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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT
For the transition period from ________ to ________
COMMISSION FILE NUMBER: 0-27527
PLUG POWER INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3672377
(State or other (I.R.S. Identification
jurisdiction Number)
of incorporation or
organization)
968 ALBANY-SHAKER ROAD, LATHAM, NEW YORK 12110
(Address of principal executive offices, including zip code)
(518) 782-7700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share.
Indicate by a 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 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or an
amendment to this Form 10-K. [_]
As of March 22, 2002, 50,344,959 shares of the Registrant's Common Stock
were issued and outstanding. The aggregate market value of the voting stock of
the Registrant held by non-affiliates of the Registrant, based upon the closing
sale price of $10.13 on the Nasdaq National Market on March 22, 2002, was
$509,994,435.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to the Registrant's
Annual Meeting of stockholders to be held on May 16, 2002 are incorporated by
reference into Part III of this report to the extent described therein.
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EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 10-K of Plug Power Inc.
(the "Company") for the fiscal year ended December 31, 2001 is being filed in
response to comments received from the staff of the Securities and Exchange
Commission (the "Staff") in connection with the Staff's review of the Company's
registration statement on Form S-4 filed on November 27, 2002.
This Amendment No. 1 makes certain changes to Business (Item 1),
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7), and the notes to the Financial Statements (Item 14).
This report continues to speak as of the date of the original filing of the
Form 10-K for the fiscal year ended December 31, 2001 (the "Original Filing")
and the Company has not updated the disclosures in this report to speak of any
later date. While this report primarily relates to the historical period
covered, events may have taken place since the date of the Original Filing that
might not have been reflected in this report if they had taken place prior to
the Original Filing. All information contained in this Amendment No. 1 is
subject to updating and supplementing as provided in the Company's periodic
reports filed with the Securities and Exchange Commission subsequent to the
date of this Amendment No. 1.
PART I
Item 1. Business
Overview
We design, develop and manufacture on-site electric power generation systems
utilizing proton exchange membrane (PEM) fuel cells for stationary
applications. We were formed in 1997, as a joint venture between Edison
Development Corporation (EDC), a DTE Energy Company and Mechanical Technology
Incorporated (MTI). In addition, we have established strategic relationships
with suppliers of key components as well as certain other development
arrangements. See Management's Discussion and Analysis of Financial Condition
and Results of Operations - Acquisitions, Strategic Relationships and
Development Agreements.
Our initial product is a fully integrated, grid parallel 5 kilowatt (kW)
fuel cell system that operates on natural gas. This initial product is being
marketed to a select number of customers, including utilities, government
entities and our distribution partners, GE Fuel Cell Systems, L.L.C. and DTE
Energy Technologies, Inc. This initial product is intended to offer
complimentary, quality power while demonstrating the market value of fuel cells
as a preferred form of alternative distributed power generation. We expect
subsequent enhancements to expand the market opportunity for our 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.
During 2001, a substantial portion of our business activity was focused on
the development, manufacture and delivery of our initial products pursuant to
contracts with a select number of customers, including the Long Island Power
Authority and the New York State Energy Research and Development Authority.
Fuel Cells and Fuel Cell Systems
A fuel cell is an electrochemical device that combines hydrogen and oxygen
from the air to produce electric power without combustion. Hydrogen is derived
from a fuel such as natural gas, propane, methanol or gasoline and can also be
obtained from the electrolysis of water, stored hydrogen or a hydrogen
pipeline. A single PEM fuel cell consists principally of two electrodes, the
anode and the cathode, separated by a polymer electrolyte membrane. Each of the
electrodes is coated on one side with a platinum-based catalyst. Hydrogen fuel
is fed into the anode and air enters through the cathode. Induced by the
platinum catalyst, the hydrogen molecule splits into two protons and two
electrons. The electrons are conducted around the membrane creating an electric
current and the protons from the hydrogen molecule are transported through the
polymer electrolyte membrane and combine at the cathode with the electrons and
oxygen from the air to form water and produce heat. To obtain the desired level
of electric power, individual fuel cells are combined into a fuel cell stack.
Increasing the number of fuel cells in a stack increases the voltage, while
increasing the surface area of each fuel cell increases the current.
In addition to a fuel cell stack, a complete PEM fuel cell power system
generally includes supporting subsystems, such as fuel, air supply, cooling and
control, and may also require an inverter or power conditioner to change the
direct current produced by a fuel cell into alternating current. If the PEM
fuel cell system does not use hydrogen directly as its fuel, then a fuel
processor is also required to extract hydrogen from hydrocarbon fuels such as
natural gas or propane.
Product Development and Commercialization
We continue to advance the development of our 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. During 2001 we delivered 132
systems to a select number of customers, including 131 five kilowatt (kW)
systems that operate on natural gas,
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and one 50 kW prototype system that operates on hydrogen. Further, we have
significantly reduced the unit cost, size, weight and part count of our
systems. Recent accomplishments include a 37% reduction in the direct material
cost of our initial product since January 1, 2001.
In addition to our initial products, we are developing combined heat and
power (CHP) fuel cell systems for residential and light commercial
applications. We are conducting a joint development program with Vaillant GmbH
to develop a combination furnace, hot water heater and fuel cell heating
appliance for the European market. We provide the fuel cell system to Vaillant
who integrates the system with their commercial natural gas heating appliances,
resulting in a heating and hot water system that provides supplemental
electrical power. We are also developing CHP fuel cell systems for the U.S.
market that provide supplemental heat as electricity is produced.
Further, we are developing a back-up power fuel cell product that is based
on our initial product, but is fueled by pure hydrogen and, therefore, does not
require a fuel processor. As a result, this back-up power product is expected
to be smaller and less expensive than our initial product. These units are
expected to supply high quality, extended-run direct current (DC) power for the
telecommunications and information technology industries.
We also have an effort underway to create a system architecture for our
future strategic product platforms which we expect will enable the flexible
integration of subsystem and component modules, including a fuel processor, a
fuel cell stack and power conditioning modules. We believe that this modular
system architecture will enable us to produce fuel cell systems that are
configurable across a range of stationary applications and operable within a
customer's specific environment.
Manufacturing
Our goal is to manufacture reliable, efficient and safe fuel cell systems at
an affordable cost. We are focusing our efforts on overall system design,
component and subsystem integration, assembly, and quality control processes.
We have also begun to establish a manufacturing infrastructure by installing a
new management information system and developing our manufacturing processes
based on lean manufacturing practices. We have a 50,000 square foot
manufacturing facility, adjacent to our development laboratories, that allows
us to produce our initial products. Based on our current sales expectations, we
believe our manufacturing plant will provide sufficient capacity to meet our
production levels for at least the next two years.
Our strategy continues to evolve around working with third-party suppliers
to design, develop or manufacture subsystems and components that we expect will
achieve our cost and reliability targets. We perform significant quality
testing before we integrate any third-party subsystems and components into our
final assembled fuel cell systems. We have implemented a supplier approval and
qualification process with the goal of improving our return on investment and
cash flow by driving component and subassembly manufacturing back to our supply
partners, resulting in reduced capital investment, engineering cost, product
cost and inventory investments. We are focused on keeping our supply base small
and establishing long term, strategic relationships with our supply chain
partners. Since our inception we have formed strategic relationships to develop
and supply key components, including:
VAILLANT: In March 2000, we finalized a development agreement with
Vaillant GmbH to develop a combination furnace, hot water heater and fuel
cell heating appliance that will provide both heat and electricity for the
home. See Management's Discussion and Analysis of Financial Condition and
Results of Operations--Acquisitions, Strategic Relationships and Development
Agreements.
CELANESE: In April 2000, we finalized a joint development agreement with
Celanese GmbH (formerly, AXIVA GmbH), to develop a high temperature membrane
electrode unit for our stationary fuel cell systems. The membrane electrode
unit is expected to facilitate the simplification of the fuel processor and
fuel cell water management. See Management's Discussion and Analysis of
Financial Condition and Results of Operations--Acquisitions, Strategic
Relationships and Development Agreements.
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ENGELHARD: In June 2000, we finalized a joint development agreement with
Engelhard Corporation for the development and supply of advanced catalysts
to increase the overall performance and efficiency of our fuel processor.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations--Acquisitions, Strategic Relationships and Development
Agreements.
Distribution and Marketing
In February 1999, we entered into a joint venture agreement with GE
MicroGen, Inc. to form GE Fuel Cell Systems, LLC (GEFCS) for the sole purpose
of distributing and servicing our fuel cell systems. Pursuant to our
agreements, GEFCS has the worldwide right to exclusively market, sell, install
and service certain of our PEM fuel cell systems under 35 kilowatts designed
for use in stationary power applications, with the exception of the states of
Illinois, Indiana, Michigan and Ohio, in which DTE Energy Technologies, Inc.,
has exclusive distribution rights. GE MicroGen, Inc. is a wholly owned
subsidiary of General Electric Company that operates within the GE Power
Systems business. GE has agreed that GE Power Systems would not sell PEM fuel
cells through any entity other than GEFCS.
In August 2001, we amended our agreements with GE MicroGen, Inc. and GEFCS
to expand GEFCS' exclusive worldwide distribution rights to include all of our
stationary PEM fuel cell systems. Under the terms of our distribution agreement
with GEFCS, we will serve as GEFCS' exclusive supplier of the PEM fuel cell
systems and related components meeting the specifications set forth in the
distribution agreement. At the same time, we increased our ownership interest
in GEFCS from 25% to 40% and we granted GE Power Systems Equities, Inc. an
option to purchase 725,000 shares of our common stock at any time prior to
August 21, 2006 at an exercise price of $15.00 per share. We also replaced the
product specifications, prices and delivery schedule in our distribution
agreement with a high-level, multi-generation product plan, with subsequent
modifications being subject to mutual agreement, and extended the term of the
agreement to December 31, 2014.
Under our agreements, we will sell our systems directly to GEFCS, which, in
turn, will identify qualified resellers who can distribute and service these
systems. Ultimate end-users of the products sold through GEFCS are expected to
be home-owners and small businesses. It is also possible that, in some
instances, the resellers may not actually sell the products to end-users, but
may sell the heat and electricity generated by the product. Under our amended
distribution agreement, we may sell systems directly to governmental and
quasi-governmental entities under certain circumstances. For example, in 2001,
we entered into an agreement directly with the Long Island Power Authority
under which they purchased from us 75 of our initial products, together with
installation, maintenance, training, engineering and other technical support
services for an aggregate purchase price of $7.0 million. Plug Power systems
sold through GEFCS are expected to be co-branded with both the General Electric
and Plug Power names and trademarks, and may also carry the brand of the local
reseller. Currently, however, we expect to sell some of our initial products
through GEFCS that do not carry the General Electric name and trademark.
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 several distribution agreements, including agreements with Flint Energies,
a Georgia-based rural electric cooperative, NJR Energy Holdings Corporation, an
affiliate of New Jersey Natural Gas Company, Kubota Corporation of Japan,
Soroof Trading Development Company Limited of Saudi Arabia and Vaillant GmbH of
Remscheid, Germany, Europe's leading heating appliance manufacturer.
Installation, Servicing and Maintenance
Pursuant to our agreements with GEFCS, GEFCS is the exclusive provider of
product support for our systems through its own service structure,
sub-distributor service network and contracts with third party service
providers. GEFCS' service program is expected to be closely coordinated with
the commercial introduction through GEFCS of our fuel cell systems, so that a
sufficient level of installation, maintenance and customer support service will
be available in all areas where our systems are sold. We also expect that GEFCS
will provide the warranty service for our products according to terms to be
mutually agreed upon by us and GEFCS. We expect that GEFCS' service plan will
be completed and the requisite service contracts will be in place prior to
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commercial sale of our units through GEFCS. With respect to systems that we
sell directly, such as those that we deliver to governmental and
quasi-governmental entities, we will provide, or enter into a subcontract to
provide, these services directly.
Proprietary Rights
Fuel cell technology has existed since the 19th century, and PEM fuel cells
were first developed in the 1950s. Consequently, we believe that neither we nor
our competitors can achieve a significant proprietary position on the basic
technologies currently used in PEM fuel cell systems. However, we believe the
design and integration of the system and system components, as well as some of
the low-cost manufacturing processes that we have developed, can be protected.
As of December 31, 2001, we had 38 issued patents and 94 patents pending in
the United States, and abroad we had 3 issued patents and 42 patents pending.
These patents cover, among other things, fuel cell components that reduce
manufacturing part count, fuel cell system designs that lend themselves to mass
manufacturing, improvements to fuel cell system efficiency, reliability, and
longer system life, and control strategies, such as added safety protections
and operation under extreme conditions. Each of our employees has agreed that
all inventions made or conceived while an employee of Plug Power which are
related to or result from work or research that Plug Power performs will remain
the sole and exclusive property of Plug Power, whether patented or not.
Competition
There are a number of companies located in the United States, Canada and
abroad that are developing PEM fuel cell technology, including Ballard Power
Systems, Inc., H Power Corp., and UTC Fuel Cells Corporation. Additionally a
number of major automotive and manufacturing companies have in-house PEM fuel
cell development efforts.
We also compete with companies that are developing other types of fuel
cells, such as Global Thermoelectric Inc and Sulzer-Hexis. There are four types
of fuel cells other than PEM fuel cells that are generally considered to have
viable commercial applications: phosphoric acid fuel cells, molten carbonate
fuel cells, solid oxide fuel cells and alkaline fuel cells. Each of these fuel
cells differs in the component materials, as well as in its overall operating
temperature. While all fuel cell types have environmental and efficiency
advantages over traditional power sources, we believe that PEM fuel cells can
be manufactured less expensively and are more efficient and more practical in
small-scale applications.
Our systems will also compete with other distributed generation
technologies, including microturbines and reciprocating engines, available at
prices competitive with existing forms of power generation. We believe that our
fuel cell systems will have a competitive advantage in that they can be more
easily scaled to a range of applications and will be more efficient in
following the load profile of customers. Our systems will also compete with
solar and wind-powered systems.
Government Regulation
We do not believe that we will be subject to existing federal and state
regulatory commissions governing traditional electric utilities and other
regulated entities. We do believe, however, that our product and its
installation will be subject to oversight and regulation at the local level in
accordance with state and local ordinances relating to among others, building
codes, public safety, electrical and gas pipeline connections and related
matters. The level of regulation may depend, in part, upon whether a system is
placed outside or inside a home. For example, the 2002 National Electric Code
(NEC) is a model code adopted by the National Fire Protection Association that
governs the electrical wiring of most homes, businesses and other buildings.
The NEC has been adopted by local jurisdictions throughout the United States
and is enforced by local officials, such as building and electrical inspectors.
Article 692 of the NEC governs the installation of fuel cell systems.
Accordingly, all our systems installed in a jurisdiction that has adopted the
2002 NEC must be installed in accordance with Article 692. In addition, product
safety standards have been established covering the overall fuel
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cell system (CSA FC-1 formerly ANSI Z21.83), and the power conversion
electronics (UL 1741). Our product has been certified by CSA International to
be in compliance with the safety requirements of CSA FC-1 and our power
conditioning system, an inverter, has been listed to UL1741 by Underwriter's
Laboratories. Other than these requirements, at this time, we do not know what
additional requirements, if any, each jurisdiction will impose on our product
or its installation. We also do not know the extent to which any new
regulations may impact our ability to distribute, install and service our
product. Once our product reaches the commercialization stage and we begin
distributing our systems to our early target markets, the federal, state or
local government entities or competitors may seek to impose regulations.
Employees
As of December 31, 2001, we had a total staff of 366, including 353 full-
time employees, of which 218 were engineers, scientists, and other degreed
professionals. We consider our relations with our employees to be good. We
continuously monitor our workforce in an effort to identify specific areas of
need or where there are job redundancies and inefficiencies based on our stage
of development.
Factors Affecting Future Results
This Annual Report on Form 10-K contains statements which are not historical
facts and are considered forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. You can identify these statements by
forward-looking words such as "may," "could," "should," "would," "intend,"
"will," "expect," "anticipate," "believe," "estimate," "continue" or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or of our financial condition, or state other forward-looking
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control and that may cause our actual
results to differ materially from the expectations we describe in our forward-
looking statements. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, and actual results may differ materially from
those discussed as a result of various factors, including, but not limited to,
those factors described below. Readers should not place undue reliance on our
forward-looking statements. Except as may be required by applicable law, we do
not undertake or intend to update any forward-looking statements after the date
of this Annual Report on Form 10-K.
We may never complete the research and development of commercially viable
stationary fuel cell systems.
We are a development stage company. We do not know when or whether we will
successfully complete research and development of commercially viable
stationary fuel cell systems. We have produced and are currently demonstrating
a number of test and evaluation systems. We must decrease the costs of our
components and subsystems, improve their overall reliability and efficiency,
and ensure their safety. Although we have sold a limited number of our initial
products, we must complete substantial additional research and development on
our systems before we will have a large-scale commercially viable product.
Because development of our fuel cell systems proceeded more slowly than we
anticipated, we have amended our distribution agreement with GE Fuel Cell
Systems on three occasions to revise the performance specifications and prices
and to extend the delivery schedule for the products covered by that agreement.
In addition, while we are conducting tests to predict the overall life of our
systems, we will not have run our systems over their projected useful life
prior to large-scale commercialization. As a result, we cannot be sure that our
systems will last as long as predicted, resulting in possible warranty claims
and commercial failures.
We have only been in business for a short time, and your basis for
evaluating us is limited.
We were formed in June 1997 to further the research and development of
stationary fuel cell systems. While we delivered our initial product in the
third quarter of 2001, we do not expect to be profitable for at least the next
several years. Accordingly, there is only a limited basis upon which you can
evaluate our business and prospects. As an investor in our common stock, you
should consider the challenges, expenses and difficulties that we will face as
a development stage company seeking to develop and manufacture a new product.
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We have incurred losses and anticipate continued losses for at least the
next several years.
As of December 31, 2001, we had an accumulated deficit of $208.3 million. We
have not achieved profitability and expect to continue to incur net losses
until we can produce sufficient revenue to cover our costs. The total cost to
produce our initial products is currently higher than their sales price.
Furthermore, we anticipate that we will continue to incur losses until we can
produce and sell our fuel cell systems on a large- scale and cost-effective
basis. Even if we do achieve profitability, we may be unable to sustain or
increase our profitability in the future.
A viable market for fuel cell systems may never develop or may take longer
to develop than we anticipate.
Fuel cell systems for residential, commercial and industrial applications
represent an emerging market, and we do not know the extent to which our
targeted distributors and resellers will want to purchase them and whether
end-users will want to use them. If a viable market fails to develop or
develops more slowly than we anticipate, we may be unable to recover the losses
we will have incurred to develop our product and may be unable to achieve
profitability. The development of a viable market for our systems may be
impacted by many factors which are out of our control, including:
. the cost competitiveness of fuel cell systems,
. the future costs of natural gas, propane and other fuels expected to be
used by our systems,
. consumer reluctance to try a new product,
. consumer perceptions of our systems' safety,
. regulatory requirements, and
. the emergence of newer, more competitive technologies and products.
We have no experience manufacturing fuel cell systems on a large-scale
commercial basis.
To date, we have focused primarily on research and development and have no
experience manufacturing fuel cell systems on a large-scale commercial basis.
In 2000, we completed construction of our 50,000 square foot manufacturing
facility, and we are continuing to develop our manufacturing capabilities and
processes. We do not know whether or when we will be able to develop efficient,
low-cost manufacturing capabilities and processes that will enable us to meet
the quality, price, engineering, design and production standards or production
volumes required to successfully market our fuel cell systems. Even if we are
successful in developing our manufacturing capabilities and processes, we do
not know whether we will do so in time to meet our product commercialization
schedule or to satisfy the requirements of our distributors or customers.
We are heavily dependent on our relationship with GE Fuel Cell Systems and
its commitment to develop the fuel cell market.
We believe that a substantial portion of our future revenue will be derived
from sales of products to GE Fuel Cell Systems. Under the terms of our current
distribution agreement, GE Fuel Cell Systems has worldwide rights to market,
distribute, install and service our PEM fuel cell systems designed for
stationary applications other than in the states of Illinois, Indiana, Michigan
and Ohio. Under our distribution agreement, we will serve as GE Fuel Cell
Systems' exclusive supplier of the PEM fuel cell systems and related components
meeting the specifications set forth in the distribution agreement.
We have not fully developed and produced the product that we have agreed to
sell to GE Fuel Cell Systems.
Our initial product does not meet the specifications required by our current
agreement with GE Fuel Cell Systems. Economic and technical difficulties may
prevent us from completing development of products meeting these specifications
and delivering them on schedule to GE Fuel Cell Systems.
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In addition, our ability to successfully sell our systems is heavily
dependent upon GE Fuel Cell Systems' sales, distribution and service
capabilities. Although we own a minority interest in GE Fuel Cell Systems, we
cannot control the operations or business decisions of GE Fuel Cell Systems.
Any change in our relationship with GE Fuel Cell Systems, whether as a result
of market, economic or competitive pressures, including an inability to satisfy
our contractual obligations to GE Fuel Cell Systems or any decision by General
Electric to alter its commitment to GE Fuel Cell Systems or our fuel cell
technology in favor of other fuel cell technologies, to develop fuel cell
systems targeted at different markets than ours or to focus on different energy
product solutions could harm our reputation and potential earnings by depriving
us of the benefits of GE Fuel Cell Systems' sales and distribution network and
service capabilities.
Our distribution agreement with GE Fuel Cell Systems has been amended on
three occasions. The most recent amendment in August 2001, further amended the
distribution agreement to extend its term through 2014 and to replace the
product specifications, prices and delivery schedule in the current agreement
with a high-level, multi-generation product plan with subsequent modifications
subject to mutual agreement.
We have not met in the past and may not meet in the future product
development and commercialization milestones.
We have established both internally and in our distribution agreement with
GE Fuel Cell Systems product development and commercialization milestones and
dates for achieving development goals related to technology and design
improvements. We use these milestones to assess our progress toward developing
commercially viable fuel cell systems. For example, 2000 was a milestone year
for delivering to GE Fuel Cell Systems 485 units meeting pre-commercial
specifications set forth in our agreement with them on a take-or-pay basis for
a total of $10.3 million in revenue. During the second quarter of 2000, we
determined that the specifications of the then current pre-commercial units did
not conform to the specifications originally agreed upon with GE Fuel Cell
Systems and that we would not meet that milestone. Additionally, we set
internal milestones of building 500 developmental and pre-commercial units in
2000, having commercial units available in 2001 and achieving profitability by
2003. During 2000, we produced a total of only 113 systems, delayed
availability of our initial product and announced that we would not be
profitable for at least the next several years.
Delays in our product development will likely have a material impact on our
commercialization schedule.
If we do experience delays in meeting our development goals or if our
systems exhibit technical defects or if we are unable to meet cost or
performance goals, including power output, useful life and reliability, our
commercialization schedule will be delayed. In this event, potential purchasers
of our initial commercial systems may choose alternative technologies and any
delays could allow potential competitors to gain market advantages. We cannot
assure you that we will successfully achieve our milestones in the future.
We depend on third parties for certain aspects of product development,
manufacturing and the development and supply of key components for our products.
While we have entered into relationships with suppliers of key components,
we do not know when or whether we will secure supply relationships for all
required components and subsystems for our fuel cell systems, or whether such
relationships will be on terms that will allow us to achieve our objectives.
Our business, prospects, results of operations or financial condition could be
harmed if we fail to secure relationships with entities which can develop or
supply the required components for our systems. Additionally, the agreements
governing our current relationships allow for termination by our supply
partners under a number of circumstances.
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We will rely on our partners to develop and provide components for our fuel
cell systems.
A supplier's failure to develop and supply components in a timely manner, or
to develop or supply components that meet our quality, quantity or cost
requirements, or our inability to obtain substitute sources of these components
on a timely basis or on terms acceptable to us, could harm our ability to
manufacture our fuel cell systems. In addition, to the extent that our supply
partners use technology or manufacturing processes that are proprietary, we may
be unable to obtain comparable components from alternative sources.
In addition, platinum is a key material in our PEM fuel cells. Platinum is a
scarce natural resource and we are dependent upon a sufficient supply of this
commodity. While we do not anticipate significant near or long term shortages
in the supply of platinum, such shortages could adversely affect our ability to
produce commercially viable fuel cell systems or significantly raise our cost
of producing our fuel cell systems.
We face intense competition and may be unable to compete successfully.
The markets for electric power generators are intensely competitive. There
are a number of companies located in the United States, Canada and abroad that
are developing PEM and other fuel cell technologies, such as phosphoric acid
fuel cells, molten carbonate fuel cells, solid oxide fuel cells and alkaline
fuel cells. Some of our competitors are much larger than we are and may have
the manufacturing, marketing and sales capabilities to complete research,
development and commercialization of a commercially viable fuel cell system
more quickly and effectively than we can.
There are many companies engaged in all areas of traditional and alternative
electric power generation in the United States, Canada and abroad, including,
among others, major electric, oil, chemical, natural gas and specialized
electronics firms, as well as universities, research institutions and foreign
government-sponsored companies. These firms are engaged in forms of power
generation such as solar and wind power, reciprocating engines and
microturbines, as well as grid-supplied electric power. Many of these entities
have substantially greater financial, research and development, manufacturing
and marketing resources than we do.
Changes in government regulations and electric utility industry
restructuring may affect demand for our fuel cell systems.
The market for electric power generation products is heavily influenced by
federal and state governmental regulations and policies concerning the electric
utility industry. The loosening of current regulatory policies could deter
further investment in the research and development of alternative energy
sources, including fuel cells, and could result in a significant reduction in
the demand for our products. We cannot predict how the deregulation and
restructuring of the industry will affect the market for stationary fuel cell
systems.
Our business may become subject to future government regulation which may
impact our ability to market our products.
We do not believe that our products will be subject to existing federal and
state regulations governing traditional electric utilities and other regulated
entities. We believe that our products and their installation will be subject
to oversight and regulation at the local level in accordance with state and
local ordinances relating to, among others, building codes, public safety and
electrical and gas pipeline connections. Such regulation may depend, in part,
upon whether a fuel cell system is placed outside or inside a home. At this
time, we do not know what requirements, if any, each jurisdiction will impose
upon our products or their installation. We also do not know the extent to
which any new regulations may impact our ability to distribute, install and
service our products. In the future, federal, state or local government
entities or competitors may seek to impose regulations. Any new government
regulation of our products, whether at the federal, state or local level,
including any regulations relating to installation and servicing of our
products, may increase our costs and the price of our systems.
8
Utility companies could place barriers on our entry into the residential
marketplace.
Utility companies commonly charge fees to industrial customers for
disconnecting from the grid, for using less electricity or for having the
capacity to use power from the grid for back-up purposes. Though these fees are
not currently charged to residential users, it is possible that utility
companies could in the future charge similar fees to residential customers. The
imposition of such fees could increase the cost to residential customers of
using our systems and could make our residential systems less desirable,
thereby harming our revenue and profitability.
Several states, including Texas, New York and California, have created and
adopted or are in the process of creating or adopting their own interconnection
regulations covering both technical and financial requirements for
interconnection to utility grids. Depending on the complexities of the
requirements, installation of our systems may become burdened with additional
costs and have a negative impact on our ability to sell systems. There is also
a burden in having to track the requirements of individual states and design
equipment necessary to comply with the varying standards. Further, no universal
standard has been adopted covering the connection of distributed generation
devices to utility grids.
Alternatives to our technology could render our systems obsolete prior to
commercialization.
Our systems are one of a number of alternative energy products being
developed as supplements to the electric power grid that have potential
residential, commercial and industrial applications, including microturbines,
solar power, wind power and other types of fuel cell technologies. Improvements
are also being made to the existing electric transmission system. Technological
advances in alternative energy products, improvements in the electric power
grid or other fuel cell technologies may render our systems obsolete.
The hydrocarbon fuels and other raw materials on which our systems rely may
not be readily available or available on a cost-effective basis.
The ability of our systems to produce electric power depends largely on the
availability of natural gas and propane. If these fuels are not readily
available, or if their prices are such that electric power produced by our
systems costs more than electric power provided through the grid, our systems
would be less attractive to potential users.
Our fuel cell systems use flammable fuels which are inherently dangerous
substances.
Our fuel cell systems use natural gas in a catalytic reaction which produces
less heat than a typical gas furnace. While our fuel cell systems do not use
this fuel in a combustion process, natural gas is a flammable fuel that could
leak in a home or office and combust if ignited by another source. These
dangers are present in any appliance that uses natural gas, such as a gas
furnace, stove or dryer. Any accidents involving our products or other products
using similar flammable fuels could materially suppress demand for, or heighten
regulatory scrutiny of, our products. Any liability for damages resulting from
malfunctions or design defects could be substantial and could materially
adversely affect our business and results of operations. In addition, a well-
publicized actual or perceived problem could adversely affect the market's
perception of our products resulting in a decline in demand for our products
and could divert the attention of our management, which may materially
adversely affect our financial condition and results of operations.
We must lower the cost of our fuel cell systems and demonstrate their
reliability.
The fuel cell systems we develop currently cost significantly more than the
cost of many established competing technologies. If we are unable to produce
fuel cell systems that are competitive with competing technologies in terms of
price, reliability and longevity, consumers will be unlikely to buy products
containing our fuel cell systems. The price of fuel cell systems depends
largely on material and manufacturing costs. We cannot guarantee that we will
be able to lower these costs to the level where we will be able to produce a
competitive product or that any product produced using lower cost materials and
manufacturing processes will not suffer from a reduction in performance,
reliability and longevity.
9
Failure of our field tests could negatively impact demand for our products.
We are currently field testing a number of our systems and we plan to
conduct additional field tests in the future. We may encounter problems and
delays during these field tests for a number of reasons, including the failure
of our technology or the technology of third parties, as well as our failure to
maintain and service our systems properly. Many of these potential problems and
delays are beyond our control. Any problem or perceived problem with our field
tests could materially harm our reputation and impair market acceptance of, and
demand for, our products.
We may be unable to raise additional capital to complete our product
development and commercialization plans.
Our cash requirements depend on numerous factors, including completion of
our product development activities, ability to commercialize our fuel cell
systems and market acceptance of our systems. We expect to devote substantial
capital resources to continue development programs, establish a manufacturing
infrastructure and develop manufacturing processes. We believe that we will
need to raise additional funds to achieve commercialization of our products.
However, we do not know whether we will be able to secure additional funding,
or funding on acceptable terms, to pursue our commercialization 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, we may be required to limit operations in a manner inconsistent
with our development and commercialization plans, which could affect operations
in future periods.
We will need to establish additional strategic relationships to complete our
product development and commercialization plans.
We believe that we will need to enter into additional strategic
relationships in order to complete our current product development and
commercialization plans on schedule. In particular, we may require a partner to
assist us in developing commercially viable fuel cell systems that produce in
the range of 25 to 100 kW of electric power. If we are unable to identify or
enter into a satisfactory agreement with potential partners, we may not be able
to complete our product development and commercialization plans on schedule or
at all. We may also need to scale back these plans in the absence of a partner,
which would adversely affect our future prospects. In addition, any arrangement
with a strategic partner may require us to issue a material amount of equity
securities to the partner or commit significant financial resources to fund our
product development efforts in exchange for their assistance or the
contribution to us of intellectual property. Any such issuance of equity
securities would reduce the percentage ownership of our then current
stockholders.
Future acquisitions may disrupt our business and distract our management.
We may engage in acquisitions. We may not be able to identify suitable
acquisition candidates. If we do identify suitable candidates, we may not be
able to acquire them on commercially acceptable terms or at all. If we acquire
another company, we may not be able to successfully integrate the acquired
business into our existing business in a timely and non-disruptive manner. We
may have to devote a significant amount of time and management and financial
resources to do so. Even with this investment of management and financial
resources, an acquisition may not produce the desired revenues, earnings or
business synergies. If we fail to integrate the acquired business effectively
or if key employees of that business leave, the anticipated benefits of the
acquisition would be jeopardized. The time, capital and management and other
resources spent on an acquisition that fails to meet our expectations could
cause our business and financial condition to be materially and adversely
affected. In addition, from an accounting perspective, acquisitions can involve
non-recurring charges and amortization of significant amounts of intangible
assets that could adversely affect our results of operations.
10
We may not be able to protect important intellectual property.
PEM fuel cell technology was first developed in the 1950s, and we do not
believe that we can achieve a significant proprietary position in the basic
technologies currently used in PEM fuel cell systems. Similarly, fuel
processing technology has been practiced on a large scale in the petrochemical
industry for decades. However, our ability to compete effectively against other
fuel cell companies will depend, in part, on our ability to protect our
proprietary technology, systems designs and manufacturing processes. We do not
know whether any of our pending patent applications will issue or, in the case
of patents issued or to be issued, that the claims allowed are or will be
sufficiently broad to protect our technology or processes. Even if all of our
patent applications are issued and are sufficiently broad, they may be
challenged or invalidated. We could incur substantial costs in prosecuting or
defending patent infringement suits. While we have attempted to safeguard and
maintain our proprietary rights, we do not know whether we have been or will be
completely successful in doing so. Moreover, patent applications filed in
foreign countries may be subject to laws, rules and procedures that are
substantially different from those of the United States, and any resulting
foreign patents may be difficult and expensive to enforce.
We may have difficulty managing change in our operations.
We are continue to undergo rapid change in the scope and breadth of our
operations as we advance the development of our products. Such rapid change is
likely to place a significant strain on our senior management team and other
resources. We will be required to make significant investments in our
engineering, logistics, financial and management information systems and to
motivate and effectively manage our employees. Our business, prospects, results
of operations or financial condition could be harmed if we encounter
difficulties in effectively managing the budgeting, forecasting and other
process control issues presented by such a rapid change.
We face risks associated with our plans to market, distribute and service
our products internationally.
We intend to market, distribute and service our PEM fuel cell systems for
stationary applications internationally through GE Fuel Cell Systems. We have
limited experience developing, and no experience manufacturing our products to
comply with the commercial and legal requirements of international markets. Our
success in international markets will depend, in part, on GE Fuel Cell Systems'
ability to secure relationships with foreign sub-distributors and our ability
to manufacture products that meet foreign regulatory and commercial
requirements. Additionally, our planned international operations are subject to
other inherent risks, including potential difficulties in enforcing contractual
obligations and intellectual property rights in foreign countries and
fluctuations in currency exchange rates.
Further, our competitors may independently develop or patent technologies or
processes that are substantially equivalent or superior to ours. If we are
found to be infringing third party patents, we could be required to pay
substantial royalties and/or damages, and we do not know whether we will be
able to obtain licenses to use such patents on acceptable terms, if at all.
Failure to obtain needed licenses could delay or prevent the development,
manufacture or sale of our fuel cell systems, and could necessitate the
expenditure of significant resources to develop or acquire non-infringing
intellectual property.
We rely, in part, on contractual provisions to protect our trade secrets and
proprietary knowledge. These agreements may be breached, and we may not have
adequate remedies for any breach. Our trade secrets may also be known without
breach of such agreements or may be independently developed by competitors. Our
inability to maintain the proprietary nature of our technology and processes
could allow our competitors to limit or eliminate any competitive advantages we
may have and prevent us from being the first company to commercialize
residential fuel cell systems.
11
Our government contracts could restrict our ability to effectively
commercialize our technology.
Some of our technology has been developed under government funding by the
United States and by other countries. In some cases, government agencies in the
United States can require us to obtain or produce components for our systems
from sources located in the United States rather than foreign countries. Our
contracts with government agencies are also subject to the risk of termination
at the convenience of the contracting agency, potential disclosure of our
confidential information to third parties and the exercise of "march-in" rights
by the government. March-in rights refer to the right of the United States
government or government agency to exercise its non-exclusive, royalty-free,
irrevocable worldwide license to any technology developed under contracts
funded by the government if the contractor fails to continue to develop the
technology. The implementation of restrictions on our sourcing of components or
the exercise of march-in rights could harm our business, prospects, results of
operations or financial condition. In addition, under the Freedom of
Information Act, any documents that we have submitted to the government or to a
contractor under a government funding arrangement is subject to public
disclosure that could compromise our intellectual property rights unless such
documents are exempted as trade secrets or as confidential information and
treated accordingly by such government agencies.
Our future plans could be harmed if we are unable to attract or retain key
personnel.
We have attracted a highly skilled management team and specialized
workforce, including scientists, engineers, researchers, manufacturing and
marketing professionals. Our future success will depend, in part, on our
ability to attract and retain qualified management and technical personnel. We
do not know whether we will be successful in hiring or retaining qualified
personnel. Our inability to hire qualified personnel on a timely basis, or the
departure of key employees, could materially and adversely affect our
development and commercialization plans and, therefore, our business,
prospects, results of operations and financial condition.
GE MicroGen and DTE Energy have representatives on our Board of Directors.
Under our agreement with GE MicroGen we are required to use our best efforts
to cause one individual nominated by GE Power Systems, an operating business of
General Electric Company, to be elected to our Board of Directors for as long
as our distribution agreement with GE Fuel Cell Systems remains in effect.
Currently, John G. Rice serves on our Board of Directors as the GE Power
Systems nominee to our Board. In addition, a current employee of DTE Energy,
Anthony F. Earley, Jr., and a former employee of DTE Energy, Larry G.
Garberding, currently serve on our Board of Directors. Both GE Fuel Cell
Systems and DTE Energy have entered into distribution agreements with us.
We are subject to a securities class action litigation.
In September 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 directors 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
our 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 the
Securities Act of 1933 and the Exchange Act of 1934, and Rule 10b-5 promulgated
under the Exchange Act of 1934. 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 our
technology in a registration statement issued in connection with our initial
public offering and in subsequent press releases. We served our motion to
dismiss the claims in May 2001. We believe that the allegations in the
consolidated amended complaint are without merit and intend to vigorously
defend against the claims. We do not believe that the outcome of these actions
will have a material adverse effect upon our 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
the plaintiffs were to prevail, such an outcome would have a material adverse
effect on our financial condition, results of operations and liquidity.
12
Our stock price has been and could remain volatile.
The market price of our common stock has historically experienced and may
continue to experience significant volatility. Since our initial public
offering in October 1999, the market price of our common stock has fluctuated
from a high of $149.75 per share in the first quarter of 2000, to a low of
$7.53 per share in the fourth quarter of 2001. Our progress in developing and
commercializing our products, our quarterly operating results, changes in
general conditions in the economy or the financial markets and other
developments affecting us or our competitors could cause the market price of
our common stock to fluctuate substantially. In addition, in recent years, the
stock market has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many
companies for reasons unrelated to their operating performance and may
adversely affect the price of our common stock. In addition, we may be the
subject of additional securities class action litigation as a result of
volatility in the price of our stock, which could result in substantial costs
and diversion of management's attention and resources and could harm our stock
price, business, prospects, results of operations and financial condition.
Item 2. Properties
Our principal executive offices are located in Latham, New York. At our 36
acre campus, we own a 56,000 square foot research and development center, a
32,000 square foot office building and a 50,000 square foot manufacturing
facility and believe that these facilities are sufficient to accommodate our
anticipated production volumes for at least the next two years.
Item 3. 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 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. If Plaintiffs were to
prevail, such an outcome would have a material adverse effect on our financial
condition, results of operation and liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
None.
13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information. Our common stock is traded on the Nasdaq National
Market under the symbol "PLUG." As of December 31, 2001, there were 1,385
shareholders of record. However, management believes that a significant number
of shares are held by brokers under a "nominee name" and that the actual number
of beneficial shareholders exceeds 70,000. The following table sets forth high
and low last reported sale prices for our Common Stock as reported by the
Nasdaq National Market for the periods indicated:
Closing sales prices
--------------------
High Low
------- ------
2000
1st Quarter. $149.75 $25.75
2nd Quarter. $ 92.00 $39.44
3rd Quarter. $ 70.00 $36.02
4th Quarter. $ 36.50 $ 9.44
2001
1st Quarter. $ 31.38 $12.69
2nd Quarter. $ 35.40 $12.88
3rd Quarter. $ 21.43 $ 6.70
4th Quarter. $ 10.02 $ 7.53
Dividend Policy. We have never declared or paid cash dividends on our
common stock and do not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of dividends will depend
upon capital requirements and limitations imposed by our credit agreements, if
any, and such other factors as our board of directors may consider.
Recent Sales of Unregistered Securities and Use of Proceeds.
We issued securities that were not registered under the Securities Act of
1933, as amended (the "Securities Act") in the following transactions. The
securities issued in each of the transactions were offered and sold in
reliance upon Section 4(2) of the Securities Act.
On July 19, 2001, we issued and sold 416,666 shares of our common stock
to GE Power Systems Equities, Inc., an indirect wholly-owned subsidiary of
General Electric Company and an additional 416,666 shares of our common
stock to Edison Development Corporation, an indirect wholly-owned subsidiary
of DTE Energy Company for an aggregate offering price of $10,000,000.
On August 21, 2001, we issued to GE Power Systems Equities, Inc., an
indirect wholly-owned subsidiary of General Electric Company, an option to
purchase up to 725,000 shares of our common stock at any time prior to
August 21, 2006 at an exercise price of $15.00 per share. The option was
issued in connection with and as consideration for an amendment to our
agreements with GE MicroGen, Inc. and GE Fuel Cell Systems, LLC as well as
the issuance to us of an additional 15% ownership interest in GE Fuel Cell
Systems, LLC.
14
Item 6. Selected Financial Data
The following tables set forth selected financial data and other operating
information of the Company. The selected statement of operations and balance
sheet data for 2001, 2000, 1999, 1998 and 1997 as set forth below are derived
from the audited financial statements of the Company. The information is only a
summary and you should read it in conjunction with the Company's audited
financial statements and related notes and other financial information included
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Years Ended December 31,
-----------------------------------------------
2001 2000 1999 1998 1997 **
--------- --------- --------- -------- --------
(in thousands, except per share data)
Statement Of Operations:
Product and service revenue............... $ 2,574 $ -- $ -- $ -- $ --
Research and development contract Revenue. 3,168 8,378 11,000 6,541 1,194
--------- --------- --------- -------- --------
Total revenue............................. 5,742 8,378 11,000 6,541 1,194
Cost of revenues.......................... 11,291 13,055 15,498 8,864 1,226
In-process research and development....... -- 4,984 -- -- 4,043
Research and development expense:
Noncash stock-based compensation....... 1,301 248 -- -- --
Other research and development......... 59,299 65,657 20,506 4,633 1,301
General and administrative expense:
Noncash stock-based compensation....... 502 7,595 3,228 212 --
Other general and administrative....... 6,990 8,572 6,699 2,541 630
Interest expense.......................... 260 363 190 -- --
--------- --------- --------- -------- --------
Operating loss......................... (73,901) (92,096) (35,121) (9,709) (6,006)
Interest income........................... 4,070 8,181 3,124 93 103
--------- --------- --------- -------- --------
Loss before equity in losses of affiliates (69,831) (83,915) (31,997) (9,616) (5,903)
Equity in losses of affiliates............ (3,281) (2,327) (1,472) -- --
--------- --------- --------- -------- --------
Net loss.................................. $(73,112) $(86,242) $(33,469) $(9,616) $(5,903)
========= ========= ========= ======== ========
Loss per share:
Basic and diluted...................... $ (1.56) $ (1.99) $ (1.27) $ (0.71) $ (0.62)
========= ========= ========= ======== ========
Weighted average number of common.........
shares outstanding........................ 46,840 43,308 26,283 13,617 9,500
========= ========= ========= ======== ========
Balance Sheet Data:
(at end of the period)
Working capital........................... $ 90,366 $ 83,352 $ 169,212 $ 2,692 $ 2,667
Total assets.............................. 151,374 150,829 216,126 8,093 4,846
Current portion of long-term obligations.. 530 577 553 -- --
Long-term obligations..................... 6,172 6,707 6,517 -- --
Stockholders' equity...................... 135,003 134,131 201,407 5,493 3,597
--------
** For the period June 27 (date of inception) to December 31.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with our accompanying
Financial Statements and Notes thereto included within this Annual Report on
Form 10-K. In addition to historical information, this Annual Report on Form
10-K and the following discussion contain statements which are not historical
facts and are considered forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
contain projections of our future results of operations or of our financial
position or state other forward-looking information. In some cases you can
identify these statements by forward-looking words such as "anticipate,"
"believe," "could," "estimate," "expect," "intend," "may," "should," "will" and
"would" or similar words. You should not rely on these forward-looking
statements because our actual results may differ materially from those
indicated by these forward-looking statements as a result of a number of
important factors. These factors include, but are not limited to, our ability
to develop a commercially viable fuel cell system; the cost and timing of
developing our fuel cell systems; market acceptance of our fuel cell systems;
our reliance on our relationship with General Electric; competitive factors,
such as price competition, competition from other power technologies and
competition from other fuel cell companies; the cost and availability of
components and parts for our fuel cell systems; the ability to raise and
provide the necessary capital to develop, manufacture and market our fuel cell
systems; the cost of complying with current and future governmental
regulations; and other risks and uncertainties discussed under Item I--Business
under the caption "Factors Affecting Future Results."
Overview
We design, develop and manufacture on-site electric power generation systems
utilizing proton exchange membrane (PEM) fuel cells for stationary
applications. We are a development stage company formed in June 1997 as a joint
venture to further the development of fuel cells for electric power generation
in stationary applications. During 2001, a substantial portion of our business
activity was focused on the development, manufacture and delivery of our
initial products pursuant to contracts with a select number of customers,
including the Long Island Power Authority and the New York State Energy
Research and Development Authority.
We continue to advance the development of our product. Since inception, we
have devoted substantially all of our resources toward the development of 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. During 2001, we delivered 132
systems to a select number of customers, including 131 five kilowatt (kW)
systems that operate on natural gas, and one 50 kW prototype system that
operates on hydrogen. Further, we have significantly reduced the unit cost,
size, weight and part count of our systems. Recent accomplishments include a
37% reduction in the direct material cost of our initial product since January
1, 2001.
Through December 31, 2001, our stockholders in the aggregate have
contributed $291.9 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 December 31, 2001, we have incurred losses of $208.3
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.
16
Acquisitions, Strategic Relationships and Development Agreements
Since our inception in June 1997, 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.
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 certain of our PEM fuel cell
systems under 35 kW designed for use in residential, commercial and industrial
stationary power applications 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. GE MicroGen, Inc. is a
wholly owned subsidiary of General Electric Company that operates within the GE
Power Systems business.
In August 2001, we amended our agreements with GE MicroGen, Inc. and GEFCS
to expand GEFCS' exclusive worldwide distribution rights to include all of our
stationary PEM fuel cell systems. Under the terms of our distribution agreement
with GEFCS, we will serve as GEFCS' exclusive supplier of the PEM fuel cell
systems and related components meeting the specifications set forth in the
distribution agreement.
Additionally, we increased our ownership interest in GEFCS from 25% to 40%.
In return, we granted GE Power Systems Equities, Inc. an option to purchase
725,000 shares of our common stock at any time prior to August 21, 2006 at an
exercise price of $15.00 per share. This option was recorded as an increase to
our investment in GEFCS at a fair value of $5.0 million. We also replaced the
product specifications, prices and delivery schedule in our distribution
agreement with a high-level, multi-generation product plan, with subsequent
modifications being subject to mutual agreement, and extended the term of the
agreement to December 31, 2014. Finally, GE agreed that GE Power Systems would
not sell PEM fuel cells through any entity other than GEFCS.
Under our agreements, we will sell our systems directly to GEFCS, which, in
turn, will identify qualified resellers who can distribute and service these
systems. However, under the amended distribution agreement, we may sell systems
directly to governmental and quasi-governmental entities, under certain
circumstances. For example, in 2001 we entered into an agreement directly with
the Long Island Power Authority under which they purchased from us 75 of our
initial products, together with installation, maintenance, training,
engineering and other technical support services for an aggregate purchase
price of $7.0 million. Plug Power systems sold through GEFCS will be co-branded
with both the General Electric and Plug Power names and trademarks, and may
also carry the brand of the local reseller. Currently, however, we expect to
sell some of our initial products through GEFCS that do not carry the General
Electric name and trademark.
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 several distribution agreements, including agreements with Flint Energies,
a Georgia-based rural electric cooperative, NJR Energy Holdings Corporation, an
affiliate of New Jersey Natural Gas Company, Kubota Corporation of Japan,
Soroof Trading Development Company Limited of Saudi Arabia and Vaillant GmbH of
Remscheid, Germany, Europe's leading heating appliance manufacturer.
Also pursuant to our agreements, GEFCS is the exclusive provider of product
support for our systems through its own service structure, sub-distributor
service network and contracts with third party service providers. GEFCS'
service program is expected to be closely coordinated with the commercial
introduction through GEFCS of our fuel cell systems, so that a sufficient level
of installation, maintenance and customer support service will be available in
all areas where our systems are sold. We also expect that GEFCS will provide
the warranty service for our products according to terms to be mutually agreed
upon by us and GEFCS. We expect that GEFCS' service plan will be completed and
the requisite service contracts will be in place prior to commercial sale of
our units through GEFCS. With respect to systems that we sell directly, such as
those that we deliver under our agreements with governmental and
quasi-governmental entities, we will provide, or enter into a subcontract to
provide, these services directly.
17
Under a separate agreement, we have agreed to source, from General Electric,
technical support services for our product development effort, including
engineering, testing, manufacturing and quality control services. We have
committed to purchase a minimum of $12.0 million of such services over a five
year period, which began September 30, 1999. Through December 31, 2001, we have
purchased approximately $5.0 million of such services. We have also entered
into a separate agreement with General Electric Company under which General
Electric acts as our agent in procuring certain equipment, parts and
components. In addition, General Electric has agreed to provide training
services to our employees regarding procurement activities.
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 (including a
trained work force).
The amount attributable to in-process research and development was valued
using an income approach which reflects the present value of future avoided
costs we estimate that we would otherwise have spent if we were to acquire the
exclusive rights to this technology, for its remaining useful life, from
another entity. We then discounted the net avoided cost using a 40% discount
rate which we believe is consistent with the risk associated with this early
stage technology. This amount was further adjusted to reflect the technology's
state 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. The fixed assets were capitalized at their
fair value and are being depreciated over their useful life and the intangible
assets have been capitalized and are being amortized over 36 months. Through
December 31, 2001, we have expensed $6.2 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.
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 agreement we will 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 December 31, 2001, 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 extension and revision of the terms of our agreement
with Celanese.
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 will contribute $10.0
million to fund Engelhard's development efforts, and Engelhard will acquire
$10.0 million of our common stock. The agreements also specify rights and
obligations for Engelhard to supply products to us over the next 10 years.
Through December 31, 2001, we have contributed a total of $8.0 million under
the terms of the agreement while Engelhard has acquired $8.0 million of our
common stock. Of this amount, $6.2 million has been expensed with the remaining
$1.8 million being recorded under the balance sheet caption "Prepaid
development costs" as of December 31, 2001.
Advanced Energy Incorporated: In March 2000, we acquired a 28% ownership
interest in Advanced Energy Incorporated, in exchange for a combination of $1.5
million in cash and our common stock valued at approximately $828,000. We
account for our interest in Advanced Energy Incorporated on the equity method of
18
accounting and adjust our investment by our proportionate share of income or
losses. During the year ended December 31, 2001, Advanced Energy Incorporated
had sales of approximately $3.3 million and an operating and net loss of
approximately $941,000.
Results of Operations
Comparison of the Years Ended December 31, 2001 and December 31, 2000.
Product and service revenue. Product and service revenue was $2.6 million in
the year ended December 31, 2001. There was no product and service revenue
during the same period last year. In the third quarter of 2001 we began
delivering fuel cell systems under our initial commercial agreements to a
select number of customers in order to demonstrate, test and evaluate these
systems. During 2001, we delivered 132 systems to these select customers,
including 131 five kilowatt (kW) systems that operate on natural gas, and one
50 kW prototype system that operates on hydrogen. Under these initial
commercial agreements, we are recognizing revenue over the period of underlying
service and other contractual obligations. For the year ended December 31,
2001, we recognized product and service revenue in the amount of $2.6 million
and deferred recognition of product and service revenue in the amount of $5.5
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 $3.2 million for the year ended
December 31, 2001 from $8.4 million for the year ended December 31, 2000. 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. Although we intend to continue certain government contract work, we
expect future contract revenue will continue to decrease on a comparable basis
with prior periods, as we focus on bringing our product to the commercial
marketplace.
Cost of revenues. Cost of revenues for the year ended December 31, 2001,
decreased to $11.3 million from $13.1 million during the same period last year.
The decrease in cost of revenues, in the amount of $1.8 million, is the result
of our reduced government contract activity of approximately $9.6 million
offset by an increase in direct costs associated with the manufacture of our
initial commercial product, in the amount of approximately $7.8 million, which
began in the third quarter of 2001.
Cost of revenues includes the direct costs incurred in the manufacture of
our products 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.
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 increased to $1.3 million for the year ended December 31, 2001 from
$248,000 for the year ended December 31, 2000. The increase is directly the
result of satisfying consultant payment obligations with noncash compensation.
Noncash research and development expense represents the fair value of stock
grants and vested stock options to employees, consultants and others in
exchange for services provided.
Other Research and development expense. Other research and development
expense decreased to $59.3 million for the year ended December 31, 2001 from
$65.7 million for the year ended December 31, 2000. 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.
19
Research and development expenses also include amortization of prepaid
development expenses in the amount of $5.8 million under our joint development
programs with Engelhard and Celanese, recorded on our balance sheet under the
caption "Prepaid development costs" and amortization in the amount of $3.4
million 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 decrease in other research and development expense of $6.4 million was
primarily attributable to the commencement of sales activity in the third
quarter of 2001. The costs associated with the product, service and other
obligations of these agreements are expensed as they are incurred and are
recorded under the caption "Cost of revenues".
The year ended December 31, 2000 also included $5.0 million expensed as
in-process research and development at the time of our acquisition of
intellectual property related to fuel processor development, from Gastec, in
the first quarter of 2000.
Noncash general and administrative expense. Noncash general and
administrative expense represents the fair value of stock grants and vested
stock options to employees, consultants and others in exchange for services
provided. Noncash general and administrative expense, consisting of stock-based
compensation, decreased to approximately $502,000 for the year ended December
31, 2001 from $7.6 million for the year ended December 31, 2000. During the
year ended December 31, 2000, we recorded a noncash charge in the amount of
$7.4 million related to stock-based compensation for our former President and
Chief Executive Officer.
Other general and administrative expense. 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. Other general and administrative expense decreased to $7.0 million
for the year ended December 31, 2001 from $8.6 million for the year ended
December 31, 2000. The decrease is primarily the result of a charge to
operations in year 2000 in the amount of $840,000 related to a payment in-kind
for services provided by Southern California Gas Company combined with more
efficient spending in support of operations.
Interest expense. Interest expense consists of interest on a long-term
obligation assumed from MTI in June 1999 as part of a real estate purchase
agreement and interest paid on capital lease obligations. Interest expense was
$260,000 for the year ended December 31, 2001, compared to $363,000 for the
year ended December 31, 2000.
Interest income. Interest income consists of interest earned on our cash
and cash equivalents and marketable securities and decreased to $4.1 million
for the year ended December 31, 2001, from $8.2 million for 2000. The decrease
was due to lower interest rates in 2001 compared to 2000 on lower average
monthly balances.
Equity in losses of affiliates. Equity in losses of affiliates increased to
$3.3 million for the year ended December 31, 2001 from $2.3 million in 2000.
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
(including our pro-rata share of increased ownership in GEFCS from 25% to 40%)
and Advanced Energy Incorporated in the amount of $548,000 and amortization of
intangible assets in the amount of $2.7 million.
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 because it is more likely than not that the tax benefits of the net
operating loss carryforward may not be realized.
20
Comparison of the Years Ended December 31, 2000 and December 31, 1999.
Research and development contract revenue. Research and development
contract revenue decreased to $8.4 million for the year ended December 31, 2000
from $11.0 million for the year ended December 31, 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 contract revenue will continue to decrease on a comparable basis
with prior periods, as we focus on bringing our initial product to the
commercial marketplace. During 2000, we produced a total of 113 systems for
both onsite and offsite testing, including four developmental and 18 prototype
units of our initial product.
Cost of revenues. Cost of revenues were $13.1 million for the year ended
December 31, 2000, as compared to $15.5 million for the year ended December 31,
1999. The decrease, in the amount of $2.4 million, is the result of our reduced
government contract activity. While contract costs decreased as a result of our
reduced government contract activity, the percentage of contract cost compared
to contract revenue increased due to greater cost sharing requirements on those
contracts. The result was a loss on contracts of $4.7 million for the year
ended December 31, 2000 compared to a loss on contracts of $4.5 million for the
year ended December 31, 1999.
Noncash research and development expense. Noncash research and development
expense increased to $248,000 for the year ended December 31, 2000 from none in
the year ended December 31, 1999. The increase is directly the result of
satisfying consultant payment obligations with noncash compensation. Noncash
research and development expense represents the fair value of stock grants and
vested stock options to employees, consultants and others in exchange for
services provided.
Other Research and development expense. Research and development expense
increased to $65.7 million for the year ended December 31, 2000 from $20.5
million for the year ended December 31, 1999.
The increase of $45.2 million was primarily attributable to the growth of
our research and development activities which included a 60% increase in the
labor base to approximately 500 employees, production of 113 test and
evaluation residential PEM fuel cell systems (an increase of 61 systems),
amortization of capitalized development expense in the amount of $1.9 million
under our joint development programs with Engelhard and Celanese, recorded on
our balance sheet under the caption "Prepaid development costs," and
amortization in the amount of $2.8 million related to the portion of the Gastec
purchase price which was capitalized and recorded on our balance sheet under
the caption "Intangible assets". The year ended December 31, 2000 also included
$5.0 million expensed as in-process research and development at the time of our
acquisition of intellectual property related to fuel processor development,
from Gastec, in the first quarter of 2000.
Noncash general and administrative expense. Noncash general and
administrative expense, consisting of stock-based compensation, increased to
$7.6 million for the year ended December 31, 2000 from $3.2 million for the
year ended December 31, 1999. During the year ended December 31, 2000, we
recorded a noncash charge in the amount of $7.4 million related to stock-based
compensation for our former President and Chief Executive Officer.
Additionally, we recorded $169,000 related to performance-based options issued
to employees.
During the year ended December 31, 1999, we recognized $2.3 million in
noncash stock-based compensation expense in connection with our original
formation agreements which provided Mechanical Technology Incorporated the
right to earn noncash credits relating to services it rendered prior to our
formation in connection with securing future government contracts. Upon our
formation, Mechanical Technology Incorporated 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 Incorporated earned the noncash 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 recorded $144,000 related to performance-based
options issued to employees and consultants and an $835,000 charge to
operations for the modification of a stock option agreement.
Other general and administrative expense. Other general and administrative
expense increased to $8.6 million for the year ended December 31, 2000 from
$6.7 million, which includes a $1.9 million charge for the write-off of
deferred rent, for the year ended December 31, 1999. The increase is the result
of a charge to
21
operations in the amount of $840,000 related to a payment in-kind for services
provided by Southern California Gas Company combined with increased personnel
cost and general expenses associated with expanding operations.
In June 1999, we entered into a real estate purchase agreement with
Mechanical Technology Incorporated 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 for the year ended December 31, 1999.
Interest expense. Interest expense was $363,000 for the year ended December
31, 2000, compared to $190,000 for the year ended December 31, 1999.
Interest income. Interest income increased to $8.2 million for the year
ended December 31, 2000, from $3.1 million for the year ended December 31,
1999. The increase was due to interest earned on higher balances of cash and
cash equivalents available throughout 2000, which resulted from our initial
public offering of common stock and the exercise of warrants and stock purchase
commitments by our existing stockholders during the fourth quarter of 1999.
Equity in losses of affiliates. Equity in losses of affiliates increased to
$2.3 million for the year ended December 31, 2000 from $1.5 million for the
year ended December 31, 1999. Equity in losses of affiliates consists of our
proportionate share of the losses of GE Fuel Cell Systems and Advanced Energy
Incorporated combined with goodwill amortization on those investments, which we
account for under the equity method of accounting. During the year ended
December 31, 2000 we recorded $759,000 as our proportionate share of the losses
of GE Fuel Cell Systems and Advanced Energy Incorporated and $1.6 million
related to amortization of intangibles on those investments.
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 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 No. 109), "Accounting for Income
Taxes".
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.
22
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 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.
For the year ended December 31, 2001, we recognized product and service
revenue in the amount of $2.6 million and deferred recognition of product and
service revenue in the amount of $5.5 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.
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 implemented SFAS No. 142 and, as a result, we are required to perform an
initial impairment review in 2002 and an annual impairment review thereafter.
We expect to complete our initial review during the first quarter of 2002. We
currently do not expect to record an impairment charge upon completion of the
initial impairment review. However, there can be no assurance that at the time
the review is completed a material impairment charge will not be recorded.
23
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.
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 have recorded a
valuation allowance of $88.9 million as of December 31, 2001, 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 December 31, 2001, our net deferred tax
assets have been offset in full by a valuation allowance. As a result, the net
provision for income taxes is zero at December 31, 2001.
Recent Accounting Pronouncements
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.
SFAS No. 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121 and subsequently, SFAS
No. 144 after its adoption.
The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and
SFAS No. 142 is effective January 1, 2002. Goodwill and intangible assets
determined to have an indefinite useful life acquired in a purchase business
combination completed after June 30, 2001, but before SFAS No. 142 is adopted
in full, are not amortized. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 continued to be amortized and tested
for impairment prior to the full adoption of SFAS No. 142.
Upon adoption of SFAS No. 142, the Company is required to evaluate its
existing intangible assets and goodwill that were acquired in purchase business
combinations, and to make any necessary reclassifications in order to conform
with the new classification criteria in SFAS No. 141 for recognition separate
from goodwill. The Company will be required to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. If an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Impairment is measured as the excess of carrying value over the fair
value of an intangible asset with an indefinite life. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle in the first interim period.
In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. The Company will then have up to six
months from January 1, 2002
24
to determine the fair value of each reporting unit and compare it to the
carrying amount of the reporting unit. To the extent the carrying amount of a
reporting unit exceeds the fair value of the reporting unit, an indication
exists that the reporting unit goodwill may be impaired and the Company must
perform the second step of the transitional impairment test. The second step is
required to be completed as soon as possible, but no later than the end of the
year of adoption. In the second step, the Company must compare the implied fair
value of the reporting unit goodwill with the carrying amount of the reporting
unit goodwill, both of which would be measured as of the date of adoption. The
implied fair value of goodwill is determined by allocating the fair value of
the reporting unit to all of the assets (recognized and unrecognized) and
liabilities of the reporting unit in a manner similar to a purchase price
allocation, in accordance with SFAS No. 141. The residual fair value after this
allocation is the implied fair value of the reporting unit goodwill. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in the Company's consolidated statements of
operations.
As of the date of adoption of SFAS No. 142, January 1, 2002, the Company
expects to have unamortized identifiable intangible assets in the amount of
$14.9 million, all of which will be subject to the transition provisions of
SFAS No. 142. Amortization expense related to these identifiable intangible
assets was $4.8 million, $3.9 million and $1.0 million for the years ended
December 31, 2001, 2000 and 1999, respectively and amortization expense related
to goodwill was $1.3, $443,000 and $0 for the years ended December 31, 2001,
2000 and 1999, respectively. Because of the extensive effort needed to comply
with adopting SFAS No. 141 and No. 142, it is not practicable to reasonably
estimate the impact of adopting the Statements on the Company's consolidated
financial statements at the date of this report, including whether it will be
required to recognize any transitional impairment losses as the cumulative
effect of a change in accounting principle.
In June 2001, the FASB issued 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.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. SFAS No. 144 requires companies to separately report discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. The Company is
required to adopt SFAS No. 144 on January 1, 2002. Management anticipates that
the adoption of this Statement will not have a material effect on the Company's
consolidated financial statements.
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.
25
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, begin 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 December 31, 2001 primarily from the
sale of equity, which has provided cash in the amount of $291.9 million. As of
December 31, 2001, we had unrestricted cash and cash equivalents and marketable
securities totaling $92.7 million and working capital of $90.4 million. As a
result of our purchase of real estate from Mechanical Technology Incorporated,
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 $153.6 million and cash used in investing activities has been $78.3
million.
Public Offerings
In November 1999, we completed an initial public offering of 6,782,900
shares of common stock which includes additional shares purchased pursuant to
exercise of the underwriters' overallotment option. We received proceeds of
$93.0 million, which was net of $8.7 million of expenses and underwriting
discounts relating to the issuance and distribution of the securities.
In July 2001, we completed a follow-on public offering of 4,575,000 shares
of common stock which includes additional shares purchased pursuant to exercise
of the underwriters' overallotment option. We received proceeds of $51.6
million, which was net of $3.3 million of expenses and underwriting discounts
relating to the issuance and distribution of the securities.
Private Placements
In July 2001, simultaneous with the closing of the follow-on public
offering, we closed a private equity financing of 416,666 shares of common
stock to GE Power Systems Equities, Inc., an indirect wholly-owned subsidiary
of General Electric Company, and 416,666 shares of common stock to Edison
Development Corporation, an indirect wholly-owned subsidiary of DTE Energy
Company, raising an additional $9.6 million in net proceeds.
Capital Contributions
We were formed in June 1997 as a joint venture between Mechanical Technology
Incorporated and Edison Development Corporation, an indirect wholly-owned
subsidiary of DTE Energy Company. At formation, Mechanical Technology
Incorporated contributed assets related to its fuel cell program, including
intellectual property, 22 employees, equipment and the right to receive
government contracts for research and development of PEM fuel cell systems, if
awarded. Edison Development Corporation contributed or committed to contribute
$9.0 million in cash, expertise in distributed power generation and marketplace
presence to distribute and sell stationary fuel cell systems.
In January 1999, we entered into an agreement with Mechanical Technology
Incorporated and Edison Development Corporation pursuant to which we had the
right to require Edison Development Corporation and Mechanical Technology
Incorporated to make capital contributions of $22.5 million each, an aggregate
of $45.0 million, through December 31, 2000. In September 1999, we made a
capital call of $4.0 million, and Mechanical
26
Technology Incorporated and Edison Development Corporation each contributed
$2.0 million in cash in exchange for 266,667 shares of common stock. Both
Mechanical Technology Incorporated and Edison Development Corporation
contributed the remaining $41.0 million immediately prior to our initial public
offering in exchange for an aggregate of 5,466,666 shares of common stock.
In June 1999, we entered into a real estate purchase agreement with
Mechanical Technology Incorporated to acquire approximately 36 acres of land,
two commercial buildings and a residential building located in Latham, New
York. This property is the location of our current facilities, including a
newly constructed production facility. As part of the real estate transaction
we assumed a $6.2 million letter of credit issued by KeyBank National
Association for the express purpose of servicing $6.2 million of debt related
to Industrial Development Revenue Bonds issued by the Town of Colonie
Industrial Development Agency. As consideration for the purchase, we issued
704,315 shares of common stock to Mechanical Technology Incorporated, valued at
$6.67 per share. In connection with this transaction we wrote off deferred rent
expense, in the amount of $1.9 million, related to a 10-year facilities lease
on one of the purchased buildings, at a favorable lease rate.
Also in June 1999, Edison Development Corporation purchased 704,315 shares
of common stock for $4.7 million in cash under provisions of our original
formation documents that allowed Edison Development Corporation and Mechanical
Technology Incorporated to maintain equal ownership percentages in us.
As of December 31, 2001, Mechanical Technology Incorporated had made
aggregate cash contributions of $27.0 million plus noncash contributions of
$14.2 million, while Edison Development Corporation had made aggregate cash
contributions of $46.2 million, including $5.0 million in connection with the
closing of a private placement of 416,666 shares of our common stock in July,
2001.
GE Fuel Cell Systems
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 certain of our PEM fuel cell systems under 35
kW designed for use in residential, commercial and industrial stationary power
applications 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. GE MicroGen, Inc. is a wholly owned subsidiary
of General Electric Company that operates within the GE Power Systems business.
In connection with the original formation of GEFCS, we issued 2,250,000 shares
of our common stock to GE MicroGen, Inc. in exchange for a 25% interest in
GEFCS. We capitalized $11.3 million, the fair value of the shares issued, under
the caption "Investment in affiliates" in our consolidated financial
statements. We also issued a warrant to GE MicroGen, Inc. to purchase 3,000,000
additional shares of common stock at a price of $12.50 per share. GEFCS
exercised this option immediately prior to our initial public offering for a
total exercise price of $37.5 million in cash.
In August 2001, we amended our agreements with GE Microgen, Inc. and GEFCS
to expand GEFCS' exclusive worldwide distribution rights to include all of our
stationary PEM fuel cell systems. In addition, we increased our ownership
interest in GEFCS from 25% to 40%. In return, we granted GE Power Systems
Equities, Inc. an option to purchase 725,000 shares of our common stock at any
time prior to August 21, 2006 at an exercise price of $15.00 per share. We also
replaced the product specifications, prices and delivery schedule in our
distribution agreement with a high-level, multi-generation product plan, with
subsequent modifications being subject to mutual agreement, and extended the
term of the agreement to December 31, 2014. In connection with the amendment,
we capitalized $5 million, the fair value of the option to purchase 725,000
shares of Plug Power common stock, under the caption "Investment in affiliates"
in our consolidated financial statements.
Under a separate agreement, we have agreed to source, from General Electric,
technical support services for our product development effort, including
engineering, testing, manufacturing and quality control services. We have
committed to purchase a minimum of $12.0 million of such services over a five
year period, which began September 30, 1999. We have also entered into a
separate agreement with General Electric Company under which General Electric
acts as our agent in procuring certain equipment, parts and components. In
addition, General Electric has agreed to provide training services to our
employees regarding procurement activities.
27
Southern California Gas Company
In April 1999, Southern California Gas Company purchased 1,000,000 shares of
common stock for $6.7 million and agreed to provide $840,000 of market research
and services related to distributed power generation technologies, including
PEM fuel cell systems. Additionally, Southern California Gas Company received a
warrant to purchase an additional 350,000 shares of common stock at an exercise
price of $8.50 per share which was exercised by Southern California Gas Company
immediately prior to our initial public offering for a total exercise price of
$3.0 million in cash.
During the year ended December 31, 2000, Southern California Gas Company
fulfilled its obligation to provide market research and services and we
recorded a charge to operations in the amount of $840,000.
Private Investors
In February 1999, two investors, including Michael J. Cudahy, one of our
former directors, purchased 1,500,000 shares of common stock for a total of
$10.0 million. In addition, Mr. Cudahy received a warrant to purchase 400,000
shares of common stock at a price of $8.50 per share, which was exercised by
Mr. Cudahy immediately prior to our initial public offering for a total
exercise price of $3.4 million in cash.
In April 1999, an unrelated investor purchased 299,850 common shares for
$2.0 million.
Grant Agreement
We were awarded and received $1.0 million under a grant from the State of
New York. The grant is for the express purpose of promoting employment. Terms
of the grant require us to meet certain employment criteria, as defined, over a
five year period. If we fail to meet the specified criteria, we must repay the
unearned portion of the grant.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We invest our excess cash in interest-bearing, investment-grade securities
that we hold for the duration of the term of the respective instrument. We do
not utilize derivative financial instruments, derivative commodity instruments
or other market risk sensitive instruments, positions or transactions in any
material fashion. Accordingly, we believe that, while the investment-grade
securities we hold are subject to changes in the financial standing of the
issuer of such securities, we are not subject to any material risks arising
from changes in interest rates, foreign currency exchange rates, commodity
prices, equity prices or other market changes that affect market risk sensitive
instruments.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements included in this Report
beginning at page F-1 are incorporated in this Item 8 by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On November 20, 2001, the Company dismissed PricewaterhouseCoopers LLP as
the Company's independent accountants. On December 3, 2001, the Company engaged
KPMG LLP as its independent auditors for the year ended December 31, 2001. The
Company filed reports on Form 8-K with the Securities and Exchange Commission
with respect to this matter.
28
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors
Incorporated herein by reference is the information appearing under the
caption "Information about our Directors" in the Company's definitive
Proxy Statement for its 2002 Annual Meeting of Stockholders.
(b) Executive Officers
Incorporated herein by reference is the information appearing under the
caption "Executive Officers" in the Company's definitive Proxy Statement
for its 2002 Annual Meeting of Stockholders.
Item 11. Executive Compensation
Incorporated herein by reference is the information appearing under the
caption "Executive Compensation" in the Company's definitive Proxy Statement
for its 2002 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference is the information appearing under the
caption "Principal Stockholders" in the Company's definitive Proxy Statement
for its 2002 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference is the information appearing under the
caption "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement for its 2002 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
14(a)(1) Financial Statements
The financial statements and notes are listed in the Index to
Consolidated Financial Statements on page F-1 of this Report.
14(a)(2) Financial Statement Schedules
Consolidated financial statement schedules not filed herein have been
omitted as they are not applicable or the required information or equivalent
information has been included in the consolidated financial statements or
the notes thereto.
14(a)(3) Exhibits
Exhibits are as set forth in the "List of Exhibits" which immediately
precedes the Index to Consolidated Financial Statements on page F-1 of this
Report.
14(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarterly
period ended December 31, 2001:
On November 28, 2001, the Company filed a report on Form 8-K disclosing
that on November 20, 2001, the Company had dismissed PricewaterhouseCoopers
LLP as its independent accountants.
29
On December 6, 2001, the Company filed a report Form 8-K report with the
Securities and Exchange Commission disclosing that, on November 20, 2001,
the Company dismissed PricewaterhouseCoopers LLP as its independent
accountants and that the Company engaged KPMG LLP as the Company's
independent public accountants effective December 3, 2001.
14(c) Exhibits
Exhibits are as set forth in the "List of Exhibits" which immediately
precedes the Index to the Consolidated Financial Statements on page F-1 of
this report.
14(d) Other Financial Statements
Not applicable.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ ROGER SAILLANT
------------------------------------
Roger Saillant, President
Date: February 11, 2003
31
CERTIFICATIONS
I, Roger Saillant, certify that:
1. I have reviewed this amended annual report on Form 10-K/A of Plug Power
Inc.;
2. Based on my knowledge, this amended annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this amended annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this amended annual report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this amended annual report.
Date: February 11, 2003 By: /s/ ROGER B. SAILLANT
----------------------------------
Roger B. Saillant
President and Chief Executive
Officer
I, David A. Neumann, certify that:
1. I have reviewed this amended annual report on Form 10-K/A of Plug Power
Inc.;
2. Based on my knowledge, this amended annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this amended annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this amended annual report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this amended annual report.
Date: February 11, 2003 By: /s/ DAVID A. NEUMANN
----------------------------------
David A. Neumann
Chief Financial Officer
32
List of 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, 10.38, 10.41, 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)
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)
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)
33
Exhibit No.
and Description
---------------
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)
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)
34
Exhibit No.
and Description
---------------
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)
10.48 Amended and Restated Distribution Agreement, dated as of August 21, 2001, between GE
Fuel Cell Systems, LLC and Plug Power, LLC (4)(5)
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)(5)
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)
23.1 Consent of KPMG LLP (6)
23.2 Consent of PricewaterhouseCoopers LLP (6)
--------
(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 ended
December 31, 1999.
(3) Incorporated by reference to the Company's Form 10-K for the period ended
December 31, 2000.
(4) Incorporated by reference to the Company's Form 10-K for the period ended
December 31, 2001.
(5) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(6) Filed herewith.
35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.................................................... F-2
Report of Independent Accountants............................................... F-3
Consolidated balance sheets as of December 31, 2001 and 2000.................... F-4
Consolidated statements of operations for the years ended December 31, 2001
2000 and 1999 and cumulative amounts from inception........................... F-5
Consolidated statements of cash flows for the years ended December 31, 2001,
2000 and 1999 and cumulative amounts from inception........................... F-6
Consolidated statements of stockholders' equity for the years ended December 31,
2001, 2000 and 1999........................................................... F-7
Notes to consolidated financial statements...................................... F-8
F-1
Independent Auditors' Report
The Board of Directors and Stockholders
Plug Power Inc.:
We have audited the accompanying consolidated balance sheet of Plug Power
Inc. and subsidiary (a development stage enterprise) as of December 31, 2001,
and the related consolidated statement of operations, stockholders' equity, and
cash flows for the year ended December 31, 2001 and for the period June 27,
1997 (inception) to December 31, 2001. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit. The cumulative consolidated statements of operations, stockholders'
equity, and cash flows for the period June 27, 1997 (inception) to December 31,
2001 include amounts for the period from June 27, 1997 (inception) to December
31, 1997 and for each of the years in the three-year period ending December 31,
2000, which were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for the
period June 27, 1997 through December 31, 2000 is based solely on the report of
other auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Plug Power Inc. and subsidiary (a
development stage enterprise) as of December 31, 2001, and the results of their
operations and their cash flows for the year ended December 31, 2001 and for
the period June 27, 1997 (inception) to December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Albany, New York
February 8, 2002
F-2
Report of Independent Accountants
To the Board of Directors and Stockholders of Plug Power Inc. and Subsidiary:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Plug Power
Inc. and its subsidiary (a development stage enterprise) at December 31, 2000,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 2000 and, cumulatively, for the period
from June 27, 1997 (date of inception) to December 31, 2000 (not separately
presented herein) in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PRICEWATERHOUSECOOPERS LLP
Albany, New York
February 9, 2001
F-3
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
Consolidated Balance Sheets
December 31, December 31,
2001 2000
------------- -------------
Assets
Current assets:
Cash and cash equivalents................................................ $ 53,648,145 $ 58,511,563
Restricted cash.......................................................... 310,000 290,000
Marketable securities.................................................... 39,034,314 28,221,852
Accounts receivable...................................................... 2,608,321 1,415,049
Inventory................................................................ 2,271,278 2,168,006
Prepaid development costs................................................ 1,760,131 2,041,668
Prepaid expenses and other current assets................................ 932,719 694,178
------------- -------------
Total current assets................................................. 100,564,908 93,342,316
Restricted cash............................................................. 5,000,274 5,310,274
Property, plant and equipment, net.......................................... 30,240,631 32,290,492
Intangible asset............................................................ 3,470,139 6,827,066
Investment in affiliates.................................................... 11,498,000 9,778,784
Prepaid development costs................................................... -- 2,513,093
Other assets................................................................ 600,055 767,193
------------- -------------
Total assets......................................................... $ 151,374,007 $ 150,829,218
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable......................................................... $ 762,972 $ 3,479,031
Accrued expenses......................................................... 3,421,106 5,934,529
Deferred revenue......................................................... 5,684,793 200,000
Current portion of capital lease obligation and long-term debt........... 330,072 377,201
------------- -------------
Total current liabilities............................................ 10,198,943 9,990,761
Long-term debt........................................................... 5,000,274 5,310,274
Deferred revenue......................................................... 400,000 600,000
Capital lease obligation................................................. 4,706 30,346
Other liabilities........................................................ 767,193 767,193
------------- -------------
Total liabilities.................................................... 16,371,116 16,698,574
------------- -------------
Commitments and contingencies (see footnote 13)
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 December 31, 2001 and December 31, 2000;
50,322,928 shares issued and outstanding, December 31, 2001
and 43,795,513 shares issued and outstanding, December 31, 2000........ 503,229 437,955
Paid-in capital.......................................................... 342,842,203 268,923,203
Deficit accumulated during the development stage......................... (208,342,541) (135,230,514)
------------- -------------
Total stockholders' equity........................................... 135,002,891 134,130,644
------------- -------------
Total liabilities and stockholders' equity........................... $ 151,374,007 $ 150,829,218
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2001 , 2000 and 1999 and Cumulative Amounts
from Inception
Cumulative
Amounts
from Inception
--------------
December 31, December 31, December 31,
2001 2000 1999
------------- ------------- -------------
Product and service revenue................... $ 2,573,434 $ -- $ -- $ 2,573,434
Research and development contract revenue..... 3,168,091 8,378,200 11,000,344 30,281,205
------------- ------------- ------------- -------------
Total revenue................................. 5,741,525 8,378,200 11,000,344 32,854,639
Cost of revenues.............................. 11,290,891 13,055,437 15,497,837 49,934,453
In-process research and development........... -- 4,984,000 -- 9,026,640
Research and development expense:
Noncash stock-based compensation........... 1,300,807 247,782 -- 1,548,589
Other research and development............. 59,299,042 65,656,604 20,506,156 151,395,408
General and administrative expense:
Noncash stock-based compensation........... 502,370 7,595,073 3,228,800 11,538,243
Other general and administrative........... 6,990,119 8,572,256 6,699,482 25,433,535
Interest expense.............................. 259,958 362,996 189,586 812,540
------------- ------------- ------------- -------------
Operating loss............................. (73,901,662) (92,095,948) (35,121,517) (216,834,769)
Interest income............................... 4,070,419 8,181,265 3,123,955 15,571,978
------------- ------------- ------------- -------------
Loss before equity in losses of affiliates. (69,831,243) (83,914,683) (31,997,562) (201,262,791)
Equity in losses of affiliates................ (3,280,784) (2,327,216) (1,471,750) (7,079,750)
------------- ------------- ------------- -------------
Net loss................................... $(73,112,027) $(86,241,899) $(33,469,312) $(208,342,541)
============= ============= ============= =============
Loss per share:
Basic and diluted.......................... ($ 1.56) ($ 1.99) ($ 1.27)
============= ============= =============
Weighted average number of common
shares outstanding........................... 46,840,091 43,308,158 26,282,705
============= ============= =============
The accompanying notes are an integral part on the consolidated financial
statements.
F-5
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2001 , 2000 and 1999 and cumulative amounts
from inception
December 31, December 31, December 31,
2001 2000 1999
------------ ------------- ------------
Cash Flows From Operating Activities:
Net loss.................................................... $(73,112,027) $ (86,241,899) $(33,469,312)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 4,750,510 3,037,818 1,352,186
Equity in losses of affiliates.......................... 3,280,784 2,327,216 1,471,750
Amortization of intangible asset........................ 3,356,927 2,797,434 --
Noncash prepaid development costs....................... 5,419,630 820,239 --
Loss on disposal of property, plant and equipment....... 108,625 -- --
In-kind services........................................ -- 840,000 --
Stock-based compensation................................ 2,013,177 8,096,779 3,228,800
Amortization of deferred grant revenue.................. (200,000) (200,000) --
Amortization of deferred rent........................... -- -- 100,000
Write-off of deferred rent.............................. -- -- 1,850,000
In-process research and development..................... -- -- --
Changes in assets and liabilities :.....................
Accounts receivable.................................. (1,193,272) 3,797,894 (4,612,988)
Inventory............................................ (103,272) (1,863,295) (290,064)
Due from investor.................................... -- -- 685,306
Prepaid development costs............................ 375,000 (375,000) --
Prepaid expenses and other current assets............ (238,541) (569,798) (102,466)
Accounts payable and accrued expenses................ (5,229,482) 1,764,938 5,334,376
Deferred revenue..................................... 5,484,793 -- 1,000,000
Due to investor...................................... -- -- (286,492)
------------ ------------- ------------
Net cash used in operating activities............. (55,287,148) (65,767,674) (23,738,904)
------------ ------------- ------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment............... (2,678,802) (11,994,519) (10,788,262)
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................................... (10,812,462) (28,221,852) --
------------ ------------- ------------
Net cash used in investing activities............. (13,454,598) (51,340,871) (10,788,262)
------------ ------------- ------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock.................. 9,600,000 -- 115,242,782
Proceeds from initial public offering, net.............. -- -- 94,611,455
Proceeds from secondary public offering, net............ 52,017,750 -- --
Stock issuance costs.................................... (429,199) -- (1,639,577)
Proceeds from stock option exercises.................... 2,782,546 4,201,480 41,907
Cash placed in escrow................................... 290,000 275,000 (5,875,274)
Principal payments on capital lease obligations......... (92,769).. (77,658) (65,963)
Principal payments on long-term debt.................... (290,000) (275,000) (285,000)
------------ ------------- ------------
Net cash provided by financing activities......... 63,878,328 4,123,822 202,030,330
------------ ------------- ------------
(Decrease) increase in cash and cash equivalents............ (4,863,418) (112,984,723) 167,503,164
Cash and cash equivalents, beginning of period.............. 58,511,563 171,496,286 3,993,122
------------ ------------- ------------
Cash and cash equivalents, end of period.................... $ 53,648,145 $ 58,511,563 $171,496,286
============ ============= ============
Cumulative
Amounts
from Inception
--------------
Cash Flows From Operating Activities:
Net loss.................................................... $(208,342,541)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 9,827,364
Equity in losses of affiliates.......................... 7,079,750
Amortization of intangible asset........................ 6,154,361
Noncash prepaid development costs....................... 6,239,869
Loss on disposal of property, plant and equipment....... 108,625
In-kind services........................................ 1,340,000
Stock-based compensation................................ 13,550,756
Amortization of deferred grant revenue.................. (400,000)
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.................................. (2,608,321)
Inventory............................................ (2,271,278)
Due from investor.................................... 286,492
Prepaid development costs............................ --
Prepaid expenses and other current assets............ (910,805)
Accounts payable and accrued expenses................ 4,135,970
Deferred revenue..................................... 6,484,793
Due to investor...................................... (286,492)
-------------
Net cash used in operating activities............. (153,568,817)
-------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment............... (28,193,370)
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................................... (39,034,314)
-------------
Net cash used in investing activities............. (78,315,518)
-------------
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.................... 7,025,933
Cash placed in escrow................................... (5,310,274)
Principal payments on capital lease obligations......... (236,390)
Principal payments on long-term debt.................... (850,000)
-------------
Net cash provided by financing activities......... 285,532,480
-------------
(Decrease) increase in cash and cash equivalents............ 53,648,145
Cash and cash equivalents, beginning of period.............. --
-------------
Cash and cash equivalents, end of period.................... $ 53,648,145
=============
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 2001 , 2000 and 1999
Deficit
Accumulated
Common stock Additional During the Total
------------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
---------- -------- ------------ ------------- -------------
Balance, January 1, 1999............. 17,150,000 $171,500 $ 20,840,500 $ (15,519,303) $ 5,492,697
Initial public offering--net......... 6,782,900 67,829 92,904,049 92,971,878
Capital contributions................ 19,058,480 190,585 119,749,979 119,940,564
Stock issued for equity in affiliate. 11,250,000 11,250,000
Stock based compensation............. 3,228,800 3,228,800
Amortization of deferred rent expense 100,000 100,000
Write-off deferred rent expense...... 1,850,000 1,850,000
Stock option exercises............... 24,128 241 41,666 41,907
Net loss............................. (33,469,312) (33,469,312)
---------- -------- ------------ ------------- ------------
Balance, December 31, 1999........... 43,015,508 430,155 249,964,994 (48,988,615) 201,406,534
Stock issued for equity in affiliate. 7,000 70 827,680 827,750
Stock issued for development
agreement.......................... 104,869 1,048 4,998,952 5,000,000
Stock issued to employees............ 3,041 31 253,893 253,924
Stock based compensation............. 7,842,855 7,842,855
Stock option exercises............... 632,378 6,324 3,786,704 3,793,028
Stock issued under employee stock
purchase plan...................... 32,717 327 408,125 408,452
In-kind services..................... 840,000 840,000
Net loss............................. (86,241,899) (86,241,899)
---------- -------- ------------ ------------- ------------
Balance, December 31, 2000........... 43,795,513 437,955 268,923,203 (135,230,514) 134,130,644
Public offering, net................. 4,575,000 45,750 51,542,801 51,588,551
Private placement proceeds, net...... 833,332 8,333 9,591,667 9,600,000
Stock issued for development
agreement.......................... 96,336 963 2,999,037 3,000,000
Stock option issued to affiliate..... -- -- 5,000,000 5,000,000
Stock based compensation............. 189,084 1,891 2,011,286 2,013,177
Stock option exercises............... 760,531 7,606 2,044,348 2,051,954
Stock issued under employee stock
purchase plan...................... 73,132 731 729,861 730,592
Net loss............................. (73,112,027) (73,112,027)
---------- -------- ------------ ------------- ------------
Balance, December 31, 2001........... 50,322,928 $503,229 $342,842,203 $(208,342,541) $135,002,891
========== ======== ============ ============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
PLUG POWER INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO 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.
In July 2001, the Company completed a follow-on public offering of 4,575,000
shares of common stock which includes additional shares purchased pursuant to
exercise of the underwriters' overallotment option. The Company received
proceeds of $51.6 million, net of $3.3 million of expenses and underwriting
discounts relating to the issuance and distribution of the securities.
Simultaneous with the closing of the follow-on public offering, the Company
closed a private equity financing of 416,666 shares of common stock to GEPS
Equities, Inc., an indirect wholly-owned subsidiary of General Electric
Company, and 416,666 shares of common stock to Edison Development Corporation,
an indirect wholly-owned subsidiary of DTE Energy Company, raising an
additional $9.6 million in net proceeds.
At December 31, 2001, the Company had unrestricted cash, cash equivalents
and marketable securities in the amount of $92.7 million and working capital of
$90.4 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. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of
Plug Power Inc. and its wholly owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
F-8
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
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 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 December 31, 2001 and 2000, the Company has restricted cash in the amount
of $5,310,274 and $5,600,274, respectively, 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 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
December 31, 2001, 2000 or 1999.
Inventory
Inventory is stated at the lower of average cost or market and consists of
raw materials.
Product and Service Revenue
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. Under SAB 101
revenue is recognized when title and risk of loss have passed to the customer,
there is persuasive evidence of an arrangement, delivery has occurred or
services have been rendered, the sales price is determinable, and
collectibility is reasonably assured.
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 fuel cell systems, continued
service, maintenance and other support, which are limited to a defined
operating period that does not extend beyond the stated contractual term, as
well as certain cancellation privileges that expire ratably over the stated
contractual term. The multiple obligations within the Company's contractual
arrangements are not accounted for separately based on its limited commercial
experience and available evidence of fair value. The Company's contractual
arrangements under its initial commercial sales are with a limited number of
customers and the arrangements are separately negotiated and not combined.
Contract terms on our initial commercial sales require payment upon delivery
and installation of the fuel cell system and are not contingent on the
achievement of specific milestones or other substantive performance.
The Company defers recognition of product and service revenue as a result of
the cancellation privileges and revenue is recognized on a straight line basis
as the cancellation privileges expire ratably over the stated contractual term,
which are for periods of six to twelve months. At December 31, 2001, the
Company has deferred product and service revenue in the amount of $5.5 million.
Government contract revenue
The Company enters into research and development contracts with government
agencies under various pricing arrangements. Government contracting revenue is
classified as research and development contract revenue in the accompanying
consolidated statements of operations. Revenue from "time and material"
contracts
F-9
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
is recognized on the basis of hours utilized, plus other reimbursable contract
costs incurred during the period. Revenue from "cost-plus-fixed-fee" contracts
is recognized on the basis of reimbursable contract costs incurred during the
period, plus a percentage of the fixed fee.
Property, plant and equipment are stated at cost or fair value at the date
of purchase under purchase accounting. Machinery and equipment under capital
leases are stated at the present value of minimum lease payments. Expenditures
for maintenance and repairs are expensed as costs are incurred.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Machinery and equipment
held under capital leases are amortized straight line over the shorter of the
lease term or estimated useful life of the asset.
The Company provides for depreciation and amortization of buildings,
building improvements and machinery and equipment over the following estimated
useful lives:
Buildings.............. 20 years
Building improvements.. 5-20 years
Machinery and equipment 3-15 years
Investments in Affiliated Companies
Investments in two affiliated companies, GE Fuel Cell Systems LLC (GEFCS)
and Advanced Energy Incorporated, are accounted for by the equity method. The
Company would recognize a loss when there is a loss in value in the investment
which is other than a temporary decline.
Intangible Assets
Intangible assets, including purchased technology and other intangible
assets, are carried at cost less accumulated amortization. The Company
amortizes intangible assets on a straight-line basis over their estimated
useful lives. The range of estimated useful lives on the Company's identifiable
intangibles is three to ten years.
Impairment of Intangibles and Long-Lived Assets
The Company assesses the impairment of identifiable intangibles, goodwill
and fixed assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors considered important which could
trigger an impairment review include, but are not limited to, significant
underperformance relative to expected historical or projected future operating
results, significant changes in the manner of use of the acquired assets or the
strategy for the Company's overall business and significant negative industry
or economic trends. When the Company determines that the carrying value of
long-lived assets may not be recoverable based upon the existence of one or
more of the above indicators of impairment, the Company measures any impairment
based on a projected discounted cash flow method using a discount rate
commensurate with the risk inherent in the Company's current business model.
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.
Research and Development
Costs incurred in the research and development of the Company's fuel cell
systems are expensed as incurred.
F-10
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including Financial
Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation an interpretation of APB
Opinion No. 25", to account for its fixed plan stock options. Under this
method, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
Per Share Amounts
Basic earnings per share excludes dilution and is computed by dividing
income (loss) available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of
the Company (such as stock options and warrants).
The following table provides calculations of basic and diluted earnings per
share:
Year Ended December 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
Numerator:
Net loss................... $(73,112,027) $(86,241,899) $(33,469,312)
============ ============ ============
Denominator:
Weighted average number of
common shares............ 46,840,091 43,308,158 26,282,705
============ ============ ============
No options or warrants outstanding were included in the calculation of
diluted loss per share because their impact would have been anti-dilutive.
These dilutive potential common shares are summarized below:
Number of dilutive potential common shares 6,733,932 5,079,450 3,680,715
------------ ------------ ------------
Use of Estimates
The 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.
Recent Accounting Pronouncements
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.
SFAS No. 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets
F-11
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption.
The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and
SFAS No. 142 is effective January 1, 2002. Goodwill and intangible assets
determined to have an indefinite useful life acquired in a purchase business
combination completed after June 30, 2001, but before SFAS No. 142 is adopted
in full, are not amortized. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 continued to be amortized and tested
for impairment prior to the full adoption of SFAS No. 142.
Upon adoption of SFAS No. 142, the Company is required to evaluate its
existing intangible assets and goodwill that were acquired in purchase business
combinations, and to make any necessary reclassifications in order to conform
with the new classification criteria in SFAS No. 141 for recognition separate
from goodwill. The Company will be required to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. If an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Impairment is measured as the excess of carrying value over the fair
value of an intangible asset with an indefinite life. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle in the first interim period.
In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. The Company will then have up to six
months from January 1, 2002 to determine the fair value of each reporting unit
and compare it to the carrying amount of the reporting unit. To the extent the
carrying amount of a reporting unit exceeds the fair value of the reporting
unit, an indication exists that the reporting unit goodwill may be impaired and
the Company must perform the second step of the transitional impairment test.
The second step is required to be completed as soon as possible, but no later
than the end of the year of adoption. In the second step, the Company must
compare the implied fair value of the reporting unit goodwill with the carrying
amount of the reporting unit goodwill, both of which would be measured as of
the date of adoption. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit to all of the assets
(recognized and unrecognized) and liabilities of the reporting unit in a manner
similar to a purchase price allocation, in accordance with SFAS No. 141. The
residual fair value after this allocation is the implied fair value of the
reporting unit goodwill. Any transitional impairment loss will be recognized as
the cumulative effect of a change in accounting principle in the Company's
consolidated statements of operations.
As of the date of adoption of SFAS No. 142, January 1, 2002, the Company
expects to have unamortized identifiable intangible assets in the amount of
$14.9 million, all of which will be subject to the transition provisions of
SFAS No. 142. Amortization expense related to these identifiable intangible
assets was $4.8 million, $3.9 million and $1.0 million for the years ended
December 31, 2001, 2000 and 1999, respectively and amortization expense related
to goodwill was $1.3, $443,000 and $0 for the years ended December 31, 2001,
2000 and 1999, respectively. Because of the extensive effort needed to comply
with adopting SFAS No. 141 and No. 142, it is not practicable to reasonably
estimate the impact of adopting the Statements on the Company's consolidated
financial statements at the date of this report, including whether it will be
required to recognize any transitional impairment losses as the cumulative
effect of a change in accounting principle.
In June 2001, the FASB issued 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
F-12
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. SFAS No. 144 requires companies to separately report discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. The Company is
required to adopt SFAS No. 144 on January 1, 2002. Management anticipates that
the adoption of this Statement will not have a material effect on the Company's
consolidated financial statements.
3. Investment in Affiliates
GE Fuel Cell Systems, LLC
In February 1999, the Company 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 certain of their PEM fuel cell systems under
35 kW designed for use in residential, commercial and industrial stationary
power applications 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. GE MicroGen, Inc. is an indirect wholly
owned subsidiary of General Electric Company that operates within the GE Power
Systems Business. In connection with the formation of GEFCS, the Company issued
2,250,000 shares of its common stock to GE MicroGen, Inc. As of the date of
issuance of such shares, the Company capitalized $11.3 million, the fair value
of the shares issued. The difference between the amount capitalized and the
amount of the underlying equity in net assets of GEFCS 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.
In August 2001, the Company amended their agreements with GE MicroGen and
GEFCS to expand GEFCS' exclusive worldwide distribution rights to include all
of their stationary PEM fuel cell systems. In addition, the Company increased
their ownership interest in GEFCS from 25% to 40%. In return, the Company
granted GE Power Systems Equities, Inc. an option to purchase 725,000 shares of
their common stock. The Company also replaced the product specifications,
prices and delivery schedule in their distribution agreement with a high-level,
multi-generation product plan, with subsequent modifications being subject to
mutual agreement, and extended the term of the agreement to December 31, 2014.
In connection with these transactions, the Company capitalized $5.0 million,
the fair value, calculated using the Black-Scholes pricing model, of the option
to purchase 725,000 shares of Plug Power common stock, under the caption
"Investment in affiliates" in the accompanying consolidated balance sheets, and
is amortizing this amount over the remaining term of the original distribution
agreement.
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
consolidated statements of operations. GEFCS had an operating and net loss of
$901,510 for the
F-13
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
year ended December 31, 2001. For the years ended December 31, 2001, 2000 and
1999, equity in losses of affiliates, related to GEFCS, was $1,687,627,
$1,690,146 and $1,471,750 including goodwill amortization of $1,402,750,
$1,125,000 and $1,031,250, respectively. Accumulated amortization at December
31, 2001 and 2000 was $3,559,000 and 2,156,250, respectively.
Under a separate agreement, the Company has agreed to source, from GE,
technical support services for its product development effort, including
engineering, testing, manufacturing and quality control services. 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 December 31, 2001,
the Company has purchased approximately $5.0 million of such services. In
addition, the Company has also entered into a separate agreement with General
Electric Company under which General Electric acts as the agent in procuring
certain equipment, parts and components. In addition, General Electric has
agreed to provide training services to the Company's employees regarding
procurement activities.
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 7,000 shares of
Plug Power common stock valued at approximately $828,000, the closing price on
the date of issuance. 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 excess of the cost of the stock of AEI exceeded
the Company's underlying equity in net assets by approximately $1,773,000 at
the acquisition date and is being amortized straight line over 20 months. For
the year ended December 31, 2001, AEI had sales of approximately $3.3 million
and an operating and net loss of approximately $941,000. The Company has
recorded equity in losses of affiliates, related to AEI, of $1,593,159 and
$637,070, including goodwill amortization of $1,329,585 and $443,194, for the
years ended December 31, 2001 and 2000, respectively. Accumulated amortization
at December 31, 2001 and 2000 was $1,772,779 and $443,194, respectively. As AEI
is privately held, the market value of this investment is not readily
determinable.
4. Property, Plant and Equipment
Property, plant and equipment at December 31, 2001 and 2000 consists of the
following;
December 31, December 31,
2000 2001
------------ ------------
Land.......................................... $ 90,000 $ 90,000
Buildings..................................... 14,757,080 14,757,080
Building improvements......................... 6,020,212 5,525,306
Machinery and equipment....................... 18,698,355 16,732,395
----------- -----------
39,565,647 37,104,781
Less accumulated depreciation and amortization (9,325,016) (4,814,289)
----------- -----------
Property, plant, and equipment, net........... $30,240,631 $32,290,492
=========== ===========
Depreciation expense was $4,583,372, $3,037,818 and $1,327,187 for the years
ended December 31, 2001, 2000 and 1999, respectively.
5. Debt
In connection with the Company's purchase of real estate in July, 1999, the
Company assumed a $6.2 million letter of credit issued by KeyBank National
Association for the express purpose of servicing $6.2 million
F-14
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of debt related to Industrial Development Revenue Bonds issued by the Town of
Colonie Industrial Development Agency in favor of the acquired property. The
debt matures in 2013 and accrues interest at a variable rate of interest which
was approximately 2.2% at December 31, 2001. Simultaneous with the assumption,
the Company was required to escrow $6.2 million to collateralize the debt. This
debt also contains a subjective acceleration clause based on adverse financial
conditions. The bank has provided the Company with a waiver through January 1,
2003 for any adverse changes in financial condition occurring prior to December
31, 2001.
The outstanding balance of the debt as of December 31, 2001 was $5.3 million
and the amount of the corresponding escrow requirement as of December 31, 2001
was $5.3 million and is recorded under the balance sheet captions, "Restricted
cash." Principal payments due on long-term debt are: 2002, $310,000; 2003,
$325,000; 2004, $345,000; 2005, $365,000; 2006, $385,000 and thereafter,
$3,580,274.
6. Accrued Expenses
Accrued expenses at December 31, 2001 and 2000 consisted of:
2001 2000
---------- ----------
Accrued payroll and compensation related costs $ 343,936 $ 813,122
Accrual for Celanese development agreement.... 1,750,000 --
Other accrued liabilities..................... 1,327,170 5,121,407
---------- ----------
$3,421,106 $5,934,529
========== ==========
7. Income Taxes
There was no current income tax expense for the years ended December 31,
2001, 2000 and 1999. The Company was a Limited Liability Company (LLC) until
its merger into Plug Power Inc. effective November 3, 1999. From inception
through November 3, 1999, the Company was treated as a partnership for federal
and state income tax purposes and accordingly the Company's income taxes or
credits resulting from earnings or losses were payable by, or accrued to its
members. Therefore, no provision for income taxes has been made prior to
November 3, 1999.
Effective November 3, 1999, the Company is taxed as a corporation for
Federal and State income tax purposes and the effect of deferred taxes
recognized as a result of the change in tax status of the Company have been
included in operations. Deferred tax assets and liabilities are determined
based on the temporary differences between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax rates.
The significant components of deferred income tax expense (benefit) for the
years ended December 31, 2001, 2000 and 1999 are as follows:
Years ended December 31,
---------------------------------------
2001 2000 1999
------------ ------------ -----------
Deferred tax expense recognized as a result of
change in tax status......................... $ -- $ -- $ 1,739,000
Deferred tax benefit.......................... (13,405,600) (6,695,100) (584,400)
Net operating loss carryforward............... (25,373,800) (28,476,400) (1,601,600)
Valuation allowance........................... 38,779,400 35,171,500 447,000
------------ ------------ -----------
Provision for income taxes.................... $ -- $ -- $ --
============ ============ ===========
F-15
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's effective income tax rate differed from the Federal statutory
rate as follows:
Years ended December 31,
---------------------
2001 2000 1999
----- ----- -----
Federal statutory tax rate.................. (35.0)% (35.0)% (35.0)%
Deferred state taxes, net of federal benefit (4.5) (5.0) --
Adjustment to opening deferred tax balances. (2.1) -- --
Other, net.................................. (1.7) 1.0 (1.0)
Tax credits................................. (9.7) (2.0) --
Change in valuation allowances.............. 53.0 41.0 1.0
Effect of LLC losses........................ -- -- 33.0
Effect of change in tax status.............. -- -- 2.0
----- ----- -----
Net effective tax rate...................... 0.0% 0.0% 0.0%
===== ===== =====
The deferred tax assets and liabilities as of December 31, 2001 and 2000
consist of the following tax effects relating to temporary differences and
carryforwards:
Years ended December 31,
--------------------------
2001 2000
------------ ------------
Deferred tax assets:
Intangible assets...................... $ 7,074,900 $ 905,100
Stock-based compensation............... 334,000 3,384,700
Deferred income........................ 2,193,900 --
Investment in affiliates............... 678,600 254,800
Other reserves and accruals............ 1,189,200 464,200
Inventory valuation.................... -- 920,000
Tax credit carryforwards............... 9,686,500 1,479,100
Net operating loss..................... 69,915,500 41,491,700
------------ ------------
Total deferred tax assets....... 91,072,600 48,899,600
Less valuation allowance............ (88,861,600) (47,032,200)
Deferred tax liability:
Property, plant and equipment....... (2,211,000) (1,867,400)
------------ ------------
Net deferred tax assets and liabilities $ -- $ --
============ ============
The Company has recorded a valuation allowance, as a result of uncertainties
related to the realization of its net deferred tax asset, for the years ended
December 31, 2001, 2000 and 1999 of approximately $88.9 million, $47.0 million
and $447,000, respectively. The increase of approximately $41.8 million and
$46.6 million during 2001 and 2000, respectively, relates primarily to the net
operating losses incurred during each year. The deferred tax asset 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.
Included in the valuation allowance as of December 31, 2001 and 2000 are $14.5
million and $11.4 million, respectively, of deferred tax assets resulting from
the exercise of employee stock options, which upon subsequent realization of
the tax benefits will be allocated directly to paid-in capital.
At December 31, 2001, the Company has unused Federal and State net operating
loss carryforwards of approximately $174.8 million. The net operating loss
carryforwards if unused will expire as follows: $3.9 million on December 31,
2019, $93.2 million on December 31, 2020, and $77.7 million on December 31,
2021.
F-16
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Stockholders' Equity
Common Stock
The Company has one class of common stock, par value $.01 per share. Each
share of the Company's common stock is entitled to one vote on all matters
submitted to stockholders. As of December 31, 2001 there were 50,322,928 shares
of common stock issued and outstanding.
Through December 31, 2001, our stockholders in the aggregate have
contributed $291.9 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. The following
represents a summary of the issuances of shares of common stock since inception.
No. of Cash Noncash Total Capital
Common Shares Contribution Contribution Contribution
------------- ------------ ------------ -------------
1997
DTE Energy Company............................. 4,750,000 $ 4,750,000 $ -- $ 4,750,000
Mechanical Technology Incorporated............. 4,750,000 -- 4,750,000(a) 4,750,000
---------- ------------ ----------- ------------
9,500,000 4,750,000 4,750,000 9,500,000
---------- ------------ ----------- ------------
1998
DTE Energy Company............................. 4,950,000 7,750,000 -- 7,750,000
Mechanical Technology Incorporated............. 2,700,000 3,000,000 550,000(a) 5,500,000
Stock based compensation and
other noncash transactions.................... -- -- 212,000(c) (1,738,000)
---------- ------------ ----------- ------------
7,650,000 10,750,000 762,000 11,512,000
---------- ------------ ----------- ------------
1999
Edison Development Corporation................. 4,004,315 28,697,782 -- 28,697,782
Mechanical Technology Incorporated............. 6,254,315 24,000,000 8,897,782(a) 30,947,782
General Electric Company....................... 5,250,000 37,500,000 11,250,000(b) 48,750,000
Other private investors........................ 3,549,850 25,045,000 -- 25,045,000
Initial public offering-net.................... 6,782,900 92,971,878 -- 92,971,878
Stock option exercises......................... 24,128 41,907 -- 41,907
Stock based compensation and
other noncash transactions.................... -- -- 978,800(c) 2,928,800
---------- ------------ ----------- ------------
25,865,508 208,256,567 21,126,582 229,383,149
---------- ------------ ----------- ------------
2000
Stock option exercises......................... 632,378 3,793,028 -- 3,793,028
Stock issued under employee stock purchase plan 32,717 408,452 -- 408,452
Stock issued for development agreement......... 104,869 -- 5,000,000(d) 5,000,000
Stock issued for equity in affiliate........... 7,000 -- 827,750(e) 827,750
Stock based compensation and
other noncash transactions.................... 3,041 -- 8,936,779(c) 8,936,779
---------- ------------ ----------- ------------
780,005 4,201,480 14,764,529 18,966,009
---------- ------------ ----------- ------------
2001
Edison Development Corporation................. 416,666 4,800,000 -- 4,800,000
General Electric Company....................... 416,666 4,800,000 -- 4,800,000
Public offering-net............................ 4,575,000 51,588,551 -- 51,588,551
Stock option exercises......................... 760,531 2,051,954 -- 2,051,954
Stock issued under employee stock purchase plan 73,132 730,592 -- 730,592
Stock issued for development agreement......... 96,336 -- 3,000,000 (d) 3,000,000
Stock based compensation and other
noncash transactions......................... 189,084 -- 7,013,177(f) 7,013,177
---------- ------------ ----------- ------------
6,527,415 63,971,097 10,013,177 73,984,274
---------- ------------ ----------- ------------
Total as of December 31, 2001.................. 50,322,928 $291,929,144 $51,416,288 $343,345,432
========== ============ =========== ============
F-17
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
--------
a. Since inception, MTI has contributed in-process research and development of
$4,042,640; certain net assets at inception of $707,360; $2,000,000 of
deferred rent related to a below market lease for office and manufacturing
facilities; $500,000 of in-kind services; land and buildings valued at
approximately $4,697,782; and research contracts valued at approximately
$2,250,000.
b. In February 1999, the Company issued 2,250,000 shares of common stock to GE
MicroGen, Inc. in exchange for a 25% interest in GE Fuel Cell Systems, LLC.
The fair value of the shares issued of $11,250,000 was recorded under the
balance sheet caption "Investment in affiliates". See note 3.
c. These issuances primarily represent stock based compensation issued to
employees, consultants and others for services performed. These amounts are
recorded at the fair value of the issuance on the date the compensation is
awarded.
d. Represents shares issued to Engelhard Corporation for the development and
supply of advanced catalysts as part of a development agreement discussed in
note 13.
e. Represents shares issued along with cash for a 28% ownership interest in
Advanced Energy Incorporated as described in note 3.
f. Amount is partially comprised of $5,000,000 representing the fair value of
an option to purchase 725,000 shares of the Company's common stock issued to
GE Power Systems Equities, Inc. as part of the amendment to the GE Fuel Cell
Systems LLC distribution agreement. See note 3. The remainder of the amount
represents stock based compensation issued to employees, consultants and
others for services performed and is recorded at the fair value of the
issuance on the date the compensation is awarded.
Preferred Stock:
The Company has authorized 5.0 million shares of preferred stock, par value
$.01 per share. Our certificate of incorporation provides that shares of
preferred stock may be issued from time to time in one or more series. Our
Board of Directors is authorized to fix the voting rights, if any,
designations, powers, preferences, qualifications, limitations and restrictions
thereof, applicable to the shares of each series. As of December 31, 2001,
there was no preferred stock outstanding.
9. Employee Benefit Plans
Stock Option Plans (the Plans):
Effective July 1, 1997, the Company established a stock option plan to
provide employees, consultants, and members of the Board of Directors the
ability to acquire an ownership interest in the Company. Options for employees
generally vest 20% per year and expire ten years after issuance. Options
granted to members of the Board generally vest 50% upon grant and 25% per year
thereafter. Options granted to consultants vest one-third on the expiration of
the consultant's initial contract term, with an additional one-third vesting on
each anniversary thereafter. At December 31, 2001, there were a total of
1,517,953 options granted and outstanding under this plan. Although no further
options will be granted under this plan, the options previously granted will
continue to vest in accordance with this plan and vested options will be
exercisable for shares of common stock.
In August 1999, the Board of Directors and stockholders adopted the 1999
Stock Option and Incentive Plan. At December 31, 2001 there were 4,490,979
options granted and outstanding, and an additional 2,591,804 options available
to be issued under the plan. Additionally, the number of shares of common stock
available for issuance under the plan will increase by the amount of any
forfeitures under the 1999 Stock Option and Incentive Plan and under the 1997
Stock Option Plan. The number of shares of common stock under the plan will
further increase January 1 and July 1 of each year by an amount equal to 16.4%
of any net increase in the total number of shares of stock outstanding. The
1999 Stock Option and Incentive Plan permits the Company to:
F-18
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
grant incentive stock options; grant non-qualified stock options; grant stock
appreciation rights; issue or sell common stock with vesting or other
restrictions, or without restrictions; grant rights to receive common stock in
the future with or without vesting; grant common stock upon the attainment of
specified performance goals; and grant dividend rights in respect of common
stock.
To date, options granted under the 1999 Stock Option and Incentive Plan have
vesting provisions ranging from one year to five years in duration and expire
ten years after issuance. These grants may be made to officers, employees,
non-employee directors, consultants, advisors and other key persons of the
Company.
The following table summarizes information about the stock options
outstanding under the Plans at December 31, 2001:
Options Outstanding Options Exercisable
---------------------------- ------------------
Weighted Weighted
Average Average Average
Exercise Remaining Exercise Exercise
Price range Shares Life Price Shares Price
----------- --------- --------- -------- --------- --------
$ 0.00 - 1.00.. 574,236 6.0 $ 0.90 499,487 $ 1.00
1.01 - 8.50.. 649,856 7.2 6.00 348,023 5.93
8.51 - 9.00.. 914,002 9.9 8.53 0 0.00
9.01 - 11.00. 370,300 7.8 10.80 192,040 10.87
11.01 - 15.00. 1,070,960 8.7 12.12 524,280 12.82
15.01 - 18.00. 909,550 9.0 17.92 106,540 17.81
18.01 - 25.00. 539,338 9.2 22.26 58,788 19.29
25.01 - 70.00. 237,600 8.4 51.19 153,200 50.17
70.01 - 85.00. 577,390 8.1 83.39 228,865 83.39
85.01 - 140.00 165,700 8.2 100.06 66,280 100.06
--------- ---------
6,008,932 8.4 $ 22.36 2,177,503 $ 21.95
========= =========
The following table summarizes activity under the Plans:
Weighted Average
Number of Shares Exercise Price
Option Activity Subject to Option per Share
--------------- ----------------- ----------------
Balance January 1, 1999.. 1,675,200 $ 1.57
Granted at fair value.... 2,047,039 9.39
Forfeited or terminated.. (17,396) 7.24
Exercised................ (24,128) 1.74
---------
Balance December 31, 1999 3,680,715 5.90
Granted at fair value.... 2,488,813 49.73
Forfeited or terminated.. (457,700) 6.00
Exercised................ (632,378) 26.24
---------
Balance December 31, 2000 5,079,450 25.53
Granted at fair value.... 2,382,628 14.54
Forfeited or terminated.. (692,615) 40.06
Exercised................ (760,531) 2.71
---------
Balance December 31, 2001 6,008,932 $22.36
=========
At December 31, 2001, 2,591,804 shares of common stock were reserved for
issuance under future stock option exercises.
F-19
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting for Stock Based Compensation:
The per share weighted average fair value of the options granted during
2001, 2000 and 1999 was $11.78, $41.65 and $7.19, respectively, using the
minimum value method of valuing stock options, for the options granted prior to
the Company's initial public offering and the Black-Scholes pricing model
subsequent to the offering.
The dividend yield was assumed to be zero for all periods. The risk free
interest rate ranged from 3.9% to 5.0% in 2001, 5.0% to 6.7% in 2000 and 5.1%
to 6.3% in 1999. An expected life of 5 years was assumed for each year.
Expected volatility of 124% in 2001, 127% in 2000 and 114% in 1999 was used in
determining fair value under the Black-Scholes pricing model and was excluded
using the minimum value method.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for its stock options plans and
does not record compensation cost for options granted at fair value. Had the
Company determined compensation cost based on fair value in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," net loss would have increased to the pro forma
amounts indicated below:
Year Ended December 31,
------------------------------------------
2001 2000 1999
------------- ------------- ------------
Net loss, as reported..................... $ (73,112,027) $ (86,241,899) $(33,469,312)
Proforma net loss......................... (101,799,881) (122,667,062) (34,716,991)
Proforma loss per share, basic and diluted $ (2.17) $ (2.83) $ (1.32)
During 1998 the Company awarded 197,000 options to key employees for which
issuance was contingent upon the attainment of specified performance
objectives. Of those awarded, 87,500 have been forfeited prior to becoming
fully vested. The Company recorded a charge to operations for the difference
between the exercise price and the fair value of the options at the measurement
date in the amount of $168,740 and $126,800 for the years ended December 31,
2000 and 1999 respectively. Additionally, in 1999 the Company modified the
terms of certain options, and the impact of this modification resulted in a
charge to operations of $835,000.
1999 Employee Stock Purchase Plan:
In 1999, the Company adopted the 1999 Employee Stock Purchase Plan (the
Plan) under which employees will be eligible to purchase shares of the
Company's common stock at a discount through periodic payroll deductions. The
Plan is intended to meet the requirements of Section 423 of the Internal
Revenue Code. Purchases occur at the end of six month offering periods at a
purchase price equal to 85% of the market value of the Company's common stock
at either the beginning of the offering period or the end of the offering
period, whichever is lower. Participants may elect to have from 1% to 10% of
their pay withheld for purchase of common stock at the end of the offering
period, up to a maximum of $12,500 within any offering period. The Company has
reserved 1,000,000 shares of common stock for issuance under the Plan. The
Company issued 73,132 and 32,717 shares of stock under the Plan during 2001 and
2000, respectively.
401(k) Savings & Retirement Plan:
The Company offers a 401(k) Savings & Retirement Plan to eligible employees
meeting certain age and service requirements. This plan permits participants to
contribute up to 15% of their salary, up to the maximum allowable by the
Internal Revenue Service regulations. Participants are immediately vested in
their voluntary contributions plus actual earnings thereon. Participants are
vested in the Company's matching contribution based on the years of service
completed. Participants are fully vested upon completion of three years of
service. The Company's expense for this plan was $774,000, $517,000 and
$224,000 for years ended December 31, 2001, 2000 and 1999, respectively.
F-20
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Other Related Party Transactions
On June 27, 1997, the Company entered into a distribution agreement with the
EDC. Under the agreement, EDC was appointed the Company's exclusive independent
distributor in Michigan, Ohio, Indiana and Illinois to promote and assist in
the sale of products developed by the Company, subject to certain terms and
conditions.
On August 30, 2001, the Company finalized an amendment to the distribution
agreement with DTE Energy Technologies, Inc. (an affiliate of EDC and a DTE
Energy Company) expanding their exclusive distribution rights within the states
of Michigan, Illinois, Ohio and Indiana. Under the agreement, they will market
and distribute all sizes of Plug Power's stationary PEM fuel cell systems for
use in any power application, except for propulsion.
11. Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the provision of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments". Although the estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies, the estimates presented
are not necessarily indicative of the amounts that the Company could realize in
current market exchanges.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents, restricted cash, accounts receivables, accounts
payables, and accrued expenses: The carrying amounts reported in the
consolidated balance sheets approximate fair value because of the short
maturities of these instruments.
Marketable securities: The carrying amounts of available-for-sale debt
securities reported in the consolidated balance sheets approximate fair values
as both amounts are based on quoted market prices at the reporting date for
those or similar investments.
Long-term debt: The fair value of the Company's long-term debt in the
consolidated balance sheets approximates the carrying value at December 31,
2001 and 2000. The debt accrues interest at a variable rate of interest which
was approximately 2.2% and 6.75% at December 31, 2001 and 2000, respectively.
12. Supplemental Disclosures of Cash Flows Information
The following represents required supplemental disclosures of cash flows
information and noncash financing and investing activities which occurred
during the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
---------- ---------- -----------
Cash paid for interest............................................. $ 239,715 $ 372,369 $ 189,586
Cash paid for income taxes......................................... -- -- --
Issuance of shares under Engelhard Corporation development
agreement........................................................ 3,000,000 5,000,000 --
Issuance of stock option/shares for increased investment in GE Fuel
Cell Systems, LLC................................................ 5,000,000 -- 11,250,000
Issuance of shares for acquisition of 28% share of Advanced Energy
Systems, Inc..................................................... -- 827,750 --
Issuance of shares for land, buildings, and research contracts
contributed by MTI............................................... -- -- 6,947,782
F-21
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. 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 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. If Plaintiffs were to
prevail, such an outcome would have a material adverse effect on our financial
condition, results of operation and liquidity.
Alliances and development agreements:
Gastec: In February 2000, the Company 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, the Company 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 (including a trained work force).
The amount attributable to 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 state 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. The fixed assets
were capitalized at their fair value and are being depreciated over their
useful life and the intangible assets have been capitalized and are being
amortized over 36 months. For the years ended December 31, 2001 and 2000, the
Company has recorded amortization of the related intangibles in the amounts of
$3,356,926 and $2,796,934, respectively. Accumulated amortization at December
31, 2001 and 2000 was $6,153,860 and $2,796,934, respectively.
Vaillant: In March 2000, the Company 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.
F-22
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Celanese: In April 2000, the Company finalized a joint development
agreement with Celanese (formerly AXIVA GmbH), to develop a high temperature
membrane electrode unit (MEU). Under the agreement, the Company and Celanese
will exclusively work together on the development of a high temperature MEU for
the Company's stationary fuel cell system applications. As part of the
agreement the Company will contribute an estimated $4.1 million (not to exceed
$4.5 million) to fund its share of the development efforts. As of December 31,
2001, the Company has contributed $1.5 million under the terms of the agreement
and has accrued an additional $1.8 million. Through December 31, 2001, the
Company has expensed a total of $3.3 million related to the agreement, based
upon the estimated share of Celanese's development efforts performed to date.
The Company is in the process of negotiating extension and revision of the
terms of our agreement with Celanese.
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 performance and efficiency of the Company's
fuel processor--the front end of the fuel cell system. As part of the
agreement, over the next three years, the Company will contribute $10 million
to fund Engelhard's development efforts and Engelhard will acquire $10 million
of the Company's common stock. The agreements also specify rights and
obligations for Engelhard to supply product to the Company over the next 10
years.
Through December 31, 2001, the Company has contributed $8.0 million under
the terms of the agreement while Engelhard has acquired $8.0 million of the
Company's common stock. Of this amount, $6.2 million has been expensed based on
the actual spending incurred by Engelhard under the joint development agreement
with the remaining $1.8 million being recorded under the balance sheet caption
"Prepaid development costs" as of December 31, 2001.
Leases:
The Company leases certain equipment under capital lease transactions with
an original cost of $261,168, which had a net book value at December 31, 2001
and 2000 of $58,515 and $135,830 respectively, and which is included in
machinery and equipment. The Company also has several noncancelable operating
leases, primarily for warehouse facilities and office space, that expire over
the next five years. Rental expense for operating leases (except those with
lease terms of a month or less that were not renewed) during 2001, 2000, and
1999 was $288,327, $152,954 and $275,674, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 2001 are:
Capital Operating
Year ending December 31 leases leases
----------------------- ------- ----------
2002........................................ $21,163 $ 387,491
2003........................................ 4,921 301,005
2004........................................ -- 226,168
2005........................................ -- 188,417
2006........................................ -- 53,125
------- ----------
Total minimum lease payments....................... 26,084 $1,156,206
==========
Less amount representing interest.................. (1,306)
-------
Present value of net minimum capital lease payments $24,778
=======
F-23
PLUG POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentrations of credit risk:
The Company has cash deposits in excess of federally insured limits. The
amount of such deposits is approximately $29.5 million at December 31, 2001.
Employment Agreements:
The Company is party to employment agreements with certain executives which
provide for compensation and certain other benefits. The agreements also
provide for severance payments under certain circumstances.
14. Quarterly Financial Data (unaudited)
Quarters Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
--------- -------- ------------- ------------
Product and service revenue $ -- $ -- $ 437 $ 2,136
Contract revenue........... 1,027 1,289 483 369
Net loss................... (19,014) (18,320) (18,708) (17,070)
Loss per share:
Basic and diluted....... (0.43) (0.41) (0.38) (0.34)
Quarters Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
--------- -------- ------------- ------------
Product and service revenue $ -- $ -- $ -- $ --
Contract revenue........... 2,933 2,418 1,548 1,479
Net loss................... (17,246) (18,033) (28,650) (22,313)
Loss per share:
Basic and diluted....... (0.40) (0.42) (0.66) (0.51)
F-24