SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
X - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000MARCH 31, 2001 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ________ TO _________
Commission File Number: 00027527
PLUG POWER INC.
(Exact name of registrant as specified in its charter)
968 ALBANY-SHAKER ROAD, LATHAM, NEW YORK 12110
(Address of registrant's principal executive office)
(518) 782-7700
(Registrant's telephone number, including area code)
DELAWAREDelaware 22-3672377
(State or other jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]___ No [_]___
The number of shares of common stock outstanding as of October 31, 2000April 30, 2001 was
43,699,96044,013,057 with a par value of $.01 per share.
1
PLUG POWER INC.Plug Power Inc. and Subsidiary
INDEX to FORM 10-Q
PART I. FINANCIAL INFORMATION Page
----
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - September 30,
Page
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2001
and December 31, 2000 3
Condensed Consolidated Statements of Operations - Three Month
Periods ended March 31, 2001 and March 31, 2000
and Cumulative Amounts from Inception 4
Condensed Consolidated Statements of Cash Flows - Three Month
Periods ended March 31, 2001 and March 31, 2000 and
Cumulative Amounts from Inception 5
Notes to Condensed Consolidated Financial Statements 6 - 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K 13 - 16
Signature 17
2
Plug Power Inc. and December 31, 1999 3
Condensed Consolidated Statements of Operations - Three Month
and Nine Month Periods ended September 30, 2000 and
September 30, 1999 and Cumulative Amounts from Inception 4
Condensed Consolidated Statements of Cash Flows -
Nine Month Periods ended September 30, 2000 and
September 30, 1999 and Cumulative Amounts from Inception 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-19
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 2 - Changes in Securities and Use of Proceeds 20
Item 6 - Exhibits and Reports on Form 8-K 20-23
Signature 23
PLUG POWER INC.Subsidiary
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, 2000Assets March 31, 2001 December 31, 1999
------------------ ------------------2000
---------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 92,316,91644,683,614 $ 171,496,28658,511,563
Restricted cash 275,000 275,000290,000 290,000
Marketable securities 12,819,410 --25,190,013 28,221,852
Accounts receivable 2,368,243 5,212,9431,184,300 1,415,049
Inventory 2,156,781 304,7112,406,129 2,168,006
Prepaid development costs 2,416,668 --1,666,668 2,041,668
Other current assets 543,606 124,380640,551 694,178
------------- ---------------------------
Total current assets 112,896,624 177,413,32076,061,275 93,342,316
Restricted cash 5,600,274 5,600,2745,310,274 5,310,274
Property, plant and equipment, net 30,607,690 23,333,79132,629,807 32,290,492
Intangible assets 7,666,298 -5,987,834 6,827,066
Investment in affiliates 10,204,677 9,778,2509,132,771 9,778,784
Prepaid development costs 3,021,318 --825,760 2,513,093
Other assets 767,193 767,193
------------- ---------------------------
Total assets $ 169,996,881130,714,914 $ 216,125,635150,829,218
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITYLiabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,208,3632,950,546 $ 4,644,496
Accrued3,479,031
Acrrued expenses 4,855,428 3,004,1264,964,882 5,934,529
Deferred grant revenue 200,000 200,000
Current portion of capital lease obligation
and long-term debt 354,230 353,175367,087 377,201
------------- ---------------------------
Total current liabilities 9,618,021 8,201,7978,482,515 9,990,761
Long-term debt 5,600,274 5,600,2745,310,274 5,310,274
Deferred grant revenue 650,000 800,000550,000 600,000
Capital lease obligation 52,596 117,03014,081 30,346
Other liabilities 767,193 767,193
------------- ---------------------------
Total liabilities 15,920,891 14,719,10115,124,063 16,698,574
------------- ---------------------------
Commitments and contingencies (see footnote 9)
Stockholders' equity:
Preferred stock, $0.01 par value per share; 5,000,000
shares authorized; none issued and outstanding -- --- -
Common stock, $0.01 par value per share;
245,000,000 shares authorized at September 30, 2000March 31, 2001 and
95,000,000245,000,000 shares authorized at December 31, 1999;
43,651,6822000;
43,981,427 shares issued and outstanding, September
30, 2000March 31,
2001 and 43,015,50843,795,513 shares issued and outstanding
December 31, 1999 436,517 430,1552000 439,814 437,955
Paid-in capital 266,557,506 249,964,994269,396,074 268,923,203
Deficit accumulated during the development stage (112,918,033) (48,988,615)(154,245,037) (135,230,514)
------------- ---------------------------
Total stockholders' equity 154,075,990 201,406,534115,590,851 134,130,644
------------- ---------------------------
Total liabilities and stockholders' equity $ 169,996,881130,714,914 $ 216,125,635150,829,218
============= =============
The accompanying notes are an integral part of the consolidated
financial statements.
3
PLUG POWER INC.Plug Power Inc. and Subsidiary
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended September 30, Nine months ended Septemeber 30,March 31, Cumulative
---------------------------------
------------------------------------ Amounts from
2001 2000 1999 2000 1999 from Inception
---------------
--------------- -------------- ---------------
---------------
Contract revenue $ 1,547,7911,027,249 $ 3,006,0612,932,793 $ 6,898,348 $ 6,701,596 $ 25,633,26228,140,363
Cost of contract revenue 3,041,964 4,731,854 10,432,264 9,849,688 36,020,389
----------- ----------- ----------- ----------- -------------1,970,798 3,898,747 40,614,360
--------------- -------------- ---------------
Loss on contracts (1,494,173) (1,725,793) (3,533,916) (3,148,092) (10,387,127)(943,549) (965,954) (12,473,997)
In-process research and development - - 4,984,000 - 9,026,640
Research and development expense 18,525,509 6,106,389 46,902,343 13,886,635 73,342,105expense:
Noncash stock-based compensation - - 247,782
Other research and development 16,750,293 11,444,172 108,846,659
General and administrative expense 2,113,631 1,656,644 5,303,231 4,925,980 15,174,391expense:
Noncash stock-based compensation - 31,700 11,035,873
Other general and administrative 1,889,537 1,524,730 20,332,953
Interest expense 110,824 - 265,439 - 455,025
Stock-based compensation 7,450,233 31,700 7,513,633 2,362,100 10,954,433
----------- ----------- ----------- ----------- -------------77,925 95,470 630,507
--------------- -------------- ---------------
Operating loss (29,694,370) (9,520,526) (68,502,562) (24,322,807) (119,339,721)(19,661,304) (19,046,026) (162,594,411)
Interest income 1,981,989 149,550 6,474,467 367,583 9,794,7611,292,794 2,308,166 12,794,353
--------------- -------------- ---------------
Loss before equity in losses of affiliates (27,712,381) (9,370,976) (62,028,095) (23,955,224) (109,544,960)(18,368,510) (16,737,860) (149,800,058)
Equity in losses of affiliates (938,019) (411,802) (1,901,323) (912,250) (3,373,073)
----------- ----------- ----------- ----------- -------------(646,013) (508,000) (4,444,979)
--------------- -------------- ---------------
Net loss $ (28,650,400)(19,014,523) $ (9,782,778)(17,245,860) $ (63,929,418) $ (24,867,474) $(112,918,033)
=========== =========== =========== =========== =============(154,245,037)
=============== ============== ===============
Loss per share:
Basic and diluted $ (0.66)(0.43) $ (0.38) $ (1.48) $ (1.10)
=========== =========== =========== ===========(0.40)
=============== ==============
Weighted average number of common
shares outstanding 43,433,561 25,423,078 43,181,442 22,688,822
=========== =========== =========== ===========43,919,731 42,956,186
=============== ==============
The accompanying notes are an integral part of the consolidated
financial statements.
4
PLUG POWER INC.Plug Power Inc. and Subsidiary
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
NineThree months ended September 30,March 31, Cumulative
------------------------------------
Amounts from
2001 2000 1999 Inception
----------------------------- -------------- --------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:Cash Flows From Operating Activities:
Net loss (19,014,523) $ (63,929,418) $(24,867,474) $(112,918,033)(17,245,860) $ (154,245,037)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,251,156 988,668 4,290,192
In-process research and development - - 4,042,6401,019,128 870,000 6,095,982
Equity in losses of affiliate 1,901,323 912,250 3,373,073affiliates 646,013 508,000 4,444,979
Amortization of intangible assets 1,958,202asset 839,232 601,500 3,636,666
Amortization of deferred grant revenue (50,000) (50,000) (250,000)
In-kind services - 1,958,202- 1,340,000
Stock based compensation - 285,624 11,537,579
Amortization of deferred rent - 100,000- 150,000
Write-off of deferred rent - - 1,850,000
1,850,000
In-kind servicesIn-process research and development - - 500,000
Stock based compensation 253,924 2,250,000 2,503,924
Compensatory options 7,513,633 112,100 8,704,4334,042,640
Changes in assets and liabilities:
Accounts receivable 2,844,700 (1,982,978) (2,368,243)230,749 (90,888) (1,184,300)
Inventory (1,852,070) - (2,156,781)(238,123) (1,022,561) (2,406,129)
Prepaid development costs 2,062,333 2,507,572
Due from investor - 461,774- 286,492
Prepaid development costs (437,986) - (437,986)
Other current assets (419,226) (92,945) (521,692)53,627 (78,094) (343,637)
Accounts payable and accrued expenses 1,415,169 3,541,713 9,015,683(1,498,132) (237,704) 7,867,320
Deferred grant revenue (150,000) - 850,000- 1,000,000
Due to investor - 236,387- (286,492)
------------ ------------ ------------- --------------
Net cash used in operating activities (48,650,593) (16,490,505) (81,164,588)(15,949,696) (16,459,983) (113,956,365)
------------ ------------ ------------- --------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (9,525,055) (8,536,633) (23,045,104)(1,358,443) (3,658,288) (26,873,011)
Purchase of intangible assets - (9,624,500) - (9,624,500)
Investment in affiliate - (1,500,000) - (1,500,000)
Marketable securities (12,819,410)3,031,839 - (12,819,410)
------------(25,190,013)
------------ ------------- --------------
Cash used inprovided by (used in) investing activities (33,468,965) (8,536,633) (46,989,014)
------------1,673,396 (14,782,788) (63,187,524)
------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES:--------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock - 30,367,787- 130,742,782
Proceeds from initial public offering, net - - 94,611,455
Stock issuance costs - - (1,639,577)
Proceeds from stock option exercises 3,003,567 - 3,045,474474,730 657,590 4,718,117
Cash placed in escrow - (6,160,274)- (5,875,274)
Principal payments on capital lease obligations (63,379) - (129,342)(26,379) (25,155) (170,000)
Principal payments on long-term debt - - (285,000)(560,000)
------------ ------------ ------------- --------------
Net cash provided by financing activities 2,940,188 24,207,513 220,470,518448,351 632,435 221,827,503
------------ ------------ ------------- --------------
(Decrease) increase in cash and cash equivalents (79,179,370) (819,625) 92,316,916(13,827,949) (30,610,336) 44,683,614
Cash and cash equivalents, beginning of period 58,511,563 171,496,286 3,993,122 -
------------ ------------ ------------- --------------
Cash and cash equivalents, end of period $ 92,316,91644,683,614 $ 3,173,497140,885,950 $ 92,316,91644,683,614
============ ============ ============= ==============
5
The accompanying notes are an integral part of the consolidated financial
statements.
5
PLUG POWER INC.Plug Power Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. NATURE OF OPERATIONSNature of Operations
Plug Power Inc. (Company)and Subsidiary (the Company), was originally formed as a
joint venture between Edison Development Corporation (EDC), a DTE Energy
Company, and Mechanical Technology Incorporated (MTI) in the State of
Delaware on June 27, 1997 and succeeded by merger toof all of the assets,
liabilities and equity of Plug Power, L.L.C. in November 1999. The Company
is a development stage enterprise formed to research, develop, manufacture
and distribute fuel cells for electric power generation. The consolidated
financial statements include the accounts of Plug Power Inc. and its wholly
owned subsidiary after elimination of significant intercompany transactions.
2. LIQUIDITY
OurLiquidity
The Company's cash requirements depend on numerous factors, including, but
not limited to, completion of ourits product development activities, ability to
commercialize our residentialits fuel cell systems, and market acceptance of our systems and other factors. We expectits systems.
The Company expects to devote substantial capital resources to continue
our development programs, directed at commercializing our fuel cell systems for worldwide residential
use,establish a manufacturing infrastructure and develop
manufacturing processes. The Company believes it will need to hire and train our production staff, develop and expand our
manufacturing capacity, begin production activities and expand our research
and development activities. We will pursueraise
additional funds to achieve commercialization of its product. However, the
expansion of our operations
through internal growth and strategic acquisitions and expect such activitiesCompany does not know whether it will be funded from existing cash and cash equivalents, issuance ofable to secure additional equityfunding,
or debt securities or additional borrowings subject to
market and other conditions. There can be no assurance that such additional
financing will be availablefunding on terms acceptable to the Company or at all.
Failure to raise the funds necessary to finance future cash requirements or
consummate future acquisitions could adversely affect the Company's abilityterms, to pursue its strategycommercialization plans. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our then current stockholders will be reduced. If
adequate funds are not available to satisfy either short or long-term
capital requirements, the Company may be required to limit operations in a
manner inconsistent with its development and commercialization plans, which
could negatively affect operations in future periods.
We anticipate incurring substantial additional losses over at least
the next several years and believe that our current cash balances will
provide us with sufficient capital to fund operations for at least the next
12 months.
3. BASIS OF PRESENTATIONBasis of Presentation
The condensed consolidated balance sheet as of September 30, 2000,March 31, 2001, the condensed
consolidated statements of operations for the three and nine month
periods ended September 30, 2000 and 1999 and the condensed consolidated statements
of cash flows for the nine month periodsthree months ended September 30, 2000
and 1999March 31, 2001 have been prepared
by the Company without audit. In the opinion of management, all adjustments,
which consist solely of normal recurring adjustments, necessary to present
fairly, in accordance with generally accepted accounting principles, the
financial position, results of operations and cash flows for all periods
presented, have been made. The results of operations for the interim periods
presented are not necessarily indicative of the results that may be expected
for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K filed for the fiscal year ended December 31,
1999.2000.
Marketable Securities: Marketable securities includes investments in
corporate debt securities which are carried at fair value. These investments
are considered available for sale, and the difference between the cost and
the fair value of these securities would be reflected in other comprehensive
income and as a separate component of stockholders' equity. There was no
significant difference between cost and fair value of these investments at
September 30, 2000.March 31, 2001.
Recent Accounting Pronouncements: In March 2000,June 1998, and June 1999 the Financial
Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB
Opinion No. 25". FIN 44 clarifies the application of APB Opinion No. 25
including the following: the definition of an employee for purposes of
applying APB Opinion No. 25; the criteria for determining whether a plan
qualifies as a non compensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is generally effective July 1, 2000.
In December, 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition. The Company is required to apply the provisions of SAB
101 in the fourth quarter of 2000, however, the Company does not expect the
application of SAB 101 to have a material impact on the Company's financial
position or results of operations.
In September 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting StandardsSFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"), and subsequently issued Statement of Financial Accounting StandardsSFAS No. 138,137, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an AmendmentActivities-
6
Deferral of FAS 133" ("Statement 138").the Effective Date of SFAS No. 133." These statements which are effective for the Company for the year beginning January 1, 2001,(as
amended by SFAS No. 138) establish accounting and reporting standards for
derivative instruments and for hedging activities. Management believesIt requires that Statementsentities
recognize all derivatives as either assets or liabilities on the balance
sheet and measure those instruments at fair value. The Company adopted SFAS
No. 133 on its effective date January 1, 2001 and 138 willsuch adoption did not have
a material impacteffect on the Company's Consolidated Financial
Statements.
6
financial position, results of
operations, or cash flows.
4. LOSS PER SHARELoss Per Share
Loss per share for the Company is as follows:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,months ended
---------------------------------
March 31, 2001 March 31, 2000
1999 2000 1999
---------------- ---------------- ---------------- ----------------
Numerator-------------- --------------
Numerator:
Net loss $(28,650,400) $(9,782,778) $(63,929,418) $(24,867,474)
Denominator$ (19,014,523) $ (17,245,860)
Denominator:
Weighted average number
of Commoncommon shares 43,433,561 25,423,078 43,181,442 22,688,822outstanding 43,919,731 42,956,186
No options or warrants outstanding were included in the calculation of
diluted loss per share because their impact would have been anti-dilutive.
The calculation also excludes 111,851 contingently returnable shares.shares in
2000.
5. INCOME TAXESIncome Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." No benefit for federal or state income taxes has been reported in
these condensed consolidated statements of operations as they have been
offset by a full valuation allowance because it is more likely than not that
the tax benefits of the net operating loss carryforward may not be realized.allowance.
6. INVESTMENTS IN AFFILIATESInvestments in Affiliates
In February 1999, the Company entered into an agreement with GE MicroGen,
Inc. (formerly GE On-Site Power, Inc.) a wholly owned subsidiary of General
Electric Co. to create GE Fuel Cell Systems, L.L.C. (GEFCS) a limited
liability company created to market and distribute fuel cell systems world-
wide. GE MicroGen owns 75% of GEFCS and the Company owns 25% of GEFCS. The
Company accounts for its interest in GEFCS on the equity method of
accounting and adjusts its investment by its proportionate share of income
or losses.losses under the caption "Equity in losses of affiliates." During the
ninethree months ended September 30, 2000,March 31, 2001, GEFCS had net revenues (fee
income) of approximately $1,379,000 and an operating and net loss of
approximately $2,465,000.$637,000. For this same period, the Company has recorded
equity in losses of this affiliate of approximately $1,460,000,$441,000, including
goodwill amortization of $844,000.
The Company recently completed an amendment to its distribution agreement
with GE Fuel Cell Systems that defines product specifications and delivery
schedules for pre-commercial and commercial model introductions. The new
agreement allows GE to extend the existing 10-year agreement by an additional
5 years. Given the Company's revised product introduction schedule, which is
expected to be during the first half of 2002, it does not expect any
significant sales to GE before the first half of 2002.$281,000.
In March 2000, the Company acquired a 28% ownership interest in Advanced
Energy Incorporated (AEI), (formerly Advanced Energy Systems, Inc. (AES)) in
exchange for a combination of $1.5 million cash and Plug Power common stock
valued at approximately $828,000. The Company accounts for its interest in
AESAEI on the equity method of accounting and adjusts its investment by its
proportionate share of income or losses. During the ninethree months ended September 30, 2000, AESMarch
31, 2001, AEI had sales of approximately $1,443,000$369,000 and an
7
operating and net
loss of approximately $521,000.$206,000. For this same period, the Company has
recorded equity in losses of this affiliate of approximately $441,000,$205,000,
including goodwill amortization of $295,000.$148,000.
7
7. GASTEC TRANSACTION
In February 2000, Plug Power acquired all of Gastec's intellectual property,
and certain fixed assets, related to fuel processor development for fuel cell
systems capable of producing up to 100 kW of electricity. The total purchase
price was $14,800,000, paid in cash. In connection with the transaction, the
Company recorded in-process research and development expense in the amount of
$4,984,000, fixed assets in the amount of $192,000 and intangible assets in
the amount of $9,624,000 (including a trained workforce for $357,000).
The in-process research and development was valued using an income approach
which reflects the present value of future avoided costs the Company
estimates it would otherwise have spent if it were to acquire the exclusive
rights to this technology, for its remaining useful life, from another
entity. The Company then discounted the net avoided cost using a 40%
discount rate which the Company believes to be consistent with the risk
associated with this early stage technology. This amount was further adjusted
to reflect the technology's stage of completion, of approximately 30%, in
order to reflect the value of the in-process research and development
attributable to the efforts of the seller up to the date of the transaction.
Fixed assets were capitalized at their fair value and will be depreciated
over their useful life.
In connection with the transaction, the Company acquired the services of
employees experienced in the fuel cell industry. Accordingly, the Company
has capitalized the estimated cost savings associated with recruiting,
relocating and training a similar workforce.
The remaining $9,267,000 has been capitalized as an intangible asset. This
amount together with the value attributable to the trained workforce has been
capitalized and is being amortized over the next 36 months.
8. STOCKHOLDERS' EQUITYStockholders' Equity
Changes in stockholders' equity for the ninethree months ended September 30, 2000March 31, 2001 is
as follows:
Deficit
Accumulated During the Total
Common stock During the Stockholders'
Additional Development Stockholders'Equity
Shares Amount Paid-in Capital Stage
Equity
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARYBalance, January 1, 2000 43,015,508 $430,155 $249,964,994 $(48,988,615) $201,406,534
Stock issued for equity in 7,000 70 827,680 827,750
affiliate
Stock issued for development 104,869 1,048 4,998,952 5,000,000
agreement
Stock issued to employees 3,041 31 253,893 253,924
Compensatory stock options 7,513,633 7,513,6332001 43,795,513 $ 437,955 $268,923,203 $(135,230,514) $134,130,644
Stock option exercises 521,264 5,213 2,998,354 3,003,567185,914 1,859 472,871 474,730
Net loss (63,929,418) (63,929,418)
--------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 43,651,682 $436,517 $266,557,506 $(112,918,033) $154,075,990
=========================================================================================(19,014,523) (19,014,523)
----------------------------------------------------------------------------------------
Balance, March 31, 2001 43,981,427 $ 439,814 $269,396,074 $(154,245,037) $115,590,851
========================================================================================
During the quarter ended September 30, 2000, the Company recorded a one-time,
non-cash charge in the amount of $7.4 million related to stock-based
compensation for the Company's former President8. Commitments and CEO.
8
9. COMMITMENTS AND CONTINGENCIES
Development agreements:
In April, 2000, the Company finalized a joint development agreement with
AXIVA GmbH, to develop a high temperature membrane electrode unit (MEU).
Under the agreement, Plug Power and Axiva will exclusively work together on
the development of a high temperature MEU for Plug Power's stationary fuel
cell system applications. As part of the agreement Plug Power will
contribute an estimated $4.1 million (not to exceed $4.5 million) to fund its
share of the development efforts over the next twelve months. As of
September 30, 2000, the Company has contributed $1.5 million under the terms
of the agreement. In connection with the transaction, the Company has
recorded $1.5 million under the balance sheet caption "Prepaid development
costs". Through September 30, 2000, the Company has expensed $750,000 of such
costs.
In June 2000, the Company finalized a joint development agreement with
Engelhard Corporation for development and supply of advanced catalysts to
increase the overall performance and efficiency of Plug Power's fuel
processor - the front end of the fuel cell system. As part of the agreement,
over the next three years, Plug Power will contribute $10 million to fund
Engelhard's development efforts and Engelhard will purchase $10 million of
Plug Power's common stock. The agreements also specify rights and
obligations for Engelhard to supply product to Plug Power over the next 10
years. As of September 30, 2000, the Company has contributed $5 million
under the terms of the agreement while Engelhard has purchased $5 million of
Plug Power common stock. In connection with the transaction, the Company has
recorded $5 million under the balance sheet caption "Prepaid development
costs". Through September 30, 2000, the Company has expensed $312,000 of such
costs.
In September 2000, the Company finalized a joint development agreement with
Torrington Research Company for development and supply of auxiliary
components within Plug Power's fuel cell system. As part of the agreement,
Plug Power will contribute $750,000 to fund Torrington's development efforts
through year-end 2000. In connection with the transaction, the Company will
receive a specified number of development units which it will integrate into
the Plug Power fuel cell system. Through September 30, 2000, the Company has
funded development activities in the amount of approximately $350,000, which
has been recorded as research and development expense.Contingencies
Litigation:
The Company has disclosed on a Form 8-K filed January 25, 2000, with the
Securities and Exchange Commission, that a legal complaint was filed against
the Company, The Detroit Edison Company and EDC alleging the entities
misappropriated business and technical trade secrets, ideas, know-how and
strategies relating to fuel cell systems and breached certain contractual
obligations owed to DCT, Inc. The Company believes that the allegations in
the complaint are without merit and is vigorously contesting the litigation.
The Company does not believe that the outcome of these actions will have will
a material adverse effect upon its financial position, results of operations
or liquidity; however,
9
litigation is inherently uncertain and there can be no assurances as to the
ultimate outcome or effect of this action.
On or about September 14, 2000, a purported shareholder class action
complaint was filed in the federal district court for the Eastern District of
New York alleging that Plug Power and various of its officers and directors
violated certain federal securities laws by failing to disclose certain
information concerning its products and future prospects. The action is
entitled Plumbing Solutions v. Plug Power Inc., et al., CV-00-5553. The
action was brought on behalf of a purported class of purchasers of Plug
Power, Inc. stock who purchased the stock between February 14, 2000 and
August 2, 2000. Subsequently, thirteen additional complaints with similar
allegations and class periods were filed. By order dated October 30, 2000,
the court consolidated the complaints into one action, CV-00-5553. Plug
Power believes that the allegations in the complaints are without merit and
intends to vigorously defend the claims. Plug Power does not believe that
the outcome of these actions will have a
material adverse effect upon its financial position, results of operations
or liquidity; however, litigation is inherently uncertain and there can be
no assurances as to the ultimate outcome or effect of this action.
On or about September 14, 2000, a shareholder class action complaint was
filed in the federal district court for the Eastern District of New York
alleging that the Company and various of its officers and directors violated
certain federal securities laws by failing to disclose certain information
concerning its products and future prospects. The action was brought on
behalf of a class of purchasers of the Company's stock who purchased the
stock between February 14, 2000 and August 2, 2000. Subsequently, fourteen
additional complaints with similar allegations and class periods were filed.
By order dated October 30, 2000, the court consolidated the complaints into
one action, entitled Plug Power Inc. Securities Litigation, CV-00-
5553(ERK)(RML). By order dated January 25, 2001, the Court appointed lead
plaintiffs and lead plaintiffs' counsel. Subsequently, the plaintiffs served
a consolidated amended complaint. The consolidated amended complaint extends
the class period to begin on October 29, 1999, and alleges claims under
Sectons 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and
20(a) of the Exchange Act of 1934, and Rule 10b-5 promulgated thereunder by
the Securities & Exchange Commission, 17 C.F.R. 240 10b-5. Plaintiffs allege
that the defendants made misleading statements and omissions regarding the
state of development of the Company's technology in a registration statement
and proxy statement issued in connection with the Company's initial public
offering and in subsequent press releases. The Company believes that the
allegations in the consolidated amended complaint are without merit and
intend to vigorously defend against the claims. The Company does not believe
that the outcome of these actions will have a material adverse effect upon
its financial position, results of operations or liquidity, however,
litigation is inherently uncertain and there can be no assurances as to the
ultimate outcome or effect of these actions.
108
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements and Notes thereto
included within this report, and our audited financial statements and notes
thereto included in our Annual Report on Form 10-K filed for the fiscal year
ended December 31, 1999.2000. In addition to historical information, this Form 10-Q
and the following discussion contain forward-looking statements that reflect our
plans, estimates, intentions, expectations and beliefs. Our actual results could
differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those set forth under the caption "Risk Factors" in our Annual
Report on Form 10-K filed for the fiscal year ended December 31, 1999.
OVERVIEW
Plug Power is2000.
Overview
We are a designer and developer of on-site, electricityenergy generation systems utilizing
proton exchange membrane (PEM) fuel cells for stationary applications. Plug
Power was formed in 1997, as a joint venture between Edison Development
Corporation (EDC), a DTE Energy Company and Mechanical Technology Incorporated
(MTI). We intend to manufacture residential applications.and commercial stationary fuel cell
systems.
In February 1999, we entered into an agreement with GE MicroGen (formerly GE On-
Site Power) to create GE Fuel Cell Systems, LLC (GEFCS), a joint venture owned
75% owned by General
Electric's GE Power Systems businessMicroGen and 25% owned by Plug Power, which is dedicated to marketing,
selling, installing and servicing our fuel cell systems. Plug Power will serve
as GEFCS' exclusive worldwide supplier of PEM fuel cell systems under 35kW
designed for residential and small commercial stationary applications. GEFCS
will have the exclusive worldwide rights to market, distribute, install and
service our systems (other than in the states of Illinois, Indiana, Michigan and
Ohio, in which DTE Energy Technologies (DTE) will be our exclusive distributor).
Under this arrangement, we will sell our systems directly to GEFCS, which, in
turn, will identify qualified resellers who can distribute and service these
systems. Plug Power systems sold through GEFCS will be co-branded with both the
General Electric and install our product. We recently completedPlug Power names and trademarks, and may also carry the
brand of the local reseller.
Potential GEFCS resellers include gas and electric utilities and new market
entrants such as gas and power marketers, unregulated affiliates of utilities,
appliance distributors and energy service companies. To date, GEFCS has entered
into distribution agreements with Flint Energies, a Georgia-based rural electric
cooperative, NJR Energy Holdings Corporation, an amendmentaffiliate of New Jersey Natural
Gas Company, Kubota Corporation of Japan, Rahimafrooz Energy Services Ltd of
Bangladesh, Soroof Trading Development Company Limited of Saudi Arabia and
Vaillant Gmbh of Remscheid, Germany, Europe's leading heating appliance
manufacturer.
Our initial commercial product is expected to be a fully integrated, 60 Hz grid-
parallel unit that will operate on natural gas. It is expected to be
commercially available, in limited numbers, in the second half of 2001, and will
be marketed to a select number of managed customers, including utilities,
government entities and our distribution agreement withpartners, GE Fuel Cell SystemsMicroGen and DTE. This
initial product will be a limited edition commercial fuel cell system that defines product
specifications and delivery schedules for pre-commercial and commercial model
introductions. The new agreement also allows GEis
intended to extendoffer complimentary, quality power while demonstrating the existing 10-year
agreement by an additional 5 years.
Plug Power was formed in June 1997 as a joint venture to further the
developmentmarket
value of fuel cells as a preferred form of alternative distributed power
generation. Subsequent enhancements are expected to expand the market
opportunity for electric power generation in residentialfuel cells by lowering the installed cost, decreasing operating
and other
applications. We are a development stage companymaintenance costs, increasing efficiency, improving reliability, and expect that we will have
full commercial product availability during the first half of 2002. While the
Company has certain best efforts obligations to GE in 2001 with respect to pre-
commercialadding
features such as grid independence and first generation commercial products, we do not expect
significant product sales to GE before full commercial product availability
during the first half of 2002.
We continue to advance the development of our product. Through the first nine
months of 2000 we have produced 91 pre-commercial systems for both onsite and
offsite testing. These systems have accumulated over 100,000 hours of system run
time. While these systems are not our final commercial design they have enabled
us to gather meaningful data that is critical to the design of our initial
commercial product. During the fourth quarter, the company will manufacture
initial prototype RU1 (Residential Unit 1) systems.co-generation.
9
Since inception, we have devoted substantially all of our resources toward the
development of the PEM fuel cell systems and have derived substantially all of
our revenue from government research and development contracts. Through September 30, 2000,March
31, 2001, our stockholders in the aggregate have contributed $225.4$228.4 million in
cash, including $93.0 million in net proceeds from our initial public offering
of common stock, which closed on November 3, 1999 and $31.3$32.4 million in other
contributions, consisting of in-process research and development, real estate,
other in-kind contributions and a 25% interest in GE Fuel Cell Systems.
From inception through September 30, 2000,March 31, 2001, we have incurred losses of $112.9$154.2 million
and expect to continue to incur losses as we expand our product development and
commercialization program and prepare for the commencement of manufacturing
operations. We expect that losses
11
will fluctuate from quarter to quarter and
that such fluctuations may be substantial as a result of, among other factors,
the number of systems we produce and install for internal and external testing,
the related service requirements necessary to monitor those systems and
potential design changes required as a result of field testing. There can be no
assurance that we will manufacture or sell residential fuel cell systems
successfully or achieve or sustain product revenues or profitability.
ALLIANCES AND DEVELOPMENT AGREEMENTS
Since our inception in June 1997, we have formed strategic alliances with
suppliersResults of key components, developed distributor and customer relationships,
and entered into development and demonstration programs with electric utilities,
government agencies and other energy providers.
GASTEC: In February 2000, Plug Power acquired all of Gastec's intellectual
property, and certain fixed assets, related to fuel processor development for
fuel cell systems capable of producing up to 100 kW of electricity. The total
purchase price was $14,800,000, paid in cash. In connection with the
transaction, the Company recorded in-process research and development expense in
the amount of $4,984,000, fixed assets in the amount of $192,000 and intangible
assets in the amount of $9,624,000 (including a trained workforce for $357,000).
The in-process research and development was valued using an income approach
which reflects the present value of future avoided costs the Company estimates
it would otherwise have spent if it were to acquire the exclusive rights to this
technology, for its remaining useful life, from another entity. The Company
then discounted the net avoided cost using a 40% discount rate which the Company
believes to be consistent with the risk associated this early stage technology.
This amount was further adjusted to reflect the technology's stage of
completion, of approximately 30%, in order to reflect the value of the in-
process research and development attributable to the efforts of the seller up to
the date of the transaction. Fixed assets were capitalized at their fair value
and will be depreciated over their useful life. In connection with the
transaction, the Company acquired the services of employees experienced in the
fuel cell industry. Accordingly, the Company has capitalized the estimated cost
savings associated with recruiting, relocating and training a similar workforce.
The remaining $9,267,000 has been capitalized as an intangible asset. This
amount together with the value attributable to the trained workforce has been
capitalized and is being amortized over the next 36 months.
AXIVA: In April, 2000, the Company finalized a joint development agreement with
AXIVA GmbH, to develop a high temperature membrane electrode unit (MEU). Under
the agreement, Plug Power and Axiva will exclusively work together on the
development of a high temperature MEU for Plug Power's stationary fuel cell
system applications. As part of the agreement Plug Power will contribute an
estimated $4.1 million (not to exceed $4.5 million) to fund its share of the
development efforts over the next twelve months. As of September 30, 2000, the
Company has contributed $1.5 million under the terms of the agreement. In
connection with the transaction, the Company has recorded $1.5 million under the
balance sheet caption "Prepaid development costs". Through September 30, 2000,
the Company has expensed $750,000 of such costs.
ENGELHARD: In June 2000, the Company finalized a joint development agreement
with Engelhard Corporation for development and supply of advanced catalysts to
increase the overall
12
performance and efficiency of Plug Power's fuel processor -the front end of the
fuel cell system. As part of the agreement, over the next three years, Plug
Power will contribute $10 million to fund Engelhard's development efforts and
Engelhard will purchase $10 million of Plug Power's common stock. The agreements
also specify rights and obligations for Engelhard to supply product to Plug
Power over the next 10 years. As of September 30, 2000, the Company has
contributed $5 million under the terms of the agreement while Engelhard has
purchased $5 million of Plug Power common stock. In connection with the
transaction, the Company has recorded $5 million under the balance sheet caption
"Prepaid development costs". Through September 30, 2000, the Company expensed
$312,000 of such costs.
ADVANCED ENERGY SYSTEMS: In March 2000, the Company acquired a 28% ownership
interest in Advanced Energy Systems, Inc. (AES) in exchange for a combination of
$1.5 million cash and Plug Power stock valued at approximately $828,000. The
Company accounts for its interest in AES on the equity method of accounting and
adjusts its investment by its proportionate share of income or losses. During
the nine months ended September 30, 2000, AES had sales of approximately
$1,443,000 and an operating and net loss of approximately $521,000.
TORRINGTON RESEARCH COMPANY: In September 2000, the Company finalized a joint
development agreement with Torrington Research Company for development and
supply of auxiliary components within Plug Power's fuel cell system. As part of
the agreement, Plug Power will contribute $750,000 to fund Torrington's
development efforts through year-end 2000. In connection with the transaction,
the Company will receive a specified number of development units which it will
integrate into the Plug Power fuel cell system. Through September 30, 2000, the
Company has funded development activities in the amount of approximately
$350,000, which has been recorded as research and development expense.
RESULTS OF OPERATIONSOperations
Comparison of the Three Months Ended September 30, 2000March 31, 2001 and September 30, 1999.March 31, 2000.
- ------------------------------------------------------------------------
Revenues. Total revenues for the first quarter ended March 31, 2001 were $1.0
million as compared to $2.9 million for the first quarter ended March 31, 2000.
The decrease is primarily the result of reduced government contract activity
with the U.S. Department of Energy, as we complete our largest contract with
them. Our revenues during this period weresince inception have been derived primarily from cost
reimbursement government contracts relating to the development of PEM fuel cell
technology and contract revenue generated from the delivery of PEM fuel cells
and related engineering and testing support services for other customers.
Our government contracts provide for the partial recovery of direct and indirect
costs from the specified government agency, generally requiring us to absorb
from 25% to 50% of contract costs incurred. As a result of theseour cost sharing
requirements we will report losses on these contracts as well as any future
government contracts awarded.
Total revenues for the third quarter ended September 30, 2000, were $1.5
million as compared to $3.0 million for the third quarter of 1999. The decrease
is the result of completion of government contracts with the U.S. Department of
Energy. Although we intend to continue certain government contract work, we
expect future quarterly contract revenue will continue to decrease on a
comparable basis with prior periods, as we focus on bringing the RU1
(Residential Unit 1) to the commercial marketplace.
During the third quarter of 2000, the Company manufactured 30 pre-commercial
residential fuel cell systems. The specifications of our current pre-commercial
systems do not conform to the
13
specifications originally agreed upon with GE in February 1999. As a result, GE
is no longer contractually obligated to purchase the 485 units under its take or
pay commitment and we no longer anticipate the projected $10.3 million in
revenue from GE in 2000. Additionally, while the Company has certain best
efforts obligations to GE in 2001 with respect to pre-commercial and first
generation commercial products, we do not expect significant product sales to GE
before full commercial product availability during the first half of 2002.
Cost of revenues. Cost of contract revenue includes compensation and
benefits for the engineering and related support staff, fees paid to outside
suppliers for subcontracted components and services, fees paid to consultants
for services provided, materials and supplies used and other directly allocable
general overhead costs. Cost of contract revenue was $3.0 million for the three
months ended September 30, 2000, as compared to $4.7 million for the same period
last year. While contract costs have decreased as a result of our reduced
government contract activity, the percentage of contract cost compared to
contract revenue has increased due to greater cost sharing requirements on those
contracts currently in place. The result was a loss on contracts of $1.5
million for the three months ended September 30, 2000 compared to a loss on
contracts of $1.7 million last year.
We expect the cost to produce our initial systems will be higher than their
sales price under the terms of our arrangements with our two distributors, GE
Fuel Cell Systems and Edison Development and expect to continue to experience
costs in excess of product revenues until we achieve higher production levels,
which we do not anticipate until after 2003.
Research and Development. Research and development expense includes
compensation and benefits for the engineering and related staff, expenses for
contract engineers, materials to build development and prototype units, fees
paid to outside suppliers for subcontracted components and services, supplies
used, facility related costs, such as computer and network services and other
general overhead costs. Research and development expenses increased to $18.5
million for the three months ended September 30, 2000 from $6.1 million for the
three months ended September 30, 1999.
The increase of $12.4 million was primarily attributable to the growth of our
research and development activities, which included a 40% increase in the labor
base, 30 test and evaluation residential PEM fuel cell systems, amortization of
capitalized development expenses in the amount of $900,000 under our joint
development programs with Engelhard and Axiva, recorded on our balance sheet
under the caption "Prepaid development costs" and amortization in the amount of
$800,000 related to the portion of the Gastec purchase price which has been
capitalized and recorded on our balance sheet under the caption "Intangible
assets."
General and Administrative. General and administrative expense includes
compensation, benefits and related costs in support of our general corporate
functions, including general management, finance and accounting, human
resources, marketing, information technology and legal services. General and
administrative expenses increased to $2.1 million for the three months ended
September 30, 2000 from $1.7 million for the three months ended September 30,
1999. The increase is due to an increased personnel cost and general expenses
associated with expanding business operations.
14
Interest Expense. Interest expense of $111,000 for the three months ended
September 30, 2000 consists of interest on a long-term obligation related to a
real estate purchase agreement with Mechanical Technology in June, 1999, and
interest paid on capital lease obligations.
Stock-based Compensation. During the quarter ended September 30, 2000, we
recorded a one-time, non-cash charge in the amount of $7.4 million related to
stock-based compensation for the Company's former President and CEO.
Interest Income. Interest income consists of interest earned on our cash and
cash equivalents and increased to $2.0 million for the three months ended
September 30, 2000 from $150,000 for the same period last year. The increase
was due to interest earned on higher balances of cash and cash equivalents
available throughout the third quarter of 2000, which is result of our initial
public offering of common stock and the exercise of warrants and stock purchase
commitments by our existing stockholders.
Equity in losses of affiliates. Equity in losses of affiliates increased to
$938,000 for the three months ended September 30, 2000 from $412,000 last year.
Equity in losses of affiliates for the period ended September 30, 2000 in the
amount of $938,000 is our proportionate share of the losses of GE Fuel Cell
Systems and Advanced Energy Systems in the amount of $509,000 and goodwill
amortization on those investments in the amount of $429,000.
Income Taxes. No benefit for federal and state income taxes has been
reported in the financial statements as the deferred tax asset generated from
our net operating has been offset by a full valuation allowance because it is
more likely than not that the tax benefits of the net operating loss
carryforward may not be realized.
We were taxed as a partnership prior to November 3, 1999, the effective date
of our merger into a C corporation, and the federal and state income tax
benefits of our losses were recorded by our stockholders. Effective on November
3, 1999, we began accounting for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), ''Accounting for Income
Taxes.''
Comparison of the Nine Months Ended September 30, 2000 and September 30, 1999.
Revenues. Our revenues during this period were derived primarily from cost
reimbursement government contracts relating to the development of PEM fuel cell
technology and contract revenue generated from the delivery of PEM fuel cells
and related engineering and testing support services for other customers. Our
government contracts provide for the partial recovery of direct and indirect
costs from the specified government agency, generally requiring us to absorb
from 25% to 50% of contract costs incurred. As a result of these cost sharing
requirements, we will report losses on these contracts as well as any future
government contracts awarded.
Total revenues for the nine months ended September 30, 2000 were $6.9 million
as compared to $6.7 million for the same period in 1999. We have substantially
completed certain government contracts with the U.S. Department of Energy.
Although we intend to continue
15
certain government contract work, we expect future quarterly contract revenue
will continue to decrease on a comparable basis with prior periods, as we focus
on bringing the RU1 (Residential Unit 1) to the commercial marketplace.
During the first nine months of 2000, the Company manufactured 91 pre-
commercial residential fuel cell systems. The specifications of our current
pre-commercial systems do not conform to the specifications originally agreed
upon with GE in February 1999. The company recently completed an amendment to
its distribution agreement with GE Fuel Cell Systems that defines product
specifications and delivery schedules for pre-commercial and commercial model
introductions. The new agreement allows GE to extend the existing 10-year
agreement by an additional 5 years. As a result, GE is no longer contractually
obligated to purchase the 485 units under its take or pay commitment and we no
longer anticipate the projected $10.3 million in revenue from GE in 2000.
Additionally, while the Company has certain best efforts obligations to GE in
2001 with respect to pre-commercial and first generation commercial products, we
do not expect significant product sales to GE before full commercial product
availability during the first half of 2002.
Cost of revenues. Cost of contract revenue includes compensation and benefits
for the engineering and related support staff, fees paid to outside suppliers
for subcontracted components and services, fees paid to consultants for services
provided, materials and supplies used and other directly allocable general
overhead costs allocated to specific government contracts. Cost of contract
revenue was $10.4$2.0 million for the ninethree months ended September 30, 2000,March 31, 2001, as compared
to $9.8$3.9 million for the same period last year. The increasedecrease in contract costs
arewas related to increased effort on those contracts with greater
cost sharing requirements. We have recently completedreduced government contracts with
the U.S. Department of Energy which had more favorable cost sharing
requirements.contract activity. The result was a loss on
contracts of $3.5 million$944,000 for the ninethree months ended September 30, 2000March 31, 2001 compared to a
loss on contracts of $3.1 million$966,000 for the same period last year.
We expect the cost to produce our initial systems will be higher than their
sales price under the terms of our arrangements with our two distributors, GE
Fuel Cell Systems and Edison Development and expect to continue to experience
costs in excess of product revenues until we achieve higher production levels,
which we do not anticipate until after 2003.
Research and Development. Research and development expense includes compensation
and benefits for the engineering and related staff, expenses for contract
engineers, materials to build development and prototype units, fees paid to outside suppliers
for subcontracted components and services, supplies used, facility related
costs, such as computer and network services and other general overhead costs.
Research and development expenses increased to $46.9$16.8 million for the ninethree
months ended September 30, 2000March 31, 2001 from $13.9$16.4 million for the ninethree months ended September 30, 1999.March
31, 2000.
The increaseamount in 2000 includes a one-time charge of $33.0$5.0 million was primarily attributablerelated to the
growthwrite off of in-process research and development expenses related to our
acquisition of intellectual property in the first quarter of
10
2000. Excluding the write off, research and development expenses increased by
$5.3 million which is the result of increased research and development
activities which included a 40% increase in the labor
base, 91 test and evaluation residential PEM fuel cell systems, amortization of
capitalized development expenses in the amount of $1.0 million under our joint
development programs with Engelhard and Axiva, recorded on our balance sheet
under the caption "Prepaid development costs" and amortization in the amount of
$2.0 million related to getting our first commercial product to the portionmarketplace
during the second half of the Gastec purchase price which has been
capitalized and recorded on our balance sheet under the caption "Intangible
assets."2001.
General and Administrative. General and administrative expense includes
compensation, benefits and related costs in support of our general corporate
functions, including general 16
management, finance and accounting, human
resources, business development, information and legal services. General and
administrative expenses increased slightly to $5.3$1.9 million for the ninethree months
ended September 30, 2000March 31, 2001 from $4.9$1.6 million for the ninethree months ended September 30, 1999. The increase isMarch 31,
2000, due to an increased
personnel cost andhigher general expenses associated with expanding businessin support of operations. The 1999 amount includes a one-time charge in the amount of $1.9
million charge for the write-off of deferred rent expense, further explained
below.
In June 1999, the Company entered into a real estate purchase agreement with
Mechanical Technology to acquire our current facility, a portion of which we
previously leased from them. As a result, we wrote off deferred rent expense in
the amount of $1.9 million during the quarter ended June 30, 1999.
Interest Expense. Interest expense of $265,000 for the nine months ended
September 30, 2000 consists ofincludes interest on a long-term obligation
related to a real estate purchase agreement with Mechanical TechnologyMTI in June, 1999, and interest
paid on capital lease obligations. Stock-based Compensation. DuringInterest expense was of $78,000 for the ninethree
months ended September 30, 2000, we
recorded a one-time, non-cash charge in the amount of $7.4 million related to
stock-based compensation expense for the Company's former President and CEO.
Additionally, we have recorded $87,000 related to compensatory options issued to
employees.
During the nine months ended September 30, 1999, we recognized $2.3 million in
non-cash stock-based compensation expense in connection with our original
formation agreements which provided Mechanical Technology the right to earn non-
cash credits relating to services it rendered prior to our formation in
connection with securing future government contracts. Upon our formation,
Mechanical Technology contributed its fuel cell operations to us and we received
the right to these government contracts if ever awarded in the future. When
these contracts were awarded to us, Mechanical Technology earned the non-cash
credits, entitling it to receive 2,250,000 shares of common stock with a fair
value at the time of grant of $2.3 million. Additionally, we have recorded
$112,000 related to compensatory options issued to employees.March 31, 2001.
Interest Income. Interest income consistsconsisting of interest earned on our cash, and
cash
equivalents and increasedmarketable securities decreased to $6.5$1.3 million for the ninethree
months ended September 30, 2000March 31, 2001 from $368,000$2.3 million for the same period last year. The increase
was due to interest earned on higher balances of cash and cash equivalents
available throughout the first nine months of 2000, which is result of our
initial public offering of common stock and the exercise of warrants and stock
purchase commitments by our existing stockholders.
Equity in losses of affiliates. Equity in losses of affiliates, representing our
minority interest in GE Fuel Cell Systems and Advanced Energy Incorporated,
increased to $1.9 million$646,000 for the ninethree months ended September 30, 2000March 31, 2001, from $912,000$508,000
last year. Equity inFor the current quarter we have recorded losses of affiliates during the nine months ended September 30,
2000 in the amount of $1.9 million is$646,000 including
our proportionate share of the losses of GE Fuel Cell Systems and Advanced
Energy Systems in the
17
amountIncorporated, both of $762,000 combined with goodwill amortization on those investments in
the amount of $1.1 million which we accountare accounted for under the equity method of
accounting.accounting, in the amount of $217,000 and goodwill amortization of our original
investments in those entities of $429,000.
Income Taxes. No benefit for federal and state income taxes has been reported in
the financial statements because the deferred tax asset generated from our net
operating losslosses has been offset by a full valuation allowance
because it is more likely than not that the tax benefits of the net operating
loss carryforward may not be realized.allowance.
We were taxed as a partnership prior to November 3, 1999, the effective date of
our merger into a C corporation, and the federal and state income tax benefits
of our losses were recorded by our stockholders. Effective on November 3, 1999,
weand began accounting for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), ''Accounting"Accounting for Income Taxes.''
LIQUIDITY AND CAPITAL RESOURCES"
Liquidity and Capital Resources
Summary
Our cash requirements depend on numerous factors, including completion of our
product development activities, ability to commercialize our residential fuel
cell systems, market acceptance of our systems and other factors. We expect to
devote substantial capital resources to continue our development programs
directed at commercializing our fuel cell systems for worldwide residential use,
to hire and train our production staff, develop and expand our manufacturing
capacity, begin production activities and expand our research and development
activities. We will pursue the expansion of our operations through internal
growth and strategic acquisitions and expect such activities will be funded from
existing cash and cash equivalents, issuance of additional equity or debt
securities or additional borrowings subject to market and other conditions.
There can be no assurance that such additional financing will be available on
terms acceptable to the Company or at all. FailureThe failure to raise the funds
necessary to finance its future cash requirements or consummate future
acquisitions could adversely affect the Company's ability to pursue its strategy
and could negatively affect its operations in future periods.
We anticipate incurring
substantial additional losses over at least the next several years and believe
that our current cash balances will provide us with sufficient capital to fund
operations for at least the next 12 months.11
We have financed our operations through September 30, 2000,March 31, 2001, primarily from the sale
of equity, which has provided cash in the amount of $226.8$228.4 million. As of September 30, 2000,March
31, 2001, we had unrestricted cash, cash equivalents and marketable securities totaling $105.1$69.9
million and working capital was approximately $103.3$67.6 million. As a result of our
purchase of real estate from Mechanical Technology, we have escrowed $5.8$5.6
million in cash to collateralize the debt assumed on the purchase. During the nine months ended September 30, 2000, net cash used in operating
activities was $48.7 million, including $5.0 million related to the write off of
in-process research and development related to our acquisition of intellectual
property acquired from Gastec. Cash used in investing activities during the
nine months ended September 30, 2000, was $33.5 million, including $12.8 million
for the purchase of marketable securities. Excluding the purchase of marketable
securities, cash used in investing activities was $20.7 million consisting of
$9.5
18
million for the purchase of property, plant and equipment, $9.7 million
representing the purchase of intangible assets related to the acquisition of
intellectual property from Gastec and $1.5 million for the purchase of a 28%
ownership interest in Advanced Energy Systems.
Since
inception, net cash used in operating activities has been $81.2$114.0 million and
cash used in investing activities has been $47.0 million, including $12.8
million for the purchase of marketable securities.
IMPACT OF YEAR 2000
In late 1999, we completed a review and evaluation of the potential impact
that the change in the date to the Year 2000 will have on our computer systems
and concluded that all of our major computer systems were able to recognize and
appropriately process dates commencing in the Year 2000. As a result of those
planning and implementation efforts, the Company experienced no significant
disruptions in mission critical information technology and non-information
technology systems and believes those systems successfully responded to the Year
2000 date change.
Our historical cost to assess our Year 2000 readiness has been negligible. The
Company is not aware of any material problems resulting from Year 2000 issues,
either with its internal systems, or the products and services of third parties.
We will continue to monitor our mission critical computer applications and those
of our suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
19$63.2 million.
12
PARTPart II - OTHER INFORMATIONOther Information
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
The Company has disclosed on a Form 8-K filed January 25, 2000, with the
Securities and Exchange Commission, that a legal complaint was filed against the
Company, The Detroit Edison Company and EDC alleging the entities
misappropriated business and technical trade secrets, ideas, know-how and
strategies relating to fuel cell systems and breached certain contractual
obligations owed to DCT, Inc. The Company believes that the allegations in the
complaint are without merit and is vigorously contesting the litigation. The
Company does not believe that the outcome of these actions will have will a material
adverse effect upon its financial position, results of operations or liquidity;
however, litigation is inherently uncertain and there can be no assurances as to
the ultimate outcome or effect of this action.
On or about September 14, 2000, a purported shareholder class action complaint was filed
in the federal district court for the Eastern District of New York alleging that
Plug Powerthe Company and various of its officers and directors violated certain federal
securities laws by failing to disclose certain information concerning its
products and future prospects. The action is
entitled Plumbing Solutions v. Plug Power Inc., et al., CV-00-5553. The action
was brought on behalf of a purported class of
purchasers of Plug Power, Inc.the Company's stock who purchased the stock between February 14,
2000 and August 2, 2000. Subsequently, thirteenfourteen additional complaints with
similar allegations and class periods were filed. By order dated October 30,
2000, the court consolidated the complaints into one action, CV-00-5553.entitled Plug Power
Inc. Securities Litigation, CV-00-5553(ERK)(RML). By order dated January 25,
2001, the Court appointed lead plaintiffs and lead plaintiffs' counsel.
Subsequently, the plaintiffs served a consolidated amended complaint. The
consolidated amended complaint extends the class period to begin on October 29,
1999, and alleges claims under Sectons 11, 12 and 15 of the Securities Act of
1933 and Sections 10(b) and 20(a) of the Exchange Act of 1934, and Rule 10b-5
promulgated thereunder by the Securities & Exchange Commission, 17 C.F.R. 240
10b-5. Plaintiffs allege that the defendants made misleading statements and
omissions regarding the state of development of the Company's technology in a
registration statement and proxy statement issued in connection with the
Company's initial public offering and in subsequent press releases. The Company
believes that the allegations in the complaintsconsolidated amended complaint are without
merit and intendsintend to vigorously defend against the claims. Plug PowerThe Company does not
believe that the outcome of these actions will have a material adverse effect
upon its financial position, results of operations or liquidity;liquidity, however,
litigation is inherently uncertain and there can be no assurances as to the
ultimate outcome or effect of these actions.
ITEM 24 - CHANGES IN SECURITIES AND USESUBMISSION OF PROCEEDSMATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------
Plug Power has issued securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act") in the following
transactions. The shares of common stock issued in each of the transactions were
offered and sold in reliance upon Section 4(2) of the Securities Act relative to
sales by an issuer not involving a public offering.
On March 13, 2000, in connection with a stock purchase agreement, we issued
and sold 7,000 shares of our common stock, in combination with $1.5 million in
cash, to Advanced Energy Systems, Inc., in consideration of our receipt of a 28%
equity interest in Advanced Energy Systems, Inc., a developer of power
electronics for fuel cell applications.
On June 9, 2000, in connection with a joint development agreement, we
issued and sold 104,869 shares of our common stock to Engelhard Corporation, for
an aggregate purchase price of $5.0 million. As part of the transaction, Plug
Power contributed $5.0 million to fund Engelhard's development efforts related
to advanced catalyst.------------------------------------------------------------
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
A) Exhibits.Certain exhibits indicated below are incorporated by reference to documents of
Plug Power on file with the Commission. Exhibits nos. 10.25, 10.28, 10.29,
10.30, 10.31, 10.32, 10.33, 10.34, 10.41, 10.38, 10.42 and 10.43 represent the
management contracts or compensation plans filed pursuant to Item 14(c) of the
Form 10-K.
Exhibit No. and Description
----------------------------
2.1 Agreement and Plan of Merger by and between Plug Power and Plug Power,
LLC, a Delaware limited liability company, dated as of October 7, 1999. *(1)
3.1 Amended and Restated Certificate of Incorporation of Plug Power. *(2)
3.2 Amended and Restated By-laws of Plug Power. *(2)
13
3.3 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Plug Power. (3)
4.1 Specimen certificate for shares of common stock, $.01 par value, of
Plug Power. *(1)
10.1 Amended and Restated Limited Liability Company Agreement of GE Fuel
Cell Systems, LLC, dated February 3, 1999, between GE On-Site Power, Inc.
and Plug Power, LLC *LLC. (1)
10.2 Contribution Agreement, dated as of February 3, 1999, by and between
GE On-Site Power, Inc. and Plug Power, LLC. *(1)
10.3 Trademark and Trade Name Agreement, dated as of February 2, 1999,
between General Electric Company and GE Fuel Cell Systems, LLC. *
20
(1)
10.4 Trademark Agreement, dated as of February 2, 1999, between Plug Power
LLC and GE Fuel Cell Systems, LLC. *(1)
10.5 Distributor Agreement, dated as of February 2, 1999, between GE Fuel
Cell Systems, LLC and Plug Power, LLC. *(1)
10.6 Side letter agreement, dated February 3, 1999, between General
Electric Company and Plug Power LLC. *(1)
10.7 Mandatory Capital Contribution Agreement, dated as of January 26,
1999, between Edison Development Corporation, Mechanical Technology
Incorporated and Plug Power, LLC and amendments thereto, dated August 25,
1999 and August 26, 1999. *(1)
10.8 LLC Interest Purchase Agreement, dated as of February 16, 1999,
between Plug Power, LLC and Michael J. Cudahy. *(1)
10.9 Warrant Agreement, dated as of February 16, 1999, between Plug Power,
LLC and Michael J. Cudahy and amendment thereto, dated July 26, 1999. *(1)
10.10 LLC Interest Purchase Agreement, dated as of February 16, 1999,
between Plug Power, LLC and Kevin Lindsey. *(1)
10.11 LLC Interest Purchase Agreement, dated as of April 1, 1999, between
Plug Power, LLC and Antaeus Enterprises, Inc. *(1)
10.12 LLC Interest Purchase Agreement, dated as of April 9, 1999, between
Plug Power, LLC and Southern California Gas Company. *(1)
10.13 Warrant Agreement, dated as of April 9, 1999, between Plug Power, LLC
and Southern California Gas Company and amendment thereto, dated August 26,
1999. *(1)
10.14 Agreement, dated as of June 26, 1997, between the New York State
Energy Research and Development Authority and Plug Power LLC, and
amendments thereto dated as of December 17, 1997 and March 30, 1999. *(1)
10.15 Agreement, dated as of January 25, 1999, between the New York State
Energy Research and Development Authority and Plug Power LLC. *(1)
14
10.16 Agreement, dated as of September 30, 1997, between Plug Power LLC and
the U.S. Department of Energy. *(1)
10.17 Cooperative Agreement, dated as of September 30, 1998, between the
National Institute of Standards and Technology and Plug Power, LLC, and
amendment thereto dated May 10, 1999. *(1)
10.18 Joint venture agreement, dated as of June 14, 1999 between Plug
Power, LLC, Polyfuel, Inc., and SRI International. *(1)
10.19 Cooperative Research and Development Agreement, dated as of February
12, 1999, between Plug Power, LLC and U.S. Army Benet Laboratories. *
21
(1)
10.20 Nonexclusive License Agreement, dated as of April 30, 1993, between
Mechanical Technology Incorporated and the Regents of the University of
California. *(1)
10.21 Development Collaboration Agreement, dated as of July 30, 1999, by
and between Joh. Vaillant GMBH. U. CO. and Plug Power, LLC. *(1)
10.22 Agreement of Sale, dated as of June 23, 1999, between Mechanical
Technology, Incorporated and Plug Power LLC. *(1)
10.23 Assignment and Assumption Agreement, dated as of July 1, 1999,
between the Town of Colonie Industrial Development Agency, Mechanical
Technology, Incorporated, Plug Power, LLC, KeyBank, N.A., and First Albany
Corporation. *(1)
10.24 Replacement Reimbursement Agreement, dated as of July 1, 1999,
between Plug Power, LLC and KeyBank, N.A. *(1)
10.25 1997 Membership Option Plan and amendment thereto dated September 27,
1999. *(1)
10.26 Trust Indenture, dated as of December 1, 1998, between the Town of
Colonie Industrial Development Agency and Manufacturers and Traders Trust
Company, as trustee. *(1)
10.27 Distribution Agreement, dated as of June 27, 1997, between Plug
Power, LLC and Edison Development Corporation and amendment thereto dated
September 27, 1999. *(1)
10.28 Agreement, dated as of June 27, 1999, between Plug Power, LLC and
Gary Mittleman. *(1)
10.29 Agreement, dated as of June 8, 1999, between Plug Power, LLC and
Louis R. Tomson. *(1)
10.30 Agreement, dated as of August 6, 1999, between Plug Power, LLC and
Gregory A. Silvestri. *(1)
10.31 Agreement, dated as of August 12, 1999, between Plug Power, LLC and
William H. Largent. *(1)
10.32 Agreement, dated as of August 20, 1999, between Plug Power, LLC and
Dr. Manmohan Dhar.* (1)
10.33 1999 Stock Option and Incentive Plan. *(1)
15
10.34 Employee Stock Purchase Plan. *(1)
10.35 Agreement, dated as of August 27, 1999, by Plug Power, LLC, Plug
Power Inc., GE On-Site Power, Inc., GE Power Systems Business of General
Electric Company, and GE Fuel Cell Systems, L.L.C. *(1)
10.36 Registration Rights Agreement to be entered into by the Registrant
and the stockholders of the Registrant. *(2)
10.37 Registration Rights Agreement to be entered into by Plug Power,
L.L.C. and GE On-Site Power, Inc. *(2)
10.38 Agreement dated September 11, 2000, between Plug Power Inc. and Gary
Mittleman. (3)
10.39 Amendment No. 1 to Distributor Agreement dated February 2, 1999,
between GE Fuel Cell Systems L.L.C. and Plug Power Inc. (3)
10.40 Amendment to the Distributor Agreement dated February 2, 1999, made as of
July 31, 2000, between GE Fuel Cell Systems L.L.C. and Plug Power Inc. (Portions(3)
10.41 Agreement, dated as of this exhibit have been omitted pursuantDecember 15, 2000, between Plug Power Inc. and
Roger Saillant. (3)
10.42 Agreement dated February 13, 2001, between Plug Power Inc. and
William H. Largent. (3)
10.43 Amendment dated September 19, 2000 to a request for
confidential treatment.)
23.1 Consentagreement, dated as of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).*
24.1 PowersAugust
6, 1999, between Plug Power Inc. and Gregory A. Silvestri. (3)
10.44 Joint Development Agreement, dated as of Attorney (included on signature page). *
*June 2, 2000, between Plug
Power Inc. and Engelhard Corporation. (3)
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File Number 333-86089)
27.1 Financial Data Schedule
22
.
(2) Incorporated by reference to the Company's Form 10-K for the period
ending December 31, 1999.
(3) Incorporated by reference to the Company's Form 10-K for the period
ending December 31, 2000.
B) Reports on Form 8-K.
On August 4, 2000, we filed a Form 8-K with the Securities and Exchange
Commission announcing the issuance of a press release announcing second
quarter results and product development update, including an amendment to
our distribution agreement with GE Fuel Cell Systems.
On August 25, 2000, we filed a Form 8-K with the Secutities and Exchange
Commission announcing the issuance of a press release announcing the
resignation of Gary Mittleman, President, Chief Executive Officer and
Director, and appointment of Greg Silvestri, Executive Vice President of
Operations, to Chief Operating Officer.
SIGNATURENone.
16
Signature
__________
Pursuant to 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.
PLUG POWER INC.
DATE: NOVEMBER 14, 2000 BY: /S/ WILLIAM H. LARGENT
--------------------------
William Largent
CHIEF FINANCIAL OFFICER
23Date: May 11, 2001 by: /s/ Roger Saillant
----------------------
Roger Saillant
Chief Executive Officer
by: /s/ David Neumann
---------------------
David Neumann
Chief Financial Officer
17