# Fuelcell Energy Inc: Form 10-Q for the period ended Jul 31, 2022

- Company: [Fuelcell Energy Inc](/companies/fcel.md) (CIK 886128)
- Form: 10-Q
- Filed: 2022-09-08
- Accepted by EDGAR: Sep 8, 2022, 07:38 ET
- Period: 2022-07-31
- Accession: 0001558370-22-014267
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/886128/000155837022014267/fcel-20220731x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/886128/000155837022014267/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-07-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-05-01 to 2022-07-31 | $43.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2021-11-01 to 2022-07-31 | $91.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-05-01 to 2022-07-31 | $47.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2021-11-01 to 2022-07-31 | $105.7m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2022-05-01 to 2022-07-31 | $9.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2021-11-01 to 2022-07-31 | $22.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-05-01 to 2022-07-31 | $14.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2021-11-01 to 2022-07-31 | $64.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-05-01 to 2022-07-31 | −$28.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-11-01 to 2022-07-31 | −$101.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-05-01 to 2022-07-31 | $1.6m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2021-11-01 to 2022-07-31 | $4.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-05-01 to 2022-07-31 | $494.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-11-01 to 2022-07-31 | $494.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-05-01 to 2022-07-31 | −$29.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-11-01 to 2022-07-31 | −$100.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-05-01 to 2022-07-31 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2021-11-01 to 2022-07-31 | −$0.27 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-05-01 to 2022-07-31 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2021-11-01 to 2022-07-31 | −$0.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-05-01 to 2022-07-31 | 387,465,758 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-11-01 to 2022-07-31 | 375,638,293 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2021-11-01 to 2022-07-31 | −$88.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2021-11-01 to 2022-07-31 | $15.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2022-07-31 | $456.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-07-31 | $579.5m | us-gaap:AssetsCurrent |
| Total assets | at 2022-07-31 | $944.4m | us-gaap:Assets |
| Current liabilities | at 2022-07-31 | $80.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-07-31 | $184.8m | us-gaap:Liabilities |
| Current portion of debt | at 2022-07-31 | $9.8m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2022-07-31 | $690.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 111,716 characters.

### FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains both historical statements and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and assumptions. The statements contained in this report that are not purely historical are forward-looking statements that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions and strategies for the future. When used in this report, the words “expects,” “anticipates,” “estimates,” “goals,” “projects,” “intends,” “plans,” “believes,” “predicts,” “should,” “will,” “could,” “would,” “may,” “forecast,” and similar expressions and variations of such words are intended to identify forward-looking statements. Such statements relate to, among other things, the following: (i) the development and commercialization by FuelCell Energy, Inc. and its subsidiaries of fuel cell technology and products and the market for such products; (ii) expected operating results such as revenue growth and earnings; (iii) our belief that we have sufficient liquidity to fund our business operations for the next 12 months; (iv) future funding under Advanced Technologies contracts; (v) future financing for projects, including equity and debt investments by investors and commercial bank financing, as well as overall financial market conditions; (vi) the expected cost competitiveness of our technology; and (vii) our ability to achieve our sales plans, market access and market expansion goals, and cost reduction targets.

The forward-looking statements contained in this report are subject to risks and uncertainties, known and unknown, that could cause actual results and future events to differ materially from those set forth in or contemplated by the forward-looking statements, including, without limitation, the risks described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021 and in the section below entitled “Item 1A. Risk Factors,” and the following risks and uncertainties: general risks associated with product development and manufacturing; general economic conditions; changes in interest rates, which may impact project financing; supply chain disruptions; changes in the utility regulatory environment; changes in the utility industry and the markets for distributed generation, distributed hydrogen, and fuel cell power plants configured for carbon capture or carbon separation; potential volatility of commodity and energy prices that may adversely affect our projects; availability of government subsidies and economic incentives for alternative energy technologies; our ability to remain in compliance with U.S. federal and state and foreign government laws and regulations and the listing rules of The Nasdaq Stock Market (“Nasdaq”); rapid technological change; competition; the risk that our bid awards will not convert to contracts or that our contracts will not convert to revenue; market acceptance of our products; changes in accounting policies or practices adopted voluntarily or as required by accounting principles generally accepted in the United States; factors affecting our liquidity position and financial condition; government appropriations; the ability of the government and third parties to terminate their development contracts at any time; the ability of the government to exercise “march-in” rights with respect to certain of our patents; our ability to successfully market and sell our products internationally; our ability to implement our strategy; our ability to reduce our levelized cost of energy and deliver on our cost reduction strategy generally; our ability to protect our intellectual property; litigation and other proceedings; the risk that commercialization of our products will not occur when anticipated or, if it does, that we will not have adequate capacity to satisfy demand; our need for and the availability of additional financing; our ability to generate positive cash flow from operations; our ability to service our long-term debt; our ability to increase the output and longevity of our platforms and to meet the performance requirements of our contracts; our ability to expand our customer base and maintain relationships with our largest customers and strategic business allies; changes by the U.S. Small Business Administration or other governmental authorities to, or with respect to the implementation or interpretation of, the Coronavirus Aid, Relief, and Economic Security Act, the Paycheck Protection Program or related administrative matters; and concerns with, threats of, or the consequences of, pandemics, contagious diseases or health epidemics, including the novel coronavirus (“COVID-19”), and resulting supply chain disruptions, shifts in clean energy demand, impacts to our customers’ capital budgets and investment plans, impacts to our project schedules, impacts to our ability to service existing projects, and impacts on the demand for our products.

We cannot assure you that: we will be able to meet any of our development or commercialization schedules; any of our new products or technologies, once developed, will be commercially successful; our SureSource power plants will be commercially successful; we will be able to obtain financing or raise capital to achieve our business plans; the government will appropriate the funds anticipated by us under our government contracts; the government will not exercise its right to terminate any or all of our government contracts; or we will be able to achieve any other result anticipated in any other forward-looking statement contained herein.

Investors are cautioned that forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond our ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to the accompanying financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. 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, as well as management’s assessment of the Company’s ability to meet its obligations as they come due over the next twelve months. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, 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, and in management’s assessment of the Company’s ability to meet its obligations as they come due over the next twelve months. 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. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021 filed with the Securities and Exchange Commission (“SEC”). Unless otherwise indicated, the terms “Company”, “FuelCell Energy”, “we”, “us”, and “our” refer to FuelCell Energy, Inc. and its subsidiaries. All tabular dollar amounts are in thousands.

### OVERVIEW

FuelCell Energy is a global leader in sustainable clean energy technologies that address some of the world’s most critical challenges around energy, safety, and global urbanization. As a leading global manufacturer of proprietary fuel cell technology platforms, we are uniquely positioned to serve customers worldwide with sustainable products and solutions for businesses, utilities, governments, and municipalities. Our solutions are designed to enable a world empowered by clean energy, enhancing the quality of life for people around the globe. We target large-scale power users with our megawatt-class installations globally, and currently offer sub-megawatt solutions for smaller power consumers in Europe. To provide a frame of reference, one megawatt is adequate to continually power approximately 1,000 average sized U.S. homes. Our customer base includes utility companies, municipalities, universities, hospitals, government entities/military bases and a variety of industrial and commercial enterprises. Our leading geographic markets are currently the United States and Korea, and we are pursuing opportunities in other countries around the world.

FuelCell Energy, based in Connecticut, was founded in 1969 as a New York corporation to provide applied research and development services on a contract basis. We completed our initial public offering in 1992 and reincorporated in Delaware in 1999. We began selling stationary fuel cell power plants commercially in 2003.

### RESULTS OF OPERATIONS

Management evaluates our results of operations and cash flows using a variety of key performance indicators, including revenues compared to prior periods and internal forecasts, costs of our products and results of our cost reduction initiatives, and operating cash use. These are discussed throughout the “Results of Operations” and “Liquidity and Capital Resources” sections. Results of Operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”).

### Comparison of Three Months Ended July 31, 2022 and 2021

### Revenues and Costs of revenues

Our revenues and cost of revenues for the three months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Three Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Total revenues | ​ | $43,104 | ​ | $26,820 | ​ | $16,284 | ​ | 61% |
| Total costs of revenues | ​ | ​ 47,284 | ​ | ​ 25,720 | ​ | ​ 21,564 | ​ | 84% |
| Gross (loss) profit | ​ | $(4,180) | ​ | $1,100 | ​ | $(5,280) | ​ | (480)% |
| Gross margin | ​ | ​ (9.7)% | ​ | ​ 4.1% | ​ | ​ ​ | ​ | ​ |

Total revenues for the three months ended July 31, 2022 of $43.1 million reflects an increase of $16.3 million from $26.8 million for the same period in the prior year. Cost of revenues for the three months ended July 31, 2022 of $47.3 million reflects an increase of $21.6 million from $25.7 million for the same period in the prior year. A discussion of the changes in product revenues, service agreements revenues, generation revenues and Advanced Technologies contract revenues follows.

### Product revenues

Our product revenues and related costs for the three months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Three Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Product revenues | ​ | $18,000 | ​ | $— | ​ | $18,000 | ​ | N/A |
| Cost of product revenues | ​ | ​ 17,919 | ​ | ​ 1,903 | ​ | ​ 16,016 | ​ | 842% |
| Gross profit (loss) from product revenues | ​ | $81 | ​ | $(1,903) | ​ | $1,984 | ​ | 104% |
| Product gross margin | ​ | ​ 0.5% | ​ | ​ N/A | ​ | ​ ​ | ​ | ​ |

Product revenues for the three months ended July 31, 2022 were $18.0 million compared to $0 for the three months ended July 31, 2021. The increase in product revenues was a result of module sales to Korea Fuel Cell Co., Ltd. (“KFC”) (a subsidiary of POSCO Energy Co., Ltd. (“POSCO Energy”)) for which the Company recognized $18.0 million on the delivery Ex Works of six modules from the Company’s facility in Torrington, CT in June 2022.

We have completed manufacturing the eight modules needed to fulfill the order placed by KFC in June 2022 pursuant to the Settlement Agreement among the Company, POSCO Energy, and KFC (which is discussed in additional detail in Part II, Item 1 of this report) and expect to deliver those modules Ex Works and recognize the resulting revenue in the fourth quarter of fiscal year 2022.

Cost of product revenues increased $16.0 million for the three months ended July 31, 2022 to $17.9 million, compared to $1.9 million in the same period in the prior year. The increase is primarily due to the module sales to KFC. Manufacturing variances, primarily related to production volumes and unabsorbed overhead costs, totaled approximately $3.0 million for the three months ended July 31, 2022 compared to approximately $1.7 million for the three months ended July 31, 2021.

For the three months ended July 31, 2022, we operated at an annualized production rate of approximately 36.5 MW, which is an increase from the annualized production rate of 35 MW for the three months ended July 31, 2021.

### Service agreements revenues

Service agreements revenues and related costs for the three months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Three Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Service agreements revenues | ​ | $9,049 | ​ | $14,344 | ​ | $(5,295) | ​ | (37)% |
| Cost of service agreements revenues | ​ | ​ 7,718 | ​ | ​ 13,026 | ​ | ​ (5,308) | ​ | (41)% |
| Gross profit from service agreements revenues | ​ | $1,331 | ​ | $1,318 | ​ | $13 | ​ | 1% |
| Service agreements revenues gross margin | ​ | ​ 14.7% | ​ | ​ 9.2% | ​ | ​ ​ | ​ | ​ |

Service agreements revenues for the three months ended July 31, 2022 decreased $5.3 million to $9.0 million from $14.3 million for the three months ended July 31, 2021. Service agreements revenues for the three months ended July 31, 2022 and 2021 include revenues recorded for module exchanges and routine and non-routine maintenance activities. The decrease in revenues for the three months ended July 31, 2022 is primarily due to the fact that there were fewer module exchanges and fewer non-routine maintenance activities during the three months ended July 31, 2022 than during the three months ended July 31, 2021.

Cost of service agreements revenues decreased $5.3 million to $7.7 million for the three months ended July 31, 2022 from $13.0 million for the three months ended July 31, 2021. Cost of service agreements revenues includes maintenance and operating costs and costs of module exchanges and the decrease is primarily due to the fact that there were fewer module exchanges and fewer non-routine maintenance activities during the three months ended July 31, 2022 than during the three months ended July 31, 2021.

Overall gross profit from service agreements revenues was $1.3 million for the three months ended July 31, 2022 and July 31, 2021. The overall gross margin was 14.7% for the three months ended July 31, 2022 compared to a gross margin of 9.2% in the comparable prior year period. Gross margin was higher during the three months ended July 31, 2022 primarily due to the fact that the module exchanges that were completed during the three months ended July 31, 2022 were performed pursuant to service agreements with higher margins as compared to the three months ended July 31, 2021.

### Generation revenues

Generation revenues and related costs for the three months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Three Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Generation revenues | ​ | $10,877 | ​ | $6,230 | ​ | $4,647 | ​ | 75% |
| Cost of generation revenues | ​ | ​ 18,136 | ​ | ​ 6,728 | ​ | ​ 11,408 | ​ | 170% |
| Gross loss from generation revenues | ​ | $(7,259) | ​ | $(498) | ​ | $(6,761) | ​ | 1358% |
| Generation revenues gross margin | ​ | ​ (66.7)% | ​ | ​ (8.0)% | ​ | ​ ​ | ​ | ​ |

Revenues from generation for the three months ended July 31, 2022 totaled $10.9 million, which represents an increase of $4.6 million from revenue recognized of $6.2 million for the three months ended July 31, 2021. Generation revenues for the three months ended July 31, 2022 and 2021 reflect revenue from electricity generated under our power purchase agreements (“PPAs”). The increase in generation revenues in the three months ended July 31, 2022 is primarily due to the completion of the Long Island Power Authority (“LIPA”) Yaphank project during the three months ended January 31, 2022 and the higher operating output of the generation fleet portfolio as a result of module exchanges during the last nine months of fiscal year 2021. Generation revenues for the three months ended July 31, 2022 also include revenues from sales of renewable energy credits (which resulted in an increase in generation revenues of approximately $1.7 million).

Cost of generation revenues totaled $18.1 million in the three months ended July 31, 2022. The increase from the comparable prior year period was primarily due to expensed construction costs of approximately $6.9 million related to the Toyota project and costs of approximately $1.9 million related to the increased size of the installed fleet with the LIPA Yaphank project achieving commercial operation, offset by lower operating costs for existing plants due to efficiencies from plant maintenance activities and module exchanges. As further background on the costs related to the Toyota project, it was determined in the fourth quarter of fiscal year 2021 that a potential source of renewable natural gas (“RNG”) at favorable pricing was no longer sufficiently probable for the Toyota project resulting in impairment of the asset. Thus, as the Toyota project is being constructed, only amounts associated with inventory components that can be redeployed for alternative use are being capitalized. The balance of costs incurred (i.e., the approximately $6.9 million of construction costs mentioned above) are being expensed as cost of generation revenues.

We currently have three projects in development with fuel sourcing risk, which are the Toyota project, which requires procurement of RNG, and our Derby, CT 14.0 MW and 2.8 MW projects, which require natural gas. Fuel sourcing and risk mitigation strategies for all three projects are being assessed and will be implemented as project operational dates become firm. Such strategies may require cash collateral or reserves to secure fuel or related contracts for these three projects. If the Company is unable to secure fuel on favorable economic terms, it may result in impairment charges to the Derby project assets and further impairment charges for the Toyota project asset.

Cost of generation revenues included depreciation and amortization of approximately $4.1 million and $3.3 million for the three months ended July 31, 2022 and 2021, respectively.

The decrease in generation revenues gross margin is primarily related to the $6.9 million of costs being expensed related to the Toyota project, partially offset by higher margins from the operating fleet (due in part to the higher operating output of the generation fleet portfolio) compared to the three months ended July 31, 2021.

We had 41.4 MW of operating power plants in our generation operating portfolio as of July 31, 2022, which increased from 34.0 MW as of July 31, 2021. The increase relates to the 7.4 MW platform for LIPA in Yaphank Long Island, New York, which commenced commercial operations during the three months ended January 31, 2022.

### Advanced Technologies contract revenues

Advanced Technologies contract revenues and related costs for the three months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Three Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Advanced Technologies contract revenues | ​ | $5,178 | ​ | $6,246 | ​ | $(1,068) | ​ | (17)% |
| Cost of Advanced Technologies contract revenues | ​ | ​ 3,511 | ​ | ​ 4,063 | ​ | ​ (552) | ​ | (14)% |
| Gross profit from Advanced Technologies contracts | ​ | $1,667 | ​ | $2,183 | ​ | $(516) | ​ | (24)% |
| Advanced Technologies contract gross margin | ​ | ​ 32.2% | ​ | ​ 35.0% | ​ | ​ ​ | ​ | ​ |

Advanced Technologies contract revenues decreased to $5.2 million for the three months ended July 31, 2022 from $6.2 million for the three months ended July 31, 2021. Compared to the three months ended July 31, 2021, Advanced Technologies contract revenues recognized under the Joint Development Agreement entered into with ExxonMobil Technology and Engineering Company f/k/a ExxonMobil Research and Engineering Company (“EMTEC”), on November 5, 2019 (as amended effective as of October 31, 2021 and April 30, 2022, (the “EMTEC Joint Development Agreement”)) were approximately $3.1 million lower during the three months ended July 31, 2022 due to the more limited scope of work performed during this period compared to the scope of work performed in the comparable prior year period, offset by an increase in revenue recognized under government contracts and other contracts of $2.0 million for the three months ended July 31, 2022.

Cost of Advanced Technologies contract revenues were $3.5 million for the three months ended July 31, 2022, compared to $4.1 million for the same period in the prior year. This decrease is a result of the level of activity and the scope of work performed under the EMTEC Joint Development Agreement in the three months ended July 31, 2022.

Advanced Technologies contracts for the three months ended July 31, 2022 generated a gross profit of $1.7 million compared to a gross profit of $2.2 million for the three months ended July 31, 2021. The lower gross profit was due to lower revenues recognized under the EMTEC Joint Development Agreement during the three months ended July 31, 2022 compared to the three months ended July 31 2021.

### Administrative and selling expenses

Administrative and selling expenses were $14.2 million and $8.7 million for the three months ended July 31, 2022 and 2021, respectively. The increase is related to higher sales, marketing and consulting costs, as the Company is investing in rebranding and accelerating its sales and commercialization efforts including increasing the size of its sales and marketing teams, which resulted in an increase in compensation expense resulting from an increase in headcount.

### Research and development expenses

Research and development expenses increased to $9.7 million for the three months ended July 31, 2022 compared to $3.0 million for the three months ended July 31, 2021. The increase is due to an increase in spending on the Company’s ongoing commercial development efforts related to our solid oxide platform and carbon capture solutions compared to the comparable prior year period.

### Loss from operations

Loss from operations for the three months ended July 31, 2022 was $28.0 million compared to $10.6 million for the three months ended July 31, 2021. This increase was driven by a $12.1 million increase in operating expenses for the three months ended July 31, 2022 as a result of (a) higher sales, marketing and consulting costs and an increase in compensation expense resulting from an increase in headcount and (b) higher research and development expenses, which were higher due to an increase in spending on the Company’s ongoing commercial development efforts related to our solid oxide platform and carbon capture solutions compared to the comparable prior year period. The increase in loss from operations was also due to a gross loss of $4.2 million in the three months ended July 31, 2022 compared to gross profit of $1.1 million in the three months ended July 31, 2021. The increase in gross loss was driven by higher manufacturing variances, $6.9 million of non-capitalizable costs related to construction of the Toyota project, and lower Advanced Technologies contract margin, partially offset by increased service gross profit and reduced generation gross loss (excluding the impact of non-capitalizable costs related to construction of the Toyota project).

### Interest expense

Interest expense for the three months ended July 31, 2022 and 2021 was $1.6 million. Interest expense for both periods includes interest related to finance obligations related to failed sale-leaseback transactions and interest on the outstanding loans associated with the Bridgeport Fuel Cell Project.

### Other income, net

Other income, net was $1.1 million and $0.1 million for the three months ended July 31, 2022 and 2021, respectively. Other income, net for the three months ended July 31, 2022 represents $0.9 million of interest earned on money market investments and $0.3 million of research and development tax credits partially offset by foreign exchange rate losses of $0.1 million.

### Provision for income taxes

We have not paid federal or state income taxes in several years due to our history of net operating losses, although we have paid foreign income and withholding taxes in Korea. Provision for income tax recorded for the three months ended July 31, 2022 and 2021 was $0.5 million and $7 thousand, respectively. The provision for income tax recorded for the three months ended July 31, 2022 reflects the realization of withholding taxes on customer deposits which pertain to the sale of modules to KFC.

### Series B preferred stock dividends

Dividends recorded on our 5% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”) were $0.8 million for each of the three month periods ended July 31, 2022 and 2021.

### Net income attributable to noncontrolling interest

Net income attributable to noncontrolling interest is the result of allocating profits and losses to noncontrolling interest under the hypothetical liquidation at book value (“HLBV”) method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of our tax equity financings with East West Bancorp, Inc. (“East West Bank”) and Renewable Energy Investors, LLC (“REI”).

For the three months ended July 31, 2022, net income attributable to noncontrolling interest totaled $0.4 million for the LIPA Yaphank tax equity financing transaction with REI. There was no comparable net income for the prior year period as the LIPA Yaphank tax equity transaction closed and the LIPA Yaphank project began operating in the first quarter of fiscal year 2022.

### Net loss attributable to common stockholders and loss per common share

Net loss attributable to common stockholders represents the net loss for the period less the preferred stock dividends on the Series B Preferred Stock. For the three month periods ended July 31, 2022 and 2021, net loss attributable to common stockholders was $30.2 million and $12.8 million, respectively, and loss per common share was $0.08 and $0.04, respectively. The increase in the net loss attributable to common stockholders for the three months ended July 31, 2022 is primarily due to the gross loss for the three months ended July 31, 2022 compared to gross profit for the three months ended July 31, 2021, as well as higher operating expenses during the three months ended July 31, 2022. The higher net loss per common share for the three months ended July 31, 2022 as compared to the three months ended July 31, 2021 is primarily due to the higher net loss attributable to common stockholders, partially offset by the higher number of weighted average shares outstanding due to share issuances since July 31, 2021.

### Comparison of Nine Months Ended July 31, 2022 and 2021

### Revenues and Costs of revenues

Our revenues and cost of revenues for the nine months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Nine Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Total revenues | ​ | $91,283 | ​ | $55,650 | ​ | $35,633 | ​ | 64% |
| Total costs of revenues | ​ | ​ 105,668 | ​ | ​ 62,924 | ​ | ​ 42,744 | ​ | 68% |
| Gross loss | ​ | $(14,385) | ​ | $(7,274) | ​ | $(7,111) | ​ | 98% |
| Gross margin | ​ | ​ (15.8)% | ​ | ​ (13.1)% | ​ | ​ ​ | ​ | ​ |

Total revenues for the nine months ended July 31, 2022 of $91.3 million reflects an increase of $35.6 million from $55.7 million during the same period in the prior year. Cost of revenues for the nine months ended July 31, 2022 of $105.7 million reflects a $42.7 million increase from $62.9 million during the same period in the prior year. A discussion of the changes in product revenues, service agreements revenues, generation revenues and Advanced Technologies contract revenues follows.

### Product revenues

Our product revenues and related costs from product revenues for the nine months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Nine Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Product revenues | ​ | $36,000 | ​ | $— | ​ | $36,000 | ​ | N/A |
| Cost of product revenues | ​ | ​ 39,159 | ​ | ​ 6,190 | ​ | ​ 32,969 | ​ | 533% |
| Gross loss from product revenues | ​ | $(3,159) | ​ | $(6,190) | ​ | $3,031 | ​ | (49)% |
| Product revenues gross loss | ​ | ​ (8.8)% | ​ | ​ N/A | ​ | ​ ​ | ​ | ​ |

Product revenues for the nine months ended July 31, 2022 were $36.0 million compared to $0 for the nine months ended July 31, 2021. The increase in product revenues is a result of module sales to KFC for which the Company recognized (i) $18.0 million on the delivery Ex Works of six modules from the Company’s facility in Torrington, CT in January 2022 and (ii) an additional $18.0 million on the delivery Ex Works of six modules from the Company’s facility in Torrington, CT in June 2022.

Cost of product revenues increased $33.0 million for the nine months ended July 31, 2022 to $39.2 million, compared to $6.2 million in the same period in the prior year. The increase is primarily due to the module sales to KFC. The increase also relates to a fixed asset impairment charge of approximately $1.0 million incurred during the nine months ended July 31, 2022 (related to the cessation of operations at a conditioning facility in Danbury, CT, which is being replaced by a new conditioning facility located at our Torrington, CT manufacturing facility as a part of our fiscal year 2022 capital investments) and accrued warranty costs of approximately $0.4 million associated with the module sales to KFC discussed above. Manufacturing variances, primarily related to production volumes and unabsorbed overhead costs, totaled approximately $7.7 million for the nine months ended July 31, 2022 compared to approximately $5.0 million for the nine months ended July 31, 2021.

For the nine months ended July 31, 2022, we operated at an annualized production rate of approximately 38.5 MW, which is an increase from the annualized production rate of 30 MW for the nine months ended July 31, 2021.

### Service agreements revenues

Service agreements revenues and related costs for the nine months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Nine Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Service agreements revenues | ​ | $13,855 | ​ | $19,917 | ​ | $(6,062) | ​ | (30)% |
| Cost of service agreements revenues | ​ | ​ 13,123 | ​ | ​ 20,992 | ​ | ​ (7,869) | ​ | (37)% |
| Gross profit (loss) from service agreements revenues | ​ | $732 | ​ | $(1,075) | ​ | $1,807 | ​ | (168)% |
| Service agreements revenues gross margin | ​ | ​ 5.3% | ​ | ​ (5.4)% | ​ | ​ ​ | ​ | ​ |

Service agreements revenues for the nine months ended July 31, 2022 decreased $6.1 million to $13.9 million from $19.9 million for the nine months ended July 31, 2021. The decline in service agreements revenues for the nine months ended July 31, 2022 is primarily due to fewer module exchanges during the nine months ended July 31, 2022 than during the nine months ended July 31, 2021.

Cost of service agreements revenues decreased $7.9 million to $13.1 million for the nine months ended July 31, 2022 from $21.0 million for the nine months ended July 31, 2021. Cost of service agreements revenues were lower for the nine months ended July 31, 2022 than for the nine months ended July 31, 2021 primarily due to the fact that less planned module exchanges in the service fleet occurred during the nine months ended July 31, 2022 than during the nine months ended July 31, 2021. Cost of service agreements revenues includes maintenance and operating costs and module exchanges.

Overall gross profit from service agreements revenues was $0.7 million for the nine months ended July 31, 2022, which represents an increase of $1.8 million from a gross loss of $1.1 million for the nine months ended July 31, 2021. The overall gross margin was 5.3% for the nine months ended July 31, 2022 compared to a gross margin of (5.4)% in the comparable prior year period. Gross margin increased during the nine months ended July 31, 2022, primarily due to the fact that the module exchanges that were completed in the nine months ended July 31, 2022 were performed pursuant to service agreements with higher margins as compared to the nine months ended July 31, 2021.

### Generation revenues

Generation revenues and related costs for the nine months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Nine Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Generation revenues | ​ | $27,423 | ​ | $17,306 | ​ | $10,117 | ​ | 58% |
| Cost of generation revenues | ​ | ​ 42,978 | ​ | ​ 23,265 | ​ | ​ 19,713 | ​ | 85% |
| Gross loss from generation revenues | ​ | $(15,555) | ​ | $(5,959) | ​ | $(9,596) | ​ | 161% |
| Generation revenues gross margin | ​ | ​ (56.7)% | ​ | ​ (34.4)% | ​ | ​ ​ | ​ | ​ |

Revenues from generation for the nine months ended July 31, 2022 totaled $27.4 million, which represents an increase of $10.1 million from revenue recognized of $17.3 million for the nine months ended July 31, 2021. Generation revenues for the nine months ended July 31, 2022 and 2021 reflect revenue from electricity generated under our PPAs. The increase in generation revenues in the nine months ended July 31, 2022 is primarily due to the higher operating output of the generation fleet portfolio as a result of investments in maintenance activities and an increase in the size of the fleet.

Cost of generation revenues totaled $43.0 million in the nine months ended July 31, 2022. The increase from the comparable prior year period was primarily due to construction costs of approximately $14.0 million related to the Toyota project and costs of approximately $5.5 million related to the increased size of the installed fleet with the San Bernardino and LIPA Yaphank projects achieving commercial operations, offset by lower operating costs for existing plants due to efficiencies from plant maintenance activities and module replacements. As further background on the costs related to the Toyota project, it was determined in the fourth quarter of fiscal year 2021 that a potential source of RNG at favorable pricing was no longer sufficiently probable for the Toyota project resulting in impairment of the asset. Thus, as the Toyota project is being constructed, only amounts associated with inventory components that can be redeployed for alternative use are being capitalized. The balance of costs incurred (i.e., the approximately $14.0 million associated with the construction costs mentioned above) are being expensed as cost of generation revenues.

We currently have three projects in development with fuel sourcing risk, which are the Toyota project, which requires procurement of RNG, and our Derby, CT 14.0 MW and 2.8 MW projects, which require natural gas. Fuel sourcing and risk mitigation strategies for all three projects are being assessed and will be implemented as project operational dates become firm. Such strategies may require cash collateral or reserves to secure fuel or related contracts for these three projects. If the Company is unable to secure fuel on favorable economic terms, it may result in impairment charges to the Derby project assets and further impairment charges for the Toyota project asset.

Cost of generation revenues included depreciation and amortization of approximately $11.8 million and $11.2 million for the nine months ended July 31, 2022 and 2021, respectively.

The increase in generation revenues gross loss is primarily related to the $14.0 million of construction costs being expensed related to the Toyota project, partially offset by higher margins from the operating fleet (due in part to the higher operating output of the generation fleet portfolio) compared to the nine months ended July 31, 2021.

### Advanced Technologies contract revenues

Advanced Technologies contract revenues and related costs for the nine months ended July 31, 2022 and 2021 were as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Nine Months Ended July 31, 2022 | ​ | ​ ​ 2021 | ​ ​ | ​ ​ Change $% | ​ | ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Advanced Technologies contract revenues | ​ | $14,005 | ​ | $18,427 | ​ | $(4,422) | ​ | (24)% |
| Cost of Advanced Technologies contract revenues | ​ | ​ 10,408 | ​ | ​ 12,477 | ​ | ​ (2,069) | ​ | (17)% |
| Gross profit from Advanced Technologies contracts | ​ | $3,597 | ​ | $5,950 | ​ | $(2,353) | ​ | (40)% |
| Advanced Technologies contract gross margin | ​ | ​ 25.7% | ​ | ​ 32.3% | ​ | ​ ​ | ​ | ​ |

Advanced Technologies contract revenues decreased to $14.0 million for the nine months ended July 31, 2022 from $18.4 million for the nine months ended July 31, 2021. Compared to the nine months ended July 31, 2021, Advanced Technologies contract revenues recognized under the EMTEC Joint Development Agreement were approximately $7.7 million lower during the nine months ended July 31, 2022 and Advanced Technologies contract revenues recognized under government contracts and other contracts were approximately $3.3 million lower for the nine months ended July 31, 2022.

Cost of Advanced Technologies contract revenues decreased $2.1 million to $10.4 million for the nine months ended July 31, 2022, compared to $12.5 million for the same period in the prior year. This decrease is a result of the level of activity and the scope of work performed under the EMTEC Joint Development Agreement in the nine months ended July 31, 2022.

Advanced Technologies contracts for the nine months ended July 31, 2022 generated a gross profit of $3.6 million compared to a gross profit of $6.0 million for the nine months ended July 31, 2021. This decrease is primarily due to the decrease in revenue recognized under the EMTEC Joint Development Agreement during the period, which resulted in a lower gross margin recognized during the period.

### Administrative and selling expenses

Administrative and selling expenses were $64.4 million and $27.3 million for the nine months ended July 31, 2022 and 2021, respectively. The nine months ended July 31, 2022 included higher legal expenses associated with the settlement of the Company’s disputes with POSCO Energy and KFC (as described in additional detail in Note 19. “Commitments and Contingencies” to our Consolidated Financial Statements for the nine months ended July 31, 2022 included in this Quarterly Report on Form 10-Q). The Company retained outside counsel on a contingency basis to pursue its claims against POSCO Energy and KFC, and outside counsel entered into an agreement with a litigation finance provider to fund the legal fees and expenses of the arbitration proceedings brought by the Company against POSCO Energy and KFC. In conjunction with the Settlement Agreement, dated December 20, 2021, among the Company, POSCO Energy and KFC (the “Settlement Agreement”), the Company was required to remit fees to its counsel, Wiley Rein, LLP (“Wiley”), subject to the terms of its engagement letter with Wiley. On December 23, 2021, the Company agreed that it would pay Wiley a total of $24.0 million to satisfy all obligations to Wiley under the Company’s engagement letter, which was paid during the nine months ended July 31, 2022. The increase is also related to higher sales, marketing and consulting costs, as the Company is investing in rebranding and accelerating its sales and commercialization efforts, including increasing the size of its sales and marketing teams which resulted in an increase in compensation expense resulting from an increase in headcount.

### Research and development expenses

Research and development expenses increased to $22.3 million for the nine months ended July 31, 2022 compared to $7.8 million for the nine months ended July 31, 2021. The increase is due to an increase in spending on the Company’s ongoing commercial development efforts related to our solid oxide platform and carbon capture solutions compared to the comparable prior year period.

### Loss from operations

Loss from operations for the nine months ended July 31, 2022 was $101.1 million compared to $42.3 million for the nine months ended July 31, 2021. This increase was primarily driven by a $51.6 million increase in operating expenses for the nine months ended July 31, 2022 as a result of (a) higher administrative and selling expenses for the nine months ended July 31, 2022, which included higher legal expenses associated with the settlement of the Company’s disputes with POSCO Energy and KFC as well as higher sales, marketing and consulting costs and an increase in compensation expense resulting from an increase in headcount and (b) higher research and development expenses, which were higher due to an increase in spending on the Company’s ongoing commercial development efforts related to our solid oxide platform and carbon capture solutions compared to the comparable prior year period. The increase was also due to higher gross loss of $14.4 million during the nine months ended July 31, 2022. Impacting gross loss for the nine months ended July 31, 2022 were higher manufacturing variances and non-capitalizable costs related to construction of the Toyota project which were partially offset by lower product gross loss primarily due to module sales to KFC.

### Interest expense

Interest expense for the nine months ended July 31, 2022 and 2021 was $4.8 million and $5.7 million, respectively. Interest expense for both periods presented includes interest related to finance obligations for failed sale-leaseback transactions and interest on the outstanding loans associated with the Bridgeport Fuel Cell Project.

### Loss on extinguishment of debt

The loss on extinguishment of debt for the nine months ended July 31, 2021 represents costs associated with the repayment of the $80.0 million principal balance outstanding under the Credit Agreement among the Company, certain of its affiliates as guarantors, Orion Energy Partners Investment Agent, LLC, and certain lenders affiliated therewith (as amended, the “Orion Credit Agreement”). The amount includes an early prepayment penalty of $4.0 million and the write-off of debt discounts and deferred finance costs of $7.2 million.

### Extinguishment of preferred stock obligation of subsidiary

For the nine months ended July 31, 2021, a charge of $0.9 million was recorded for the extinguishment of preferred stock obligation of subsidiary to adjust for the difference between the amount of the payoff of the obligation and the carrying amount of the obligation under the terms of the Class A Preferred Shares issued by FCE FuelCell Energy Ltd. (which are referred to elsewhere herein as the “Series 1 Preferred Shares”), which obligation was guaranteed by the Company.

### Change in fair value of common stock warrant liability

The $16.0 million expense for the nine months ended July 31, 2021 represents an adjustment to the estimated fair value of the then outstanding unexercised warrants to purchase common stock held by the lenders under the Orion Credit Agreement, which were exercised, in full, during the year ended October 31, 2021. The expense was primarily a result of an increase in the price of the Company’s common stock during the nine months ended July 31, 2021.

### Other income (expense), net

Other income (expense), net was $1.1 million and $(0.8) million for the nine months ended July 31, 2022 and 2021, respectively. Other income, net for the nine months ended July 31, 2022 primarily represents $1.0 million of interest earned on money market investments, a gain on derivative contract of $0.5 million and $0.3 million of research and development tax credits, offset by a foreign exchange loss of $0.7 million. Other expense, net for the nine months ended July 31, 2021 primarily relates to a foreign exchange loss of $0.8 million related to the remeasurement of the Canadian Dollar denominated preferred stock obligation (the Series 1 Preferred Share obligation) of our U.S. Dollar functional currency Canadian subsidiary (FCE FuelCell Energy Ltd.) prior to the payoff of the preferred share obligation in December 2020.

### Provision for income taxes, net

We have not paid federal or state income taxes in several years due to our history of net operating losses, although we have paid foreign income and withholding taxes in Korea. Provision for income tax recorded for the nine months ended July 31, 2022 and 2021 was $0.5 million and $3 thousand, respectively. The provision for income tax recorded for the nine months ended July 31, 2022 reflects the realization of withholding taxes on customer deposits which pertain to the sale of modules to KFC.

### Net loss attributable to noncontrolling interest

For the nine months ended July 31, 2022, net loss attributable to noncontrolling interest totaled $5.0 million for the LIPA Yaphank tax equity financing transaction with REI. There was no comparable net loss for the prior year as the LIPA Yaphank tax equity transaction closed and the LIPA Yaphank project began operating in the first quarter of fiscal year 2022. The loss for the nine months ended July 31, 2022 is primarily driven by the Investment Tax Credit (“ITC”) attributable to the noncontrolling interest for the 2021 tax year (which is consistent with the calendar year). The ITC reduces the noncontrolling interest’s hypothetical liquidation proceeds. This reduction in hypothetical liquidation proceeds drove the net loss attributable to the noncontrolling interest in the nine months ended July 31, 2022.

### Series B preferred stock dividends

Dividends recorded on our Series B Preferred Stock were $2.4 million for each of the nine month periods ended July 31, 2022 and 2021.

### Net loss attributable to common stockholders and loss per common share

Net loss attributable to common stockholders represents the net loss for the period less the preferred stock dividends on the Series B Preferred Stock. For the nine month periods ended July 31, 2022 and 2021, net loss attributable to common stockholders was $102.7 million and $79.3 million, respectively, and loss per common share was $0.27 and $0.24, respectively. The increase in the net loss attributable to common stockholders for the nine months ended July 31, 2022 is primarily due to higher gross loss and higher operating expenses for the nine months ended July 31, 2022 compared to the corresponding period in fiscal year 2021, partially offset by (i) lower interest expense during the nine months ended July 31, 2022, (ii) the fact that there was no loss on extinguishment of debt in the nine months ended July 31, 2022, no loss on extinguishment of preferred stock obligation during the nine months ended July 31, 2022, and no charge for the change in fair value of common stock warrant liability during the nine months ended July 31, 2022 and (iii) a net loss attributable to noncontrolling interest totaling $5.0 million (or approximately $0.01 per share) for the LIPA Yaphank tax equity financing transaction. The higher net loss per common share for the nine months ended July 31, 2022 as compared to the nine months ended July 31, 2021 is primarily due to the higher net loss attributable to common stockholders for the nine months ended July 31, 2022, partially offset by the higher number of weighted average shares outstanding as of July 31, 2022 due to share issuances since July 31, 2021.

### LIQUIDITY AND CAPITAL RESOURCES

### Overview, Cash Position, Sources and Uses

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

As of July 31, 2022, unrestricted cash and cash equivalents totaled $456.5 million compared to $432.2 million as of October 31, 2021.

On July 12, 2022, the Company entered into an Open Market Sale Agreement with Jefferies LLC, B. Riley Securities, Inc., Barclays Capital Inc., BMO Capital Markets Corp., BofA Securities, Inc., Canaccord Genuity LLC, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Loop Capital Markets LLC (the “Open Market Sale Agreement”) with respect to an at the market offering program under which the Company may, from time to time, offer and sell up to 95.0 million shares of the Company’s common stock. From the date of the Open Market Sale Agreement through July 31, 2022, the Company sold approximately 18.5 million shares under the Open Market Sale Agreement at an average sale price of $3.63 per share. Of this 18.5 million shares, approximately 7.8 million shares were issued and settled during the period ended July 31, 2022, resulting in gross proceeds of approximately $27.9 million before deducting sales commissions and fees, and net proceeds to the Company of approximately $27.2 million after deducting commissions and fees totaling approximately $0.7 million. The balance of approximately 10.7 million shares were settled subsequent to July 31, 2022 resulting in gross proceeds (before deducting sales commissions) of approximately $39.2 million and net proceeds to the Company (received in August 2022) of approximately $38.4 million after deducting commissions totaling approximately $0.8 million. As of July 31, 2022, approximately 87.2 million shares were available for issuance under the Open Market Sale Agreement. Taking into account the sales that settled subsequent to July 31, 2022, approximately 76.5 million shares are available for issuance under the Open Market Sale Agreement as of the date of this report. The Company currently intends to use the net proceeds from this offering to accelerate the development and commercialization of its product platforms (including, but not limited to, its solid oxide and carbon capture platforms), for project development, market development, and internal research and development, to invest in capacity expansion for solid oxide and carbonate fuel cell manufacturing, and for project financing, working capital support, and general corporate purposes. The Company may also use the net proceeds from this offering to invest in joint ventures, acquisitions, and strategic growth investments and to acquire, license or invest in products, technologies or businesses that complement its business.

On June 11, 2021, the Company entered into an Open Market Sale Agreement with Jefferies LLC and Barclays Capital Inc. (the “2021 Sales Agreement”) with respect to an at the market offering program under which the Company could, from time to time, offer and sell shares of the Company’s common stock having an aggregate offering price of up to $500 million. From the date of the 2021 Sales Agreement through April 30, 2022, approximately 64.0 million shares of the Company’s common stock were sold under the 2021 Sales Agreement, resulting in aggregate gross proceeds of approximately $498.1 million before deducting sales commissions. Commissions of approximately $10.0 million in the aggregate were paid to Jefferies LLC and Barclays Capital Inc. in connection with these sales, resulting in aggregate net proceeds to the Company of approximately $488.1 million. No sales of common stock were made under the 2021 Sales Agreement after April 30, 2022, and no additional sales of common stock can or will be made under the 2021 Sales Agreement, as the Company, Jefferies LLC and Barclays Capital Inc. mutually agreed to terminate the 2021 Sales Agreement as of July 12, 2022.

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 the financial statements included in this Quarterly Report on Form 10-Q.

To date, we have not achieved profitable operations or sustained positive cash flow from operations. The Company’s future liquidity, for the remainder of fiscal year 2022 and in the long-term, will depend on its ability to (i) timely complete current projects in process within budget, (ii) increase cash flows from its generation operating portfolio, including by meeting conditions required to timely commence operation of new projects, operating its generation operating portfolio in compliance with minimum performance guarantees and operating its generation operating portfolio in accordance with revenue expectations, (iii) obtain financing for project construction, (iv) obtain permanent financing for its projects once constructed, (v) increase order and contract volumes, which would lead to additional product sales, service agreements and generation revenues, (vi) obtain funding for and receive payment for research and development under current and future Advanced Technologies contracts, (vii) successfully commercialize its Advanced Technologies platforms, including its solid oxide, hydrogen and carbon capture platforms, (viii) implement the product cost reductions necessary to achieve profitable operations, (ix) manage working capital and the Company’s unrestricted cash balance and (x) access the capital markets to raise funds through the sale of debt and equity securities, convertible notes, and other equity-linked instruments.

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

Our business model requires substantial outside financing arrangements and satisfaction of the conditions of such arrangements to construct and deploy our projects to facilitate the growth of our business. The Company has invested capital raised from sales of its common stock to build out its project portfolio. The Company has also utilized and expects to continue to utilize a combination of long-term debt and tax equity financing (e.g., sale-leaseback and partnership transactions) to finance its project asset portfolio as these projects commence commercial operations. The Company may also seek to undertake private placements of debt securities of a portfolio of assets to finance its project asset portfolio. The proceeds of any such financing, if obtained, may allow the Company to reinvest capital back into the business and 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.

### Generation Operating Portfolio, Project Assets, and Backlog

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

Our generation operating portfolio (41.4 MW as of July 31, 2022) contributes higher long-term cash flows to the Company than if these projects had been sold. We expect generation revenue to continue to grow as additional projects achieve commercial operation, but this revenue amount may also fluctuate from year to year depending on platform output, operational performance and management and site conditions. The Company plans to continue to grow this portfolio while also selling projects to investors. As of July 31, 2022, the Company had projects representing an additional 34.9 MW in various stages of development and construction, which projects are expected to generate operating cash flows in future periods, if completed. Retaining long-term cash flow positive projects, combined with our service fleet, is expected to result in reduced reliance on new project sales to achieve cash flow positive operations, however, operations and performance issues could impact results. We have worked with and are continuing to work with lenders and financial institutions to secure construction financing, long-term debt, tax equity and sale-leasebacks for our project asset portfolio, but there can be no assurance that such financing can be attained, or that, if attained, it will be retained and sufficient.

As of July 31, 2022, net debt outstanding related to project assets was $70.8 million. Future required payments totaled $39.5 million as of July 31, 2022. The outstanding finance obligations under our sale-leaseback transactions, which totaled $56.5 million as of July 31, 2022, include an embedded gain of $33.7 million representing the current carrying value of finance obligations less future required payments, which will be recognized at the end of the applicable lease terms.

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

The following table summarizes our generation operating portfolio as of July 31, 2022:

| ​ Project Name | ​ | ​ Location | ​ | ​ Power Off - Taker | ​ | ​ Rated Capacity (MW) (1) | ​ | ​ Actual Commercial Operation Date (FuelCell Energy Fiscal Quarter) | ​ | ​ PPA Term (Years) |
| --- | --- | --- | --- | --- | --- | ---: | --- | --- | --- | ---: |
| Central CT State University (“CCSU”) | ​ | New Britain, CT | ​ | CCSU (CT University) | ​ | 1.4 | ​ | Q2 ‘12 | ​ | 15 |
| UCI Medical Center (“UCI”) | ​ | Orange, CA | ​ | UCI (CA University Hospital) | ​ | 1.4 | ​ | Q1 '16 | ​ | 19 |
| Riverside Regional Water Quality Control Plant | ​ | Riverside, CA | ​ | City of Riverside (CA Municipality) | ​ | 1.4 | ​ | Q4 '16 | ​ | 20 |
| Pfizer, Inc. | ​ | Groton, CT | ​ | Pfizer, Inc. | ​ | 5.6 | ​ | Q4 '16 | ​ | 20 |
| Santa Rita Jail | ​ | Dublin, CA | ​ | Alameda County, California | ​ | 1.4 | ​ | Q1 '17 | ​ | 20 |
| Bridgeport Fuel Cell Project | ​ | Bridgeport, CT | ​ | Connecticut Light and Power Company (CT Utility) | ​ | 14.9 | ​ | Q1 '13 | ​ | 15 |
| Tulare BioMAT | ​ | Tulare, CA | ​ | Southern California Edison (CA Utility) | ​ | 2.8 | ​ | Q1 '20 | ​ | 20 |
| Triangle Street | ​ | Danbury, CT | ​ | Tariff - Eversource (CT Utility) | ​ | 3.7 | ​ | Q2 '20 | ​ | Tariff |
| San Bernardino | ​ | San Bernardino, CA | ​ | City of San Bernardino Municipal Water Department | ​ | 1.4 | ​ | Q3'21 | ​ | 20 |
| LIPA Yaphank Project | ​ | Long Island, NY | ​ | PSEG / LIPA, LI NY (Utility) | ​ | 7.4 | ​ | Q1'22 | ​ | 18 |
| ​ | ​ | ​ | ​ | **Total MW Operating:** | **​** | **41.4** | **​** | ​ | ​ | ​ |

(1) Rated capacity is the platform’s design rated output as of the date of initiation of commercial operations.

The following table summarizes projects in process, all of which are in backlog, as of July 31, 2022:

| ​ Project Name | ​ | ​ Location | ​ | ​ Power Off-Taker | ​ | ​ Rated Capacity (MW) (1) | ​ | ​ PPA Term (Years) |
| --- | --- | --- | --- | --- | --- | ---: | --- | ---: |
| Groton Sub Base | ​ | Groton, CT | ​ | CMEEC (CT Electric Co-op) | ​ | 7.4 | ​ | 20 |
| Toyota | ​ | Los Angeles, CA | ​ | Southern California Edison; Toyota | ​ | 2.3 | ​ | 20 |
| CT RFP-1 | ​ | Hartford, CT | ​ | Eversource/United Illuminating (CT Utilities) | ​ | 7.4 | ​ | 20 |
| CT RFP-2 | ​ | Derby, CT | ​ | Eversource/United Illuminating (CT Utilities) | ​ | 14.0 | ​ | 20 |
| SCEF - Derby | ​ | Derby, CT | ​ | Eversource/United Illuminating (CT Utilities) | ​ | 2.8 | ​ | 20 |
| SCEF - Hartford | ​ | Hartford, CT | ​ | Eversource/United Illuminating (CT Utilities) | ​ | 1.0 | ​ | 20 |
| ​ | ​ | ​ | ​ | **Total MW in Process:** | **​** | **34.9** | **​** | ​ |

(1) Rated capacity is the platform’s design rated output as of the date of initiation of commercial operations.

The projects listed in the above table are in various stages of development or on-site construction and installation. Current project updates are as follows:

- ***Groton Sub Base – The Groton Project.*** In July 2021, the Company achieved mechanical completion, executed the interconnect agreement, and commenced the process of commissioning the 7.4 MW platform at the U.S. Navy Submarine Base in Groton, CT (the “Groton Project”). On September 14, 2021, the Company disclosed that the process of commissioning the Groton Project was temporarily suspended due to a needed repair. Following the completion of that repair, the Company resumed commissioning of the Groton Project. During the resumed commissioning process, the Company observed operating parameter data from one of the two fuel cell platforms installed at the project site that indicated a mechanical component was not performing according to engineered specifications. The Company subsequently determined that component should be removed from the project site to facilitate the necessary repair and upgrade. On April 7, 2022, the Company announced that it had completed the necessary repairs and upgrades to the mechanical component, reinstalled the mechanical component at the project site, and restarted the process of commissioning. During the restarted commissioning process, the Company encountered performance anomalies primarily in the mixer eductor oxidizer (“MEO”) which is a sophisticated piece of equipment specific to the Groton Project designed to optimize fuel and air flows. The Company is considering operating the project at a reduced output of 3 MW per platform at the start of commercial operations in order to optimize performance of each of the two MEO units. Over a period of approximately one year, the Company anticipates implementing upgrades to each of the two MEO units in order to bring the platform to its rated capacity of 7.4 MW. Under extensions previously received from the U.S. Navy, the deadline by which commercial operations are to be achieved is September 30, 2022. We expect that the Groton Project could be commercially operational by September 30, 2022 at a reduced power output of approximately 6 MW. However, commencement of operations at a reduced output of approximately 6 MW requires approval by the Connecticut Municipal Electric Energy Cooperative (“CMEEC”) and the U.S. Navy. Although the Company is in discussions with CMEEC and the U.S. Navy, no assurance can be given that CMEEC and the U.S. Navy will provide such approval.

This platform is expected to highlight the ability of FuelCell Energy’s platforms to perform at high efficiencies and provide low CO2 to MWh output. Incorporation of the platform into a microgrid is expected to demonstrate the capacity of FuelCell Energy’s platforms to increase grid stability and resilience while supporting the U.S. military’s efforts to fortify base energy supply and demonstrate the U.S. Navy’s commitment to clean, reliable power with microgrid capabilities.

In addition, as previously disclosed, in August 2021, the Company closed on a tax equity financing transaction with East West Bancorp, Inc. (“East West Bank”) for the Groton Project. East West Bank’s tax equity commitment totals $15 million. In connection with the initial closing, the Company drew down $3.0 million. Under the original terms of the Company’s agreement with East West Bank, the Company would have been eligible to draw the remaining amount of the commitment, approximately $12 million, once the Groton Project achieves commercial operation. In addition, under the original terms of the Company’s agreement with East West Bank, the Groton Project had a required commercial operation deadline of October 18, 2021. East West Bank granted several extensions of the commercial operation deadline, which collectively extended the deadline to May 15, 2022, in exchange for fees of $0.4 million in the aggregate. Because commercial operations were delayed beyond May 15, 2022, East West Bank had a conditional withdrawal right to request the return of their investment at an amount equal to 101% of the amount of the investment.

On July 7, 2022, the Company and East West Bank amended their tax equity financing agreement. Under the terms of this amended agreement, the commercial operations deadline was extended to September 30, 2022. In addition, the terms of East West Bank’s remaining investment commitment of $12.0 million were modified such that East West Bank will now contribute $4.0 million on each of the first, second and third anniversaries of the Groton Project achieving commercial operations, rather than contributing the full $12.0 million when the Groton Project achieves commercial operations. Such contributions are subject to certain customer conditions precedent, including a third-party certification by an independent engineer that the plant is operating in conformance with the PPA. In conjunction with this amendment, the Company agreed to aggregate fees of $0.5 million (which are inclusive of the fees from the previous extensions described above), which shall be payable by the Company upon commencement of commercial operations of the plant. Should the project not achieve commercial operations by September 30, 2022, East West Bank will then have a conditional withdrawal right to request the return of its investment at an amount equal to 101% of the amount of the investment. The Company has briefed East West Bank on the current status of the Groton Project including discussions with CMEEC and the U.S. Navy regarding the possibility of commencing operations at a reduced output of approximately 6 MW by September 30, 2022.

- ***Toyota - Port of Long Beach, CA – The Toyota Project.*** This 2.3 MW trigeneration platform will produce electricity, hydrogen and water. Fuel cell platform equipment has been built and delivered to the site, civil construction work has significantly advanced, and certain portions of the platform have advanced to the conditioning phase of project deployment. We continue to anticipate that the remaining construction and commissioning activity will be completed in late calendar year 2022 or early calendar year 2023. Due to the remaining construction and commissioning activity to be completed, commencement of commercial operations has been delayed beyond June 30, 2022, which was the deadline for commencing commercial operations under the Company’s Hydrogen Power Purchase Agreement with Toyota (as amended from time to time, the “Toyota HPPA”). On June 30, 2022, the Company and Toyota entered into the Third Amendment of the Toyota HPPA. This amendment extended the required commercial operations date to January 31, 2023.
- ***Derby, CT.*** On-site civil construction of this 14.0 MW project continues to advance, the Company has largely completed the foundational construction, and balance of plant components have been delivered and installed on site. This utility scale fuel cell platform will contain five SureSource 3000 fuel cell systems that will be installed on engineered platforms alongside the Housatonic River. To date, the Company has invested approximately $26.2 million into the project, with the majority of site work complete and the electrical and mechanical balance of plant installed. The Company continues to work with the utility customer, United Illuminating, on the interconnection process, the timing of which will drive the continued development of the site, including the delivery of the ten fuel cell modules required to complete the project.

Backlog by revenue category is as follows:

- Service agreements backlog totaled $112.2 million as of July 31, 2022, compared to $149.2 million as of July 31, 2021. Service agreements backlog includes future contracted revenue from maintenance and scheduled module exchanges for power plants under service agreements. In the first quarter of fiscal year 2022, approximately $22.2 million of backlog which was previously classified as “Service and license” backlog was reclassified to “Product” backlog as a result of the settlement agreement with POSCO Energy and KFC.
- Generation backlog totaled $1.1 billion as of July 31, 2022 and July 31, 2021. Generation backlog represents future contracted energy sales under contracted PPAs or approved utility tariffs.
- Product sales backlog totaled $38.3 million as of July 31, 2022. There was no product sales backlog as of July 31, 2021.
- Advanced Technologies contract backlog totaled $30.2 million as of July 31, 2022 compared to $40.0 million as of July 31, 2021. Advanced Technologies contract backlog primarily represents remaining revenue under the EMTEC Joint Development Agreement and government projects.

Backlog decreased by approximately 1.1% to $1.28 billion as of July 31, 2022, compared to $1.30 billion as of July 31, 2021, primarily as a result of a reduction in service agreements backlog and Advanced Technologies contract backlog, offset by the addition of product sales backlog (specifically, the addition of product sales backlog from the module order received from KFC). Advanced Technologies contract backlog primarily represents remaining revenue under the EMTEC Joint Development Agreement and government projects.

Backlog represents definitive agreements executed by the Company and our customers. Projects for which we have an executed PPA are included in generation backlog, which represents future revenue under long-term PPAs. Projects sold to customers (and not retained by the Company) are included in product sales and service agreements backlog, and the related generation backlog is removed upon sale. Together, the service and generation portion of backlog had a weighted average term of approximately 18 years, with weighting based on the dollar amount of backlog and utility service contracts of up to 20 years in duration at inception.

### Factors that may impact our liquidity

Factors that may impact our liquidity both in the remainder of fiscal year 2022 and in periods beyond fiscal year 2022 include:

- The Company’s cash on hand and access to additional liquidity. As of July 31, 2022, unrestricted cash and cash equivalents totaled $456.5 million.
- We bid on large projects in diverse markets that can have long decision cycles and uncertain outcomes. We manage production rate based on expected demand and project schedules. Changes to production rate take time to implement. The annualized production rate as of October 31, 2020 was 17.0 MW, which was impacted by the manufacturing facility shutdown from March 18, 2020 to June 22, 2020 that was implemented in response to the COVID-19 pandemic. During fiscal year 2020, we made a number of improvements in our manufacturing processes and capabilities, focusing on increasing throughput and simplifying and streamlining production steps, while implementing applicable social distancing protocols. During fiscal year 2021, we increased our production rate, and we achieved an annualized production rate of 38.5 MW as of July 31, 2022. We are working to increase our production rate during the remainder of fiscal year 2022 and are targeting achieving a rate capable of producing 40 to 45 MW on an annualized basis by the end of fiscal year 2022.
- As project sizes and the number of projects evolve, project cycle times may increase. We may need to make significant up-front investments of resources in advance of the receipt of any cash from the financing or sale of our projects. These amounts include development costs, interconnection costs, costs associated with posting of letters of credit, bonding or other forms of security, and engineering, permitting, legal, and other expenses.
- The amount of accounts receivable and unbilled receivables as of July 31, 2022 and October 31, 2021 was $32.8 million ($10.2 million of which is classified as “Other assets”) and $35.2 million ($11.6 million of which is classified as “Other assets”), respectively. Unbilled accounts receivable represent revenue that has been recognized in advance of billing the customer under the terms of the underlying contracts. Such costs have been funded with working capital and the unbilled amounts are expected to be billed and collected from customers once we meet the billing criteria under the contracts. Our accounts receivable balances may fluctuate as of any balance sheet date depending on the timing of individual contract milestones and progress on completion of our projects.
- The amount of total inventory as of July 31, 2022 and October 31, 2021 was $85.2 million ($4.6 million is classified as long-term inventory) and $71.7 million ($4.6 million is classified as long-term inventory), respectively, which includes work in process inventory totaling $53.8 million and $45.7 million, respectively. Work in process inventory can generally be deployed rapidly while the balance of our inventory requires further manufacturing prior to deployment. To execute on our business plan, we must produce fuel cell modules and procure balance of plant (“BOP”) components in required volumes to support our planned construction schedules and potential customer contractual requirements. As a result, we may manufacture modules or acquire BOP components in advance of receiving payment for such activities. This may result in fluctuations in inventory and in use of cash as of any given balance sheet date.
- The amount of total project assets as of July 31, 2022 and October 31, 2021 was $246.0 million and $223.3 million, respectively. Project assets consist of capitalized costs for fuel cell projects that are operating and producing revenue or are under construction. Project assets as of July 31, 2022 consisted of $136.7 million of completed, operating installations and $109.3 million of projects in development. As of July 31, 2022, we had 41.4 MW of operating project assets that generated $27.4 million of revenue in the nine months ended July 31, 2022.
- As of July 31, 2022, the Company had 34.9 MW of projects under development and construction. To build out this portfolio, as of July 31, 2022, we estimate the remaining investment in project assets to be in the range of approximately $90.0 million to $100 million. For fiscal year 2022, we forecast project asset expenditures to range between $40.0 million and $60.0 million (which includes amounts being expensed related to the Toyota project which totaled $14.0 million for the nine months ended July 31, 2022). To fund such expenditures, the Company expects to use unrestricted cash on hand and to seek sources of construction financing. In addition, once the projects under development become operational, the Company will seek to obtain permanent financing (tax equity and debt) which would be expected to return cash to the business.
- Certain of our PPAs for project assets in our generation operating portfolio and project assets under construction expose us to fluctuating fuel price risks as well as the risk of being unable to procure the required amounts of fuel and the lack of alternative available fuel sources. We seek to mitigate our fuel risk using strategies including: (i) fuel cost reimbursement mechanisms in our PPAs to allow for pass through of fuel costs (full or partial) where possible, which we have done with our 14.9 MW operating project in Bridgeport, CT and our 7.4 MW project under construction in Hartford, CT; (ii) procuring fuel under fixed price physical contracts with investment grade counterparties, which we have done for twenty years for our Tulare BioMAT project and the initial seven years of the eighteen year PPA for our LIPA Yaphank, NY project; and (iii) potentially entering into future financial hedges with investment grade counterparties to offset potential negative market fluctuations.

We currently have three projects in development with fuel sourcing risk, which are the Toyota project, which requires procurement of RNG, and our Derby, CT 14.0 MW and 2.8 MW projects, both of which require natural gas for which there is no pass through mechanism. Fuel sourcing and risk mitigation strategies for all three projects are being assessed and will be implemented as project operational dates become firm. Such strategies may require cash collateral or reserves to secure fuel or related contracts for these three projects.

- Capital expenditures are expected to range between $20.0 million to $30.0 million for fiscal year 2022, which includes expected investments in our factories for molten carbonate and solid oxide production capacity expansion, the addition of test facilities for new products and components, the expansion of our laboratories and upgrades to and expansion of our business systems. Our molten carbonate capacity expansion includes adding additional conditioning capacity at our Torrington, CT manufacturing facility with the goal of achieving 100 MW of annualized integrated onsite manufacturing and conditioning capacity.
- During fiscal year 2022, we expect to incur a total of approximately $30.0 million to $40.0 million of Company-funded research and development expenditures as we continue to accelerate commercialization of our Advanced Technologies solutions including distributed hydrogen, hydrogen based long duration energy storage and hydrogen power generation. During the nine months ended July 31, 2022, the Company has incurred $22.3 million of research and development expenditures compared to approximately $7.8 million for the nine months ended July 31, 2021. The Company continues to advance its solid oxide platform research, including increasing production of solid oxide fuel cell modules and expanding manufacturing capacity. The Company continues to work with Idaho National Laboratories on a demonstration high-efficiency electrolysis platform. This project, done in conjunction with the U.S. Department of Energy, is intended to demonstrate that the Company’s platform can operate at higher electrical efficiency than currently available electrolysis technologies through the inclusion of an external heat source. To further accelerate the commercialization activity for the solid oxide platform, the Company recently commenced the design and construction of two advanced prototypes targeted for fiscal year 2023 completion: (i) a 250 kW power generation platform, and (ii) a 1 MW high-efficiency electrolysis platform.
- Under the terms of certain contracts, the Company will provide performance security for future contractual obligations. As of July 31, 2022, we had pledged approximately $23.2 million of our cash and cash equivalents as collateral for performance security and for letters of credit for certain banking requirements and contracts. This balance may increase with a growing backlog and installed fleet.
- On August 16, 2022, the U.S. Inflation Reduction Act (“IRA” or the "Act") was signed into law. The provisions of the IRA are intended to, among other things, incentivize domestic clean energy investment, manufacturing and production. The IRA includes provisions that provide incentives for clean energy through enhancement of the Investment Tax Credit (“ITC”) program, Production Tax Credits for clean energy component sourcing and production in the United States, enhancements to Section 45Q of the Internal Revenue Code which provides credits for carbon oxide sequestration intended to incentivize investment in carbon capture and sequestration, and certain incentives for clean energy projects that use environmental brownfield sites and/or are located in economically challenged areas. In addition, the Act would provide a 10-year Production Tax Credit (“PTC”) for the production of clean hydrogen at a qualified facility that begins construction prior to January 1, 2033, with the option to elect the ITC in lieu of the PTC. The Company views the enactment of the IRA as favorable for the overall business climate for fuel cell manufacturers, however, the Company is continuing to evaluate the overall impact and applicability of the IRA to the Company’s current and planned products and the markets in which the Company seeks to sell its products.

### Depreciation and Amortization

As the Company builds project assets and makes capital expenditures, depreciation and amortization expenses are expected to increase. For the three months ended July 31, 2022 and 2021, depreciation and amortization totaled $5.3 million and $4.5 million, respectively (of these totals, approximately $4.1 million and $3.3 million for the three months ended July 31, 2022 and 2021, respectively, relate to depreciation and amortization of project assets in our generation operating portfolio). For the nine months ended July 31, 2022 and 2021, depreciation and amortization totaled $16.4 million and $14.9 million, respectively (of these totals, approximately $11.8 million and $11.2 million for the nine months ended July 31, 2022 and 2021, respectively, relate to depreciation of project assets in our generation operating portfolio).

### Cash Flows

Cash and cash equivalents and restricted cash and cash equivalents totaled $479.6 million as of July 31, 2022 compared to $460.2 million as of October 31, 2021. As of July 31, 2022, unrestricted cash and cash equivalents was $456.5 million compared to $432.2 million of unrestricted cash and cash equivalents as of October 31, 2021. As of July 31, 2022, restricted cash and cash equivalents was $23.2 million, of which $5.6 million was classified as current and $17.5 million was classified as non-current, compared to $28.0 million of restricted cash and cash equivalents as of October 31, 2021, of which $11.3 million was classified as current and $16.7 million was classified as non-current.

The following table summarizes our consolidated cash flows:

*(dollars in thousands)*

| ​ ​ Consolidated Cash Flow Data: | ​ ​ ​ | ​ ​ Nine months ended July 31, 2022 ​ ​ | ​ ​ ​ | ​ ​ 2021 ​ ​ |
| --- | --- | --- | --- | --- |
| Net cash used in operating activities | ​ | $(88,088) | ​ | $(60,585) |
| Net cash used in investing activities | ​ | ​ (39,483) | ​ | ​ (44,208) |
| Net cash provided by financing activities | ​ | ​ 147,323 | ​ | ​ 406,769 |
| Effects on cash from changes in foreign currency rates | ​ | ​ (326) | ​ | ​ (8) |
| Net increase in cash, cash equivalents and restricted cash | ​ | $19,426 | ​ | $301,968 |

The key components of our cash inflows and outflows were as follows:

***Operating Activities –*** Net cash used in operating activities was $88.1 million during the nine months ended July 31, 2022, compared to $60.6 million of net cash used in operating activities during the nine months ended July 31, 2021.

Net cash used in operating activities for the nine months ended July 31, 2022 was primarily a result of the net loss of $105.2 million, increases in inventories of $22.8 million, other assets of $6.2 million and unbilled receivables of $0.2 million and a decrease in deferred revenue of $2.0 million partially offset by decreases in accounts receivable of $2.0 million, increases in accrued liabilities of $14.5 million and accounts payable of $6.3 million and non-cash adjustments of $26.6 million.

Net cash used in operating activities for the nine months ended July 31, 2021 was primarily a result of the net loss of $76.9 million, increases in inventories of $11.0 million, unbilled receivables of $5.4 million, other assets of $3.3 million, and accounts receivable of $4.6 million, and decreases in deferred revenue of $4.5 million and accrued liabilities of $2.6 million partially offset by increases in accounts payable of $0.7 million and non-cash adjustments of $47.9 million.

***Investing Activities –*** Net cash used in investing activities was $39.5 million for the nine months ended July 31, 2022, compared to net cash used in investing activities of $44.2 million during the nine months ended July 31, 2021.

Net cash used in investing activities for the nine months ended July 31, 2022 included $23.7 million of project asset expenditures and $15.8 million of capital expenditures.

Net cash used in investing activities for the nine months ended July 31, 2021 included $41.3 million of project asset expenditures and $2.9 million of capital expenditures.

***Financing Activities –*** Net cash provided by financing activities was $147.3 million during the nine months ended July 31, 2022, compared to net cash provided by financing activities of $406.8 million during the nine months ended July 31, 2021.

Net cash provided by financing activities during the nine months ended July 31, 2022 resulted from $145.4 million of net proceeds from sales of common stock and $11.9 million of net contributions received from the sale of a noncontrolling interest in the LIPA Yaphank Project, partially offset by debt repayments of $7.2 million, payment for taxes related to net share settlement of equity awards of $0.3 million, payment of $2.4 million for preferred dividends and distribution to noncontrolling interest of $0.2 million.

Net cash provided by financing activities during the nine months ended July 31, 2021 resulted from $523.7 million of net proceeds from sales of common stock and $0.9 million of proceeds received from warrant conversions, offset by debt repayments of $94.0 million primarily relating to the payoff of amounts owed under the Orion Credit Agreement and the April 2020 Paycheck Protection Program Promissory Note, payment of preferred dividends and return of capital of $2.4 million under the terms of the Series 1 Preferred Shares, and payment of $21.5 million to satisfy our obligations under the terms of the Series 1 Preferred Shares.

### Sources and Uses of Cash and Investments

In order to consistently produce positive cash flow from operations, we need to increase order flow to support higher production levels, leading to lower costs on a per unit basis. We also continue to invest in new product and market development and, as a result, we are not generating positive cash flow from our operations. Our operations are funded primarily through cash generated from product sales, service contracts, generation assets and Advanced Technologies contracts, as well as sales of equity and equity linked securities, issuances of corporate and project level debt, and monetization of technology through licenses.

### Commitments and Significant Contractual Obligations

A summary of our significant commitments and contractual obligations as of July 31, 2022 and the related payments by fiscal year are as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ Payments Due by Period Total | ​ | ​ ​ Less than 1 Year | ​ | ​ ​ 1 – 3 Years | ​ | ​ ​ 3 – 5 Years | ​ | ​ ​ More than 5 Years |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Purchase commitments (1) | ​ | $75,603 | ​ | $75,421 | ​ | $182 | ​ | $— | ​ | $— |
| Term loans (principal and interest) | ​ | ​ 29,827 | ​ | ​ 8,053 | ​ | ​ 14,263 | ​ | ​ 3,879 | ​ | ​ 3,632 |
| Capital and operating lease commitments (2) | ​ | ​ 16,910 | ​ | ​ 1,301 | ​ | ​ 1,600 | ​ | ​ 1,412 | ​ | ​ 12,597 |
| Sale-leaseback financing obligation (3) | ​ | ​ 22,870 | ​ | ​ 3,244 | ​ | ​ 7,694 | ​ | ​ 6,132 | ​ | ​ 5,800 |
| Natural gas supply contract (4) | ​ | ​ 12,142 | ​ | ​ 1,969 | ​ | ​ 3,938 | ​ | ​ 3,938 | ​ | ​ 2,297 |
| Series B Preferred dividends payable (5) | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ — |
| **Totals** | **​** | $157,352 | ​ | $89,988 | ​ | $27,677 | ​ | $15,361 | ​ | $24,326 |

(1) Purchase commitments with suppliers for materials, supplies and services incurred in the normal course of business.

(2) Future minimum lease payments on finance and operating leases.

(3) Represents payments due under sale-leaseback transactions and related financing agreements between certain of our wholly-owned subsidiaries and PNC Energy Capital, LLC (“PNC”) and/or Crestmark Equipment Finance (“Crestmark”) (as applicable). Lease payments for each lease under these financing agreements are generally payable in fixed quarterly installments over a 10-year period.

(4) During fiscal year 2020, the Company entered into a 7-year natural gas contract with an estimated annual cost per year of $2.0 million beginning on November 1, 2021. This gas contract is for the Company’s Yaphank project and the costs are expected to be offset by generation revenues on the project.

(5) We pay $3.2 million in annual dividends on our Series B Preferred Stock, if and when declared. The $3.2 million annual dividend payment, if dividends are declared, has not been included in this table as we cannot reasonably determine when or if we will be able to convert the Series B Preferred Stock into shares of our common stock. We may, at our option, convert these shares into the number of shares of our common stock that are issuable at the then prevailing conversion rate if the closing price of our common stock exceeds 150% of the then prevailing conversion price ($1,692 per share at July 31, 2022) for 20 trading days during any consecutive 30 trading day period.

#### Outstanding Loans

### Connecticut Green Bank Loans

As of October 31, 2019, the Company had a long-term loan agreement with the Connecticut Green Bank, providing the Company with a loan of $1.8 million (the “Green Bank Loan Agreement”). On and effective as of December 19, 2019, the Company and Connecticut Green Bank entered into an amendment to the Green Bank Loan Agreement (the “Green Bank Amendment”). Upon the execution of the Green Bank Amendment on December 19, 2019, Connecticut Green Bank made an additional loan to the Company in the aggregate principal amount of $3.0 million (the “December 2019 Loan”), which was to be used (i) first, to pay closing fees related to the May 9, 2019 acquisition of the Bridgeport Fuel Cell Project and the Subordinated Credit Agreement (as defined below), other fees and interest, and (ii) thereafter, for general corporate purposes.

The Green Bank Amendment provides that, until such time as the loan (which includes both the outstanding principal balance of the original loan under the Green Bank Loan Agreement and the outstanding principal amount of the December 2019 Loan) has been repaid in its entirety, interest on the outstanding balance of the loan shall accrue at a rate of 8% per annum, payable by the Company on a monthly basis in arrears. Interest payments made by the Company after the date of the Green Bank Amendment are to be applied first to interest that has accrued on the outstanding principal balance of the original loan under the Green Bank Loan Agreement and then to interest that has accrued on the December 2019 Loan.

The Green Bank Amendment also modifies the repayment and mandatory prepayment terms and extends the maturity date set forth in the original Green Bank Loan Agreement. Under the Green Bank Amendment, to the extent that excess cash flow reserve funds under the BFC Credit Agreement (as defined below) are eligible for disbursement to Bridgeport Fuel Cell, LLC pursuant to Section 6.23(c) of the BFC Credit Agreement, such funds are to be paid to Connecticut Green Bank until the loans are repaid in full. The Green Bank Amendment further provides that any unpaid balance of the loan and all other obligations due under the Green Bank Loan Agreement will be due and payable on May 9, 2026. Finally, with respect to mandatory prepayments, the Green Bank Amendment provides that, when the Company has closed on the subordinated project term loan pursuant to the Commitment Letter, dated February 6, 2019, issued by Connecticut Green Bank to Groton Station Fuel Cell, LLC (“Groton Fuel Cell”) to provide a subordinated project term loan to Groton Fuel Cell in the amount of $5.0 million, the Company will be required to prepay to Connecticut Green Bank the lesser of any then outstanding amount of the December 2019 Loan and the amount of the subordinated project term loan actually advanced by Connecticut Green Bank. The balance under the original Green Bank Loan Agreement and the December 2019 Loan as of July 31, 2022 was $4.8 million.

### Bridgeport Fuel Cell Project Loans

On May 9, 2019, in connection with the closing of the purchase of the membership interests of Bridgeport Fuel Cell, LLC (“BFC”) (and the 14.9 MW Bridgeport Fuel Cell Project), BFC (a subsidiary of the Company following the closing) entered into a subordinated credit agreement with the Connecticut Green Bank whereby Connecticut Green Bank provided financing in the amount of $6.0 million (the “Subordinated Credit Agreement”). This $6.0 million consisted of $1.8 million in incremental funding that was received by BFC and $4.2 million of funding previously received by FuelCell Energy, Inc. with respect to which BFC became the primary obligor. As security for the Subordinated Credit Agreement, Connecticut Green Bank received a perfected lien, subordinated and second in priority to the liens securing the $25.0 million loaned under the BFC Credit Agreement (as defined below), in all of the same collateral securing the BFC Credit Agreement. The interest rate under the Subordinated Credit Agreement is 8% per annum. Principal and interest are due monthly in amounts sufficient to fully amortize the loan over an 84-month period ending in May 2026. The Subordinated Credit Agreement contains customary representations, warranties and covenants. The Subordinated Credit Agreement contains a debt coverage ratio, which is required to be maintained and may not be less than 1.10 as of the end of each fiscal quarter, beginning with the quarter ended July 31, 2020. The balance under the Subordinated Credit Agreement as of July 31, 2022 was $3.7 million.

On May 9, 2019, in connection with the closing of the purchase of the Bridgeport Fuel Cell Project, BFC entered into a Credit Agreement with Liberty Bank, as administrative agent and co-lead arranger, and Fifth Third Bank as co-lead arranger and swap hedger (the “BFC Credit Agreement”), whereby (i) Fifth Third Bank provided financing in the amount of $12.5 million towards the purchase price for the BFC acquisition; and (ii) Liberty Bank provided financing in the amount of $12.5 million towards the purchase price for the BFC acquisition. As security for the BFC Credit Agreement, Liberty Bank and Fifth Third Bank were granted a first priority lien in (i) all assets of BFC, including BFC’s cash accounts, fuel cells, and all other personal property, as well as third party contracts including the Energy Purchase Agreement between BFC and Connecticut Light and Power Company dated July 10, 2009, as amended; (ii) certain fuel cell modules that are intended to be used to replace the Bridgeport Fuel Cell Project’s fuel cell modules as part of routine operation and maintenance; and (iii) FuelCell Energy Finance, LLC’s (a wholly-owned subsidiary of the Company and the direct parent of BFC) ownership interest in BFC. The maturity date under the BFC Credit Agreement is May 9, 2025. Monthly principal and interest are to be paid in arrears in an amount sufficient to fully amortize the term loan over a 72-month period. BFC has the right to make additional principal payments or pay the balance due under the BFC Credit Agreement in full, provided that it pays any associated breakage fees with regard to the interest rate swap agreements fixing the interest rate. The interest rate under the BFC Credit Agreement fluctuates monthly at the 30-day LIBOR rate plus 275 basis points.

An interest rate swap agreement was required to be entered into with Fifth Third Bank in connection with the BFC Credit Agreement to protect against movements in the floating LIBOR index. Accordingly, on May 16, 2019, an interest rate swap agreement (the “Swap Agreement”) was entered into with Fifth Third Bank in connection with the BFC Credit Agreement for the term of the loan. The net interest rate across the BFC Credit Agreement and the swap transaction results in a fixed rate of 5.09%. The interest rate swap is adjusted to fair value on a quarterly basis. The estimated fair value is based on Level 2 inputs including primarily the forward LIBOR curve available to swap dealers. The valuation methodology involves comparison of (i) the sum of the present value of all monthly variable rate payments based on a reset rate using the forward LIBOR curve and (ii) the sum of the present value of all monthly fixed rate payments on the notional amount, which is equivalent to the outstanding principal amount of the loan. The fair value adjustments for the three months ended July 31, 2022 and 2021 resulted in a $36 thousand gain and a $0.1 million gain, respectively, and for the nine months ended July 31, 2022 and 2021 resulted in a $0.6 million gain and a $0.3 million gain, respectively. The fair value of the interest rate swap asset at July 31, 2022 was $0.1 million and the fair value of the interest rate swap liability at October 31, 2021 $0.5 million.

The BFC Credit Agreement requires BFC to maintain a debt service reserve. Each of Liberty Bank and Fifth Third Bank also has an operation and module exchange reserve (“O&M Reserve”) under the BFC Credit Agreement. BFC is required to deposit $100,000 per month into each O&M Reserve for the first five years of the BFC Credit Agreement, with such funds to be released at the sole discretion of Liberty Bank and Fifth Third Bank, as applicable. BFC is also required to maintain excess cash flow reserve accounts at each of Liberty Bank and Fifth Third Bank. Excess cash flow consists of cash generated by BFC from the Bridgeport Fuel Cell Project after payment of all expenses (including after payment of intercompany service fees to the Company), debt service to Liberty Bank and Fifth Third Bank, the funding of all required reserves, and payments to Connecticut Green Bank for the subordinated facility. BFC is also required to maintain a debt service coverage ratio of not less than 1.20, measured for the trailing year based on fiscal quarters beginning with the quarter ended July 31, 2020. The Company has certain quarterly and annual financial reporting requirements under the BFC Credit Agreement. The annual financial statements to be provided pursuant to such requirements are to be audited and accompanied by a report of an independent certified public accountant, which report shall not include a “going concern” matter of emphasis or any qualification as to the scope of such audit.

### State of Connecticut Loan

In October 2015, the Company closed on a definitive Assistance Agreement with the State of Connecticut (the “Assistance Agreement”) and received a disbursement of $10.0 million, which was used for the first phase of the expansion of the Company’s Torrington, Connecticut manufacturing facility. In conjunction with this financing, the Company entered into a $10.0 million promissory note and related security agreements securing the loan with equipment liens and a mortgage on its Danbury, Connecticut location. Interest accrues at a fixed interest rate of 2.0%, and the loan is repayable over 15 years from the date of the first advance, which occurred in October of 2015. Principal payments were deferred for four years from disbursement and began on December 1, 2019. Under the Assistance Agreement, the Company was eligible for up to $5.0 million in loan forgiveness if the Company created 165 full-time positions and retained 538 full-time positions for two consecutive years (the “Employment Obligation”) as measured on October 28, 2017 (the “Target Date”). The Assistance Agreement was subsequently amended in April 2017 to extend the Target Date by two years to October 28, 2019.

In January 2019, the Company and the State of Connecticut entered into a Second Amendment to the Assistance Agreement (the “Second Amendment”). The Second Amendment extended the Target Date to October 31, 2022 and amended the Employment Obligation to require the Company to continuously maintain a minimum of 538 full-time positions for 24 consecutive months. If the Company meets the Employment Obligation, as modified by the Second Amendment, and creates an additional 91 full-time positions, the Company may receive a credit in the amount of $2.0 million to be applied against the outstanding balance of the loan. However, based on the Company’s current headcount and plans for the remainder of fiscal year 2022 and beyond, it may not meet this requirement or receive this credit. A job audit will be performed within 90 days of the Target Date. If the Company does not meet the Employment Obligation, then an accelerated payment penalty will be assessed at a rate of $18,587.36 multiplied by the number of employees below the number of employees required by the Employment Obligation. Such penalty is immediately payable and will be applied first to accelerate the payment of any outstanding fees or interest due and then to accelerate the payment of outstanding principal.

In April of 2020, as a result of the COVID-19 pandemic, the State of Connecticut agreed to defer three months of principal and interest payments under the Assistance Agreement, beginning with the May 2020 payment. These deferred payments were added at the end of the loan, thus extending out the maturity date by three months.

#### Restricted Cash

We have pledged approximately $23.2 million of our cash and cash equivalents as performance security and for letters of credit for certain banking requirements and contracts. As of July 31, 2022, outstanding letters of credit totaled $4.8 million. These expire on various dates through August 2028. Under the terms of certain contracts, we will provide performance security for future contractual obligations. The restricted cash balance as of July 31, 2022 also included $4.6 million and $2.9 million primarily to support obligations under the power purchase and service agreements related to the PNC sale-leaseback transactions and the Crestmark sale-leaseback transactions, respectively, and $9.7 million relating to future obligations associated with the Bridgeport Fuel Cell Project. Refer to Note 16. “Restricted Cash” to our Consolidated Financial Statements for the nine months ended July 31, 2022 included in this Quarterly Report on Form 10-Q for a detailed discussion of the Company’s restricted cash balance.

#### Power purchase agreements

Under the terms of our PPAs, customers agree to purchase power from our fuel cell power plants at negotiated rates. Electricity rates are generally a function of the customers’ current and estimated future electricity pricing available from the grid. We are responsible for all operating costs necessary to maintain, monitor and repair our fuel cell power plants. Under certain agreements, we are also responsible for procuring fuel, generally natural gas or biogas, to run our fuel cell power platforms. In addition, under certain agreements, we are required to produce minimum amounts of power under our PPAs and we have the right to terminate PPAs by giving written notice to the customer, subject to certain exit costs. As of July 31, 2022, our generation operating portfolio was 41.4 MW.

#### Service and warranty agreements

We warranty our products for a specific period of time against manufacturing or performance defects. Our standard U.S. warranty period is generally 15 months after shipment or 12 months after acceptance of the product. In addition to the standard product warranty, we have contracted with certain customers to provide services to ensure the power plants meet minimum operating levels for terms of up to 20 years. Pricing for service contracts is based upon estimates of future costs, which could be materially different from actual expenses. Refer to “Critical Accounting Policies and Estimates” for additional details.

#### Advanced Technologies contracts

We have contracted with various government agencies and certain companies from private industry to conduct research and development as either a prime contractor or sub-contractor under multi-year, cost-reimbursement and/or cost-share type contracts or cooperative agreements. Cost-share terms require that participating contractors share the total cost of the project based on an agreed upon ratio. In many cases, we are reimbursed only a portion of the costs incurred or to be incurred on the contract. While government research and development contracts may extend for many years, funding is often provided incrementally on a year-by-year basis if contract terms are met and Congress authorizes the funds. As of July 31, 2022, Advanced Technologies contract backlog totaled $30.2 million, of which $12.1 million is non-U.S. Government-funded, $16.9 million is U.S. Government-funded and $1.2 million is U.S. Government-unfunded.

#### Off-Balance Sheet Arrangements

We have no off-balance sheet debt or similar obligations, which are not classified as debt. We do not guarantee any third-party debt. See Note 19. “Commitments and Contingencies” to our Consolidated Financial Statements for the three and nine months ended July 31, 2022 included in this Quarterly Report on Form 10-Q for further information.

### CRITICAL ACCOUNTING POLICIES AND 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, 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.

Our critical accounting policies are those that are both most important to our financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a complete description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended October 31, 2021 filed with the SEC.

### ACCOUNTING GUIDANCE UPDATE

See Note 2. “Recent Accounting Pronouncements,” to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a summary of recently adopted accounting guidance.

## Market risk

As filed, 5,171 characters.

### Interest Rate Exposure

Cash is invested overnight with high credit quality financial institutions and therefore we are not exposed to market risk on our cash holdings from changing interest rates. Based on our overall interest rate exposure as of July 31, 2022, including all interest rate sensitive instruments, a change in interest rates of 1% would not have a material impact on our results of operations.

### Foreign Currency Exchange Risk

As of July 31, 2022, approximately 0.5% of our total cash and cash equivalents were in currencies other than U.S. dollars (primarily the Euro, Canadian dollars and Korean Won) and we have no plans of repatriation. We make purchases from certain vendors in currencies other than U.S. dollars. Although we have not experienced significant foreign exchange rate losses to date, we may in the future, especially to the extent that we do not engage in currency hedging activities. The economic impact of currency exchange rate movements on our operating results is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, may cause us to adjust our financing and operating strategies.

### Derivative Fair Value Exposure Risk

#### Interest Rate Swap

On May 16, 2019, an interest rate swap agreement (the “Swap Agreement”) was entered into with Fifth Third Bank in connection with the BFC Credit Agreement for the term of the loan. The net interest rate across the BFC Credit Agreement and the swap transaction results in a fixed rate of 5.09%. The interest rate swap is adjusted to fair value on a quarterly basis. The estimated fair value is based on Level 2 inputs including primarily the forward LIBOR curve available to swap dealers. The valuation methodology involves comparison of (i) the sum of the present value of all monthly variable rate payments based on a reset rate using the forward LIBOR curve and (ii) the sum of the present value of all monthly fixed rate payments on the notional amount, which is equivalent to the outstanding principal amount of the loan. The fair value adjustments for the three months ended July 31, 2022 and 2021 resulted in a gain of $36 thousand and a gain of $0.1 million, respectively, and for the nine months ended July 31, 2022 and 2021 resulted in a gain of $0.6 million and a gain of $0.3 million, respectively.

#### Project Fuel Price Exposure Risk

Certain of our PPAs for project assets in our generation operating portfolio and project assets under construction expose us to fluctuating fuel price risks as well as the risk of being unable to procure the required amounts of fuel and the lack of alternative available fuel sources. We seek to mitigate our fuel risk using strategies including: (i) fuel cost reimbursement mechanisms in our PPAs to allow for pass through of fuel costs (full or partial) where possible, which we have done with our 14.9 MW operating project in Bridgeport, CT and our 7.4 MW project under construction in Hartford, CT; (ii) procuring fuel under fixed price physical contracts with investment grade counterparties, which we have done for twenty years for our Tulare BioMAT project and the initial seven years of the 18 year PPA for our LIPA Yaphank, NY project; and (iii) potentially entering into future financial hedges with investment grade counterparties to offset potential negative market fluctuations.

We currently have three projects in development with fuel sourcing risk, namely, the Toyota project, which requires procurement of renewable natural gas (“RNG”), and our Derby, CT 14.0 MW and 2.8 MW projects, both of which require natural gas for which there is no pass though mechanism. Fuel sourcing and risk mitigation strategies for all three projects are being assessed and will be implemented as project operational dates become firm.

Historically, this risk has not been material to our financial statements as our operating projects prior to July 31, 2022 either did not have fuel price risk exposure, had fuel cost reimbursement mechanisms in our related PPAs to allow for pass through of fuel costs (full or partial), or had established long term fixed price fuel physical contracts. To provide a meaningful assessment of the fuel price risk arising from price movements of natural gas, the Company performed a sensitivity analysis to determine the impact a change in natural gas commodity pricing would have on our Consolidated Statements of Operations and Comprehensive Loss (assuming that all projects with fuel price risk were operating). A $1/Metric Million British Thermal Unit (“MMBTu”) increase in market pricing compared to our underlying project models would result in a cost impact of approximately $1.4 million to our Consolidated Statements of Operations and Comprehensive Loss on an annual basis. We have also conducted a sensitivity analysis on the impact of RNG pricing and a $10/MMBTu increase in market pricing compared to our underlying project models would result in an impact of approximately $2.0 million to our Consolidated Statements of Operations and Comprehensive Loss on an annual basis.

## Controls and procedures

As filed, 1,693 characters.

The Company maintains disclosure controls and procedures, which are designed to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 752 characters.

Part I, Item 1A, “Risk Factors” of our most recently filed Annual Report on Form 10-K for the fiscal year ended October 31, 2021, filed with the Securities and Exchange Commission on December 29, 2021 (the “2021 Annual Report”), sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Those risk factors continue to be relevant to an understanding of our business, financial condition and operating results and, accordingly, you should review and consider such risk factors in making any investment decision with respect to our securities. There have been no material changes to the risk factors previously disclosed in the 2021 Annual Report.

Filed Sep 8, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-014267. Last ingested by Listed: Oct 30, 2026, 17:33 ET. No prices; not investment advice.