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v3.22.4

Leases | 12 Months Ended
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Oct. 31, 2022
Leases |
Leases | Note 9. Leases The Company enters into operating and finance lease agreements for the use of real estate, vehicles, information technology equipment, and certain other equipment. We determine if an arrangement contains a lease at inception, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. The impacts of accounting for operating leases are included in Operating lease right-of-use assets, Operating lease liabilities, and Long-term operating lease liabilities in the Company’s Consolidated Balance Sheets. Finance leases are not considered significant to the Company’s Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Loss. Finance lease right-of-use (“ROU”) assets of $0.1 million at each of October 31, 2022 and 2021 are included in Property, plant and equipment, net in the Company’s Consolidated Balance Sheets. Finance lease liabilities of $0.1 million at each of October 31, 2022 and 2021 are included in Current portion of long-term debt and Long-term debt and other liabilities in the Company’s Consolidated Balance Sheets. Operating lease expense for each of the years ended October 31, 2022, 2021 and 2020 was $1.5 million. As of October 31, 2022, the weighted average remaining lease term (in years) was approximately 19 years and the weighted average discount rate was 8.2%. Lease payments made during the years ended October 31, 2022, 2021 and 2020 totaled $1.4 million, $1.2 million, and $1.0 million, respectively. As of October 31, 2022, undiscounted maturities of operating lease and finance lease liabilities are as follows (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Operating Leases |  | Finance Leases
Due Year 1 | ​ | $ | 1,122 | ​ | $ | 49
Due Year 2 | ​ | ​ | 866 | ​ | ​ | 16
Due Year 3 | ​ | ​ | 795 | ​ | ​ | —
Due Year 4 | ​ | ​ | 767 | ​ | ​ | —
Due Year 5 | ​ | ​ | 782 | ​ | ​ | —
Thereafter | ​ | ​ | 13,474 | ​ | ​ | —
Total undiscounted lease payments | ​ | ​ | 17,806 | ​ | ​ | 65
Less imputed interest | ​ | ​ | (9,581) | ​ | ​ | (8)
Total discounted lease payments | ​ | $ | 8,225 | ​ | $ | 57
​ San Bernardino Fuel Cell, LLC Sale-Leaseback Transaction On August 25, 2021, an indirect wholly-owned subsidiary of the Company, San Bernardino Fuel Cell, LLC (“SBFC”), entered into a Purchase and Sale Agreement (the “San Bernardino Purchase Agreement”) and an Equipment Lease Agreement (the “San Bernardino Lease”) with Crestmark Equipment Finance (“Crestmark”). Under these agreements, SBFC sold the 1.4 MW biogas fueled fuel cell power plant (the “San Bernardino Plant”) located at the San Bernardino wastewater treatment plant in San Bernardino, California to Crestmark for a purchase price of $10.2 million and then leased the San Bernardino Plant back from Crestmark. SBFC sells the power produced by the San Bernardino Plant to a third party under a twenty-year PPA (the “San Bernardino PPA”). ​ The San Bernardino Lease has an initial term of ten years but may be extended at the option of SBFC. An initial rental down payment and one quarter’s rent totaling $2.2 million was paid using the proceeds from the sale of the San Bernardino Plant. Lease payments are expected to be funded with proceeds from the sale of power under the San Bernardino PPA on a quarterly basis. As a result of the sale-leaseback transaction, the remaining lease payments due over the term of the San Bernardino Lease were approximately $4.5 million as of October 31, 2022. Reserves covering debt service and future module replacement totaling $2.5 million were also deducted from the proceeds from the sale of the San Bernardino Plant and will be classified as restricted cash of the Company until such time as it meets its performance obligations (such as servicing the San Bernardino Plant and providing module exchanges) under the Long-Term Service Agreement for the San Bernardino Plant. The Company’s net unrestricted cash proceeds from the transaction totaled approximately $5.3 million, which is the purchase price less the initial rent payments, debt and module reserves, and taxes and transaction fees. ​ In addition, SBFC and Crestmark entered into an Assignment Agreement on August 25, 2021 (the “San Bernardino Assignment Agreement”) and FuelCell Finance (a wholly-owned subsidiary of the Company and the direct parent of SBFC) and Crestmark entered into a Pledge Agreement on August 25, 2021 (the “San Bernardino Pledge Agreement”) pursuant to which agreements collateral was provided to Crestmark to secure SBFC’s obligations under the San Bernardino Lease which includes a security interest in (i) certain agreements relating to the sale-leaseback transaction, (ii) the revenues with respect to the San Bernardino Plant, (iii) a cash module replacement reserve for the San Bernardino Plant, and (iv) FuelCell Finance’s equity interest in SBFC. SBFC and the Company also entered into a Technology License and Access Agreement with Crestmark on August 25, 2021, which provides Crestmark with certain intellectual property license rights to have access to the Company’s proprietary fuel cell technology, but only for the purpose of maintaining and servicing the San Bernardino Plant in certain circumstances in which the Company is not satisfying its obligations under its service agreement with regard to the maintenance and servicing of the San Bernardino Plant. ​ Pursuant to the San Bernardino Lease, SBFC has an obligation to indemnify Crestmark for the amount of any actual reduction in the U.S. investment tax credit (“ITC”) anticipated to be realized by Crestmark in connection with this sale-leaseback transaction. Such obligation would arise as a result of reductions to the value of the underlying fuel cell project as assessed by the U.S. Internal Revenue Service (“IRS”). The Company does not believe that any such obligation is probable based on the facts known as of October 31, 2022. The maximum potential future payments that SBFC could be required to make as a result of this obligation would depend on the difference between the fair value of the fuel cell project sold or financed and the value the IRS would determine as the fair value of the project for purposes of claiming the ITC. The value of the ITC in the sale-leaseback agreements is based on guidelines provided by regulations from the IRS. The Company and Crestmark used a fair value determined with the assistance of an independent third-party appraisal. ​ The San Bernardino Purchase Agreement and the San Bernardino Lease contain representations and warranties, affirmative and negative covenants, and events of default that entitle Crestmark to cause SBFC’s indebtedness under the San Bernardino Lease to become immediately due and payable. ​ Pursuant to a Guaranty Agreement executed on August 25, 2021 by the Company for the benefit of Crestmark (the “San Bernardino Guaranty”), the Company has guaranteed the payment and performance of SBFC’s obligations under the San Bernardino Lease.

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