SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 1-14204
FUELCELL ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0853042
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3 Great Pasture Road, Danbury, Connecticut 06813
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (203) 825-6000
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's Common Stock, par value
$.0001, as of February 29, 2000 was 6,378,757.
FUELCELL ENERGY, INC
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Consolidated Condensed
Financial Statements:
Consolidated Condensed Balance Sheets as of
January 31, 2000 and October 31,1999 2
Consolidated Condensed Statements of Operations 3
for the three months ended January 31, 2000
and January 31, 1999
Consolidated Condensed Statements of Cash Flows 4
for the three months ended January 31, 2000
and January 31, 1999
Notes to Unaudited Consolidated Condensed 5
Financial Statements
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 9
Market Risk
PART II - OTHER INFORMATION
Item 4. Exhibits and Reports on Form 8-K 10
Signatures
1
Part I - Financial Information
Item I. Financial Statements
FUELCELL ENERGY, INC
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
January 31, October 31,
2000 1999
------- -------
ASSETS:
Current Assets:
Cash & cash equivalents $ 6,478 6,163
Accounts receivable 2,322 2,332
Inventories 1,235 1,204
Deferred income taxes 289 291
Other current assets 749 405
------- -------
Total current assets 11,073 10,395
Property, plant and equipment, net 6,935 7,195
Other assets, net 2,103 2,241
------- -------
Total Assets 20,111 19,831
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term debt $ 198 341
Accounts payable 507 484
Accrued liabilities 1,891 1,787
Deferred license fee income 263 29
Customer advances 550 550
------- -------
Total current liabilities 3,409 3,191
Long Term Debt 1,588 1,625
------- -------
Total liabilities 4,997 4,816
------- -------
Minority Interest 200 200
------- -------
Common Shareholders' Equity:
Common stock, ($.0001 par value); 20,000,000 shares
authorized: 6,378,757 and 6,325,872 shares issued
and outstanding at January 31, 2000 and
October 31,1999, respectively -- --
Additional paid-in capital 14,236 14,142
Retained earnings 678 673
------- -------
Total shareholders' equity 14,914 14,815
------- -------
Total Liabilities and Shareholders' Equity 20,111 19,831
======= =======
See notes to consolidated condensed financial statements.
2
Part 1 - Financial Information
Item 1. Financial Statements
FUELCELL ENERGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended January 31,
--------------------------------
2000 1999
----------- -----------
Revenues $ 3,600 $ 6,284
Cost and expenses:
Cost of revenues 1,965 4,355
Administrative and selling expense 670 1,361
Depreciation 385 330
Research and development 671 823
----------- -----------
3,691 6,869
----------- -----------
Loss from operations (91) (585)
License fee income, net (includes income
from related parties of $58 and $62 for
the three months ended January 31, 2000
and 1999, respectively) 63 (16)
Interest expense (37) (53)
Interest and other income, net 72 65
----------- -----------
Income/(loss) before provision
for income taxes 7 (589)
Provision/(benefit)for income taxes 2 (241)
----------- -----------
Net Income(loss) $ 5 $ (348)
=========== ===========
Earnings per share:
Basic income (loss) per share $ .00 $ (.06)
=========== ===========
Basic shares outstanding 6,332,898 6,247,488
=========== ===========
Diluted income (loss) per share $ .00 $ (.06)
=========== ===========
Diluted shares outstanding 6,745,827 6,247,488
=========== ===========
See notes to consolidated condensed financial statements
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Part 1 - Financial Information
Item 1. Financial Statements
FUELCELL ENERGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31,
2000 1999
-------- --------
Cash flows from operating activities:
Net Income (loss) $ 5 $ (348)
Adjustments to reconcile net income (loss) to
net cash provided by/(used in) operating activities:
Compensation for options granted 33 33
Depreciation and amortization 526 433
Deferred income taxes (2) --
Changes in operating assets and liabilities:
Accounts receivable 10 (1,404)
Inventories (31) (236)
Other current assets (344) (91)
Accounts payable 23 28
Accrued liabilities 104 1,102
Deferred license fee income 234 263
Net cash provided by/(used in)
Operating activities 562 (220)
-------- --------
Cash flows from investing activities:
Capital expenditures (128) (412)
Payments on other assets -- (23)
-------- --------
Net cash provided by/(used in) investing
activities (128) (435)
-------- --------
Cash flows from financing activities:
Proceeds from short term debt -- 821
Repayment of Debt (180) (190)
Common Stock Issued 61 57
-------- --------
Net cash provided by/(used in)
financing activities (119) 688
-------- --------
Net increase/(decrease) in cash and
cash equivalents 315 33
Cash and cash equivalents, beginning of period 6,163 10,304
-------- --------
Cash and cash equivalents, end of period $ 6,478 $ 10,337
======== ========
Supplemental disclosure of cash paid during
the period for:
Interest $ 26 $ 54
Income taxes $ 3 $ 100
See notes to consolidated condensed financial statements.
4
Part I - Financial Information
Item 1. Financial Statements
FUELCELL ENERGY, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements for FuelCell Energy
Inc. (the "Company"), have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position of the Company as of January
31, 2000 and the results of operations for the three months ended January 31,
2000 and 1999 and cash flows for such three month periods have been included.
Information included in the Consolidated Condensed Balance Sheet as of October
31, 1999 has been derived from audited financial statements included in the
Company's Annual Report on Form 10-K for the year ended October 31, 1999 ("1999
10-K"), but does not include all disclosures required by generally accepted
accounting principles.
The results of operations for the three months ended January 31, 2000 and 1999
are not necessarily indicative of the results to be expected for the full year.
The reader should supplement the information in this document with prior
disclosures in the 1999 10-K.
On November 16, 1999, the Company paid a stock dividend of one additional share
of common stock for every two shares of the Company's common stock held on
November 1, 1999, the record date. All per share data and the number of shares
of common stock have been adjusted retroactively to give effect to the stock
dividend.
In accordance with the License Assistance Agreement between the Company and
Evercel,Inc.("Evercel"), Evercel has agreed to provide all services and
assistance necessary to effectively fulfill on behalf of the Company all of the
Company's obligations under the joint venture contract for Xiamen Three
Circles--ERC Battery Corp., Ltd. (the "Joint Venture") and the related license
agreement until such time as the Company obtains the approval from the Chinese
partner and appropriate Chinese governmental authority for the assignment of
such agreements to Evercel. In return for such assistance, the Company will pay
to Evercel or Evercel will pay to the Company an amount equal to the sum of all
money, dividends, profits, reimbursements, distributions and payments actually
paid to the Company or paid by the Company in cash or in kind or otherwise
accruing to the Company pursuant to the Joint Venture contract and related
license agreement.
5
Part I - Financial Information
Item 1. Financial Statements
FUELCELL ENERGY, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
CONTINUED
NOTE 2: EARNINGS PER SHARE
Basic and diluted earnings (loss) per share are calculated based upon the
provisions of SFAS 128, adopted in 1998, using the following data:
Three Months
Ended January 31,
-----------------
2000 1999
---- ----
Weighted average basic
Common Shares 6,332,898 6,247,488
Effect of dilutive securities
Stock options 412,929 --
Weighted Average Basic
Common Shares Adjusted
for diluted calculation 6,745,827 6,247,488
========= =========
The computation of diluted loss per share for the first quarter of 1999 follows
the basic calculation since common stock equivalents were antidilutive. The
weighted average number of options outstanding for the period ended January 31,
1999 was 670,080.
NOTE 3: INVENTORY
The components of inventories at January 31, 2000 consisted of the following:
Raw Materials $ 107,000
Work-in-Process 1,128,000
Finished Goods --
----------
1,235,000
6
Part I - Financial Information
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report contains forward looking statements, including statements regarding
the Company's plans and expectations regarding the development and
commercialization of its fuel cell technology. When used in this Report, the
words "expects", "anticipates", "estimates", "should", "will", "could", "would",
"may", and similar expressions are intended to identify forward-looking
statements. All forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Factors that could cause such a difference include, without
limitation, the risk that the Company's Direct Fuelcell(TM) Power Plant will not
operate as efficiently as planned, the risk that the Company's or MTU'S
commercial field trials and demonstration projects will not be conducted as
anticipated, the risk that future funding under government contracts will not be
obtained as anticipated, the risk that cost reduction in the manufacturing
process will not be achieved to the extent necessary to facilitate
commercialization, the risk that the Company will not initiate commercial sales
as currently scheduled, the risk that the Company's manufacturing capacity will
not be increased as planned, general risks associated with product development,
manufacturing and introduction, changes in the utility regulatory environment,
potential volatility of energy prices, rapid technological change, and
competition, as well as other risks set forth in the Company's filings with the
Securities and Exchange Commission. The forward-looking statements contained
herein speak only as of the date of this Report. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any such statement to reflect any change in the Company's expectations or any
change in events, conditions or circumstances on which any such statement is
based.
We were founded in 1969 to develop fuel cells and specialized batteries
receiving funding from various government agencies and other sources. In 1983,
the Company expanded its focus from military applications to the development of
commercial products receiving substantial funding from the United States
Department of Energy ("DOE"), the United States Department of Defense ("DOD"),
the Electric Power Research Institute, electric utilities and other outside
sources. In addition to providing research and development under contracts, the
Company is currently in the process of commercializing its Direct Fuelcell
technology and expects to incur losses as we expand our product development,
commercialization program and manufacturing operations.
Results of Operations
Comparison Three Months ended January 31, 2000 and January 31, 1999
Revenues decreased 43% to $3,600,000 in the first quarter of fiscal 2000 from
$6,284,000 for the same period in the last fiscal year. The decrease was due to
reduced funding, amounting to $1.4 million, under the Cooperative Agreement with
the U.S. Department of Energy, and a $1.2 million contract that shipped in
January 1999 and was not replaced in this quarter.
Cost of revenues decreased 55% to $1,965,000 in the first quarter of fiscal 2000
from $4,355,000 in the same period last fiscal year. The decrease was due to the
7
reduced revenues mentioned above, a reduction in staffing levels which occurred
in February 1999, costs incurred in the first quarter of fiscal 1999 associated
with the development of manufacturing processes for fuel cell production which
were not repeated this quarter, and operating costs incurred in the first
quarter of 1999 associated with the former battery group of the Company.
Administrative and selling expense decreased 51% to $670,000 in the first
quarter of fiscal 2000 from $1,361,000 in the same period last fiscal year. This
decrease was due to the February 1999 staffing reduction, and the absence in the
current period of the legal and professional fees associated with the spin-off
of Evercel in February 1999. Depreciation increased 17% to $385,000 in the first
quarter of fiscal 2000 from $330,000 in the same period last fiscal year as a
result of capital additions.
Research and development expense decreased 18% to $671,000 in the first quarter
of fiscal 2000 from $823,000 in the same period in the last fiscal year. This
decrease resulted from the transfer of certain research and development efforts
in connection with the spin-off of Evercel.
Income from operations resulted in a loss of $91,000 in the first quarter of
fiscal 2000 compared to a loss of $585,000 in the same period in the last fiscal
year. The reduced loss was due to costs incurred in the first quarter of fiscal
1999, associated with the commercialization and operating costs of the battery
group and added costs associated with the development of manufacturing processes
for fuel cell production, which did not repeat in the first quarter of fiscal
2000. The Company expects that, as the Company continues to accelerate its
efforts to commercialize and demonstrate its fuel cell technology, costs will
exceed revenues for the year.
License fee and royalty income, net, resulted in $63,000 of income in the first
quarter of fiscal 2000 compared to $16,000 of expense in the same period last
fiscal year. Costs associated with the battery license agreements to Evercel in
the quarter ended January 31, 1999 were not repeated in the 2000 quarter.
Interest expense decreased 30% to $37,000 in the first quarter of fiscal 2000
from $53,000 in the same period last year. The decrease is attributable to the
reduction of the indebtedness of the Company.
Interest and other income, net, increased 11% to $72,000 in the first quarter of
fiscal 2000 from $65,000 in the same period last year. The increase is a result
of improved interest rates on invested funds.
The Company recognized a tax provision in the current quarter amounting to
$2,000. The Company believes that, due to its efforts to commercialize its
Direct Fuelcell technology, it will incur losses which will result in no tax
benefit for the fiscal year.
Liquidity and Capital Resources
The Company has funded its operations primarily through cash generated from
government contracts and cooperative agreements, borrowings, and sales of
equity.
At January 31, 2000, the Company had working capital of $7,664,000 including
$6,478,000 of cash and cash equivalents, compared to working capital of
$7,204,000 including $6,163,000 of cash and cash equivalents at October 31,
1999. Current assets increased $678,000, as a result of an increase in cash and
cash equivalents of $315,000 attributable to a customer advance, and a $344,000
increase in other
8
current assets. Increases in accounts payable, accrued liabilities and deferred
license fee offset the reduction in the current portion of long term debt as
total current liabilities increased $218,000.
The Company's capital expenditures are incurred primarily to support ongoing
contracts and to replace existing equipment. Capital expenditures for the first
quarter were $128,000.
In December 1994, the Company entered into a Cooperative Agreement with the U.S.
Department of Energy (DOE) to support the continued development and improvement
of the Company's Direct Fuelcell technology. The current aggregate dollar amount
of that contract is $144,000,000 with the DOE providing $95,000,000 in funding.
The balance of the funding is expected to be provided by the Company, the
Company's partners and/or licensees, other private agencies and utilities.
Approximately 90% of the non-DOE portion has been committed or credited to the
project in the form of in-kind or direct cost share from non-U.S. government
sources. This Agreement has been funded through December 2000, and the Company
is in discussions with the DOE to extend and fund the cooperative agreement
through 2003.
The Company will need to raise additional funds to expand its Direct Fuelcell
manufacturing facility to 50MW per year. Approximately $16 million has been
estimated for this step. In addition, as the potential market for the Company's
Direct Fuelcell develops, the Company will need to raise additional funds to
participate in projects to demonstrate performance. The Company cannot assure
that this funding will be available on favorable terms, if at all, or that such
funding if obtained would enable the company to achieve the desired objectives.
The Company anticipates that its existing capital resources together with
anticipated revenues will be adequate to satisfy existing financial requirements
and agreements through 2000.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Exposure
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio and long term debt obligations.
The investment portfolio includes short term United States Treasury instruments
with maturities of three months or less. Cash is invested overnight with high
credit quality financial institutions. The Company's notes payable expire in
2000 and 2001. Based on the Company's overall interest exposure, including all
interest rate sensitive instruments, a near-term change in interest rate
movements would not materially affect the consolidated results of operations or
financial position of the Company.
9
Part II Other Information
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
(a) EXHIBIT DESCRIPTION
EXHIBIT NO.
10.27 Cross-Licensing and Cross-Selling Agreement, as amended December 15,
1999, between the Company and MTU Motoren-Und Turbinen-Union
Friedrichshafen GmbH ("MTU")
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FUELCELL ENERGY, INC.
/s/ Joseph G. Mahler
--------------------
Joseph G. Mahler
Senior Vice President, CFO
Treasurer/Corporate Secretary
Dated: March 14, 2000
11