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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2000
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 jurisdiction (I.R.S. Identification 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 23, 2001, 43,981,427 shares of the Registrant's Common Stock
were issued and outstanding. The aggregate market value of the voting stock
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of the Registrant held by non-affiliates of the Registrant, based upon the
closing sale price of $14.00 on the Nasdaq National Market on March 23, 2001,
was $615,739,978.
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, 2001 are incorporated by
reference into Part III of this report to the extent described therein.
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PART I
Item 1. Business
Overview
We are a designer and developer of on-site, energy generation systems
utilizing proton exchange membrane 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). We
intend to manufacture residential and small commercial stationary systems which
will be sold globally through a joint venture with GE MicroGen, Inc. (GE
MicroGen). DTE Energy Technologies (DTE) will distribute these systems in
Michigan, Illinois, Ohio and Indiana. In February 2000, we established a
European presence, Plug Power Holland, through the acquisition of a fuel
processing group from Gastec, NV. See Management's Discussion and Analysis of
Financial Condition and Results of Operations - Alliances and Development
Agreements.
Our initial commercial product is expected to be a fully integrated, 60
Hz grid-parallel unit that will operate on natural gas. It is expected to be
commercially available, in limited numbers, in the first half of 2002, and will
be marketed to a select number of managed customers, including utilities,
government entities and our distribution partners, GE MicroGen and DTE. This
initial product will be a limited edition commercial 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 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.
Fuel Cells and Fuel Cell Systems
A fuel cell is a device that combines hydrogen, derived from a fuel such
as natural gas, propane, methanol or gasoline, and oxygen from the air to
produce electric power without combustion. A single 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. Our fully integrated systems use our patented fuel
processor technology to convert natural gas into hydrogen-rich fuel. This fuel
is passed through the system's fuel cell stack where electricity is
electrochemically generated. The fuel cell's power conditioner then converts the
electricity into high-quality alternating current for normal household use.
Product Development and Commercialization
We continue to advance the development of our product. 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 2000 we produced a total of 113 pre-commercial systems fueled by
natural gas, for both onsite and offsite testing. These included 4 development
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and 18 prototype units of our initial commercial design. Through year-end, our
systems have accumulated over 133,000 hours of system run time, and have enabled
us to gather meaningful data that is critical to the design of our initial
commercial product.
We have completed selecting the suppliers for our initial commercial
product, and believe we have the appropriate relationships established to ensure
adequate supply of components. In 2001, we expect to begin small-scale
production of our pre-commercial verification systems, which will be tested to
verify the final design before commercial production begins.
Manufacturing
Our goal is to manufacture reliable, efficient and safe fuel cell
systems at affordable cost for mass market consumption. 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. In February
2000, we completed construction of our 50,000 square foot manufacturing
facility, adjacent to our development laboratories, that will allow us to begin
production of our pre-commercial and initial commercial systems. Based on our
commercialization plan, we anticipate that our existing facilities, including
our new manufacturing plant will provide sufficient capacity through 2002, and
that we will need to develop or build additional capacity in order to achieve
the production levels expected in 2003 and thereafter.
Our strategy continues to evolve around third-party suppliers who, with
our assistance, can design, develop and/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 system. Since our inception we
have formed strategic alliances to develop and supply key components, including:
GASTEC: In February 2000, we acquired intellectual property, and certain
fixed assets, from Gastec, NV, related to fuel processor development for fuel
cell systems capable of producing up to 100 kW of electricity. See Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Alliances and Development Agreements.
VAILLANT: In March 2000, we finalized a development agreement with
Vaillant Gmbh to develop a combination furnace, hot water heater and fuel cell
system that will provide both heat and electricity for the home. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Alliances 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. See Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Alliances and Development Agreements.
ENGELHARD: In June 2000, we finalized a joint development agreement with
Engelhard Corporation for 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 -- Alliances and Development Agreements.
Distribution and Marketing
In February 1999, we entered into an agreement with GE MicroGen (formerly
GE On-Site Power) to create GE Fuel Cell Systems, LLC (GEFCS), a joint venture
owned 75% by GE MicroGen and 25% by Plug Power, which is dedicated to marketing,
selling, installing and servicing our fuel cell systems. Plug Power will serve
as GEFCS' exclusive worldwide supplier of PEM fuel cell systems under 35kW
designed for residential and small commercial stationary applications. GEFCS
will have the exclusive worldwide rights to market, distribute, install and
service our systems (other than in the states of Illinois, Indiana, Michigan and
Ohio, in which DTE will be our exclusive distributor). Under this arrangement,
we will sell our systems directly to GEFCS, which, in turn, will identify
qualified resellers who can distribute and service these systems. Plug Power
systems sold through GEFCS will be co-branded with both the General Electric and
Plug Power names and trademarks, and may also carry the brand of the local
reseller.
Potential GEFCS resellers include gas and electric utilities and new
market entrants such as gas and power marketers, unregulated affiliates of
utilities, appliance distributors and energy service companies. To date, GEFCS
has entered into distribution agreements with Flint Energies, a Georgia-based
rural electric cooperative, NJR Energy
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Holdings Corporation, an affiliate of New Jersey Natural Gas Company, Kubota
Corporation of Japan, Rahimafrooz Energy Services Ltd of Bangladesh, Soroof
Trading Development Company Limited of Saudi Arabia and Vaillant Gmbh of
Remscheid, Germany, Europe's leading heating appliance manufacturer.
During 2000, we completed an amendment to our distribution agreement with
GEFCS that defines product specifications and delivery schedules for
pre-commercial and commercial model introductions. The new agreement also allows
GEFCS to extend the existing 10-year agreement by an additional 5 years, to
2014, although GEFCS may terminate the agreement earlier if, among other
reasons, we fail to use best efforts to remain in compliance with any of the
following GEFCS requirements: to deliver systems on schedule; to deliver systems
that meet specifications, cost requirements and regulatory requirements; to
obtain all necessary approvals and certifications for our systems; or to produce
competitive commercial fuel cell systems. In 2001, we further amended our
distribution agreement with GEFCS to redefine certain of these best efforts
obligations.
Installation, Servicing and Maintenance
GEFCS has committed to provide complete product support for Plug Power
systems through its own service structure, reseller service network, and
contracts with third party service providers.
GEFCS service program is expected to be closely coordinated with the
introduction of Plug Power's 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 Plug Power and GEFCS. We expect that GEFCS' service plan will be completed
and the requisite service contracts in place prior to commercial sale of our
units through GEFCS.
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 used in 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, 2000, we had 18 issued patents and 74 patents pending
in the United States, and abroad we had 1 issued patent and 25 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.
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Competition
We compete against other existing and emerging technologies in our
targeted residential and small commercial distributed generation markets. On a
technology basis, we compete with both non-combustion and combustion distributed
generation technologies.
Non-combustion: Several companies are developing non combustion-based
distributed power generation technologies including fuel cells, solar and wind
technologies. Of fuel cell technologies, we compete against other PEM developers
and we compete with companies that make other types of fuel cell technologies
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.
PEM competitors that we are aware of include Ballard Power Systems, Inc.,
Dais Analytic, DeNora SpA, Energy Partners Inc., H Power Corp., International
Fuel Cells Corporation, IdaTech Corporation, Nuvera Fuel Cells Inc., Sanyo
Electric Company and Toshiba Corporation. Other fuel cell technology developers
include Fuel Cell Energy Inc., Global Thermoelectric Inc., Hitachi Corporation,
Mitsubishi Electric Company, Sulzer-Hexis and ZeTek Power Plc. Additionally a
number of major automotive and manufacturing companies also have in-house PEM
fuel cell development efforts.
Combustion: Our systems will also compete with combustion-based
distributed power generation technologies, including microturbines and
reciprocating engines, which are available at prices competitive with existing
forms of power generation.
Markets: Our products will compete against the grid and distributed power
generation technologies, including other PEM fuel cells, natural gas
reciprocating engines, and potentially solid oxide fuel cells and flywheel/small
turbine combinations. We also face competition in the small commercial market
for fuel cell systems. Our primary competitors in this market include the grid,
diesel generators, microturbines and other fuel cell manufacturers.
We expect to compete primarily on the basis of cost, reliability,
efficiency and environmental friendliness. Although we believe many choices will
emerge in the distributed power generation marketplace, we believe our fuel cell
systems integrated with PEM fuel cell technology, will compete most favorably in
our targeted residential and small commercial markets.
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. We have worked to have pertinent codes and
standards, such as the National Electrical Code, modified to address the
installation of fuel cell systems. Product safety standards have been
established covering the overall fuel cell system (ANSI Z21.83) and the power
conversion electronics (UL 1741). Our product is being designed in compliance
with these standards and, in the case of the power conversion electronics
(inverter) for our initial commercial product, it has already been listed by
Underwriter's Laboratories. At this time, we do not know exactly what
requirements, if any, each jurisdiction, will impose upon our product or
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 target early markets, the federal, state or local government
entities or competitors may seek to impose regulations.
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Employees
As of December 31, 2000, we had a total staff of 537, including 502 full-
time employees, of which 248 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. Our intention is to most effectively utilize our physical plant,
financial resources and human resources.
Factors Affecting Future Results
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
the following:
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
residential fuel cell systems. We have not produced a commercially viable
product and 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. An investor in our common stock should consider the
challenges, expenses and difficulties that we will face as a development stage
company seeking to develop and manufacture a new product.
We have incurred losses and anticipate continued losses for at least the next
several years
As of December 31, 2000, we had an accumulated deficit of $135.2 million.
We have not achieved profitability and expect to continue to incur net losses
until we can produce sufficient revenues to cover our costs. We expect the cost
to produce our pre-commercial systems to be higher than their sales price under
the terms of our distribution arrangements with GEFCS and DTE. Furthermore, even
if we achieve our objective of bringing our first commercial product to market
in 2002, we anticipate that we will continue to incur losses until we can
cost-effectively produce and sell our fuel cell systems to the mass market. Even
if we do achieve profitability, we may be unable to sustain or increase our
profitability in the future.
We may never complete the research and development of a commercially viable
residential fuel cell system
We do not know when or whether we will successfully complete research and
development of a commercially viable residential fuel cell system. We have
produced and are currently demonstrating a number of test and evaluation systems
and are continuing our efforts to decrease the costs of our systems' components
and subsystems, improve their overall reliability and efficiency, and ensure
their safety. However, we must complete substantial
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additional research and development on our systems before we will have a
commercially viable product. 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 commercialization.
A mass market for residential fuel cell systems may never develop or may take
longer to develop than we anticipate
Fuel cell systems for residential use represent an emerging market, and we
do not know whether our targeted distributors and resellers will want to
purchase them or whether end-users will want to use them. If a mass 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 mass 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 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 residential fuel cell systems on a
commercial basis
To date, we have focused primarily on research and development and have no
experience manufacturing fuel cell systems for the residential market on a
commercial basis. In 2000, we completed construction of our 50,000 square foot
manufacturing facility and are continuing to develop our manufacturing
capability and processes. We do not know whether or when we will be able to
develop efficient, low-cost manufacturing capability and processes that will
enable us to meet the quality, price, engineering, design and production
standards or production volumes required to successfully mass market our
residential fuel cell systems. Even if we are successful in developing our
manufacturing capability 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
General Electric's commitment to develop the residential fuel cell market
We believe that a substantial portion of our revenue for the foreseeable
future will be derived from sales of our products to GEFCS. However, we have not
fully developed and produced the product we have agreed to sell to GEFCS.
Economic and technical difficulties may prevent us from completing development
of the products and delivering them on schedule to GEFCS.
In addition, our ability to sell our systems to the mass market is heavily
dependent upon GEFCS' worldwide sales and distribution network and service
capabilities. Although we own a minority interest in GEFCS, we cannot control
its operations or business decisions. Any change in our relationship with
General Electric, whether as a result of market, economic, or competitive
pressures, including an inability to satisfy our contractual obligations to
GEFCS or any decision by General Electric to alter its commitment to GEFCS 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 General Electric's worldwide sales
and distribution network and service capabilities.
Under the terms of our distribution agreement, GEFCS has exclusive
worldwide rights to market, distribute, install and service Plug Power fuel cell
systems designed for residential and commercial applications under 35 kW (other
than the states of Illinois, Indiana, Michigan and Ohio, in which DTE has
exclusive distribution rights). Under our distribution agreement, we will sell
our systems directly to GEFCS, which, in turn, will seek to sell them to
selected resellers. Our distribution agreement expires in 2014, although General
Electric may terminate the agreement earlier if, among other reasons, we fail to
use best efforts to remain in compliance with any of the following General
Electric requirements: to deliver systems on schedule; to deliver systems that
meet specifications, cost requirements and regulatory requirements; to obtain
all necessary approvals and certifications for our systems; or to produce
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competitive commercial fuel cell systems. In 2001, we further amended our
distribution agreement with GEFCS to redefine certain of these best efforts
obligations.
We may not meet our product development and commercialization milestones
We have established 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 a
commercially viable residential fuel cell system. For example, 2000 was a
milestone year for delivering 485 pre-commercial units to GEFCS on a take-or-pay
basis for a total of $10.3 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 GEFCS in February
1999 and that we would not meet such milestone. Additionally, we set 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 113 pre-commercial systems delayed commercial
availability of our initial product to the first half of 2002 and announced that
we would not be profitable for at least the next several years. In addition, we
have certain best efforts obligations to GE in 2001 with respect to
pre-commercial and first generation commercial products.
Delays or any other missed milestones may 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 are unable to
meet cost or performance goals, including power output, useful life and
reliability, our commercialization schedule could be delayed beyond the first
half of 2002. In such 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 guarantee that we will
successfully achieve our milestones in the future.
We are dependent on third parties for product development, manufacturing and the
development and supply of key components for our products
While we have recently entered into relationships with strategic suppliers
of key components, we do not know when or whether we will secure relationships
with partners 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 who can develop and/or supply the required components for our systems.
Additionally, the agreements governing these relationships allow for termination
by our partners under a number of circumstances.
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 and/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 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 component of 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 electricity are intensely competitive. 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
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companies. These firms are engaged in forms of power generation such as solar
and wind power, reciprocating diesel engines and microturbines as well as grid-
supplied electricity. Many of these entities have substantially greater
financial, research and development, manufacturing and marketing resources than
we do.
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. We also compete with companies that are developing
applications, residential and otherwise, using other types of fuel cells. Some
of our competitors are much larger than we are. If these larger competitors
decide to focus on the development of residential fuel cell systems, they have
the manufacturing, marketing, and sales capabilities to complete research,
development and commercialization of a commercially viable residential fuel cell
system more quickly and effectively than we can.
Changes in government regulations and electric utility industry restructuring
may affect demand for our fuel cell systems
The market for electricity 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 potential market demand for our products. We cannot predict how the
deregulation and restructuring of the industry will affect the market for
residential fuel cell systems.
Our business may become subject to future government regulation which may impact
our ability to market our product
We do not believe that our product will be subject to existing federal and
state regulations governing traditional electric utilities and other regulated
entities. We do believe 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. 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 exactly what requirements, if any, each jurisdiction, will impose upon our
product or 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 target early markets, federal, state or local
government entities or competitors may seek to impose regulations. Any new
government regulation of our product, 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, and may have a
negative impact on our revenue and profitability, and therefore, harm our
business, prospects, results of operations, or financial condition.
Utility companies could place barriers on our entry into the 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 systems less desirable, thereby harming our
revenue and profitability.
Several states (Texas, New York, California and others) have created and
adopted or are in the process of creating 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 to comply with the
varying standards. The Institute of Electrical and Electronics Engineers (IEEE)
has been working to create an
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interconnection standard addressing the technical requirements for distributed
generation to interconnect to utility grids. Many parties are hopeful that this
standard will be adopted nationally when it is completed to help reduce the
barriers to deployment of distributed generation such as fuel cells.
Alternatives to our technology could render our systems obsolete prior to
commercialization
Our system is one of a number of alternative energy products being
developed today as supplements to the electric grid that have potential
residential applications, including microturbines, solar power and 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 grid or other fuel cell
technologies may render our systems obsolete.
The hydrocarbon fuels on which our systems rely may not be readily available or
available on a cost-effective basis
The ability of our systems to produce electricity depends on the
availability of natural gas and propane. If these fuels are not readily
available to the mass market, or if their prices are such that electricity
produced by our systems costs more than electricity provided through the grid,
our systems would be less attractive to potential users.
Our residential fuel cell systems use flammable fuels which are inherently
dangerous substances
Our residential fuel cell systems will utilize natural gas or propane in a
catalytic reaction which produces less heat than a typical gas furnace. While
our fuel cell system does not use these fuels in a combustion process, natural
gas and propane are flammable fuels that could leak in a home and combust if
ignited by another source. These dangers are present in any home appliance that
uses natural gas or propane, 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 may be unable to raise additional capital to complete our product development
and commercialization plans
Our cash requirements depend on numerous factors, including, but not
limited to, 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 we will need to raise additional funds to achieve commercialization of
our product. 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 anticipate incurring substantial
additional losses over at least the next several years and believe that our
current cash balances will provide sufficient capital to fund operations for at
least the next twelve months.
We may have difficulty managing change in our operations
We are undergoing rapid change in the scope and breadth of our operations
as we advance the development of our product. Such rapid change is likely to
place a significant strain on our senior management team and other
11
resources. We will be required to make significant investments in our
engineering and logistics systems, 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 residential fuel cell
systems internationally through SystemsGEFCS. 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 those
markets will depend, in part, on GEFCS' ability to secure relationships with
foreign resellers 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.
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 we can achieve a significant proprietary position on the basic
technologies used in 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.
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 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, thereby harming our business prospects.
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
12
government. March-in rights is 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 is dependent, in part, on attracting
and retaining 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.
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 is dependent
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.
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.
Our distribution partners have representatives on our Board of Directors
The distribution partners for our fuel cell systems, GEFCS and DTE,
control three seats on our Board of Directors. The presence of representatives
of our major customers on our Board could influence certain decisions and
present conflicts.
Our stock price has been and could remain volatile
The market price for our common stock has been and may continue to be
volatile and subject to extreme price and volume fluctuations in response to
market and other factors. As a result of past volatility in the market price of
our stock we have been the subject of securities class action litigation 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.
13
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 through 2002.
Item 3. Legal Proceedings
As we have disclosed on a Form 8-K filed January 25, 2000 with the
Securities and Exchange Commission, DCT, Inc. filed a legal complaint on January
25, 2000 seeking damages against us, The Detroit Edison Company and EDC alleging
that we misappropriated business and technical trade secrets, ideas, know-how
and strategies relating to fuel cell systems and breached certain contractual
obligations owed to DCT, Inc. We believe that the allegations in the complaint
are without merit and are vigorously contesting the litigation. 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 this action.
On or about September 14, 2000, a shareholder class action complaint was
filed in the federal district court for the Eastern District of New York
alleging that 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. The
consolidated amended complaint 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. 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.
Item 4. Submission of Matters to a Vote of Security Holders
None.
14
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, 2000, there were 890
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 50,000. The following table sets forth high
and low last reported sale prices for the Common Stock for each fiscal quarter
since the effective date of the Offering, October 28, 1999.
Closing sales prices
--------------------
High Low
-------- -------
1999
4th Quarter (from October 28, 1999)....... $ 34.50 $ 15.00
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 (through February 28, 2001) .. $ 31.38 $ 15.00
Dividend Policy. We have never declared or paid cash dividends on the
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.
None.
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 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."
15
Years Ended
---------------------------------------------------------
December 31, December 31, December 31, December 31,
2000 1999 1998 1997*
--------- --------- --------- ---------
(In thousands, except per share data)
STATEMENTS OF OPERATIONS:
Contract revenue $ 8,378 $ 11,000 $ 6,541 $ 1,194
Cost of contract revenue 13,055 15,498 8,864 1 ,226
--------- --------- --------- ---------
Loss on contracts (4,677) (4,498) (2,323) (32)
In-process research and development 4,984 -- -- 4,043
Research and development expense:
Noncash stock-based compensation 248 -- -- --
Other research and development 65,657 20,506 4,633 1,301
General and administrative expense:
Noncash stock-based compensation 7,595 3,228 212 --
Other general and administrative 8,572 6,699 2,541 630
Interest expense 363 190 -- --
--------- --------- --------- ---------
Operating loss (92,096) (35,121) (9,709) (6,006)
Interest income 8,181 3,124 93 103
--------- --------- --------- ---------
Loss before equity in losses of affiliate (83,915) (31,997) (9,616) (5,903)
Equity in losses of affiliate (2,327) (1,472) -- --
--------- --------- --------- ---------
Net loss $ (86,242) $ (33,469) $ (9,616) (5,903)
========= ========= ========= =========
Loss per share:
Basic and diluted $ (1.99) $ (1.27) $ (0.71) $ (0.62)
========= ========= ========= =========
Weighted average number of common
shares outstanding 43,308 26,283 13,617 9,500
========= ========= ========= =========
BALANCE SHEET DATA:
(at end of the period)
Working capital $ 83,352 $ 169,212 $ 2,692 $ 2,667
* for the period June 27 (date of inception) to December 31
16
Years Ended
---------------------------------------------------------
December 31, December 31, December 31, December 31,
2000 1999 1998 1997*
--------- --------- --------- ---------
Total assets 150,829 216,126 8,093 4,846
Curent portion of long-term obligations 577 553 -- --
Long-term obligations 6,707 6,517 -- --
Stockholders' equity 134,131 201,407 5,493 3,597
* For the period June 27 (date of inception) to December 31.
17
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 "Risk
Factors."
Overview
Plug Power is a designer and developer of on-site, energy generation
systems utilizing proton exchange membrane (PEM) fuel cells for stationary
applications. GE Fuel Cell Systems, LLC (GEFCS), a joint venture 75% owned by GE
MicroGen, Inc. and 25% owned by us, will market, sell, service and install our
residential and small commercial fuel cell systems under 35kW (with the
exception of DTE who will distribute these systems in Michigan, Illinois, Ohio
and Indiana). During 2000, we completed an amendment to our distribution
agreement with GEFCS that defines product specifications and delivery schedules
for pre-commercial and commercial model introductions. The new agreement also
allows GEFCS to extend the existing 10-year agreement by an additional 5 years,
to 2014, although GEFCS may terminate the agreement earlier if we fail to meet
certain best efforts obligations to GEFCS in 2001 with respect to pre-commercial
and first generation commercial products. In 2001, we further amended our
distribution agreement with GEFCS to redefine certain of these best efforts
obligations.
We were formed in June 1997 as a joint venture to further the development
of fuel cells for electric power generation in stationary applications. We are a
development stage company and do not expect to have commercial product
availability until the first half of 2002.
We continue to advance the development of our initial commercial product.
During 2000, we produced a total 113 pre-commercial systems for both onsite and
offsite testing including 4 development and 18 prototype units of our initial
commercial design. These systems have accumulated over 133,000 hours of system
run time. While these systems are not our final commercial design, they have
enabled us to gather meaningful data that is critical to the design of our
initial commercial product.
18
Since inception, we have devoted substantially all of our resources toward
the development of the PEM fuel cell systems and have derived substantially all
of our revenue from government research and development contracts. Through
December 31, 2000, our stockholders in the aggregate have contributed $228.0
million in cash, including $93.0 million in net proceeds from our initial public
offering of common stock, which closed on November 3, 1999 and $32.4 million in
other contributions, consisting of in-process research and development, real
estate, other in-kind contributions and equity interests in affiliates,
including a 25% interest in GEFCS.
From inception through December 31, 2000, we have incurred losses of
$135.2 million and expect to continue to incur losses as we expand our product
development and commercialization program and prepare for the commencement of
manufacturing operations. We expect that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial as a result of, among
other factors, the number of systems we produce and install for internal and
external testing, the related service requirements necessary to monitor those
systems and potential design changes required as a result of field testing.
There can be no assurance that we will manufacture or sell fuel cell systems
successfully or achieve or sustain product revenues or profitability.
Alliances and Development Agreements
Since our inception in June 1997, we have formed strategic alliances with
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.
Gastec: In February 2000, we acquired all of Gastec's intellectual
property, and certain fixed assets, related to fuel processor development for
fuel cell systems capable of producing up to 100 kW of electricity. The total
purchase price was $14,800,000, paid in cash. In connection with the
transaction, we recorded in-process research and development expense in the
amount of $4,984,000, fixed assets in the amount of $192,000 and intangible
assets in the amount of $9,624,000 (including a trained workforce for $357,000).
The in-process research and development was valued using an income
approach which reflects the present value of future avoided costs 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 stage of completion, of
approximately 30%, in order to reflect the value of the in-process research and
development attributable to the efforts of the seller up to the date of the
transaction. Fixed assets were capitalized at their fair value and will be
depreciated over their useful life. In connection with the transaction, we
acquired the services of employees experienced in the fuel cell industry.
Accordingly, we have capitalized the estimated cost savings associated with
recruiting, relocating and training a similar workforce. The remaining
$9,267,000 was capitalized as an intangible asset. This amount together with the
value attributable to the trained workforce has been capitalized and is being
amortized over 36 months. Through December 31, 2000, the Company has expensed
$2.8 million related to the intangible asset and the trained workforce.
Vaillant: In March 2000, we finalized a development agreement with
Vaillant Gmbh of Remscheid, Germany (Vaillant), one of Europe's leading heating
appliance manufacturers, to develop a combination furnace, hot water heater
19
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 (formerly, AXIVA GmbH), to develop a high temperature membrane
electrode unit (MEU). Under the agreement, Plug Power and Celanese will
exclusively work together on the development of a high temperature MEU 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 next twelve months. As of December 31,
2000, the Company has contributed $1.5 million under the terms of the agreement.
In connection with the transaction, the Company has recorded $1.5 million under
the balance sheet caption "Prepaid development costs." Through December 31,
2000, the Company has expensed $1.1 million of such costs.
Engelhard: In June 2000, we finalized a joint development agreement with
Engelhard Corporation for development and supply of advanced catalysts to
increase the overall performance and efficiency of our fuel processor - the
front end of the fuel cell system. As part of the agreement, over the next three
years, we will contribute $10 million to fund Engelhard's development efforts
and Engelhard will purchase $10 million of our common stock. The agreements also
specify rights and obligations for Engelhard to supply products to us over the
next 10 years. As of December 31, 2000, the Company has contributed $5 million
under the terms of the agreement while Engelhard has purchased $5 million of our
common stock. In connection with the transaction, the Company has recorded $5
million under the balance sheet caption "Prepaid development costs." Through
December 31, 2000, the Company has expensed $820,000 of such costs.
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 stock valued at approximately $828,000. The Company accounts for its
interest in AEI on the equity method of accounting and adjusts its investment by
its proportionate share of income or losses. During the year ended December 31,
2000, AEI had sales of approximately $2.1 million and an operating and net loss
of approximately $682,000.
Results of Operations
Comparison of the Year Ended December 31, 2000 and December 31, 1999.
Revenues. Our revenues during this period were derived primarily from cost
reimbursement government contracts relating to the development of PEM fuel cell
technology and contract revenue generated from the delivery of PEM fuel cells
and related engineering and testing support services for
20
other customers. Our government contracts provide for the partial recovery of
direct and indirect costs from the specified government agency, generally
requiring us to absorb from 25% to 50% of contract costs incurred. As a result,
we will report losses on these contracts as well as any future government
contracts awarded.
Total revenues 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, the Company produced a total of 113 pre-commercial systems
for both onsite and offsite testing including 4 development and 18 prototype
units of our initial commercial design. The specifications of the systems
produced in 2000 did not conform to the specifications originally agreed upon
with GEFCS in February 1999. As a result, GEFCS was no longer contractually
obligated to purchase the 485 pre-commercial units under its take or pay
commitment set forth in the February 1999 agreement and we no longer anticipate
the projected $10.3 million in revenue from GEFCS. Additionally, while the
Company has certain best efforts obligations to GEFCS in 2001 with respect to
pre-commercial and first generation commercial products, we do not expect
significant product sales to GEFCS until after full commercial product
availability, which is expected during the first half of 2002.
Cost of revenues. Cost of contract revenue includes compensation and
benefits for the engineering and related support staff, fees paid to outside
suppliers for subcontracted components and services, fees paid to consultants
for services provided, materials and supplies consumed and other directly
allocable general overhead costs. Cost of contract revenue was $13.1 million for
the year ended December 31, 2000, as compared to $15.5 million for the year
ended December 31, 1999. While contract costs have decreased as a result of our
reduced government contract activity, the percentage of contract cost compared
to contract revenue has increased due to greater cost sharing requirements on
those contracts currently in place. The result was a loss on contracts of $4.7
million for the year ended December 31, 2000 compared to a loss on contracts of
$4.5 million for the same period last year.
We expect the cost to produce our initial systems will be higher than
their sales price under the terms of our arrangements with our two distributors,
GEFCS and DTE and expect to continue to experience costs in excess of product
revenues until we achieve higher production levels, which we do not anticipate
for at least the next several years.
Research and Development. Research and development expense includes
compensation and benefits for the engineering and related staff, expenses for
contract engineers, materials to build development and prototype units, fees
paid to outside suppliers for subcontracted components and services, supplies
consumed, facility related costs, such as computer and network services, and
other general overhead costs. Research and development expenses, including
$248,000 of noncash research and development expenses for stock-based
compensation representing the fair value of vested stock options granted to
consultants in exchange for services provided, increased to $65.9 million for
the year ended December 31, 2000 from $20.5 million for the year ended December
31, 1999.
The increase of $45.4 million was primarily attributable to the growth of
our research and
21
development activities which included a 60% increase in the labor base to
approximately 500 employees, 113 test and evaluation residential PEM fuel cell
systems (an increase of 61 systems), amortization of capitalized development
expenses 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," amortization in the amount of $2.8 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" and $5.0 million for
in-process research and development expense related to the Gastec purchase.
Noncash General and Administrative. Noncash general and administrative
expenses consisting of stock-based compensation, which 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 the Companys's former President and CEO. Additionally, we have 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 (MTI) 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, MTI 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, MTI 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. Other general and administrative
expenses 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 expenses 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 operations in the amount of
$840,000 related to in-kind services provided by Southern California Gas Company
(see "Liquidity and Capital Resources-Southern California Gas Company") combined
with increased personnel cost and general expenses associated with expanding
operations.
In June 1999, the Company entered into a real estate purchase agreement
with MTI 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 consists of interest on a long-term
obligation related to a real estate purchase agreement with MTI in June 1999,
and interest paid on capital lease obligations. 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 consists of interest earned on our cash
and cash equivalents and increased to $8.2 million for the year ended December
31, 2000 from $3.1 million for the same period last year. The increase was due
to interest earned on higher balances of cash and cash equivalents available
throughout 2000, which is a result of 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.
22
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 last
year.
Equity in losses of affiliates consists of our proportionate share of the
losses of GEFCS and AEI combined with goodwill amortization on those
investments, which we account for under the equity method of accounting (see
"Liquidity and Capital Resources - GE Fuel Cell Systems"). During the year ended
December 31, 2000 we recorded $759,000 as our proportionate share of the losses
of GEFCS and AEI and $1.6 million related to goodwill amortization on those
investments.
Income Taxes. We did not report a benefit for federal and state income
taxes in the 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 109), "Accounting for Income
Taxes."
Comparison of the Year Ended December 31, 1999 and December 31, 1998.
Revenues. Our revenues during this period were derived primarily from cost
reimbursement government contracts relating to the development of PEM fuel cell
technology . Total revenues increased to $11.0 million for the year ended
December 31, 1999 from $6.5 million for the year ended December 31, 1998. The
increase is the result of government contract activity in 1999 that was not in
place in 1998, as activity began on these contracts during 1999, combined with
the contract revenue from the delivery of PEM fuel cells and related engineering
and testing support services for other customers. All of these contracts provide
for the partial recovery of direct and indirect costs from the specified
government agency, generally requiring us to absorb from 25% to 50% of contract
costs incurred. As a result, we will report losses on these contracts as well as
any future government contracts awarded.
Cost of revenues. Cost of contract revenue includes compensation and
benefits for the engineering and related support staff, fees paid to outside
suppliers for subcontracted components and services, fees paid to consultants
for services provided, materials and supplies used and other directly allocable
general overhead costs allocated to specific government contracts. Cost of
contract revenue was $15.5 million for the year ended December 31, 1999, as
compared to $8.9 million for the year ended December 31, 1998. The increase in
contract costs was related to the additional government grant activity, combined
with the additional staff and related support costs necessary to earn the
additional contract revenue. The result was a loss on contracts of $4.5 million
for the year ended December 31, 1999 compared to a loss on contracts of $2.3
million for the year ended December 31, 1998.
We expect the cost to produce our initial systems will be higher than
their sales price under the terms of our arrangements with our two distributors,
GEFCS and DTE and expect to continue to experience costs in excess of product
revenues until we achieve higher production levels, which we do not anticipate
for at least the next several years.
23
Research and Development. Research and development expense includes
compensation and benefits for the engineering and related staff, expenses for
contract engineers, materials to build prototype units, fees paid to outside
suppliers for subcontracted components and services, supplies consumed, facility
related costs, such as computer and network services and other general overhead
costs. Research and development expenses increased to $20.5 million for the year
ended December 31, 1999 from $4.6 million for the year ended December 31, 1998.
The increase was a result of the growth of our research and development
activities focused on residential PEM fuel cell systems.
Noncash General and Administrative. Noncash general and administrative
expenses, consisting of stock-based compensation, increased to $3.2 million for
the year ended December 31, 1999 from $212,000 for the year ended December 31,
1998.
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 MTI 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, MTI 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, MTI 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, compared to $212,000 in 1998, related to
performance based options issued to employees and $835,000 related to the
modification of a stock option agreement.
Other General and Administrative. Other general and administrative
expenses includes compensation, benefits and related costs in support of our
general corporate functions, including general management, finance and
accounting, human resources, business development, information and legal
services. Other general and administrative expenses increased to $6.7 million
for the year ended December 31, 1999 from $2.5 million for the year ended
December 31, 1998. The increase was due to a $1.9 million charge for the
write-off of deferred rent and an increase in compensation, benefits and related
costs in support of the Company's overall growth.
In June 1999, we entered into a real estate purchase agreement with MTI 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.
We originally recorded $2.0 million for deferred rent in October 1998,
representing the value of a ten-year lease agreement with MTI at favorable lease
rates (see "Liquidity and Capital Resources - Capital Contributions").
Interest Expense. Interest expense of approximately $190,000 consists of
interest paid on a long-term obligation related to a real estate purchase
agreement with MTI (see "Liquidity and Capital Resources - Capital
Contributions") and interest paid on capital lease obligations.
Interest Income. Interest income consists of interest earned on our cash
and cash equivalents, and increased to $3.1 million for the year ended December
31, 1999 from $93,000 for the same period in 1998. The increase was due to
interest earned on higher balances of cash and cash equivalents available during
the fourth quarter of 1999 as a result of our initial public offering of common
stock and the exercise of warrants and stock purchase commitments by our
existing stockholders (see "Liquidity and Capital Resources").
Equity in Losses of Affiliates. Equity in losses of affiliates in the
amount of $1.5 million consist of our proportionate share of the losses of
24
GEFCS ($441,000) and goodwill amortization ($1,031,000) on the investment, which
we account for under the equity method of accounting (see "Liquidity and Capital
Resources - GE Fuel Cell Systems").
Income Taxes. No benefit for federal and state income taxes has been
reported in the financial statements as the deferred tax asset generated from
our net operating 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 109), "Accounting for Income
Taxes."
Liquidity and Capital Resources
Summary
The Company's cash requirements depend on numerous factors, including, but
not limited to, completion of its product development activities, ability to
commercialize its fuel cell systems, and market acceptance of its systems. The
Company expects to devote substantial capital resources to continue development
programs, establish a manufacturing infrastructure and develop manufacturing
processes. The Company believes it will need to raise additional funds to
achieve commercialization of its product. However, the Company does not know
whether it will be able to secure additional funding, or funding on acceptable
terms, to pursue its 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, the Company may be
required to limit operations in a manner inconsistent with its development and
commercialization plans, which could affect operations in future periods. The
Company anticipates incurring substantial additional losses over at least the
next several years and believes that its current cash balances will provide
sufficient capital to fund operations for at least the next twelve months.
We have financed our operations through December 31, 2000, primarily from
the sale of equity, which has provided cash in the amount of $228.0 million. As
of December 31, 2000, we had unrestricted
25
cash, cash equivalents and marketable securities totaling $86.7 million and
working capital was approximately $83.4 million. As a result of our purchase of
real estate from MTI, we have escrowed $5.6 million in cash to collateralize the
debt assumed on the purchase.
During the year ended December 31, 2000, net cash used in operating
activities was $65.5 million, including $5.0 million related to the write off of
in-process research and development related to our acquisition of intellectual
property acquired from Gastec. Cash used in investing activities during the year
ended December 31, 2000, was $51.3 million, including $28.2 million for the
purchase of marketable securities. Excluding the purchase of marketable
securities, cash used in investing activities was $23.1 million consisting of
$12.0 million for the purchase of property, plant and equipment, $9.6 million
representing the purchase of intangible assets related to the acquisition of
intellectual property from Gastec and $1.5 million for the purchase of a 28%
ownership interest in AEI.
Since inception, net cash used in operating activities has been $98.0
million and cash used in investing activities has been $64.9 million, including
$28.2 million for the purchase of marketable securities.
Initial Public Offering
In November 1999, the Company 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.
Capital Contributions
Plug Power was formed in June 1997 as a joint venture between MTI and
Edison Development Corporation (EDC), a DTE Energy Company. At formation, MTI
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. EDC
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 MTI and EDC pursuant to
which we had the right to require EDC and MTI to make capital contributions of
$22.5 million each, an aggregate of $45 million, through December 31, 2000. In
September 1999, we made a capital call of $4.0 million, and MTI and EDC each
contributed $2.0 million in cash in exchange for 266,667 shares of common stock.
Both MTI and EDC contributed the remaining $41.0 million immediately prior to
the 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 MTI
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 MTI, valued at $6.67 per
share. In connection with this transaction we wrote off deferred rent expense,
in the amount of $1.9
26
million, related to a 10-year facilities lease on one of the purchased
buildings, at a favorable lease rate.
Also in June 1999, EDC purchased 704,315 shares of common stock for $4.7
million in cash under provisions of our original formation documents that
allowed EDC and MTI to maintain equal ownership percentage in Plug Power.
As of December 31, 2000, MTI had made aggregate cash contributions of
$27.0 million plus noncash contributions of $14.2 million, while EDC had made
aggregate cash contributions of $41.2 million.
GE Fuel Cell Systems
In February 1999, we entered into an agreement with GE MicroGen, Inc.
(formerly GE On-Site Power, Inc.) to create GEFCS, a joint venture owned 75% by
GE MicroGen and 25% by Plug Power, which is dedicated to marketing, selling,
installing, and servicing Plug Power residential and small commercial stationary
fuel cell systems under 35kW on a worldwide basis (other than in the states of
Illinois, Indiana, Michigan and Ohio).
In connection with the formation of GEFCS, we issued 2,250,000 shares of
our common stock to GE MicroGen in exchange for a 25% interest in GEFCS. Of
these, 750,000 shares vested immediately and the remaining 1,500,000 shares
vested in August 1999. As of the date of issuance of such shares, we capitalized
$11.3 million, the fair value of the shares issued, under the caption
"Investment in affiliate" in our financial statements. We also issued a warrant
to GE MicroGen to purchase 3,000,000 additional shares of common stock at a
price of $12.50 per share which was exercised by GE MicroGen immediately prior
to our initial public offering, for a total exercise price of $37.5 million in
cash.
The Company has agreed to purchase at least $7.5 million of technical
support services over the next two years.
Southern California Gas Company
In April 1999, Southern California Gas Company (SCGC) purchased 1,000,000
shares of common stock for $6.7 million and agreed to spend $840,000 for market
research and services related to distributed power generation technologies,
including PEM fuel cell systems. In the event SCGC does not expend these amounts
by April, 2002, up to 111,851 previously issued shares may be returned.
Additionally, SCGC received warrants to purchase an additional 350,000 shares of
common stock at an exercise price of $8.50 per share which was exercised by SCGC
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, SCGC fulfilled its obligation to
provide market research and services and the Company recorded a charge to
operations in the amount of $840,000.
Private Investors
In February 1999, two investors, including Michael J. Cudahy, a former
director of Plug Power, 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
27
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
The Company was awarded and received $1.0 million under a government
grant. The grant is for the express purpose of promoting employment. Terms of
the grant require the Company meet certain employment criteria, as defined, over
a five year period. If the Company fails to meet the specified criteria, the
Company shall repay the unearned portion of the grant.
Forward-looking Statements
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 "Risk Factors."
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 index to the Financial Statements of the Company is included in Item
14, and the financial statements follow the list of exhibits to this Annual
Report on Form 10-K.
Selected quarterly financial data is included in the Notes to Consolidated
Financial Statement under "Quarterly Financial Data (Unaudited)".
28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
29
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 Regarding Directors" in the Company's definitive Proxy
Statement for its 2001 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
2001 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 2001 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 2001 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 2001 Annual Meeting of Stockholders.
30
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 Financial
Statements on page F-1 of this report.
14(a)(2) Financial Statement Schedules
Schedule of valuation and qualifying
accounts and reserves.
Additions
--------------------------------
Balance Charged Charged to Balance at
January 1, To costs other December 31,
Description 2000 and expenses accounts Deductions 2000
- ------------------------------------------------------------------------------------------------
Income taxes valuation
allowance $(447,000) $(35,171,500) $(11,413,700) - $(47,032,200)
14(a)(3) Exhibits
Exhibits are as set forth in the "List of Exhibits" which immediately
precedes the Index to Financial Statements on page F-1 of this report.
14(b) Reports on Form 8-K
None.
14(c) Exhibits
Exhibits are as set forth in the "List of Exhibits" which immediately
precedes the Notes to the Financial Statements and the exhibits filed.
14(d) Other Financial Statements
Not applicable.
31
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
Date: March 30, 2001 --------------------------
Roger Saillant, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
-------------------------- ---------------------------------- --------------
/s/ ROGER SAILLANT President, Chief Executive Officer
------------------ and Director (Principal
Roger Saillant Executive Officer) March 30, 2001
/s/ DAVID A. NEUMANN Chief Financial Officer (Principal
-------------------- Financial Officer and
David A. Neumann Accounting Officer) March 30, 2001
/s/ DOUGLAS T. HICKEY
--------------------- Director March 30, 2001
Douglas T. Hickey
/s/ ANTHONY F. EARLEY, JR.
-------------------------- Director March 30, 2001
Anthony F. Earley, Jr.
/s/ LARRY G. GARBERDING
----------------------- Director March 30, 2001
Larry G. Garberding
/s/ GEORGE C. MCNAMEE
--------------------- Director March 30, 2001
George C. McNamee
/s/ JOHN G. RICE
---------------- Director March 30, 2001
John G. Rice
/s/ WALTER L. ROBB
------------------ Director March 30, 2001
Walter L. Robb
/s/ JOHN M. SHALIKASHVILI
------------------------- Director March 30, 2001
John M. Shalikashvili
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, 10.41, 10.38, 10.42 and 10.43
represent the management contracts or compensation plans filed pursuant to Item
14(c) of the Form 10-K.
Exhibit No. and Description
---------------------------
2.1 Agreement and Plan of Merger by and between Plug Power and Plug Power,
LLC, a Delaware limited liability company, dated as of October 7,
1999. (1)
3.1 Amended and Restated Certificate of Incorporation of Plug Power. (2)
3.2 Amended and Restated By-laws of Plug Power. (2)
3.3 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Plug Power
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)
33
10.10 LLC Interest Purchase Agreement, dated as of February 16, 1999,
between Plug Power, LLC and Kevin Lindsey. (1)
10.11 LLC Interest Purchase Agreement, dated as of April 1, 1999, between
Plug Power, LLC and Antaeus Enterprises, Inc. (1)
10.12 LLC Interest Purchase Agreement, dated as of April 9, 1999, between
Plug Power, LLC and Southern California Gas Company. (1)
10.13 Warrant Agreement, dated as of April 9, 1999, between Plug Power,
LLC and Southern California Gas Company and amendment thereto, dated
August 26, 1999. (1)
10.14 Agreement, dated as of June 26, 1997, between the New York State
Energy Research and Development Authority and Plug Power LLC, and
amendments thereto dated as of December 17, 1997 and March 30, 1999. (1)
10.15 Agreement, dated as of January 25, 1999, between the New York State
Energy Research and Development Authority and Plug Power LLC. (1)
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)
34
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)
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.
10.42 Agreement dated February 13, 2001, between Plug Power Inc. and
William H. Largent.
10.43 Amendment dated September 19, 2000 to agreement, dated as of August
6, 1999, between Plug Power Inc. and Gregory A. Silvestri.
35
10.44 Joint Development Agreement, dated as of June 2, 2000, between Plug
Power Inc. and Engelhard Corporation
23.1 Consent of PricewaterhouseCoopers LLP
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File Number 333-86089).
(2) Incorporated by reference to the Company's Form 10-K for the period
ending December 31, 1999.
(3) Incorporated by reference to the Company's third quarter report on
Form 10-Q for the third quarter ended September 30, 2000.
36
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of independent accountants F-2
Consolidated balance sheets as of December 31, 2000 and 1999 F-3
Consolidated statements of operations for the years ended December 31, 2000
1999 and 1998 and cumulative amounts from inception F-4
Consolidated statements of stockholders' equity for the years ended December 31,
2000, 1999 and 1998 F-5
Consolidated statements of cash flows for the years ended December 31, 2000,
1999 and 1998 and cumulative amounts from inception F-6
Notes to consolidated financial statements F-7
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders of Plug Power Inc. and Subsidiary:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Plug Power Inc. and subsidiary (a development stage
enterprise) at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule 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-2
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
Consolidated Balance Sheets
Assets December 31, 2000 December 31, 1999
----------------- -----------------
Current assets:
Cash and cash equivalents $ 58,511,563 $ 171,496,286
Restricted cash 290,000 275,000
Marketable securities 28,221,852 -
Accounts receivable 1,415,049 5,212,943
Inventory 2,168,006 304,711
Prepaid development costs 2,041,668 -
Other current assets 694,178 124,380
----------------- -----------------
Total current assets 93,342,316 177,413,320
Restricted cash 5,310,274 5,600,274
Property, plant and equipment, net 32,290,492 23,333,791
Intangible asset 6,827,066 -
Investment in affiliates 9,778,784 9,778,250
Prepaid development costs 2,513,093 -
Other assets 767,193 -
----------------- -----------------
Total assets $ 150,829,218 $ 216,125,635
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,479,031 $ 4,644,496
Accrued expenses 5,934,529 3,004,126
Deferred grant revenue 200,000 200,000
Current portion of capital lease obligation
and long-term debt 377,201 353,175
----------------- -----------------
Total current liabilities 9,990,761 8,201,797
Long-term debt 5,310,274 5,600,274
Deferred grant revenue 600,000 800,000
Capital lease obligation 30,346 117,030
Other liabilities 767,193 -
----------------- -----------------
Total liabilities 16,698,574 14,719,101
----------------- -----------------
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, 2000 and
95,000,000 shares authorized at December 31, 1999;
43,795,513 shares issued and outstanding, December 31,
2000 and 43,015,508 shares issued and
outstanding, December 31, 1999 437,955 430,155
Paid-in capital 268,923,203 249,964,994
Deficit accumulated during the development stage (135,230,514) (48,988,615)
----------------- -----------------
Total stockholders' equity 134,130,644 201,406,534
----------------- -----------------
Total liabilities and stockholders' equity $ 150,829,218 $ 216,125,635
================= =================
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Operations
For the years ended December 31, 2000, 1999 and 1998
and cumulative amounts from inception
Cumulative
December 31, December 31, December 31, Amounts
2000 1999 1998 from Inception
------------- ------------- ------------- -------------
Contract revenue $ 8,378,200 $ 11,000,344 $ 6,541,040 $ 27,113,114
Cost of contract revenue 13,055,437 15,497,837 8,863,845 38,643,562
------------- ------------- ------------- -------------
Loss on contracts (4,677,237) (4,497,493) (2,322,805) (11,530,448)
In-process research and development 4,984,000 - - 9,026,640
Research and development expense:
Noncash stock-based compensation 247,782 - - 247,782
Other research and development 65,656,604 20,506,156 4,632,729 92,096,366
General and administrative expense:
Noncash stock-based compensation 7,595,073 3,228,800 212,000 11,035,873
Other general and administrative 8,572,256 6,699,482 2,541,645 18,443,416
Interest expense 362,996 189,586 - 552,582
------------- ------------- ------------- -------------
Operating loss (92,095,948) (35,121,517) (9,709,179) (142,933,107)
Interest income 8,181,265 3,123,955 93,216 11,501,559
------------- ------------- ------------- -------------
Loss before equity in losses of affiliates (83,914,683) (31,997,562) (9,615,963) (131,431,548)
Equity in losses of affiliates (2,327,216) (1,471,750) - (3,798,966)
------------- ------------- ------------- -------------
Net loss $ (86,241,899) $ (33,469,312) $ (9,615,963) $(135,230,514)
============= ============= ============= =============
Loss per share:
Basic and diluted $ (1.99) $ (1.27) $ (0.71)
============= ============= =============
Weighted average number of common
shares outstanding 43,308,158 26,282,705 13,616,986
============= ============= =============
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 Cash Flows
For the years ended December 31, 2000, 1999 and 1998
and cumulative amounts from inception
Cumulative
December 31, December 31, December 31, Amounts
2000 1999 1998 from Inception
------------- ------------- ------------- --------------
Cash Flows From Operating Activities:
Net loss $ (86,241,899) $ (33,469,312) $ (9,615,963) $(135,230,514)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,037,818 1,352,186 499,142 5,076,854
Equity in losses of affiliates 2,327,216 1,471,750 - 3,798,966
Amortization of intangible asset 2,797,434 - - 2,797,434
In-kind services 840,000 - 500,000 1,340,000
Stock-based compensation 8,096,779 3,228,800 212,000 11,537,579
Amortization of deferred grant revenue (200,000) - - (200,000)
Amortization of deferred rent - 100,000 50,000 150,000
Write-off of deferred rent - 1,850,000 - 1,850,000
In-process research and development - - - 4,042,640
Changes in assets and liabilities :
Accounts receivable 3,797,894 (4,612,988) 203,602 (1,415,049)
Inventory (1,863,295) (290,064) 18,903 (2,168,006)
Due from investor - 685,306 (416,061) 286,492
Prepaid development costs 445,239 - - 445,239
Other assets (294,798) (102,466) - (397,264)
Accounts payable and accrued expenses 1,764,938 5,334,376 1,081,587 9,365,452
Deferred grant revenue - 1,000,000 - 1,000,000
Due to investor - (286,492) - (286,492)
------------- ------------- ------------- -------------
Net cash used in operating activities (65,492,674) (23,738,904) (7,466,790) (98,006,669)
------------- ------------- ------------- -------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (11,994,519) (10,788,262) (2,370,269) (25,514,568)
Purchase of intangible asset (9,624,500) - - (9,624,500)
Investment in affiliate (1,500,000) - - (1,500,000)
Marketable securities (28,221,852) - - (28,221,852)
------------- ------------- ------------- -------------
Cash used in investing activities (51,340,871) (10,788,262) (2,370,269) (64,860,920)
------------- ------------- ------------- -------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock - 115,242,782 10,750,000 130,742,782
Proceeds from initial public offering, net - 94,611,455 - 94,611,455
Stock issuance costs - (1,639,577) - (1,639,577)
Proceeds from stock option exercises 4,201,480 41,907 - 4,243,387
Cash placed in escrow - (5,875,274) - (5,875,274)
Principal payments on capital lease obligations (77,658) (65,963) - (143,621)
Principal payments on long-term debt (275,000) (285,000) - (560,000)
------------- ------------- ------------- -------------
Net cash provided by financing activities 3,848,822 202,030,330 10,750,000 221,379,152
------------- ------------- ------------- -------------
(Decrease) increase in cash and cash equivalents (112,984,723) 167,503,164 912,941 58,511,563
Cash and cash equivalents, beginning of period 171,496,286 3,993,122 3,080,181 -
------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 58,511,563 $ 171,496,286 $ 3,993,122 $ 58,511,563
============= ============= ============= =============
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2000 , 1999 and 1998
Deficit
Accumulated
Common stock Additional During the Total
---------------------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
------------------------------------------------------------- -------------
Balance, January 1, 1998 9,500,000 $ 95,000 $ 9,405,000 $ (5,903,340) $ 3,596,660
Capital contributions 7,650,000 76,500 13,173,500 13,250,000
Deferred rent expense (2,000,000) (2,000,000)
Amortization of deferred rent expense 50,000 50,000
Stock based compensation 212,000 212,000
Net loss (9,615,963) (9,615,963)
------------------------------------------------------------- -------------
Balance, December 31, 1998 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
============================================================= =============
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
PLUG POWER INC. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
1. Nature of Operations
Plug Power Inc. and Subsidiary (the Company), was originally formed as a
joint venture between Edison Development Corporation (EDC), a DTE Energy
Company, and Mechanical Technology Incorporated (MTI) in the State of
Delaware on June 27, 1997 and succeeded by merger of all of the assets,
liabilities and equity of Plug Power, L.L.C. in November 1999. The Company
is a development stage enterprise formed to research, develop, manufacture
and distribute fuel cells for electric power generation. The consolidated
financial statements include the accounts of Plug Power Inc. and its
wholly owned subsidiary after elimination of significant intercompany
transactions.
2. Initial Public Offering
In November 1999, the Company completed an initial public offering of
6,782,900 shares of common stock, including 782,900 shares pursuant to the
underwriters' exercise of their over-allotment option. The Company
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 connection with this offering, the
Company was converted to a C corporation from a limited liability
corporation. The financial statements and related footnotes have been
restated to present the Company as a C corporation for all periods
presented.
3. Liquidity
The Company's cash requirements depend on numerous factors, including, but
not limited to, completion of its product development activities, ability
to commercialize its fuel cell systems, and market acceptance of its
systems. The Company expects to devote substantial capital resources to
continue development programs, establish a manufacturing infrastructure
and develop manufacturing processes. The Company believes it will need to
raise additional funds to achieve commercialization of its product.
However, the Company does not know whether it will be able to secure
additional funding, or funding on acceptable terms, to pursue its
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, the Company may
be required to limit operations in a manner inconsistent with its
development and commercialization plans, which could affect operations in
future periods. The Company anticipates incurring substantial additional
losses over at least the next several years and believes that its current
cash balances will provide sufficient capital to fund operations for at
least the next twelve months.
4. Significant Accounting Policies
Use of estimates:
The financial statements of the Company have been prepared in conformity
with generally accepted accounting principles which require management to
make estimates and assumptions that affect the
F-7
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.
Cash and cash equivalents:
Cash and cash equivalents includes cash on hand and short-term investments
with original maturities of three months or less.
The Company has restricted cash in the amount of $5,600,274 which the
Company was required to place in escrow to collateralize debt related to
its purchase of real estate. The escrowed amount is recorded under the
balance sheet captions "Restricted cash."
Marketable securities:
Marketable securities includes investments in corporate debt securities
which are carried at fair value. These investments are considered
available for sale, and the difference between the cost and the fair value
of these securities would be reflected in other comprehensive income and
as a separate component of stockholders' equity. There was no significant
difference between cost and fair value of these investments at December
31, 2000.
Inventory:
Inventory is stated at lower of average cost or market, and consists of
raw materials not yet issued to research projects.
Property, plant and equipment, and long-lived assets:
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over their estimated useful lives, ranging from 2
to 20 years.
The Company reviews long-lived assets for impairment whenever any events
or changes in circumstances indicate that the carrying amount of these
assets may not be recoverable.
Revenue recognition:
The Company's contract revenue is derived from cost reimbursement
government contracts which generally require the Company to absorb from
25% to 50% of the total costs incurred. Such contracts require the Company
to deliver research and tangible developments in fuel cell technology and
system design and prototype fuel cell systems for test and evaluation by
the government agency. Revenues are recognized in proportion to the costs
incurred. Included in accounts receivable are billed and unbilled
work-in-progress on cost reimbursed government contracts. Total estimated
cost to complete a contract in excess of the awarded contract amounts are
charged to operations during the period such costs are estimated. While
the Company's accounting for these contract costs are subject to audit by
the sponsoring agency, in the opinion of management, no material
adjustments are expected as a result of such audits.
Deferred revenue:
The Company's deferred grant revenue consists of a government grant
received to promote employment. The agreement requires that the Company
meet certain employment criteria, as defined, over a five year period. If
the Company fails to meet the specified criteria, the Company shall repay
the unearned portion of the grant. The Company recognized $200,000 in
grant revenue for the year ended December 31, 2000.
Recent Accounting Pronouncements:
F-8
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions
Involving Stock Compensation -- an Interpretation of APB Opinion No. 25".
FIN 44 clarifies the application of APB Opinion No. 25 including the
following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
non compensatory plan; the accounting consequence of various modifications
to the terms of previously fixed stock options or awards; and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is generally effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after December
15, 1998. The Company has applied the applicable provisions of FIN 44.
In December, 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). SAB 101
summarizes certain SEC views in applying generally accepted accounting
principles to revenue recognition. The Company adopted SAB 101 in the
fourth quarter of 2000 as required, and such adoption did not have a
material impact on the Company's financial position, results of
operations, or cash flows.
In June 1998, and June 1999 the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", and SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of SFAS No. 133." These
statements (as amended by SFAS No. 138) establish accounting and reporting
standards for derivative instruments and hedging activities. It requires
that entities recognize all derivatives as either assets or liabilities on
the balance sheet and measure those instruments at fair value. The Company
adopted SFAS No. 133 on its effective date January 1, 2001 and such
adoption did not have a material effect on the Company's financial
position, results of operations, or cash flows.
5. Property, Plant and Equipment
Property, plant and equipment at December 31, 2000 and 1999 consists of
the following:
December 31, 2000 December 31, 1999
----------------- -----------------
Land $ 90,000 $ 90,000
Buildings 14,757,080 14,757,080
Building improvements 5,525,306 2,826,563
Machinery and equipment 16,732,395 7,436,619
----------------- -----------------
37,104,781 25,110,262
Less accumulated depreciation (4,814,289) (1,776,471)
----------------- -----------------
Property, plant and equipment, net $ 32,290,492 $ 23,333,791
================= =================
F-9
Depreciation expense was $3,037,818, $1,327,187 and $332,476 for the years
ended December 31, 2000, 1999 and 1998, respectively.
6. 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 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 6.75% at December 31, 2000. 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 which was waived by the bank through January 1, 2002.
The outstanding balance of the debt as of December 31, 2000 was $5.6
million and the amount of the corresponding escrow requirement as of
December 31, 2000 was $5.6 million and is recorded under the balance sheet
captions "Restricted cash." Principal payments due on long-term debt are:
2001, $290,000; 2002, $310,000; 2003, $325,000; 2004 $345,000; 2005 and
thereafter, $4,330,274. Interest paid was $372,369 and $189,586 for the
years ended December 31, 2000 and 1999, respectively.
7. Loss Per Share
Loss per share for the Company is calculated as follows:
Years Ended December 31,
--------------------------------------------------
2000 1999 1998
--------------- ------------- --------------
Numerator:
Net loss $ (86,241,899) $ (33,469,312) $ (9,615,963)
Denominator:
Weighted average number of
common shares 43,308,158 26,282,705 13,616,986
No options or warrants outstanding were included in the calculation of
diluted loss per share because their impact would have been anti-dilutive.
The calculation excludes 111,851 contingently returnable shares in 1999.
8. Income Taxes
There was no current income tax expense for the years ended December 31,
2000 and 1999. The Company was a Limited Liability Company (LLC) until its
merger into Plug Power Inc. effective November 3, 1999. For the LLC period
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
F-10
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, 2000 and 1999 are as follows:
Years ended December 31,
----------------------------------------
2000 1999
------------------ ------------------
Deferred tax expense recognized as
a result of change in tax status $ -- $ 1,739,000
Deferred tax benefit (6,695,100) (584,400)
Net operating loss carryforward (28,476,400) (1,601,600)
Valuation allowance 35,171,500 447,000
------------------ ------------------
$ -- $ --
================== ==================
The Company's effective income tax rate differed from the Federal
statutory rate as follows:
Years ended December 31,
----------------------------------------
2000 1999
------------------ ------------------
Federal statutory tax rate -35.0% -35.0%
Deferred state taxes, net of federal benefit -5.0% --
Effect of LLC losses -- 33.0%
Effect of change in tax status -- 2.0%
Other, net 1.0% -1.0%
Tax credits -2.0% --
Change in valuation allowances 41.0% 1.0%
------------------ ------------------
0.0% 0.0%
================== ==================
The deferred tax assets and liabilities as of December 31, 2000 and 1999
consist of the following tax effects relating to temporary differences and
carryforwards:
Years ended December 31,
----------------------------------------
2000 1999
------------------ ------------------
Deferred tax assets (liabilities):
Inventory valuation $ 920,000 $ 30,000
Stock-based compensation 3,384,700 334,000
Other reserves and accruals 464,200 294,900
Intangible assets 905,100 112,500
F-11
Years ended December 31,
----------------------------------------
2000 1999
------------------ ------------------
Investment in affiliates 254,800 --
Tax credit carryforwards 1,479,100 --
Net operating loss 41,491,700 1,601,600
Property, plant and equipment (1,867,400) (1,926,000)
------------------ ------------------
47,032,200 447,000
Valuation allowance (47,032,200) (447,000)
------------------ ------------------
$ -- $ --
================== ==================
The valuation allowance for the years ended December 31, 2000 and 1999 is
approximately $47 million and $447,000, respectively. The increase of
approximately $46.6 million relates primarily to the current year net
operating loss, including the tax benefit of non-qualified stock option
exercises which are recorded as an adjustment to paid in capital. 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.
At December 31, 2000, the Company has unused Federal and State net
operating loss carryforwards of approximately $103.4 million. The net
operating loss carryforwards if unused will begin to expire during the
year ended December 31, 2019.
At December 31, 2000, the Company has unused Federal and State tax credit
carryforwards of approximately $1,479,000. The Federal and State tax
credit carryforwards if unused will begin to expire during the year ended
December 31, 2019.
9. Stockholders' Equity
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. At the Company's inception, in exchange for
EDC's initial cash contribution of $4,750,000, the Company issued
4,750,000 shares to EDC. MTI made noncash contributions of $4,750,000
consisting of in-process research and development ($4,042,640), and
certain net assets, in exchange for 4,750,000 shares.
Contributed in-process research and development was early development
stage property, which did not and currently does not have commercial
viability or any alternative future use and which will require substantial
additional expenditures to commercialize. Accordingly, the assigned value
was charged to operations at the time the Company was formed.
During the year ended December 31, 1998, EDC and MTI made additional total
contributions of $13,250,000 in exchange for 7,650,000 shares. EDC
contributed $7,750,000 in cash for 4,950,000 shares. MTI contributed
$3,000,000 in cash, $2,000,000 of deferred rent related to a below market
lease for office and manufacturing facilities, and $500,000 of in-kind
services ($5,500,000 in total) for 2,700,000 shares.
In 1998, MTI purchased options for $191,250, which entitled MTI to acquire
2,250,000 shares by June, 1999 for $2,250,000. In accordance with the
original joint venture agreement, MTI could earn noncash credits to be
applied toward the purchase price of shares under option. MTI could earn
these credits based on the Company obtaining certain defined levels of
research contracts. In March
F-12
1999, all parties to the agreement mutually agreed that MTI had earned
$2,250,000 of noncash credit which was used to acquire 2,250,000 shares.
Accordingly, these shares were issued in March 1999, a charge to
operations of $2,250,000 was recorded under the caption "General and
Administrative Expense - Noncash stock-based compensation," and $191,250
was returned to MTI in accordance with the terms of the option agreement.
In January 1999, the Company entered into an agreement with MTI and EDC
pursuant to which the Company had the right to require MTI and EDC to
contribute $7.5 million each in 1999 and $15.0 million each in 2000 in
exchange and for which each would receive common stock valued at $7.50 per
share. The agreement also permitted MTI and EDC to contribute any funds
not previously called by the Company on the termination date of the
agreement (the earlier of December 31, 2000 or upon an initial public
offering of the Company's shares at a price greater than $7.50 per share)
in exchange for shares at a price of $7.50 per share.
In September 1999, the Company made a capital call of $4.0 million, and
MTI and EDC each contributed $2.0 million in cash in exchange for 266,667
shares of common stock. In November 1999, MTI and EDC contributed the
remaining $41.0 million in exchange for an aggregate of 5,466,666 shares
of common stock.
On June 23, 1999, EDC purchased 704,315 shares of the Company's common
stock for $4,697,782. Also, the Company entered into a purchase agreement
with MTI to acquire approximately 36 acres of land, two commercial
buildings and a residential building located in Latham, New York in
exchange for 704,315 shares of common stock.
During 1999 MTI and EDC each purchased an additional 300,000 shares of
common stock for $1.5 million each.
In February 1999, two investors purchased 1,500,000 shares of common stock
for $10.0 million. In addition, one of the investors received a warrant to
purchase 400,000 shares at a price of $8.50 per share. These warrants were
exercised at the time of the initial public offering.
In April 1999 an investor purchased 299,850 shares of common stock for
$2.0 million.
In April 1999, an investor purchased 1,000,000 shares of common stock for
$6.7 million. In connection with the purchase agreement, the investor is
required to spend an aggregate of $840,000 for market research and related
services on behalf of the Company. In the event such amounts are not
expended by April, 2002 up to 111,851 of the previously issued shares may
be returned to the Company. The Company will account for these services by
recording a charge to earnings and a credit to paid in capital as these
services are rendered. During 2000 all services were provided.
Accordingly, the Company recorded a charge to operations and a credit to
paid in capital of $840,000. Additionally, the investor received warrants
to purchase an additional 350,000 shares of common stock at an exercise
price of $8.50 per share. These warrants were exercised at the time of the
initial public offering.
During 2000, the Company recorded a noncash charge in the amount of $7.4
million related to stock-based compensation for the Company's former
President and CEO. Additionally, the Company recorded $169,000 related to
stock-based compensation.
10. Employee Benefit Plans
Stock Option Plans (the Plans):
F-13
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, 2000, there were a total of 2,456,877 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, 2000 there were 2,622,573
options granted and outstanding, and an additional 1,506,059 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: 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, 2000:
----------------------------------------------
Outstanding
----------------------------------------------
Weighted
Average Average
Exercise Remaining Exercise
Price Range Shares Life Price
-----------------------------------------------------------------
$ 1.00 1,095,430 7.1 $ 1.00
5.00 362,927 8.0 5.00
6.67 502,480 8.3 6.67
9.44 - 11.00 492,950 8.6 10.87
11.19 - 15.00 1,057,590 8.9 15.20
16.00 - 19.25 316,163 9.8 19.12
20.56 - 49.88 127,300 9.5 41.66
50.06 - 76.19 179,550 9.4 59.49
81.31 - 96.81 831,960 9.1 84.23
106.75 - 140.00 113,100 9.2 114.46
---------------
5,079,450 9.1 $ 25.53
===============
F-14
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, 1998 1,114,000 $ 1.00
Granted at fair value 460,650 3.09
Granted below fair value 197,000 1.00
Forfeited or terminated (96,450) 1.03
-----------------
Balance December 31, 1998 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
=================
At December 31, 2000, 1,506,059 shares of common stock were reserved for
issuance under future stock option exercises.
Accounting for Stock-Based Compensation:
The per share weighted average fair value of the options granted during
2000, 1999 and 1998 was $41.65, $7.19 and $0.58, 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 5.0% to 6.7% in 2000, 5.1% to 6.3% in 1999 and
4.5% to 5.6% in 1998. An expected life of 5 years was assumed for each
year. Expected volatility of 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:
F-15
Year Ended
-------------------------------------------------------------
December 31, 2000 December 31, 1999 December 31, 1998
------------------- ----------------- -----------------
Net loss, as reported $ (86,241,899) $ (33,469,312) $ (9,615,963)
Proforma net loss (122,667,062) (34,716,991) (9,775,441)
Proforma loss per
share, basic and
diluted $ (2.83) $ (1.32) $ (0.72)
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, $126,800 and $212,000 for
the years ended December 31, 2000, 1999 and 1998, 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. After the initial period, purchases will 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.
The first offering period under the plan began on July 1, 2000 and ended
on December 31, 2000. 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.
As of December 31, 2000, the Company has issued 32,717 shares under the
Plan.
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 four years of service. The Company's expense for this
plan was $517,000, $224,000 and $95,000 for years ended December 31, 2000,
1999 and 1998, respectively.
F-16
11. 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 June 27, 1997, the Company entered into a management services agreement
with MTI to obtain certain services and lease certain facilities for a
period of one year. At the expiration of this agreement, the Company
extended the existing facilities lease through September 30, 1998. In June
1998, the Company entered into a new facilities lease which commenced on
October 1, 1998, and had a term of ten years with an option for an
additional five years. Rental expense was $231,000 and $378,000 for the
years ended December 31, 1999 and 1998, respectively. As part of the new
facilities lease, MTI agreed to reimburse the Company up to $2.0 million
for improvements made to the Company's facilities. This lease and the
management agreement with MTI have been terminated.
In 1999, the Company entered into a purchase agreement with MTI to acquire
approximately 36 acres of land, two commercial buildings and a residential
building located in Latham, New York in exchange for 704,315 shares of
common stock. In connection with the transaction with MTI, the Company has
written off deferred rent expense in the amount of $1,850,000 relating to
a 10-year facilities lease associated with the property. Simultaneous with
the closing, the Company agreed to lease back to MTI certain office and
manufacturing space on a short-term basis through November, 1999.
12. Investment in Affiliates
In February 1999, the Company entered into an agreement with GE MicroGen,
Inc. (formerly GE On-Site Power, Inc.), a wholly owned subsidiary of
General Electric Co., to create GE Fuel Cell Systems, L.L.C. (GEFCS) a
limited liability company created to market and distribute fuel cell
systems world-wide. GE MicroGen, Inc. owns 75% of GEFCS and the Company
owns 25% of GEFCS. The Company accounts for its interest in GEFCS on the
equity method of accounting and adjusts its investment by its
proportionate share of income or losses under the caption "Equity in
losses of affiliates." GEFCS had revenues (fee income) of approximately
$1.4 million for the year ended December 31, 2000 and an operating and net
loss of approximately $2.3 million for the year ended December 31, 2000.
In connection with the formation of GEFCS, we issued 2,250,000 shares of
our common stock to GE MicroGen. As of the date of issuance of such
shares, we capitalized $11.3 million, the fair value of the shares issued,
under the balance sheet caption "Investment in affiliates". 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. For the years ended December 31, 2000 and 1999, equity in
losses of affiliates was $1,690,146 and $1,471,750 including goodwill
amortization of $1,125,000 and $1,031,250, respectively.
As part of the agreement, the Company will work closely with General
Electric's Corporate Research and Development Center for product
development and manufacturing support. GEFCS will market, sell, install
and service fuel cells systems, designed and manufactured by the Company,
world-wide (with the exception of EDC's exclusive four state territory of
Michigan, Ohio, Indiana and Illinois) for residential and small business
power applications up to 35kW. During 2000, the Company completed an
amendment to its distribution agreement with GEFCS
F-17
that defines product specifications and delivery schedules for
pre-commercial and commercial model introductions. The new agreement
allows General Electric to extend the existing 10-year agreement by an
additional 5 years.
The Company has agreed to purchase at least $7.5 million of technical
support services over the next two years.
In March 2000, the Company acquired a 28% ownership interest in Advanced
Energy Incorporated (AEI), (formerly Advanced Energy Systems, Inc.), in
exchange for a combination of $1.5 million cash and Plug Power common
stock valued at approximately $828,000. The Company accounts for its
interest in AEI on the equity method of accounting and adjusts its
investment by its proportionate share of income or losses. For the year
ended December 31, 2000, AEI had sales of approximately $2.1 million and
an operating and net loss of approximately $692,000. For this same period,
the Company has recorded equity in losses of affiliate of approximately
$637,070 including goodwill amortization of $443,194 representing
amortization of the difference between the amount capitalized and the
amount of the underlying equity in net assets of AEI.
13. Commitments and Contingencies
Litigation:
The Company has disclosed on a Form 8-K filed January 25, 2000, with the
Securities and Exchange Commission, that a legal complaint was filed
against the Company, The Detroit Edison Company and EDC alleging the
entities misappropriated business and technical trade secrets, ideas,
know-how and strategies relating to fuel cell systems and breached certain
contractual obligations owed to DCT, Inc. The Company believes that the
allegations in the complaint are without merit and is vigorously
contesting the litigation. The Company does not believe that the outcome
of these actions will have a material adverse effect upon its financial
position, results of operations or liquidity; however, litigation is
inherently uncertain and there can be no assurances as to the ultimate
outcome or effect of this action.
On or about September 14, 2000, a shareholder class action complaint was
filed in the federal district court for the Eastern District of New York
alleging that the Company and various of its officers and directors
violated certain federal securities laws by failing to disclose certain
information concerning its products and future prospects. The action was
brought on behalf of a class of purchasers of the Company's stock who
purchased the stock between February 14, 2000 and August 2, 2000.
Subsequently, fourteen additional complaints with similar allegations and
class periods were filed. By order dated October 30, 2000, the court
consolidated the complaints into one action, entitled Plug Power Inc.
Securities Litigation, CV-00-5553(ERK)(RML). By order dated January 25,
2001, the Court appointed lead plaintiffs and lead plaintiffs' counsel.
Subsequently, the plaintiffs served a consolidated amended complaint. The
consolidated amended complaint extends the class period to begin on
October 29, 1999, and alleges claims under Sectons 11, 12 and 15 of the
Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act of
1934, and Rule 10b-5 promulgated thereunder by the Securities & Exchange
Commission, 17 C.F.R. 240 10b-5. Plaintiffs allege that the defendants
made misleading statements and omissions regarding the state of
development of the Company's technology in a registration statement and
proxy statement issued in connection with the Company's initial public
offering and in subsequent press releases. The Company believes that the
allegations in the consolidated amended complaint are without merit and
intend to vigorously defend against the claims. The Company does not
believe that the outcome of these actions will have a material adverse
effect upon its financial position, results of operations or liquidity,
however, litigation is inherently uncertain and there can be no assurances
as to the ultimate outcome or effect of these actions.
Alliances and development agreements:
Gastec: In February 2000, Plug Power acquired all of Gastec's intellectual
property, and certain fixed assets, related to fuel processor development
for fuel cell systems capable of producing up to 100 kW of electricity.
The total purchase price was $14,800,000, paid in cash. In connection with
the transaction, the Company recorded in-process research and development
expense in the amount
F-18
of $4,984,000, fixed assets in the amount of $192,000 and intangible
assets in the amount of $9,624,000 (including a trained workforce for
$357,000).
The in-process research and development was valued using an income
approach which reflects the present value of future avoided costs the
Company estimates it would otherwise have spent if it were to acquire the
exclusive rights to this technology, for its remaining useful life, from
another entity. The Company then discounted the net avoided cost using a
40% discount rate which the Company believes to be consistent with the
risk associated this early stage technology. This amount was further
adjusted to reflect the technology's stage of completion, of approximately
30%, in order to reflect the value of the in-process research and
development attributable to the efforts of the seller up to the date of
the transaction. Fixed assets were capitalized at their fair value and
will be depreciated over their useful life. In connection with the
transaction, the Company acquired the services of employees experienced in
the fuel cell industry. Accordingly, the Company has capitalized the
estimated cost savings associated with recruiting, relocating and training
a similar workforce. The remaining $9,267,000 was capitalized as an
intangible asset. This amount together with the value attributable to the
trained workforce has been capitalized and is being amortized over 36
months. Through December 31, 2000, the Company has expensed $2.8 million
related to amortization of the intangible asset and the trained workforce.
Vaillant: In March 2000, the Company finalized a development agreement
with Vaillant Gmbh of Remscheid, Germany (Vaillant), one of Europe's
leading heating appliance manufacturers, 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 produce the fuel
cell heating appliances for its customers in Germany, Austria, Switzerland
and the Netherlands.
Celanese: In April, 2000, the Company finalized a joint development
agreement with Celanese GmbH (formerly AXIVA GmbH), to develop a high
temperature membrane electrode unit (MEU). Under the agreement, Plug Power
and Celanese will exclusively work together on the development of a high
temperature MEU for Plug Power's stationary fuel cell system applications.
As part of the agreement Plug Power will contribute an estimated $4.1
million (not to exceed $4.5 million) to fund its share of the development
efforts over the next twelve months. As of December 31, 2000, the Company
has contributed $1.5 million under the terms of the agreement. In
connection with the transaction, the Company has recorded $1.5 million
under the balance sheet caption "Prepaid development costs." Through
December 31, 2000, the Company has expensed $1.1 million of such costs.
Engelhard: In June 2000, the Company finalized a joint development
agreement with Engelhard Corporation for development and supply of
advanced catalysts to increase the overall 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 purchase $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.
As of December 31, 2000, the Company has contributed $5 million under the
terms of the agreement while Engelhard has purchased $5 million of common
stock. In connection with the transaction, the Company has recorded $5
million under the balance sheet caption "Prepaid development costs" and
through December 31, 2000, the Company has expensed $820,000 of such
costs.
F-19
Concentrations of credit risk:
The Company has cash deposits in excess of federally insured limits. The
amount of such deposits is approximately $10.2 million at December 31,
2000.
Capital 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,
2000 and 1999 of $135,830 and $195,205 respectively, and which is included
in machinery and equipment.
Future minimum non-cancelable lease payments are as follows:
2001 $ 94,280
2002 26,763
2003 4,921
-------------
125,964
Less amounts representing interest (8,417)
-------------
$ 117,547
=============
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*
--------------------------------------------------------------------------------
December 31, March 31, June 30, September 30, December 31,
1999 2000 2000 2000 2000
------------ ---------- --------- ------------- ------------
Contract revenue $ 4,299 $ 2,933 $ 2,418 $ 1,548 $ 1,479
Loss on contracts (1,349) (966) (1,074) (1,074) (1,143)
Net loss (8,602) (17,246) (18,033) (28,650) (22,313)
Loss per share:
Basic and diluted (0.23) (0.40) (0.42) (0.66) (0.51)
* since the Company's initial public offering on November 3, 1999
F-20