our Consolidated Balance Sheet as of October 31, 2016 of $0.3 million of debt issuance costs from Current assets to be a direct deduction from Current portion of long-term debt and a reclassification in our Consolidated Balance Sheet as of October 31, 2016 of $1.1 million of debt issuance costs from Other assets, net to be a direct deduction from Long-term debt and other liabilities. The Company has also early adopted ASU 2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash” effective October 31, 2016 and has applied a retrospective transition method.  Accordingly, Restricted cash and cash equivalents has been reclassified as a component of “Cash, cash equivalents, and restricted cash” in the Consolidated Statement of Cash Flows for nine months ended July 31, 2016.  The Company has also included an additional line item, “Generation,” in the “Revenues” and “Cost of revenues” sections of the Statements of Operations to include revenues generated from the Company’s project assets (refer to the Revenue Recognition section below for more information).  The prior year amounts associated with power purchase agreements have been reclassified to the new “Generation” line item.

Revenue Recognition

We earn revenue from (i) the sale and installation of fuel cell power plants (ii) the sale of component part kits, modules and spare parts to customers, (iii) site engineering and construction services, (iv) performance under long-term service agreements, (v) the sale of electricity and other value streams under power purchase agreements (“PPAs”) and project assets retained by the Company under sales-leaseback transactions, (vi) license fees and royalty income from manufacturing and technology transfer agreements, and (vii) government and customer-sponsored advanced technology projects.

7


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

Given the growing revenue related to PPAs and project assets retained by the Company, beginning in the first quarter of 2017, the Company began classifying such revenues in a separate line item called Generation, and prior period amounts have been reclassified.  As further clarification, revenue elements are classified as follows:

Product. Includes the sale and installation of fuel cell power plants, the sale of component part kits, modules and spare parts to customers, and site engineering and construction services.

Service and license. Includes performance under long-term service agreements for power plants owned by third parties and license fees and royalty income from manufacturing and technology transfer agreements.

Generation. Includes the sale of electricity under PPAs and project assets retained by the Company, and revenue received from the sale of other value streams from these assets including the sale of heat, steam and renewable energy credits.

Advanced technologies. Includes revenue from customer-sponsored and government-sponsored advanced technology projects that is recorded as “Advanced technologies” revenues in the Consolidated Statements of Operations.

Our revenue is primarily generated from customers located throughout the U.S., Europe and Asia and from agencies of the U.S. Government.

For customer contracts for complete SureSource power plants, with which the Company has adequate cost history and estimating experience, and with respect to which management believes it can reasonably estimate total contract costs, revenue is recognized under the percentage of completion method of accounting. The use of percentage of completion accounting requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed, anticipated increases in wages and prices for subcontractor services and materials, and the availability of subcontractor services and materials. Our estimates are based upon the professional knowledge and experience of our engineers, project managers and other personnel, who review each long-term contract on a quarterly basis to assess the contract’s schedule, performance, technical matters and estimated cost at completion. When changes in estimated contract costs are identified, such revisions may result in current period adjustments to operations applicable to performance in prior periods. Revenues are recognized based on the percentage of the contract value that incurred costs to date bear to estimated total contract costs, after giving effect to estimates of costs to complete based on most recent information. For customer contracts for new or significantly customized products, where management does not believe it has the ability to reasonably estimate total contract costs, revenue is recognized using the completed contract method and therefore all revenue and costs for the contract are deferred and not recognized until installation and acceptance of the power plant is complete. We recognize anticipated contract losses as soon as they become known and estimable.  Actual results could vary from initial estimates and estimates will be updated as conditions change.  Site engineering and construction services revenue is recognized on a percentage of completion basis as costs are incurred.

Revenue from fuel cell kits, modules and spare parts sales is recognized upon shipment or title transfer under the terms of the customer contract. Terms for certain contracts provide for a transfer of title and risk of loss to our customers at our factory locations upon completion of our contractual requirement to produce products and prepare the products for shipment. A shipment in place may occur in the event that the customer is not ready to take delivery of the products on the contractually specified delivery dates.

Revenue from service agreements is generally recorded ratably over the term of the service agreement, as our performance of routine monitoring and maintenance under these service agreements is generally expected to be incurred on a straight-line basis.  For service agreements where we expect to have a module exchange at some point during the term (generally service agreements in excess of five years), the costs of performance are not expected to be incurred on a straight-line basis, and therefore, a portion of the initial contract value related to the module exchange is deferred and is recognized upon such module replacement event.

The Company receives license fees and royalty income from POSCO Energy (“POSCO”) as a result of manufacturing and technology transfer agreements entered into in 2007, 2009 and 2012.  The Cell Technology Transfer Agreement we entered into on October 31, 2012 provides POSCO with a technology license to manufacture SureSource power plants in South Korea.  On March 17, 2017, the Company entered into a Memorandum of Understanding (“2017 MOU”) with POSCO to engage in discussions to further amend the above referenced agreements and other agreements between the parties, as well as engaging in discussions relating to entering into new agreements to further the parties mutual interests. The 2017 MOU contemplates that POSCO will continue to service the existing installed base of fuel cell plants in South Korea.  In addition, the 2017 MOU contemplates entering into a module procurement agreement with POSCO that the Company anticipates will provide that POSCO will commit to a specified level of module purchases from the Company to supplement its own local manufacturing for servicing its existing fleet. Definitive agreements are expected to be finalized in 2017 subject to completion of due diligence, regulatory approvals, and customary closing conditions.

8


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

Pursuant to the 2017 MOU, the Company commenced marketing the entire suite of SureSource solutions in South Korea as well as the broader Asian markets for the supply, recovery and storage of energy.

Under PPAs and project assets retained by the Company, revenue from the sale of electricity and other value streams is recognized as electricity is provided to the customer.  These revenues are classified as a component of generation revenues.

Advanced technologies contracts include both private industry and government entities.  Revenue from most government sponsored advanced technology projects is recognized as direct costs are incurred plus allowable overhead less cost share requirements, if any.  Revenue from fixed price advanced technology projects is recognized using percentage of completion accounting. Advanced technology programs are often multi-year projects or structured in phases with subsequent phases dependent on reaching certain milestones prior to additional funding being authorized.  Government contracts are typically structured with cost-reimbursement and/or cost-shared type contracts or cooperative agreements. We are reimbursed for reasonable and allocable costs up to the reimbursement limits set by the contract or cooperative agreement, and on certain contracts we are reimbursed only a portion of the costs incurred.

Use of Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. 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, excess, slow-moving and obsolete inventories, product warranty costs, accruals for service agreements, allowance for uncollectible receivables, depreciation and amortization, impairment of goodwill, indefinite-lived intangible assets and long-lived assets, income taxes, 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.

Related Parties

POSCO is a related party and owned approximately 4.0% of the outstanding common shares of the Company as of July 31, 2017.  Revenues from POSCO for the three months ended July 31, 2017 and 2016 represent 13% and 65%, respectively, of consolidated revenues and revenues from POSCO for the nine months ended July 31, 2017 and 2016 represent 9% and 52%, respectively, of consolidated revenues.

NRG Energy, Inc. (“NRG”) is a related party and owned approximately 2.0% of the outstanding common shares of the Company as of July 31, 2017.  NRG Yield is a dividend growth-oriented company formed by NRG that owns, operates and acquires a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the United States.  Revenues from NRG and NRG Yield for the three months ended July 31, 2017 and 2016 represent 0.6% and 0.3%, respectively, of consolidated revenues and revenues form NRG and NRG Yield for the nine months ended July 31, 2017 and 2016 represent 0.4% and 0.2%, respectively, of consolidated revenues.

Recent Developments

Production Rate Adjustment:  In June 2017, the Company reduced its production to approximately fifteen megawatts on an annualized basis. This adjustment was made to manage inventory levels, prepare to transition to new product introductions and complete certain building expansion activities. From June through September 2017 approximately 110 manufacturing employees will work shortened work weeks. The Company is participating in the State of Connecticut’s “Shared Work Program” allowing affected employees to collect unemployment benefits for days they do not work.  This production level is anticipated to be temporary and will be reevaluated as order flow dictates.

Note 2.  Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

In October 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash.”  The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash

9


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  The Company early-adopted ASU 2016-18 as of October 31, 2016 using the retrospective transition method.  Accordingly, the Consolidated Statement of Cash Flows for the nine months ended July 31, 2016 has been revised to include Restricted cash and cash equivalents as a component of “cash, cash equivalents, and restricted cash.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This ASU simplifies the presentation of debt issuance costs by requiring that such costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt instrument, consistent with debt discounts. The Company has adopted ASU 2015-03 effective January 31, 2017 and retrospective application is required which resulted in a reclassification in our Consolidated Balance Sheet as of October 31, 2016 of $0.3 million of debt issuance costs from Current assets to be a direct deduction from “Current portion of long-term debt” and a reclassification in our Consolidated Balance Sheet as of October 31, 2016 of $1.1 million of debt issuance costs from “Other assets” to be a direct deduction from Long-term debt and other liabilities.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations.”  ASU 2017-01 was issued to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  The Company has elected to early adopt ASU 2017-01 effective November 1, 2016.

Recent Accounting Guidance Not Yet Effective

In February 2016, the FASB issued ASU 2016-02, “Leases” which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. This ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (first quarter of fiscal year 2020 for the Company). Early adoption is permitted. The Company has both operating and capital leases (refer to Note 16. Commitments and contingences) as well as sale-leasebacks accounted for under the finance method and may have other arrangements that contain embedded leases as characterized in this ASU.  We expect this will result in the recognition of right-of-use assets and lease liabilities not currently recorded in our consolidated financial statements under existing accounting guidance, however we are still evaluating all of the Company’s contractual arrangements and the impact that adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This topic provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers. The principles in this ASU should be applied to all contracts with customers regardless of industry. The amendments in this ASU are effective for fiscal years, and interim periods within those years beginning after December 15, 2016, with two transition methods of adoption allowed. Early adoption for reporting periods prior to December 15, 2016 is not permitted. In March 2015, the FASB voted to defer the effective date by one year to fiscal years, and interim periods within those fiscal years beginning after December 15, 2017 (first quarter of fiscal year 2019 for the Company), but allow adoption as of the original adoption date.  The Company has numerous different revenue sources including the sale and installation of fuel cell power plants, site engineering and construction services, sale of modules and spare parts, extended warranty service agreements, sale of electricity under power purchase agreements, license fees and royalty income from manufacturing and technology transfer agreements and customer-sponsored advanced technology projects.  This requires application of various revenue recognition methods under current accounting guidance.  Although we anticipate that, upon adoption of this new ASU the timing of revenue recognition for certain of our revenue sources might change, we are still evaluating the financial statement impacts of the guidance in this ASU and determining which transition method we will utilize. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606).”  This topic provides narrow-scope improvements and practical expedients regarding collectability, presentation of sales tax collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and other technical corrections.  We have initiated a review of the contracts for our significant revenue streams to understand the impact of the adoption of this ASU.

10


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

Note 3.  Restructuring

On November 30, 2016, a business restructuring was announced to reduce costs and align production levels with current levels of demand in a manner that is consistent with the Company’s long-term strategic plan.

The Company reduced materials spend as well as implemented various cost control initiatives.  The workforce was reduced at both the North American production facility in Torrington, Connecticut, as well as at the corporate offices in Danbury, Connecticut and remote locations. A total of 96 positions, or approximately 17% of the Company’s global workforce, were eliminated.  The production rate was reduced to twenty-five megawatts annually, from the prior rate of fifty megawatts annually, in order to position for delays in anticipated order flow.  This production level is anticipated to be temporary and will be reevaluated as order flow dictates, with any future increases being undertaken from what is now a lower cost basis (refer to Note 1. Nature of Business and Basis of Presentation for further information on production rate reductions).  Restructuring expense relating to eliminated positions of $1.4 million has been recorded for the nine months ended July 31, 2017, which has been presented on a separate caption in the Consolidated Statement of Operations.

Note 4.  Accounts Receivable

Accounts receivable as of July 31, 2017 and October 31, 2016 consisted of the following:

 

 

 

July 31,

 

 

October 31,

 

 

 

2017

 

 

2016

 

Commercial Revenue:

 

 

 

 

 

 

 

 

Amount billed

 

$

3,494

 

 

$

5,411

 

Unbilled recoverable costs (2)

 

 

11,590

 

 

 

13,651

 

 

 

 

15,084

 

 

 

19,062

 

Advanced Technology (including U.S. Government(1)):

 

 

 

 

 

 

 

 

Amount billed

 

 

2,231

 

 

 

2,463

 

Unbilled recoverable costs

 

 

9,001

 

 

 

3,068

 

 

 

 

11,232

 

 

 

5,531

 

Accounts receivable, net

 

$

26,316

 

 

$

24,593

 

 

(1)

Total U.S. Government accounts receivable outstanding as of July 31, 2017 and October 31, 2016 were $3.7 million and $2.2 million, respectively.

(2)

Additional unbilled recoverable costs of $13.0 million and $5.7 million are included within “Other assets” as of July 31, 2017 and October 31, 2016, respectively.

We bill customers for power plant 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 technology contracts are billed based on actual recoverable costs incurred, typically in the month subsequent to incurring costs.  Some advanced technology contracts are billed based on contractual milestones or costs incurred.  Unbilled recoverable costs relate to revenue recognized on customer contracts that have not been billed.  Accounts receivable are presented net of an allowance for doubtful accounts of $0.1 million and $0.2 million as of July 31, 2017 and October 31, 2016, respectively.  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.

Accounts receivable from commercial customers (including unbilled recoverable costs) included amounts due from POSCO of $2.0 million and $5.0 million as of July 31, 2017 and October 31, 2016, respectively and amounts due from NRG and NRG Yield of $0.02 million and $0.1 million as of July 31, 2017 and October 31, 2016, respectively. 

11


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

Note 5.  Inventories

The components of inventories as of July 31, 2017 and October 31, 2016 consisted of the following:

 

 

 

July 31,

 

 

October 31,

 

 

 

2017

 

 

2016

 

Raw materials

 

$

22,525

 

 

$

25,286

 

Work-in-process (1)

 

 

49,459

 

 

 

48,520

 

Inventories

 

$

71,984

 

 

$

73,806

 

 

(1)

Included in work-in-process as of July 31, 2017 and October 31, 2016 was $40.1 million and $40.6 million, respectively, of completed standard components.

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 balance of plant components, fuel cell stacks and modules, which are subcomponents of a power plant.

Raw materials and work in process are net of a valuation allowance of approximately $0.2 million as of July 31, 2017 and October 31, 2016.

Note 6.  Project Assets

Project assets as of July 31, 2017 and October 31, 2016 were $67.2 million and $47.1 million, respectively.  Project assets as of July 31, 2017 include $31.4 million which represents four completed, commissioned installations where we have a PPA with the end-user of power and site host.  These assets are the subject of sale-leaseback arrangements with PNC Energy Capital, LLC (“PNC”), which are recorded under the financing method of accounting for a sale-leaseback.  Under the finance method, the Company does not recognize the proceeds received from the lessor as a sale of such assets.  The Project assets balance also includes assets aggregating $32.4 million which are being constructed by the Company under PPAs which have been executed or are expected to be executed in fiscal year 2017.

In November 2016, the Company’s wholly-owned subsidiary, FuelCell Energy Finance, LLC (“FuelCell Finance”) entered into a membership interest purchase agreement with GW Power LLC (“Seller”) whereby FuelCell Finance purchased all of the outstanding membership interests in New Britain Renewable Energy, LLC (“NBRE”) from Seller.  Seller assigned the NBRE interest to FuelCell Finance free and clear of all liens other than a pledge in favor of Webster Bank, National Association.  The Company adopted ASU 2017-01 which resulted in the transaction being accounted for as an asset acquisition of a power plant with a fair value of $2.3 million ($2.0 million as of July 31, 2017) which has been classified as a long-term project asset in support of an Energy Purchase Agreement.

Project construction costs incurred for the 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 14 for more information).

12


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

Note 7.  Other Current Assets

Other current assets as of July 31, 2017 and October 31, 2016 consisted of the following:

 

 

 

July 31,

 

 

October 31,

 

 

 

2017

 

 

2016

 

Advance payments to vendors (1)

 

$

800

 

 

$

1,247

 

Deferred finance costs (2)

 

 

129

 

 

 

152

 

Notes receivable (3)

 

 

 

 

 

1,007

 

Prepaid expenses and other (4)

 

 

5,082

 

 

 

7,775

 

Other current assets

 

$

6,011

 

 

$

10,181

 

 

(1)

Advance payments to vendors relate to payments for inventory purchases ahead of receipt.

(2)

Represents the current portion of direct deferred finance costs that relate primarily to securing a $40.0 million loan facility with NRG which is being amortized over the five-year life of the facility.

(3)

Notes receivable were included in the consideration paid for the acquired fuel cell power plant discussed in Note 6.

(4)

Primarily relates to other prepaid vendor expenses including insurance, rent and lease payments.

Note 8.  Goodwill and Intangible Asset

 

As of July 31, 2017 and October 31, 2016, the Company had goodwill of $4.1 million and an intangible asset of $9.6 million associated with the December 2012 acquisition of Versa Power Systems.  The intangible asset represents indefinite lived in-process research and development for cumulative research and development efforts associated with the development of solid oxide fuel cells (SOFC) stationary power generation.    

 

The Company completed its annual impairment analysis of goodwill and in-process research and development assets as of July 31, 2017.   The Company performed a quantitative assessment in the prior year and determined that the estimated fair value of the reporting unit and in-process research and development intangible asset exceeded the respective carrying value and therefore no impairment was recognized as of July 31, 2016.  The Company performed a qualitative assessment for the current year and determined that it was more likely than not that there was no impairment of goodwill or the indefinite lived intangible asset.    

 

Note 9.  Other Assets

Other assets as of July 31, 2017 and October 31, 2016 consisted of the following:

 

  

 

July 31,

 

 

October 31,

 

 

 

2017

 

 

2016

 

Long-term accounts receivable (1)

 

$

 

 

$

8,353

 

Long-term stack residual value (2)

 

 

657

 

 

 

 

Deferred finance costs (3)

 

 

129

 

 

 

225

 

Long-term unbilled recoverable costs (4)

 

 

13,032

 

 

 

5,714

 

Other (5)

 

 

2,627

 

 

 

2,123

 

Other assets

 

$

16,445

 

 

$

16,415

 

 

(1)

The balance as of October 31, 2016 represents receivables, which were subsequently collected and relate to project and stack replacement reserve accounts for a sale-leaseback transaction.  As of July 31, 2017, the funds were recorded as long-term restricted cash.

(2)

Relates to estimated residual value for module exchanges performed under the Company’s service agreements where the useful life extends beyond the contractual term of the service agreement and the Company obtains title for the module from the customer upon expiration or non-renewal of the service agreement.  If the Company does not obtain rights to title from the customer, the full cost of the module is expensed at the time of the module exchange.  The increase from October 31, 2016 represents residual value for two module replacements performed during the nine months ended July 31, 2017.

(3)

Represents the long-term portion of direct deferred finance costs relating to the Company’s loan facility with NRG which is being amortized over the five-year life of the facility.

13


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

(4)

Represents unbilled recoverable costs that relate to revenue recognized on customer contracts that will be billed in future periods in excess of twelve months from July 31, 2017.

(5)

The Company entered into an agreement with one of its customers on June 29, 2016 which includes a fee for the purchase of the plants at the end of the term of the agreement.  The option fee is payable in installments over the term of the agreement and the total paid as of July 31, 2017 was $1.4 million.  Also included within other are long-term security deposits.

Note 10.  Accrued Liabilities

Accrued liabilities as of July 31, 2017 and October 31, 2016 consisted of the following:

 

 

 

July 31,

 

 

October 31,

 

 

 

2017

 

 

2016

 

Accrued payroll and employee benefits

 

$

4,311

 

 

$

4,183

 

Accrued contract loss

 

 

29

 

 

 

 

Accrued product warranty cost (1)

 

 

226

 

 

 

516

 

Accrued material purchases (2)

 

 

3,199

 

 

 

6,908

 

Accrued service agreement costs (3)

 

 

3,076

 

 

 

6,030

 

Accrued taxes, legal, professional and other

 

 

2,281

 

 

 

3,263

 

Accrued liabilities

 

$

13,122

 

 

$

20,900

 

 

(1)

Activity in the accrued product warranty costs for the nine months ended July 31, 2017 included additions for estimates of future warranty obligations of $0.5 million on contracts in the warranty period and reductions related to actual warranty spend of $0.8 million as contracts progress through the warranty period or are beyond the warranty period.

(2)

The Company acts as a procurement agent for POSCO under an Integrated Global Supply Chain Agreement whereby the Company procures materials on POSCO’s behalf for its Asian production facility.  This liability represents amounts received for the purchase of materials on behalf of POSCO.  Amounts due to vendors is recorded as “Accounts payable.”

(3)

Activity in service agreement costs represents a decrease in loss accruals on service contracts of $1.8 million from $2.7 million as of October 31, 2016 to $0.9 million as of July 31, 2017.  The decrease primarily relates to module exchanges performed during the nine months ended July 31, 2017.  The accruals for performance guarantees also decreased from $3.3 million as of October 31, 2016 to $2.1 million as of July 31, 2017 resulting from guarantee payments to customers partially offset by additional accruals for the minimum output falling below the contract requirements for certain service agreements.

Note 11.  Shareholders’ Equity

Changes in shareholders’ equity

Changes in shareholders’ equity were as follows for the nine months ended July 31, 2017:

 

 

 

Total

Shareholders’

Equity

 

Balance as of October 31, 2016

 

$

114,396

 

Share-based compensation

 

 

3,432

 

Sale of common stock, net

 

 

12,427

 

Sale of common stock and warrants, public offering

 

 

13,888

 

Warrant exercises

 

 

1,782

 

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

 

 

51

 

Preferred dividends – Series B

 

 

(2,400

)

Other comprehensive income -  foreign currency translation adjustments

 

 

161

 

Net loss

 

 

(43,924

)

Balance as of July 31, 2017

 

$

99,813

 

 

14


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

Common Stock Sales

The Company may sell common stock on the open market from time to time under an effective shelf registration statement.  The proceeds of these sales is used for general corporate purposes or to pay obligations related to the outstanding Series 1 preferred shares of our subsidiary, FCE FuelCell Energy, Ltd., and the Company’s outstanding Series B preferred shares. During the nine months ended July 31, 2017, the Company sold 7.2 million shares of the Company’s common stock at prevailing market prices through periodic trades on the open market and raised approximately $12.4 million, net of fees.

Public Offering and Outstanding Warrants

On May 3, 2017, the Company completed an underwritten public offering of (i) 12,000,000 shares of its common stock, (ii) Series C warrants to purchase 12,000,000 shares of its common stock and (iii) Series D warrants to purchase 12,000,000 shares of its common stock, for gross proceeds of approximately $15.4 million, at a public offering price of $1.28 per share and accompanying warrants. Total net proceeds to the Company were approximately $13.9 million.  The Series C warrants have an exercise price of $1.28 per share and a term of one year.  The Series D warrants have an exercise price of $1.60 per share and a term of five years.  A total of 1,377,540 shares of common stock were issued during the third quarter of fiscal year 2017 upon the exercise of Series D warrants and the Company received total proceeds of $1.8 million.

On July 12, 2016, the Company closed on a registered public offering of securities to a single institutional investor pursuant to a placement agent agreement with J.P. Morgan Securities LLC.  In conjunction with the offering the Company issued 7,680,000 Series A Warrants, all of which remained outstanding as of July 31, 2017, at an exercise price of $5.83 per share.  The Company also issued 4,926,000 prefunded Series B Warrants.  There were 3,826,000 prefunded Series B Warrants outstanding as of October 31, 2016, all of which were exercised during the nine months ended July 31, 2017.

On July 30, 2014, the Company issued a warrant to NRG in conjunction with the entry into a Securities Purchase Agreement for the sale of common stock.  Pursuant to the warrant agreement, NRG had the right to purchase up to 0.2 million shares of the Company’s common stock at an exercise price of $40.20 per share. The warrants expired on July 30, 2017.

Note 12.  Loss Per Share

The calculation of basic and diluted loss per share was as follows:

 

 

 

Three Months Ended July 31,

 

 

Nine Months Ended July 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(17,001

)

 

$

(11,067

)

 

$

(43,924

)

 

$

(38,260

)

Net loss attributable to noncontrolling interest

 

 

 

 

 

57

 

 

 

 

 

 

165

 

Preferred stock dividend

 

 

(800

)

 

 

(800

)

 

 

(2,400

)

 

 

(2,400

)

Net loss attributable to common shareholders

 

$

(17,801

)

 

$

(11,810

)

 

$

(46,324

)

 

$

(40,495

)

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic common shares

 

 

57,420,050

 

 

 

31,015,658

 

 

 

45,903,033

 

 

 

28,680,596

 

Effect of dilutive securities (1)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted common shares

 

 

57,420,050

 

 

 

31,015,658

 

 

 

45,903,033

 

 

 

28,680,596

 

Basic loss per share

 

$

(0.31

)

 

$

(0.38

)

 

$

(1.01

)

 

$

(1.41

)

Diluted loss per share (1)

 

$

(0.31

)

 

$

(0.38

)

 

$

(1.01

)

 

$

(1.41

)

15


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

 

 

(1)

Due to the net loss to common shareholders in each of the periods presented above, diluted loss per share was computed without consideration to potentially dilutive instruments as their inclusion would have been antidilutive.  As of July 31, 2017 and 2016, potentially dilutive securities excluded from the diluted loss per share calculation are as follows:

 

 

 

July 31,

 

 

July 31,

 

 

 

2017

 

 

2016

 

May 2017 Offering - Series C Warrants

 

 

12,000,000

 

 

 

 

May 2017 Offering - Series D Warrants

 

 

10,622,460

 

 

 

 

July 2016 Offering - Series A Warrants

 

 

7,680,000

 

 

 

7,680,000

 

July 2016 Offering - Series B Warrants

 

 

 

 

 

4,926,000

 

July 2014 Offering - NRG Warrant

 

 

 

 

 

166,666

 

Outstanding options to purchase common stock

 

 

316,330

 

 

 

247,776

 

Unvested Restricted Stock Awards

 

 

2,004,330

 

 

 

910,079

 

5% Series B Cumulative Convertible Preferred Stock

 

 

454,043

 

 

 

454,043

 

Series 1 Preferred Shares to satisfy conversion requirements

 

 

15,166

 

 

 

15,166

 

Total potentially dilutive securities

 

 

33,092,329

 

 

 

14,399,730

 

 

Refer to Note 12, Redeemable Preferred Stock, which is included in our Annual Report on Form 10-K for the year ended October 31, 2016, for information on the calculation of the common shares upon conversion.

Note 13.  Restricted Cash

As of July 31, 2017, there was $38.1 million of restricted cash and cash equivalents pledged as collateral for letters of credit for certain banking requirements and contractual commitments, compared to $34.1 million of restricted cash and cash equivalents pledged as of October 31, 2016. The restricted cash balance for both periods presented includes $15.0 million which has been placed in a Grantor’s Trust account to secure certain obligations under a 15-year service agreement and has been classified as long-term.  The restricted cash balance as of July 31, 2017 also includes $17.0 million to support obligations related to PNC sale-leaseback transactions.  As of July 31, 2017 and October 31, 2016, outstanding letters of credit totaled $2.9 million and $7.9 million, respectively.  These expire on various dates through April 2019.

Note 14.  Debt and Finance Obligation

Debt as of July 31, 2017 and October 31, 2016, consisted of the following:

 

 

 

July 31,

 

 

October 31,