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Fuel Cell Energy identified a $12.4 million misstatement in its balance sheet

High vs. low risk companies see 20 point differential in returns

Filings from the week of June 8 - June 15.


Hudson Labs' highest risk companies had average returns of -22% while the lowest risk companies had returns of -1%. Results were measured over the 12 month period from June 7, 2021 to June 7, 2022. Read more here.


FuelCell Energy Inc ($FCEL) identified a $12.4 million misstatement in its balance sheet. The company incorrectly categorized a tax equity financing transaction as liability when it should have been equity. Nevertheless, FCEL still reported effective controls. More De-SPACs disclosed red flags: QSI’s chief business officer resigned and DM’s CEO of Desktop Health stepped down. TLS and DAVE fired their auditors after receiving unfavorable opinions in their internal controls.


Top Red Flags

QUANTUM-SI INC ($QSI) | 8-K | $430M - QSI announced the resignation of its Chief Business Officer, Matthew Dyer, Ph.D., effective June 15, 2022. According to its most recent 10-Q, QSI reported ineffective controls. Furthermore, the company has underperformed with increasing net losses year-over-year. The company became publicly traded through a SPAC merger and was audited by Carl Scheuten from Withum Smith + Brown. Mr. Scheuten has audited many SPACs that are considered high risk according to our models.

TELOS CORP ($TLS) | 8-K | $546M - TLS fired its auditors, BDO, effective June 6, 2022. BDO had previously provided an adverse opinion on the TLS’s internal controls for the year ended December 31, 2021. The company hired PwC as its new auditor.

DESKTOP METAL INC ($DM) | 8-K | $611M - DM reported the dismissal of Michael Jafar, the CEO of its newly launched business line, Desktop Health. The company has struggled with ineffective internal controls since it was publicly traded in 2020. Just like QSI, this company became public through a SPAC merger.

DAVE INCDE ($DAVE) | 8-K | $347M - DAVE dismissed its auditors, Moss Adams on June 8, 2022. During the audit of DAVE’s FY 2021 and 2020 financial statements, Moss Adams reported deficiencies in the company’s internal controls, which included lack of formal accounting and financial reporting policies and ineffective IT controls.

TUPPERWARE BRANDS CORP ($TUP) | 8-K | $261M - TUP sold its House of Fuller beauty business in Mexico during Q2 2022. The SEC had previously conducted an inquiry into TUP’s accounting practices relating to the House of Fuller beauty business and Tupperware’s Mexico business. TUP is cooperating with the SEC and believes any potential settlement would be related to House of Fuller. No wonder they sold the business.

SONDER HOLDINGS INC ($SOND) | 8-K | $314M - SOND announced that Satyen Pandya, its Chief Technology Officer, stepped down from his position effective June 8th. Interestingly, the company stated that his resignation was part of what the company calls its "cash flow positive plan", which is a cute way to say that they are laying a lot of people off!



10-Q | Market Cap: $1.3B

FuelCell Energy, Inc. identified a misstatement in its consolidated balance sheet as of January 31, 2022, which was previously disclosed in its Q1 2022 Form 10-Q back in March 10th 2022. [1]

The misstatement related to a tax equity financing transaction to fund the company’s 7.4MW fuel cell project located in Yaphank Long Island (the "LIPA Yaphank Project"). The transaction was incorrectly categorized as a liability when it should have been categorized as equity, totaling $12.4 million. [1]

Although the company identified a misstatement, it still assessed its internal controls as effective during Q2 2022. [2] FCEL is no stranger to having control issues. The company previously reported ineffective controls back in FY 2019. [3]

  1. "During the preparation of the financial statements for the quarterly period ended April 30, 2022, the Company identified a misstatement in the Consolidated Balance Sheet as of January 31, 2022 related to the tax equity financing transaction for the LIPA Yaphank Project. In the financial statements issued for the quarterly period ended January 31, 2022, the REI tax equity commitment was incorrectly categorized as a Redeemable noncontrolling interest which totaled $12.4 million. The amount should have been classified as a Noncontrolling interest within Equity since the conditional withdrawal period expired upon the LIPA Yaphank Project achieving commercial operation in December 2021."

  2. "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."

  3. FY 2019 Form 10-K: "Based on that evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of October 31, 2019 due to the material weakness in internal control over financial reporting."


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