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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 JUNE 30, 2002 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)
Delaware 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 July 31, 2002 was
50,812,936 with a par value of $.01 per share.
1
PLUG POWER INC. and Subsidiary
INDEX to FORM 10-Q
PART I. FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2002
and December 31, 2001 3
Condensed Consolidated Statements of Operations - Three Month
and Six Month Periods ended June 30, 2002 and June 30, 2001
and Cumulative Amounts from Inception 4
Condensed Consolidated Statements of Cash Flows - Six Month
Periods ended June 30, 2002 and June 30, 2001 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 3 - Quantitative and Qualitative Disclosures About Market Risk 20
Item 4 - Submission of Matters to a Vote of Security Holders 20
Item 6 - Exhibits and Reports on Form 8-K 20-24
Signature 24
2
Plug Power Inc. and Subsidiary
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
Assets December 31, 2001 June 30, 2002
----------------- --------------
Current assets:
Cash and cash equivalents $ 53,648,145 $ 42,842,453
Restricted cash 310,000 310,000
Marketable securities 39,034,314 32,966,836
Accounts receivable 2,608,321 1,261,955
Inventory 2,271,278 2,112,436
Prepaid development costs 1,760,131 3,012,024
Prepaid expenses and other current assets 932,719 1,083,404
----------------- --------------
Total current assets 100,564,908 83,589,108
Restricted cash 5,000,274 5,000,274
Property, plant and equipment, net 30,240,631 28,819,970
Intangible asset 3,470,139 2,059,432
Investment in affiliates 11,498,000 10,435,352
Other assets 600,055 516,486
----------------- --------------
Total assets $ 151,374,007 $ 130,420,622
================= ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 762,972 $ 1,129,066
Accrued expenses 3,421,106 4,025,351
Deferred revenue 5,684,793 3,981,275
Current portion of capital lease obligation
and long-term debt 330,072 319,918
----------------- --------------
Total current liabilities 10,198,943 9,455,610
Long-term debt 5,000,274 5,000,274
Deferred grant revenue 400,000 300,000
Capital lease obligation 4,706 2,187
Other liabilities 767,193 767,193
----------------- --------------
Total liabilities 16,371,116 15,525,264
----------------- --------------
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 June 30, 2002 and
245,000,000 shares authorized at December 31, 2001;
50,787,941 shares issued and outstanding, June 30,
2002 and 50,322,928 shares issued and outstanding
December 31, 2001 503,229 507,880
Paid-in capital 342,842,203 346,554,904
Deficit accumulated during the development stage (208,342,541) (232,167,426)
----------------- --------------
Total stockholders' equity 135,002,891 114,895,358
----------------- --------------
Total liabilities and stockholders' equity $ 151,374,007 $ 130,420,622
================= ==============
The accompanying notes are an integral part of the
condensed consolidated financial statements
Plug Power Inc. and Subsidiary
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
Three months ended June 30, Six months ended June 30, Cumulative
------------------------------ ------------------------------ Amounts from
2001 2002 2001 2002 Inception
------------- ------------- ------------- ------------- -------------
Revenue
Product and service revenue $ -- $ 2,189,751 $ -- $ 4,762,288 $ 7,335,722
Research and development contract revenue 1,289,077 353,938 2,316,326 685,667 30,966,872
------------------------------ ------------- ------------- -------------
Total revenue 1,289,077 2,543,689 2,316,326 5,447,955 38,302,594
Cost of revenue and expenses
Cost of revenues 2,198,345 2,891,668 4,169,143 4,582,832 54,517,285
In-process research and development -- -- -- -- 9,026,640
Research and development expense:
Noncash stock-based compensation 375,000 131,429 375,000 200,442 1,749,031
Other research and development 14,870,054 10,174,832 31,620,347 21,032,579 172,427,987
General and administrative expense:
Noncash stock-based compensation 311,000 99,825 311,000 442,901 11,981,144
Other general and administrative 1,627,616 1,565,176 3,517,153 2,982,345 28,415,880
Interest expense 76,278 25,770 154,203 50,747 863,287
------------------------------ ------------- ------------- -------------
Operating loss (18,169,216) (12,345,011) (37,830,520) (23,843,891) (240,678,660)
Interest income 843,171 594,281 2,135,965 1,081,654 16,653,632
------------------------------ ------------- ------------- -------------
Loss before equity in losses of affiliates (17,326,045) (11,750,730) (35,694,555) (22,762,237) (224,025,028)
Equity in losses of affiliates (993,636) (478,273) (1,639,649) (1,062,648) (8,142,398)
------------------------------ ------------- ------------- -------------
Net loss $ (18,319,681) $ (12,229,003) $ (37,334,204) $ (23,824,885) $(232,167,426)
============================== ============= ============= =============
Loss per share:
Basic and diluted $ (0.41) $ (0.24) $ (0.85) $ (0.47)
============================== ============= =============
Weighted average number of common
shares outstanding 44,239,208 50,504,418 44,080,352 50,425,556
============================== ============= =============
The accompanying notes are an integral part of the
condensed consolidated financial statements.
Plug Power Inc. and Subsidiary
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, Cumulative
------------------------------------------ Amounts from
2001 2002 Inception
------------------ ------------------- -----------------
Cash Flows From Operating Activities:
Net loss $ (37,334,204) $ (23,824,885) $ (232,167,426)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,172,124 2,437,977 12,265,341
Equity in losses of affiliates 1,639,650 1,062,648 8,142,398
Amortization of intangible asset 1,678,465 1,410,707 7,565,068
Noncash prepaid development costs 3,882,286 748,107 6,987,976
Amortization of deferred grant revenue (100,000) (100,000) (500,000)
Stock based compensation 686,000 800,394 14,351,150
Loss on disposal of property, plant and equipment - - 108,625
In-kind services - - 1,340,000
Amortization of deferred rent - - 150,000
Write-off of deferred rent - - 1,850,000
In-process research and development - - 4,042,640
Changes in assets and liabilities:
Accounts receivable (210,824) 1,346,366 (1,261,955)
Inventory (1,522,352) 158,842 (2,112,436)
Due from investor - - 286,492
Prepaid expenses and other current assets 274,761 (150,685) (1,061,490)
Accounts payable and accrued expenses (2,610,563) 970,339 5,106,309
Deferred revenue - (1,703,518) 4,781,275
Due to investor - - (286,492)
----------------- ------------------- --------------------
Net cash used in operating activities (31,444,657) (16,843,708) (170,412,525)
----------------- ------------------- --------------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (2,133,143) (933,747) (29,127,117)
Proceeds from disposal of property, plant and equipment - - 36,666
Purchase of intangible asset - - (9,624,500)
Investment in affiliate - - (1,500,000)
Marketable securities 8,254,405 6,067,478 (32,966,836)
----------------- ------------------- --------------------
Cash provided by (used in) investing activities 6,121,262 5,133,731 (73,181,787)
----------------- ------------------- --------------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock - - 140,342,782
Proceeds from initial public offering, net - - 94,611,455
Proceeds from secondary public offering, net - - 52,017,750
Stock issuance costs - - (2,068,776)
Proceeds from stock option exercises 1,972,716 916,958 7,942,891
Cash placed in escrow - - (5,310,274)
Principal payments on capital lease obligations (42,435) (12,673) (249,063)
Principal payments on long-term debt - - (850,000)
----------------- ------------------- --------------------
Net cash provided by financing activities 1,930,281 904,285 286,436,765
----------------- ------------------- --------------------
(Decrease) increase in cash and cash equivalents (23,393,114) (10,805,692) 42,842,453
Cash and cash equivalents, beginning of period 58,511,563 53,648,145 -
----------------- ------------------- --------------------
Cash and cash equivalents, end of period $ 35,118,449 $ 42,842,453 $ 42,842,453
================= =================== ====================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
Plug Power Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
1. Nature of Operations
Description of Business
Plug Power Inc. and subsidiary (Company), was originally formed as a
joint venture between Edison Development Corporation (EDC) and Mechanical
Technology Incorporated (MTI) in the State of Delaware on June 27, 1997
and succeeded by merger to 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 on-site electric power generation
systems utilizing proton exchange membrane (PEM) fuel cells for
stationary applications and is in the preliminary stages of field testing
and marketing its initial commercial product to a limited number of
customers, including utilities, government entities and the Company's
distribution partners, GE Fuel Cell Systems, LLC and DTE Energy
Technologies, Inc. This initial product is a limited edition fuel cell
system that is intended to offer complimentary, quality power while
demonstrating the market value of fuel cells as a preferred form of
alternative distributed power generation. Subsequent enhancements to its
fuel cell systems are expected to expand the market opportunity for fuel
cells by lowering the installed cost, decreasing operating and
maintenance costs, increasing efficiency, improving reliability, and
adding features such as grid independence and co-generation of heat and
electric power.
Liquidity
The Company's cash requirements depend on numerous factors, including but
not limited to product development activities, ability to commercialize
its fuel cell systems, market acceptance of its systems and other
factors. The Company expects to continue to devote substantial capital
resources to its development programs directed at commercializing fuel
cell systems worldwide, to hire and train production staff, develop and
expand manufacturing capacity and continue research and development
activities. The Company will pursue expansion of its operations through
internal growth and strategic alliances and expects 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.
At June 30, 2002, the Company had unrestricted cash, cash equivalents and
marketable securities in the amount of $75.8 million and working capital
of $74.1 million. Management believes that the Company's current
available cash, cash equivalents and marketable securities will provide
sufficient capital to fund operations for at least the next twelve
months.
2. Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of the Company and its subsidiary. All significant intercompany
transactions have been eliminated in consolidation.
Interim Financial Statements
The unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. 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.
6
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
unaudited condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
filed for the fiscal year ended December 31, 2001.
Cash Equivalents and Restricted Cash: Cash equivalents consist of money
market accounts, overnight repurchase agreements and certificates of
deposit with an initial term of less than three months. For purposes of
the condensed consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
At June 30, 2002, the Company has restricted cash in the amount of
$5,310,274, that is required to be placed in escrow to collateralize debt
related to the purchase of real estate. The escrowed amounts are recorded
under the captions, "Restricted cash" in the accompanying condensed
consolidated balance sheets.
Marketable Securities: Marketable securities includes investments in
corporate debt securities and US Treasury obligations 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 (loss) and as a separate
component of stockholders' equity. There was no significant difference
between cost and fair value of these investments at June 30, 2002.
Product and Service Revenue: Generally, product and service revenue is
recorded when products are shipped, customer acceptance has occurred and
as other significant contractual obligations are met. The Company applies
the guidance within Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101) in the evaluation of its
contracts to determine when to properly recognize revenue. The Company's
initial commercial sales for the delivery of limited edition fuel cell
systems are contract specific arrangements containing multiple
obligations, that may include a combination of continued service,
maintenance and other support, as well as certain cancellation
privileges.
The Company defers recognition of product and service revenue where all
of the criteria for revenue recognition have not yet been achieved.
Product and service revenue excludes revenue which has been deferred and
is being recognized over the period of the underlying service and other
contractual obligations within the Company's initial commercial
agreements for the delivery of fuel cell systems. At June 30, 2002, the
Company has deferred product and service revenue in the amount of $3.8
million.
Income Taxes: Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Use of Estimates: The condensed consolidated financial statements of the
Company have been prepared in conformity with accounting principles
generally accepted in the United States of America, which require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Impact of Recently Issued Accounting Standards: In June 2001, the
Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period
in which it incurs a legal obligation associated with the retirement
of tangible long-lived assets that result from the acquisition,
construction, development and/or normal use of the assets. The Company
also records a corresponding asset which is depreciated over the life of
the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to
reflect the passage of time and changes in the estimated future cash
flows underlying the obligation. The Company is required to adopt SFAS
No. 143 on January 1, 2003. Management is currently evaluating the impact
that the adoption of SFAS No. 143 will have on the Company's consolidated
financial statements.
7
3. Loss Per Share
Loss per share for the Company is calculated as follows:
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2001 2002 2001 2002
-------------- -------------- ------------- -------------
Numerator:
Net loss $(18,319,681) $(12,229,003) $(37,334,204) $(23,824,885)
Denominator:
Weighted average number
of common shares 44,238,208 50,504,418 44,080,352 50,425,556
No options or warrants outstanding were included in the calculation of
diluted loss per share because their impact would have been
anti-dilutive.
4. Investments in Affiliates
GE Fuel Cell Systems, LLC
In February 1999, we entered into a joint venture agreement with GE
MicroGen, Inc. to form GE Fuel Cell Systems, LLC (GEFCS), to exclusively
market, sell, install and service our stationary PEM fuel cell systems on
a global basis, with the exception of the states of Illinois, Indiana,
Michigan and Ohio, in which DTE Energy Technologies, Inc., has exclusive
distribution rights. Plug Power has a 40 percent ownership interest in
GEFCS. Under the terms of our distribution agreement with GEFCS, we serve
as GEFCS' exclusive supplier of the PEM fuel cell systems and related
components meeting the specifications set forth in the distribution
agreement. GE MicroGen, Inc. is an indirect wholly owned subsidiary of
General Electric Company that operates within the GE Power Systems
business. We may, under certain circumstances, sell systems directly to
governmental and quasi-governmental entities under the terms of our
distribution agreement with GEFCS. With respect to fuel cell systems that
we do sell directly we will provide, or enter into a subcontract to
provide, product support services directly.
In connection with the formation of GEFCS, and the Company's distribution
agreement with GEFCS, including amendments thereto, the Company issued
2,250,000 shares of its common stock, and an option to purchase 725,000
additional shares of its common stock, to GE MicroGen, Inc. The Company
has capitalized $16.3 million, the fair value of the shares issued and
the option to purchase additional shares under the caption "Investment in
affiliates" in the accompanying condensed consolidated balance sheets.
This investment is considered to be an intangible asset in the form of a
distribution agreement and is being amortized on a straight line basis
over a ten year period, the term of the original distribution agreement.
In accordance with the terms of the agreement, General Electric will
provide capital, in the form of a loan not to exceed $8.0 million, to
fund the operations 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 under the caption "Equity in losses of affiliates" in
the accompanying condensed consolidated statements of operations. GEFCS
had an operating and net loss of approximately $173,000 for the six
months ended June 30, 2002. For the six months ended June 30, 2002,
equity in losses of affiliates, related to GEFCS, was approximately
$965,000 including amortization of the related intangible asset of
$896,000.
Under a separate agreement, the Company has agreed to source from General
Electric Company technical support services for its product development
effort, including engineering, testing, manufacturing and quality control
services. In addition, the Company has committed to purchase a minimum of
$12.0 million of such services over a five year period, which began
September 30,
8
1999. Through June 30, 2002, the Company has purchased approximately $5.9
million of such services. General Electric Company has agreed to act as
the agent in procuring certain equipment, parts and components and is
providing training services to the Company's employees regarding
procurement activities pursuant to this agreement.
Advanced Energy Incorporated
In March 2000, the Company acquired a 28% ownership interest in Advanced
Energy Incorporated (AEI), (formerly Advanced Energy Systems, Inc.), 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 AEI on the equity method of accounting and adjusts its
investment by its proportionate share of income or losses. The amount by
which the purchase price of the Company's ownership interest exceeded the
underlying equity in net assets of AEI at the acquisition date was
approximately $1,773,000 and has been fully expensed at June 30, 2002.
For the six months ended June 30, 2002, AEI had sales of approximately
$1.5 million and an operating and net loss of approximately $943,000. The
Company has recorded equity in losses of affiliates, related to AEI, of
$97,000 for the six months ended June 30, 2002 which has reduced the
carrying value of the Company's investment to zero.
5. Intangible Assets
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations. SFAS No. 141 specifies criteria that intangible assets
acquired in a business combination must meet to be recognized and
reported separately from goodwill. The Company adopted the provisions of
SFAS No. 141 as of July 1, 2001.
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets." This statement changed the accounting
for goodwill and indefinite-lived intangible assets from an
amortization approach to an impairment-only approach. Goodwill and
intangible assets with indefinite useful lives are subject to a
periodic impairment test. If the carrying value of goodwill or an
intangible asset exceeds its fair value, an impairment loss shall be
recognized. Acquired intangible assets with determinable useful lives
continue to be amortized over their estimated useful lives in
proportion to the economic benefits consumed. These estimated useful
lives are required to be reevaluated each reporting period.
Amortizable intangible assets are to be reviewed for impairment in
accordance with SFAS No. 144.
In conjunction with the adoption of SFAS No. 142, the Company
reassessed the useful lives and the classification of its finite-lived
acquired intangible assets and determined that no revisions were
necessary. The gross carrying amount and accumulated amortization of
the Company's acquired intangible assets as of June 30, 2002 and
December 31, 2001 were as follows:
June 30, 2002 December 31, 2001
-------------------------------- -----------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
-------------------------------- -----------------------------
Distribution Agreement $16,250,000 $ 5,814,648 $16,250,000 $ 4,849,523
Purchased Technology 9,267,500 7,208,068 9,267,500 5,797,360
------------------------------------------------------------------
Total $25,517,500 $13,022,716 $25,517,500 $10,646,883
==================================================================
Amortization expense for acquired intangible assets during the six months
ended June 30, 2002 was $2,306,508. Estimated amortization expense for
the remainder of 2002 and the five succeeding years are as follows:
Estimated
Amortization
Expense
------------
2002 $2,440,386
2003 2,306,446
2004 1,791,660
2005 1,791,600
2006 1,791,600
2007 1,791,600
6. Stockholders' Equity
Changes in stockholders' equity for the six months ended June 30, 2002 is
as follows:
Deficit
Accumulated
During the Total
Common stock Additional Development Stockholders'
Shares Amount Paid-in Capital Stage Equity
--------------------------------------------------------------------------------------
Balance, December 31, 2001 50,322,928 $ 503,229 $342,842,203 $ (208,342,541) $ 135,002,891
Stock based compensation 56,423 564 799,830 800,394
Stock option exercises 131,771 1,318 690,833 692,151
Stock issued under employee
stock purchase plan 33,436 334 224,473 224,807
Stock issued for development
agreement 243,383 2,434 1,997,566 2,000,000
Net loss (23,824,885) (23,824,885)
--------------------------------------------------------------------------------------
Balance, June 30, 2002 50,787,941 $ 507,879 $346,554,905 $ (232,167,426) $ 114,895,358
======================================================================================
9
7. Commitments and Contingencies
Litigation:
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 we and various of our officers and a director violated
certain federal securities laws by failing to disclose certain
information concerning our products and future prospects. The action was
brought on behalf of a class of purchasers of Plug Power 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,
which extends the class period to begin on October 29, 1999, and alleges
claims under Sections 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. Subsequently, Plaintiffs withdrew their claims under the
Securities Act of 1933. 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, and are seeking damages. The Company believes
that the allegations in the consolidated amended complaint are without
merit and intends 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. If
Plaintiffs were to prevail, such an outcome would have a material adverse
effect on our financial condition, results of operation and liquidity.
10
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and notes
thereto included within this report, and our audited consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K filed
for the fiscal year ended December 31, 2001. 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
"Factors Affecting Future Results" in our Annual Report on Form 10-K filed for
the fiscal year ended December 31, 2001.
Overview
We are a development stage enterprise formed to research, develop, manufacture
and distribute on-site electric power generation systems utilizing proton
exchange membrane (PEM) fuel cells for stationary applications. We are in the
preliminary stages of field testing and marketing our initial commercial product
to a limited number of customers, including utilities, government entities and
our distribution partners, GE Fuel Cell Systems, LLC and DTE Energy
Technologies, Inc. This initial product is a limited edition fuel cell system
that is intended to offer complimentary, quality power while demonstrating the
market value of fuel cells as a preferred form of alternative distributed power
generation. Subsequent enhancements to our fuel cell systems are expected to
expand the market opportunity for fuel cells by lowering the installed cost,
decreasing operating and maintenance costs, increasing efficiency, improving
reliability, and adding features such as grid independence and co-generation of
heat and electric power.
We continue to advance the development of our product and have significantly
reduced the unit cost, size, weight and part count of our fuel cell systems.
Since inception, we have devoted substantially all of our resources toward the
development of our PEM fuel cell systems. Our research and development facility
contains over 150 test stations where we conduct design optimization and
verification testing, rapid-aging testing, failure mode and effects analysis,
multiple technology evaluations, and endurance testing in our effort to
accelerate the development and commercialization of our fuel cell systems.
Through June 30, 2002, our stockholders in the aggregate have contributed $292.8
million in cash, including $93.0 million in net proceeds from our initial public
offering and $51.6 million in net proceeds from our follow-on public offering of
common stock, and $33.4 million in other contributions, consisting of in-process
research and development, real estate, other in-kind contributions and equity
interests in affiliates.
From inception through June 30, 2002, we have incurred losses of $232.2 million
and expect to continue to incur losses as we continue our product development
and commercialization programs and prepare for the commencement of manufacturing
operations. We expect that losses 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, the related service requirements
necessary to monitor those systems and potential design changes required as a
result of field testing.
Acquisitions, Strategic Relationships and Development Agreements
Since our inception, we have formed strategic relationships with suppliers of
key components, developed distributor and customer relationships, and entered
into development and demonstration programs with electric utilities, government
agencies and other energy providers.
11
GE Entities: In February 1999, we entered into a joint venture agreement with GE
MicroGen, Inc. to form GE Fuel Cell Systems, LLC (GEFCS), to exclusively market,
sell, install and service our stationary PEM fuel cell systems on a global
basis, with the exception of the states of Illinois, Indiana, Michigan and Ohio,
in which DTE Energy Technologies, Inc., has exclusive distribution rights. Plug
Power has a 40 percent ownership interest in GEFCS. Under the terms of our
distribution agreement with GEFCS, we serve as GEFCS' exclusive supplier of the
PEM fuel cell systems and related components meeting the specifications set
forth in the distribution agreement. GE MicroGen, Inc. is a wholly owned
subsidiary of General Electric Company that operates within the GE Power Systems
business. We may, under certain circumstances, sell systems directly to
governmental and quasi-governmental entities under the terms of our distribution
agreement with GEFCS. With respect to fuel cell systems that we do sell directly
we will provide, or enter into a subcontract to provide, product support
services directly.
Under a separate agreement, the Company has agreed to source from General
Electric Company technical support services for its product development effort,
including engineering, testing, manufacturing and quality control services. In
addition, the Company has committed to purchase a minimum of $12.0 million of
such services over a five year period, which began September 30, 1999. Through
June 30, 2002, the Company has purchased approximately $5.9 million of such
services. General Electric Company has agreed to act as the agent in procuring
certain equipment, parts and components and is providing training services to
the Company's employees regarding procurement activities pursuant to this
agreement.
Gastec: In February 2000, we acquired from Gastec, NV, a Netherlands-based
company, certain fixed assets and all of its intellectual property related to
fuel processor development for fuel cell systems capable of producing up to 100
kW of electric power. The total purchase price was $14.8 million, paid in cash.
In connection with the transaction, we recorded in-process research and
development expense in the amount of $5.0 million, fixed assets in the amount of
$192,000 and intangible assets in the amount of $9.6 million. Through June 30,
2002, we have expensed $7.5 million related to the intangible assets.
Vaillant: In March 2000, we finalized a development agreement with Vaillant GmbH
(Vaillant), to develop a combination furnace, hot water heater and fuel cell
system that will provide both heat and electricity for the home. Under the
agreement, Vaillant will obtain fuel cells and gas-processing components from
GEFCS and then will produce the fuel cell heating appliances for its customers
in Germany, Austria, Switzerland and the Netherlands, and for GEFCS customers
throughout Europe. In March 2002, we amended our agreements with Vaillant to
extend their distribution territory to include all of Europe, on a non-exclusive
basis.
Celanese: In April 2000, we finalized a joint development agreement with
Celanese GmbH, to develop a high temperature membrane electrode unit. Under the
agreement, we and Celanese will exclusively work together on the development of
a high temperature membrane electrode unit for our stationary fuel cell system
applications. As part of the original agreement we agreed to contribute an
estimated $4.1 million (not to exceed $4.5 million) to fund our share of the
development efforts over the course of the agreement. As of June 30, 2002, we
have contributed $1.5 million under the terms of the agreement and have accrued
an additional $1.8 million. These amounts have been expensed and represent our
estimated share of the development efforts performed to date. We are in the
process of negotiating an extension and revision of the terms of our agreement
with Celanese.
12
Engelhard: In June 2000, we finalized a joint development agreement and a supply
agreement with Engelhard Corporation for development and supply of advanced
catalysts to increase the overall performance and efficiency of our fuel
processor. Over the course of the agreements we have contributed $10.0 million
to fund Engelhard's development efforts, and Engelhard has acquired $10.0
million of our common stock. Of this amount, $7.0 million has been expensed with
the remaining $3.0 million being recorded under the balance sheet caption
"Prepaid development costs" as of June 30, 2002. The agreements also specify
rights and obligations for Engelhard to supply products to us over the next 10
years.
Advanced Energy Incorporated: In March 2000, we acquired a 28% ownership
interest in Advanced Energy Incorporated (AEI) in exchange for a combination of
$1.5 million cash and Plug Power common stock valued at approximately $828,000.
We account for our interest in AEI on the equity method of accounting and
adjust our investment by our proportionate share of income or losses. The
amount by which the purchase price of our ownership interest exceeded the
underlying equity in net assets of AEI at the acquisition date was approximately
$1,773,000 and has been fully expensed as of June 30, 2002. For the six months
ended June 30, 2002, AEI had sales of approximately $1.5 million and an
operating and net loss of approximately $943,000. We have recorded equity in
losses of affiliates, related to AEI, of $97,000 for the six months ended June
30, 2002 which has reduced the carrying value of our investment to zero.
Results of Operations
Comparison of the Three Months Ended June 30, 2002 and June 30, 2001.
Product and service revenue. Product and service revenue was $2.2 million for
the three months ended June 30, 2002. There was no product and service revenue
during the same period of 2001. In the third quarter of last year we began
delivering fuel cell systems under commercial agreements to a select number of
customers in order to demonstrate, test and evaluate our fuel cell systems.
During the second quarter of 2002, we delivered 31 fuel cell systems to these
select customers. Our initial commercial sales are contract specific
arrangements containing multiple obligations, that may include a combination of
continued service, maintenance and other support, as well as cancellation
privileges. We defer recognition of product and service revenue where all of the
criteria for revenue recognition have not yet been achieved. During the quarter
ended June 30, 2002, we recognized revenue in the amount of $2.2 million,
including $2.0 million related to previously deferred revenue and $0.2 million
related to fuel cell systems delivered in the quarter. As of June 30, 2002, we
have total deferred product and service revenue in the amount of $3.8 million.
The costs associated with the product, service and other obligations are
expensed as they are incurred.
Research and development contract revenue. Research and development contract
revenue primarily relates to cost reimbursement government contracts related to
the development of PEM fuel cell technology. Research and development contract
revenue decreased to $354,000 for the three months ended June 30, 2002 from $1.3
million during the same period last year. The decrease is the result of
completion of government contracts with the U.S. Department of Energy and New
York State Energy Research and Development Authority.
13
Cost of revenues. Cost of revenues for the three months ended June 30, 2002,
increased to $2.9 million from $2.2 million during the same period last year.
Cost of revenues includes the cost of materials incurred in the manufacture of
the products we sell as well as costs incurred for product maintenance,
replacement parts and service under our contractual obligations. These costs
consist primarily of productive materials and fees paid to outside suppliers for
subcontracted components and services. It does not include any factory labor or
overhead expenses.
Cost of revenues also includes costs associated with research and development
contracts including: compensation and benefits for 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.
Noncash research and development expense. Noncash research and development
expense was $131,000 for the three months ended June 30, 2002 compared to
$375,000 during the same period last year. Noncash research and development
expense represents the fair value of stock grants to employees, and stock grants
and vested stock options to consultants and others in exchange for services
provided.
Other Research and development expense. Other research and development expense
decreased to $10.2 million for the three months ended June 30, 2002 from $14.9
million for the three months ended June 30, 2001. Research and development
expense includes: materials to build development and prototype units,
compensation and benefits for the engineering and related staff, expenses for
contract engineers, fees paid to outside suppliers for subcontracted components
and services, fees paid to consultants for services provided, materials and
supplies consumed, facility related costs such as computer and network services
and other general overhead costs.
Research and development expenses in the second quarter ended June 30, 2002 also
includes accrued expenses and amortization of prepaid development expenses in
the amount of $371,000, compared to $1.8 million during the same period last
year, under our joint development programs with Engelhard and Celanese, recorded
on our balance sheet under the caption "Prepaid development costs" as well as
amortization in the amount of $772,000, compared to $839,000 during the same
period last year, related to the portion of the Gastec purchase price which has
been capitalized and recorded on our balance sheet under the caption "Intangible
assets".
The remainder of the decrease is the result of producing fewer units for
internal test and evaluation purposes combined with a smaller workforce during
the second quarter ended June 30, 2002 than during the same period last year.
Noncash general and administrative expense. Noncash general and administrative
expenses were $100,000 for the three months ended June 30, 2002 compared to
$311,000 during the same period last year. Noncash general and administrative
expenses generally represents the fair value of stock grants to employees and
stock grants and vested stock options to consultants and others in exchange for
services provided.
Other general and administrative expense. Other general and administrative
expenses were $1.6 million for both the three month period ended June 30, 2002
and the three month period ended June 30, 2001. Other 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.
14
Interest expense. Interest expense was $26,000 for the three months ended June
30, 2002, compared to $76,000 for the same period last year. Interest expense
consists of interest on our long-term obligation related to the purchase of real
estate and interest paid on capital lease obligations.
Interest income. Interest income consisting of interest earned on our cash, cash
equivalents and marketable securities decreased to $594,000 for the three months
ended June 30, 2002, from $843,000 for the same period in 2001. The decrease was
due to a lower yield on our investment portfolio during a period of generally
declining interest rates. The higher interest earned in 2001 was the result of
better yields on investments purchased during 2000 with maturities in the second
half of 2001.
Equity in losses of affiliates. Equity in losses of affiliates decreased to
$478,000 for the three months ended June 30, 2002 from $994,000 during the same
period last year. Equity in losses of affiliates, which we account for under the
equity method of accounting, is our proportionate share of the losses of GE Fuel
Cell Systems in the amount of $30,000 and amortization of our original
investments in the amount of $448,000.
The carrying value of our investment in Advanced Energy Incorporated (AEI) has
been reduced to zero through our proportionate share of the losses and
amortization of our original investment and accordingly we have not recorded any
proportionate losses of AEI in the quarter ended June 30, 2002. During the same
quarter of the 2001 calendar year we recorded equity in losses of affiliates,
related to AEI, of $105,000 and amortization of our original investment in the
amount of $394,000.
Income taxes. We did not report a benefit for federal and state income taxes in
the consolidated financial statements as the deferred tax asset generated from
our net operating loss has been offset by a full valuation allowance.
Comparison of the Six Months Ended June 30, 2002 and June 30, 2001.
Product and service revenue. Product and service revenue was $4.8 million for
the six months ended June 30, 2002. There was no product and service revenue
during the same period of 2001. In the third quarter of last year we began
delivering fuel cell systems under commercial agreements to a select number of
customers in order to demonstrate, test and evaluate our fuel cell systems.
During the first six months of 2002, we have delivered 43 fuel cell systems to
these select customers. Our initial commercial sales are contract specific
arrangements containing multiple obligations, that may include a combination of
continued service, maintenance and other support, as well as cancellation
privileges. We defer recognition of product and service revenue where all of the
criteria for revenue recognition have not yet been achieved. During the first
half of 2002, we have recognized product and service revenue in the amount of
$4.8 million, including $4.0 million related to previously deferred revenue and
$0.8 million related to fuel cell systems delivered this year. As of June 30,
2002, we have total deferred product and service revenue in the amount of $3.8
million. The deferred revenue is being recognized over the contractual period of
the underlying service and other contractual obligations. The costs associated
with the product, service and other obligations are expensed as they are
incurred.
Research and development contract revenue. Research and development contract
revenue primarily relates to cost reimbursement government contracts related to
the development of PEM fuel cell technology. Research and development contract
revenue decreased to $686,000 for the six months ended June 30, 2002 from $2.3
million during the same period last year. The decrease is the result of
completion of government contracts with the U.S. Department of Energy and New
York State Energy Research and Development Authority.
Cost of revenues. Cost of revenues for the six months ended June 30, 2002,
increased to $4.6 million from $4.2 million during the same period last year.
Cost of revenues includes the cost of materials
15
incurred in the manufacture of the products we sell as well as costs incurred
for product maintenance, replacement parts and service under our contractual
obligations. These costs consist primarily of productive materials and fees paid
to outside suppliers for subcontracted components and services. It does not
include any factory labor or overhead expenses.
Cost of revenues also includes costs associated with research and development
contracts including: compensation and benefits for 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.
Noncash research and development expense. Noncash research and development
expense was $200,000 for the six months ended June 30, 2002 compared to $375,000
during the same period last year. Noncash research and development expense
represents the fair value of stock grants to employees, and stock grants and
vested stock options to consultants and others in exchange for services
provided.
Other Research and development expense. Other research and development expense
decreased to $21.0 million for the six months ended June 30, 2002 from $31.6
million for the six months ended June 30, 2001. Research and development expense
includes: materials to build development and prototype units, compensation and
benefits for the engineering and related staff, expenses for contract engineers,
fees paid to outside suppliers for subcontracted components and services, fees
paid to consultants for services provided, materials and supplies consumed,
facility related costs such as computer and network services and other general
overhead costs.
Research and development expenses in the first six months ended June 30, 2002
also includes accrued expenses and amortization of prepaid development expenses
in the amount of $748,000, compared to $3.9 million during the same period last
year, under our joint development programs with Engelhard and Celanese, recorded
on our balance sheet under the caption "Prepaid development costs" as well as
amortization in the amount of $1.4 million, compared to $1.7 million during the
same period last year, related to the portion of the Gastec purchase price which
has been capitalized and recorded on our balance sheet under the caption
"Intangible assets".
The remainder of the decrease is the result of producing fewer units for
internal test and evaluation purposes combined with a smaller workforce during
the first six months ended June 30, 2002 than during the same period last year.
Noncash general and administrative expense. Noncash general and administrative
expenses were $443,000 for the six months ended June 30, 2002 compared to
$311,000 during the same period last year. Noncash general and administrative
expenses generally represents the fair value of stock grants to employees and
stock grants and vested stock options to consultants and others in exchange for
services provided.
Other general and administrative expense. Other general and administrative
expenses decreased to 3.0 million for the six months ended June 30, 2002 from
$3.5 million for the six months ended June 30, 2001. Other 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. The decrease in other general and administrative expenses is the
result of more efficient spending in support of operations across the entire
organization combined with a smaller workforce during the first six months ended
June 30, 2002 than during the same period last year.
16
Interest expense. Interest expense was $51,000 for the six months ended June 30,
2002, compared to $154,000 for the same period last year. Interest expense
consists of interest on our long-term obligation related to the purchase of real
estate and interest paid on capital lease obligations.
Interest income. Interest income consisting of interest earned on our cash, cash
equivalents and marketable securities decreased to $1.1 million for the six
months ended June 30, 2002, from $2.1 million for the same period in 2001. The
decrease was due to a lower yield on our investment portfolio during a period of
generally declining interest rates. The higher interest earned in 2001 was the
result of better yields on investments purchased during 2000 with maturities in
the second half of 2001.
Equity in losses of affiliates. Equity in losses of affiliates decreased to $1.1
million for the six months ended June 30, 2002 from $1.6 million during the same
period last year. Equity in losses of affiliates, which we account for under the
equity method of accounting, is our proportionate share of the losses of GE Fuel
Cell Systems (GEFCS) and Advanced Energy Incorporated (AEI) in the amount of
$167,000 and amortization of our original investment in GEFCS in the amount of
$896,000.
At June 30, 2002, the carrying value of our investment in AEI has been reduced
to zero through our proportionate share of the losses and amortization of our
original investment.
Income taxes. We did not report a benefit for federal and state income taxes in
the consolidated financial statements as the deferred tax asset generated from
our net operating loss has been offset by a full valuation allowance.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles and related disclosure requires management to make
estimates and assumptions that affect:
. the amounts reported for assets and liabilities;
. the disclosure of contingent assets and liabilities at the date of the
financial statements; and
. the amounts reported for revenues and expenses during the reporting
period.
Specifically, management must use estimates in determining the economic useful
lives of assets, including identifiable intangibles, and various other recorded
or disclosed amounts. Therefore, the Company's financial statements and related
disclosure are necessarily affected by these estimates. Management evaluates
these estimates on an ongoing basis, utilizing historical experience and other
methods considered reasonable in the particular circumstances. Nevertheless,
actual results may differ significantly from estimates. To the extent that
actual outcomes differ from estimates, or additional facts and circumstances
cause management to revise estimates, the Company's financial position as
reflected in its financial statements will be affected. Any effects on business,
financial position or results of operations resulting from revisions to these
estimates are recorded in the period in which the facts that give rise to the
revision become known.
Management believes that the following are the Company's most critical
accounting policies affected by the estimates and assumptions the Company must
make in the preparation of its financial statements and related disclosure:
Revenue recognition: We are a development stage enterprise in the beginning
stages of field testing and marketing our initial commercial products to a
limited number of customers, including utilities, government entities and our
distribution partners. This initial product is a limited edition fuel cell
system ("System" or "Unit") that is intended to offer complimentary, quality
power while demonstrating the
17
market value of fuel cells as a preferred form of alternative distributed power
generation. Subsequent enhancements to our Systems are expected to expand the
market opportunity for fuel cells by lowering the installed cost, decreasing
operating and maintenance costs, increasing efficiency, improving reliability,
and adding features such as grid independence and co-generation and
uninterruptible power supply (UPS) applications.
We apply the guidance within Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101) to our initial sales contracts to
determine when to properly recognize revenue. Our initial commercial sales are
contract specific arrangements containing multiple obligations, that may include
a combination of continued service, maintenance and other support, as well as
cancellation privileges. Presently, we defer recognition of product and service
revenue where all of the criteria for revenue recognition have not yet been
achieved.
As we gain commercial experience, including field experience relative to service
and warranty based on the sales of our initial products, the fair values for the
multiple elements within our future contracts may become determinable and we
may, in future periods, recognize revenue upon delivery of the Unit or we may
continue to defer recognition, based on application of appropriate guidance
within the existing authoritative literature.
Valuation of long-lived and intangible assets and goodwill: We assess the
impairment of identifiable intangible and long-lived assets and related
goodwill, if any, whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider important which could
trigger an impairment review include, but are not limited to, the following:
. significant underperformance relative to expected historical or
projected future operating results;
. significant changes in the manner of our use of the acquired assets or
the strategy for our overall business;
. significant negative industry or economic trends;
. significant decline in our stock price for a sustained period; and
. our market capitalization relative to net book value.
When we determine that the varying value of intangibles, long-lived assets and
related goodwill may not be recoverable based upon the existence of one or more
of the above indicators of impairment, we would measure any impairment based
upon the provisions of Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets". On January 1, 2002, we adopted
SFAS No. 142 and are required to perform an initial impairment review in 2002
and an annual impairment review thereafter. Based on our initial review we do
not expect to record an impairment charge.
Accounting for income taxes: As part of the process of preparing our
consolidated financial statements, we are required to estimate our income taxes
in each of the jurisdictions in which we operate. This process involves the
estimation of our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. Included in this assessment is the determination of the net operating
loss carryforward that has resulted from our cumulative net operating loss since
inception. These differences result in a net deferred tax asset. We must assess
the likelihood that our deferred tax assets will be recovered from future
taxable income and to the extent that we believe that recovery is not likely, we
must establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the consolidated statement of operations.
18
Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We recorded a valuation
allowance due to uncertainties related to our ability to utilize the net
deferred tax assets, primarily consisting of net operating losses and credits
which may be carried forward, before they expire. In the event that actual
results differ from these estimates or we adjust these estimates in future
periods, we may need to adjust the recorded valuation allowance which could
materially impact our financial position and results of operations. At June 30,
2002, our net deferred tax assets have been offset in full by a valuation
allowance. As a result of current operating losses and the valuation allowance,
the net provision for income taxes is zero at June 30, 2002.
Liquidity and Capital Resources
Summary
Our cash requirements depend on numerous factors, including completion of our
product development activities, ability to commercialize our 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 use, hire and train our
production staff, develop and expand our manufacturing capacity and production
activities and expand our research and development activities. We expect to
pursue the expansion of our operations through internal growth and strategic
acquisitions and expect that 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. The failure to
raise the funds necessary to finance our future cash requirements or consummate
future acquisitions could adversely affect our ability to pursue our strategy
and could negatively affect our operations in future periods. We anticipate
incurring substantial additional losses over at least the next several years and
believe that our current cash, cash equivalents and marketable securities
balances will provide sufficient capital to funds operations for at least the
next twelve months.
We have financed our operations through June 30, 2002 primarily from the sale of
equity, which has provided cash in the amount of $292.8 million. As of June 30,
2002, we had unrestricted cash and cash equivalents and marketable securities
totaling $75.8 million and working capital of $74.1 million. As a result of our
purchase of real estate we have escrowed an additional $5.3 million in cash to
collateralize the debt assumed on the purchase. Since inception, net cash used
in operating activities has been $170.4 million and cash used in investing
activities has been $73.2 million, including our investments in marketable
securities in the amount of $33.0 million.
19
Part II - Other Information
ITEM 1 - LEGAL PROCEEDINGS
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
we and various of our officers and a director violated certain federal
securities laws by failing to disclose certain information concerning our
products and future prospects. The action was brought on behalf of a class of
purchasers of Plug Power 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, which extends the class
period to begin on October 29, 1999, and alleges claims under Sections 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. Subsequently, Plaintiffs withdrew
their claims under the Securities Act of 1933. 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, and are seeking damages. The Company believes that
the allegations in the consolidated amended complaint are without merit and
intends 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. If Plaintiffs were to prevail, such an outcome would
have a material adverse effect on our financial condition, results of operation
and liquidity.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes there have been no material changes in the Company's
interest rate risk position since December 31, 2001. Other types of market risk,
such as foreign exchange rate risk and commodity price risk, do not arise in the
normal course of the Company's business activities.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders ("Annual Meeting") held on May
16, 2002, the Company's shareholders approved the following:
(1) To elect the following directors as Class III Directors, each to hold
office until the Company's 2005 annual meeting of stockholders and until
such director's successor is duly elected and qualified:
Against/ Broker
Nominee For Withheld Abstain Non-Votes
------- -------------------------------------------------
John M. Shalikashvili 49,894,643 104,219 -- --
Larry G. Garberding 49,893,903 104,959 -- --
John G. Rice 49,893,903 104,959 -- --
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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.
20
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)
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. (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. (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)
21
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)
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. (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)
22
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)
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 Distributor Agreement dated February 2, 1999, made
as of July 31, 2000, between GE Fuel Cell Systems L.L.C. and Plug
Power Inc. (3)
10.41 Agreement, dated as of December 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 agreement, dated as of
August 6, 1999, between Plug Power Inc. and Gregory A. Silvestri. (3)
10.44 Joint Development Agreement, dated as of June 2, 2000, between
Plug Power Inc. and Engelhard Corporation. (3)
10.45 Amended and Restated Limited Liability Company Agreement of GE
Fuel Cell Systems, L.L.C. dated August 21, 2001, between GE MicroGen,
Inc. and Plug Power Inc. (4)
10.46 Side Letter, dated August 21, 2001, to Amended and Restated
Limited Liability Company Agreement of GE Fuel Cell Systems, L.L.C.
between GE MicroGen, Inc. and Plug Power Inc. (4)
10.47 First Amendment, dated July 25, 2001, to Registration Rights
Agreement entered into by Plug Power, L.L.C. and GE On-Site Power,
Inc. (4)
23
10.48 Amended and Restated Distribution Agreement, dated as of August
21, 2001, between GE Fuel Cell Systems, LLC and Plug Power, LLC (4)
10.49 Investment Agreement dated July 25, 2001, by and between Plug
Power Inc. GE Power Systems Equities Inc. (4)
10.50 Option to Purchase Common Stock of Plug Power Inc. by GE Power
Systems Equities, Inc., dated August 21, 2001 (4)
10.51 Services Agreement, dated March 17, 2000, between Plug Power
Inc. and General Electric Company (4)
10.52 Amendment, dated September 18, 2000, to the Services Agreement
between Plug Power Inc. and General Electric Company (4)
10.53 Amendment, dated December 31, 2000, to the Services Agreement
between Plug Power Inc. and General Electric Company (4)
10.54 Amendment, dated March 31, 2001, to the Services Agreement
between Plug Power Inc. and General Electric Company (4)
10.55 Amendment No.1, dated February 27, 2002, to Services Agreement,
between Plug Power Inc. and GE Microgen (f/k/a GE On-Site Power) (4)
(1) Incorporated by reference to the Company's Registration Statement
on Form S-1 (File Number 333-86089).
(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.
(4) Incorporated by reference to the Company's Form 10-K for the
period ending December 31, 2001.
B) Reports on Form 8-K.
None.
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: August 14, 2002 by: /S/ Roger Saillant
-----------------------
Roger Saillant
Chief Executive Officer
by: /S/ W. Mark Schmitz
-----------------------
W. Mark Schmitz
Chief Financial Officer
24