PLUG POWER INC - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - PLUG POWER INC	plug-20170331ex311976efc.htm
EX-32.2 - EX-32.2 - PLUG POWER INC	plug-20170331ex322af7cea.htm
EX-32.1 - EX-32.1 - PLUG POWER INC	plug-20170331ex3216f2f08.htm
EX-31.2 - EX-31.2 - PLUG POWER INC	plug-20170331ex312e2e425.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 1-34392

PLUG POWER INC.

(Exact name of registrant as specified in its charter)


Delaware		22-3672377
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

(Do not check if a smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock, par value of $.01 per share, outstanding as of May 9, 2017 was 223,453,239.

Table of Contents

INDEX to FORM 10-Q

	Page

PART I. FINANCIAL INFORMATION

Item 1 – Interim Consolidated Financial Statements (Unaudited)	3

Consolidated Balance Sheets	3

Consolidated Statements of Operations	4

Consolidated Statements of Comprehensive Loss	5

Consolidated Statement of Stockholders’ Equity	6

Consolidated Statements of Cash Flows	7

Notes to Interim Consolidated Financial Statements	8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	31

Item 4 – Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1 – Legal Proceedings	32

Item 1A – Risk Factors	32

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3 – Defaults Upon Senior Securities	33

Item 4 – Mine Safety Disclosures	33

Item 5 – Other Information	33

Item 6 – Exhibits	34

Signatures	36

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1 — Interim Financial Statements (Unaudited)

Plug Power Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)


	March 31,		December 31,
	2017		2016
Assets
Current assets:
Cash and cash equivalents	$	11,765	$	46,014
Restricted cash		14,828		11,219
Accounts receivable		6,902		11,923
Inventory		33,726		29,940
Prepaid expenses and other current assets		10,363		11,837
Total current assets		77,584		110,933

Restricted cash		39,060		43,403
Property, plant, and equipment, net of accumulated depreciation of $30,129 and $29,666, respectively		8,086		8,246
Leased property, net of accumulated depreciation of $6,083 and $4,544, respectively		61,857		54,060
Goodwill		8,422		8,291
Intangible assets, net of accumulated amortization of $1,185 and $1,032, respectively		3,844		3,933
Other assets		11,871		11,966
Total assets	$	210,724	$	240,832

Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity
Current liabilities:
Accounts payable	$	27,046	$	32,112
Accrued expenses		6,497		8,519
Accrual for loss contracts related to service		—		752
Deferred revenue		4,777		5,736
Finance obligations		21,716		14,787
Current portion of long-term debt		5,971		2,964
Other current liabilities		1,128		1,615
Total current liabilities		67,135		66,485
Deferred revenue		17,050		17,413
Common stock warrant liability		13,667		11,387
Finance obligations		25,114		29,767
Long-term debt		17,873		20,829
Other liabilities		245		241
Total liabilities		141,084		146,122
Redeemable preferred stock
Series C redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $16,664); 10,431 shares authorized; Issued and outstanding: 5,231 at March 31, 2017 and December 31, 2016		1,153		1,153
Series D redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $14,800 at March 31, 2017 and $18,500 at December 31, 2016); 5,000,000 shares authorized; Issued and outstanding: 14,800 at March 31, 2017 and 18,500 at December 31, 2016		7,778		8,469
Stockholders’ equity:
Common stock, $0.01 par value per share; 450,000,000 shares authorized; Issued (including shares in treasury): 191,780,048 at March 31, 2017 and 191,723,974 at December 31, 2016		1,918		1,917
Additional paid-in capital		1,139,956		1,137,482
Accumulated other comprehensive income		467		247
Accumulated deficit		(1,078,541)		(1,051,467)
Less common stock in treasury: 582,328 at March 31, 2017 and December 31, 2016		(3,091)		(3,091)
Total stockholders’ equity		60,709		85,088
Total liabilities, redeemable preferred stock, and stockholders’ equity	$	210,724	$	240,832

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Table of Contents

Plug Power Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)


	Three months ended
	March 31,
	2017		2016
Revenue:
Sales of fuel cell systems and related infrastructure	$	2,197	$	5,218
Services performed on fuel cell systems and related infrastructure		5,149		5,273
Power Purchase Agreements		4,311		2,706
Fuel delivered to customers		3,491		2,010
Other		87		125
Total revenue		15,235		15,332
Cost of revenue:
Sales of fuel cell systems and related infrastructure		2,286		3,898
Services performed on fuel cell systems and related infrastructure		6,566		5,783
Power Purchase Agreements		6,615		2,881
Fuel delivered to customers		4,149		2,411
Other		98		189
Total cost of revenue		19,714		15,162

Gross (loss) profit		(4,479)		170

Operating expenses:
Research and development		5,998		4,830
Selling, general and administrative		9,145		8,290
Total operating expenses		15,143		13,120

Operating loss		(19,622)		(12,950)

Interest and other expense, net		(2,137)		(474)
Change in fair value of common stock warrant liability		(2,280)		1,278

Loss before income taxes	$	(24,039)	$	(12,146)

Income tax benefit		—		392

Net loss attributable to the Company	$	(24,039)	$	(11,754)

Preferred stock dividends declared		(26)		(26)
Net loss attributable to common shareholders	$	(24,065)	$	(11,780)
Net loss per share:
Basic and diluted	$	(0.13)	$	(0.07)
Weighted average number of common shares outstanding		191,185,690		180,125,763

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Table of Contents

Plug Power Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)


	Three months ended
	March 31,
	2017		2016

Net loss attributable to the Company	$	(24,039)	$	(11,754)
Other comprehensive income - foreign currency translation adjustment		220		583
Comprehensive loss	$	(23,819)	$	(11,171)

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Table of Contents

Plug Power Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


						Accumulated
				Additional		Other								Total
	Common Stock			Paid-in		Comprehensive		Treasury Stock				Accumulated		Stockholders’
	Shares	Amount		Capital		Income		Shares		Amount		Deficit		Equity
December 31, 2016	191,723,974	$	1,917	$	1,137,482	$	247		582,328	$	(3,091)	$	(1,051,467)	$	85,088
Net loss attributable to the Company	—		—		—		—		—		—		(24,039)		(24,039)
Other comprehensive income	—		—		—		220		—		—		—		220
Stock-based compensation	43,438		1		2,461		—		—		—		—		2,462
Stock dividend	12,636		—		13		—		—		—		(26)		(13)
Accretion of discount	—		—		—		—		—		—		(3,009)		(3,009)
March 31, 2017	191,780,048	$	1,918	$	1,139,956	$	467		582,328	$	(3,091)	$	(1,078,541)	$	60,709

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Table of Contents

Plug Power Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three months ended
	March 31,
	2017		2016
Cash Flows From Operating Activities:
Net loss attributable to the Company	$	(24,039)	$	(11,754)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment, and leased property		2,002		571
Amortization of intangible assets		143		145
Stock-based compensation		2,462		2,217
Amortization of debt issuance costs		147		—
Change in fair value of common stock warrant liability		2,280		(1,278)
Changes in operating assets and liabilities that provide (use) cash:
Accounts receivable		5,021		11,966
Inventory		(3,786)		(6,398)
Prepaid expenses and other assets		1,569		(1,816)
Accounts payable, accrued expenses, and other liabilities		(7,584)		2,423
Accrual for loss contracts related to service		(752)		(1,748)
Deferred revenue		(1,322)		(1,244)
Net cash used in operating activities		(23,859)		(6,916)
Cash Flows From Investing Activities:
Purchases of property, plant and equipment		(303)		(1,889)
Purchases for construction of leased property		(9,336)		(11,747)
Net cash used in investing activities		(9,639)		(13,636)
Cash Flows From Financing Activities:
Change in restricted cash		734		(31)
Proceeds from exercise of warrants		—		109
Payments for redemption of preferred stock		(3,700)		—
Proceeds from short-term borrowing, net of transaction costs		—		23,874
Principal payments on long-term debt		(50)		—
Increase (decrease) in finance obligations		2,230		(556)
Net cash (used in) provided by financing activities		(786)		23,396
Effect of exchange rate changes on cash		35		77
(Decrease) increase in cash and cash equivalents		(34,249)		2,921
Cash and cash equivalents, beginning of period		46,014		63,961
Cash and cash equivalents, end of period	$	11,765	$	66,882
Other Supplemental Cash Flow Information:
Cash paid for interest	$	1,902	$	232

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited)

1. Nature of Operations

Description of Business

Plug Power Inc., or the Company, is a leading provider of alternative energy technology focused on the design, development, commercialization and manufacture of hydrogen fuel cell systems used primarily for the material handling and stationary power market.

We are focused on proton exchange membrane, or PEM, fuel cell and fuel processing technologies, fuel cell/battery hybrid technologies, and associated hydrogen storage and dispensing infrastructure from which multiple products are available. A fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion. Hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas, or LPG, natural gas, propane, methanol, ethanol, gasoline or biofuels. Plug Power develops complete hydrogen delivery, storage and refueling solutions for customer locations. Hydrogen can also be obtained from the electrolysis of water, or produced on‑site at consumer locations through a process known as reformation. Currently the Company obtains hydrogen by purchasing it from fuel suppliers for resale to customers.

We provide and continue to develop commercially-viable hydrogen and fuel cell product solutions to replace lead‑acid batteries in material handling vehicles and industrial trucks for some of the world’s largest distribution and manufacturing businesses. We are focusing our efforts on industrial mobility applications (forklifts and electric industrial vehicles) at multi‑shift high volume manufacturing and high throughput distribution sites where our products and services provide a unique combination of productivity, flexibility and environmental benefits. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products prove valuable with telecommunications, transportation and utility customers as robust, reliable and sustainable power solutions. Our current products and services include:

GenDrive: GenDrive is our hydrogen fueled PEM fuel cell system providing power to material handling vehicles;

GenFuel: GenFuel is our hydrogen fueling delivery system;

GenCare: GenCare is our ongoing maintenance program for GenDrive fuel cells, GenSure products and GenFuel products;

GenSure: GenSure (formerly ReliOn) is our stationary fuel cell solution providing scalable, modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors;

GenKey: GenKey is our turn-key solution combining either GenDrive or GenSure with GenFuel and GenCare, offering complete simplicity to customers transitioning to fuel cell power;

ProGen: ProGen is our fuel cell engine technology, under development for use in mobility and stationary fuel cell systems; and

GenFund: GenFund is a collaboration with leasing organizations to provide cost efficient and seamless financing solutions to customers.

We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers, or OEMs, and their dealer networks.

We were organized as a corporation in the State of Delaware on June 27, 1997.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

Unless the context indicates otherwise, the terms “Company,” “Plug Power,” “we,” “our” or “us” as used herein refers to Plug Power Inc. and its subsidiaries.

Liquidity

Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses, growth in inventory to support both shipments of new units and servicing the installed base, growth in equipment leased to customers under long-term arrangements, funding the growth in our GenKey “turn-key” solution, which includes the installation of our customers’ hydrogen infrastructure as well as delivery of the hydrogen fuel, continued development and expansion of our products, payment of lease obligations under sale/leaseback financings, and the repayment or refinancing of our long-term debt. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments; attaining and expanding positive gross margins across all product lines; the timing and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of building a sales base; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers and to repay or refinance our long-term debt, and the terms of such agreements that may require us to pledge or restrict substantial amounts of our cash to support these financing arrangements; the timing and costs of developing marketing and distribution channels; the timing and costs of product service requirements; the timing and costs of hiring and training product staff; the extent to which our products gain market acceptance; the timing and costs of product development and introductions; the extent of our ongoing and new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations with positive cash flows and cannot obtain external financing, we may not be able to sustain future operations. As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.

We have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common shareholders of $24.1 million for the three months ended March 31, 2017 and $57.6 million, $55.8 million, and $88.6 million for the years ended December 31, 2016, 2015, and 2014, respectively, and has an accumulated deficit of $1.1 billion at March 31, 2017.

During the three months ended March 31, 2017, cash used in operating activities was $23.9 million, consisting primarily of a net loss attributable to the Company of $24.0 million and net outflows from fluctuations in working capital and other assets and liabilities of $6.9 million, offset by the impact of noncash charges/gains of $7.0 million. The changes in working capital primarily were related to collections of accounts receivable, offset by building of inventory and management of accounts payable. As of March 31, 2017, we had cash and cash equivalents of $11.8 million and net working capital of $10.4 million. By comparison, at December 31, 2016, we had cash and cash equivalents of $46.0 million and net working capital of $44.4 million.

Net cash used in investing activities for the three months ended March 31, 2017, totaled $9.6 million and included purchases of property, plant and equipment and outflows associated with materials, labor, and overhead necessary to construct new leased property. Cash outflows related to equipment that we sell and equipment we lease directly to customers are included in net cash used in operating activities and net cash used in investing activities, respectively. Net cash used in financing activities for the three months ended March 31, 2017 primarily resulted from redemption of Series D redeemable preferred stock, offset by increases in finance obligations and a decrease in restricted cash. During April 2017, the Company raised $18.2 million pursuant to an At Market Issuance Sales Agreement, as discussed in Note 12, Subsequent Events. Also during April 2017, the Company received proceeds of $18.4 million pursuant to the exercise of warrants, as discussed in Note 12, Subsequent Events.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

is used to make lease payments. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements was $41.2 million, which has been fully secured with restricted cash and pledged service escrows.

We have historically funded our operations primarily through public and private offerings of common and preferred stock, as well as short-term borrowings, long-term debt and project financing. The Company believes that its current working capital and cash anticipated to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity offerings, will provide sufficient liquidity to fund operations for at least one year after the date that the financial statements are issued. There is no guarantee that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on our current expectations regarding new project financing and product sales and service, cost structure, cash burn rate and other operating assumptions.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited interim consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Interim Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with U.S. generally accepted accounting principles (GAAP), the financial position, results of operations and cash flows for all periods presented, have been made. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, filed for the fiscal year ended December 31, 2016.

The information presented in the accompanying unaudited interim consolidated balance sheet as of December 31, 2016 has been derived from the Company’s December 31, 2016 audited consolidated financial statements. All other information has been derived from the unaudited interim consolidated financial statements of the Company.

Revenue Recognition

The Company recognizes revenue under arrangements for products and services, which may include the sale of products and related services, including revenue from installation, service and maintenance, spare parts, hydrogen fueling services (which may include hydrogen supply as well as hydrogen fueling infrastructure) and leased units. The Company also recognizes revenue under research and development contracts, which are primarily cost reimbursement contracts associated with the development of PEM fuel cell technology.

The Company enters into revenue arrangements that may contain a combination of fuel cell systems and infrastructure, installation, service, maintenance, spare parts, and other support services. Revenue arrangements containing fuel cell systems and related infrastructure may be sold, or provided to customers under a PPA.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

Sales of and Services Performed on Fuel Cell Systems and Related Infrastructure

When sold to customers, the Company accounts for each separate deliverable of these multiple deliverable arrangements as a separate unit of accounting if the delivered item or items have value to the customer on a standalone basis. The Company considers a deliverable to have standalone value if the item is sold separately by us or another entity or if the item could be resold by the customer. The Company allocates revenue to each separate deliverable based on its relative selling price. For a majority of our deliverables, the Company determines relative selling prices using its best estimate of the selling price since vendor-specific objective evidence and third-party evidence is generally not available for the deliverables involved in its revenue arrangements due to a lack of a competitive environment in selling fuel cell technology. When determining estimated selling prices, the Company considers the cost to produce the deliverable, a reasonable gross margin on that deliverable, the selling price and profit margin for similar products and services, the Company’s ongoing pricing strategy and policies, the value of any enhancements that have been built into the deliverable and the characteristics of the varying markets in which the deliverable is sold, as applicable. The Company determines estimated selling prices for deliverables in its arrangements based on the specific facts and circumstances of each arrangement and analyzes the estimated selling prices used for its allocation of consideration of each arrangement.

Once relative selling prices are determined, the Company proportionately allocates the sale consideration to each element of the arrangement. The allocated sales consideration related to fuel cell systems and infrastructure, spare parts, and hydrogen infrastructure is recognized as revenue at shipment if title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured, and customer acceptance criteria, if any, have been successfully demonstrated. The allocated sales consideration related to service and maintenance is generally recognized as revenue on a straight-line basis over the term of the contract, as appropriate.

For those customers who do not purchase an extended maintenance contract, the Company does not include a right of return on its products other than rights related to standard warranty provisions that permit repair or replacement of defective goods. The Company accrues for anticipated standard warranty costs at the same time that revenue is recognized for the related product. Only a limited number of fuel cell units are under standard warranty.

In a vast majority of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five to ten year warranty from the date of product installation. These types of contracts are accounted for as a separate deliverable, and accordingly, revenue generated from these transactions is deferred and recognized in income over the warranty period, generally on a straight-line basis. Additionally, the Company may enter into annual service and extended maintenance contracts that are billed monthly. Revenue generated from these transactions is recognized in income on a straight-line basis over the term of the contract. Costs are recognized as incurred over the term of the contract. When costs are projected to exceed revenues on the life of the contract, an accrual for loss contracts is recorded. Costs are estimated based upon historical experience, contractual agreements and the estimated impact of the Company’s cost reduction initiatives. The actual results may differ from these estimates.

Power Purchase Agreements

When fuel cell systems and related infrastructure are provided to customers through a PPA, revenues associated with these agreements are treated as rental income and recognized on a straight-line basis over the life of the agreements. In conjunction with entering into a PPA with a customer, the Company may enter into sale/leaseback transactions with third-party financial institutions, whereby the fuel cells, related infrastructure, and service are sold to the third-party financial institution and leased back to the Company through either an operating or capital lease.

During 2017 and 2016, the Company’s sale/leaseback transactions with third-party financial institutions were required to be accounted for as capital leases under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 840-40, Leases – Sale/Leaseback Transactions (ASC Subtopic 840-40). As a result, no upfront revenue was recognized at the closing of these transactions and a finance obligation for each lease was established. The fuel cell systems and related infrastructure that are provided to customers through these PPAs are considered leased

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

property on the accompanying unaudited interim consolidated balance sheet. Costs to service the leased property are considered cost of PPA revenue on the accompanying unaudited interim consolidated statement of operations.

All PPAs entered into through December 31, 2015 had a corresponding sale-leaseback transaction with a third-party financial institution, which was required to be accounted for as an operating lease. The Company accounts for sale/leaseback transactions as operating leases in accordance with ASC Subtopic 840-40. The Company has rental expense associated with sale/leaseback agreements with financial institutions that were entered into commensurate with the PPAs. Rental expense is recognized on a straight-line basis over the life of the agreements and is characterized as cost of PPA revenue on the accompanying unaudited interim consolidated statement of operations.

Fuel Delivered to Customers

The Company purchases hydrogen fuel from suppliers and sells to its customers upon delivery. Revenue and cost of revenue related to this fuel is recorded as dispensed, and included in the respective “Fuel delivered to customers” lines on the unaudited interim consolidated statements of operations.

Research and Development Contracts

Contract accounting is used for research and development contract revenue. The Company generally shares in the cost of these programs with cost sharing percentages ranging from 30% to 50% of total project costs. Revenue from time and material contracts is recognized on the basis of hours expended plus other reimbursable contract costs incurred during the period and is included within the “other” revenue line on the consolidated statement of operations. All allowable work performed through the end of each calendar quarter is billed, subject to limitations in the respective contracts.

Cash Equivalents

Cash equivalents consist of money market accounts with an initial term of less than three months. At March 31, 2017 and December 31, 2016, cash equivalents consist of money market accounts. For purposes of the unaudited interim consolidated statements of cash flows, the Company considers all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company’s cash and cash equivalents are deposited with financial institutions located in the U.S. and may at times exceed insured limits.

Common Stock Warrant Accounting

The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in ASC Subtopic 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. In compliance with applicable securities law, registered common stock warrants that require the issuance of registered shares upon exercise and do not sufficiently preclude an implied right to cash settlement are accounted for as derivative liabilities. We currently classify these derivative warrant liabilities on the accompanying unaudited interim consolidated balance sheets as a long-term liability, which is revalued at each balance sheet date subsequent to the initial issuance using the Black-Scholes pricing model. The Black-Scholes pricing model, which is based, in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions. Changes in the fair value of the warrants are reflected in the accompanying unaudited interim consolidated statements of operations as change in fair value of common stock warrant liability.

Use of Estimates

The unaudited interim consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

interim consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Reclassifications are made, whenever necessary, to prior period financial statements to conform to the current period presentation. These reclassifications did not have a net impact the results of operations or net cash flows in the periods presented.

Recent Accounting Pronouncements

In January 2017, an accounting update was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This accounting update is effective for years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact this update will have on the consolidated financial statements.

In November 2016, an accounting update was issued to reduce the existing diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. This accounting update is effective for years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact this update will have on the consolidated financial statements.

In October 2016, an accounting update was issued to simplify how an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples of assets included in the scope of this update are intellectual property and property, plant, and equipment. This accounting update is effective for the annual periods beginning after December 15, 2017 and interim periods within those years. The Company is evaluating the impact this update will have on the consolidated financial statements.

In August 2016, an accounting update was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This accounting update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact this update will have on the consolidated financial statements.

In February 2016, an accounting update was issued which requires balance sheet recognition for operating leases, among other changes to previous lease guidance. This accounting update is effective for fiscal years beginning after December 15, 2018. The Company is evaluating the impact this update will have on the consolidated financial statements.

In June 2014, an accounting update was issued that replaces the existing revenue recognition framework regarding contracts with customers. In July 2015, the FASB announced a one year delay in the required adoption date from January 1, 2017 to January 1, 2018. The Company has established an internal implementation team to oversee the adoption of the new standard. To date the Company has identified relevant arrangements and performance obligations and is assessing the impact of the new guidance. Evaluation is ongoing and it is too early to provide an assessment of the impact. The Company anticipates providing information about the impacts of adoption in the coming quarters. The Company is also evaluating whether to adopt the guidance using the full or modified retrospective basis, and will likely make that determination during the first half of 2017.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

3. Earnings Per Share

Basic earnings per common share are computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options, unvested restricted stock, common stock warrants, and preferred stock) were exercised or converted into common stock or resulted in the issuance of common stock (net of any assumed repurchases) that then shared in the earnings of the Company, if any. This is computed by dividing net earnings by the combination of dilutive common share equivalents, which is comprised of shares issuable under outstanding warrants, the conversion of preferred stock, and the Company’s share-based compensation plans, and the weighted average number of common shares outstanding during the reporting period. Since the Company is in a net loss position, all common stock equivalents would be considered to be anti-dilutive and are, therefore, not included in the determination of diluted earnings per share. Accordingly, basic and diluted loss per share are the same.

The dilutive potential common shares are summarized as follows:


	At March 31,
	2017	2016
Stock options outstanding (1)	14,857,592	11,693,286
Restricted stock outstanding	13,333	204,444
Common stock warrants (2)	14,501,600	4,074,288
Preferred stock (3)	15,102,981	5,554,594
Number of dilutive potential common shares	44,475,506	21,526,612

(1)

During the three months ended March 31, 2017 and 2016, the Company granted 136,352 and 15,000 stock options, respectively.

(2)

In May 2011, the Company issued 7,128,563 warrants as part of an underwritten public offering with an exercise price of $0.93 per warrant. As a result of additional public offerings, and pursuant to the effect of the anti-dilution provisions of these warrants, the number of warrants increased to 22,995,365. Of these warrants issued in May 2011, zero and 74,188 were unexercised as of March 31, 2017 and 2016, respectively.

In February 2013, the Company issued 23,637,500 warrants as part of an underwritten public offering with an exercise price of $0.15 per warrant. Of these warrants issued in February 2013, 100 were unexercised as of March 31, 2017 and 2016.

In January 2014, the Company issued 4,000,000 warrants as part of an underwritten public offering with an exercise price of $4.00 per warrant. In December 2016, as a result of additional public offerings, and pursuant to the effect of the anti-dilution provisions of these warrants, the exercise price of the $4.00 warrants was reduced to $0.65. Of these warrants issued in January 2014, none have been exercised as of March 31, 2017 and 2016. During April 2017, all 4,000,000 warrants were exercised, as discussed in Note 12, Subsequent Events.

In December 2016, the Company issued 10,501,500 warrants as part of two concurrent underwritten public offerings with an exercise price of $1.50 per warrant. Of these warrants issued in December 2016, none have been exercised as of March 31, 2017. During April 2017, all 10,501,500 warrants were exercised, as discussed in Note 12, Subsequent Events.

(3)

The preferred stock amount represents the dilutive potential common shares of the Series C and D redeemable convertible preferred stock, based on the conversion price of the preferred stock as of March 31, 2017 and 2016, respectively. Of the 10,431 Series C redeemable preferred stock issued in May 16, 2013, 5,200 had been converted to common stock during the year ended December 31, 2013, with the remainder still outstanding. Of the 18,500 Series D redeemable convertible preferred stock issued on December 22, 2016, 3,700 shares have been redeemed

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

during the three months ended March 31, 2017, with the remainder still outstanding. During April 2017, all of the outstanding shares were converted, as discussed in Note 12, Subsequent Events.

4. Inventory

Inventory as of March 31, 2017 and December 31, 2016 consists of the following (in thousands):


	March 31, 2017		December 31, 2016
Raw materials and supplies	$	27,507	$	26,298
Work-in-process		3,884		1,865
Finished goods		2,335		1,777
	$	33,726	$	29,940

Raw materials and supplies includes spare parts inventory held at service locations valued at approximately $3.6 million and $3.3 million as of March 31, 2017 and December 31, 2016, respectively.

5. Leased Property

Leased property at March 31, 2017 and December 31, 2016 consists of the following (in thousands):


	March 31,		December 31,
	2017		2016
Leased property	$	67,940	$	58,604
Less: accumulated depreciation		(6,083)		(4,544)
Leased property, net	$	61,857	$	54,060

Depreciation expense related to leased property was $1.5 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively.

6. Long-Term Debt

NY Green Bank Loan

On December 23, 2016, the Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc. entered into a loan and security agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority (NY Green Bank), pursuant to which NY Green Bank made available to the Company a secured term loan facility in the amount of $25.0 million (Term Loan Facility), subject to certain terms and conditions. The Company borrowed $25.0 million upon closing and incurred costs of $1.2 million. At March 31, 2017, the outstanding principal balance under the Term Loan Facility was $25.0 million. The fair value of the Term Loan Facility approximates the carrying value as of March 31, 2017.

Advances under the Term Loan Facility bear interest at a rate equal to the sum of (i) the LIBOR rate for the applicable interest period, plus (ii) the credit default swap index coupon for the applicable interest period, plus (iii) 6.00% per annum. The interest rate at March 31, 2017 was approximately 11.3%. The term of the loan is three years, with a maturity date of December 23, 2019. Estimated principal payments will approximately be $3.0 million, $8.4 million, and $13.6 million during the years ended December 31, 2017, 2018, and 2019, respectively. These payments will be funded by restricted cash released, as described in Note 11, Commitments and Contingencies.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

if the Company is unable to meet certain goals related to the deployment of fuel cell systems in the State of New York and increasing the Company’s number of full-time employees in the State of New York.

The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.

The Term Loan Facility contains covenants, including, among others, (i) the provision of annual and quarterly financial statements, management rights and insurance policies and (ii) restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales. The Term Loan Facility also provides for events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control, judgment and material adverse effect defaults at the discretion of the lender.

The Term Loan Facility provides that if there is an event of default due to the Company’s insolvency or if the Company fails to perform, in any material respect, the servicing requirements for fuel cell systems under certain customer agreements, which failure would entitle the customer to terminate such customer agreement, replace the Company or withhold the payment of any material amount to the Company under such customer agreement, then the NY Green Bank has the right to cause a wholly owned subsidiary of the Company to replace the Company in performing the maintenance services under such customer agreement.

7. Accrual for Loss Contracts Related to Service

The following table summarizes activity related to the accrual for loss contracts related to service during the three months ended March 31, 2017 and 2016, respectively (in thousands):


	Three months ended
	March 31, 2017		March 31, 2016
Beginning balance	$	752	$	10,050
Reductions for losses realized		(752)		(1,748)
Ending balance	$	-	$	8,302

8. Redeemable Convertible Preferred Stock

In December 2016, the Company completed an offering of an aggregate of 18,500 shares of the Company’s Series D Redeemable Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”) to purchase 7,381,500 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), resulting in aggregate proceeds of approximately $15.6 million. During the three months ended March 31, 2017, the Company redeemed 3,700 shares of the Series D Preferred Stock, at an aggregate redemption price of approximately $3.7 million. On April 5, 2017, all of the outstanding shares of the Series D Preferred Stock were converted into an aggregate of 9,548,393 shares of Common Stock at a conversion price of $1.55. The conversion was done at the election of the holder in accordance with the terms of the offering. No shares of Series D Redeemable Preferred Stock remain outstanding.

On January 26, 2017, Air Liquide sold an aggregate of 2,620 shares of the Company’s Series C Redeemable Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) to FiveT Capital Holding AG and FiveMore Special Situations Fund Limited. Following the sale, Air Liquide owns 2,611 shares of Series C Preferred Stock, Five T Capital Holding AG owns 1,750 shares of Series C Preferred Stock and FiveMore Special Situations Fund Limited owns 870 shares of Series C Preferred Stock.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

9. Income Taxes

The deferred tax asset generated from the Company’s 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 carry forward will not be realized. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

During the three months ended March 31, 2016, the Company released its liability for unrecognized tax benefits of $392 thousand, as the related statute of limitations has expired.

10. Fair Value Measurements

The Company’s common stock warrant liability represents the only financial instrument measured at fair value on a recurring basis in the unaudited interim consolidated balance sheets. The fair value measurement is determined by using Level 3 inputs due to the lack of active and observable markets that can be used to price identical assets. Level 3 inputs are unobservable inputs and should be used to determine fair value only when observable inputs are not available. Unobservable inputs should be developed based on the best information available in the circumstances, which might include internally generated data and assumptions being used to price the asset or liability.

Fair value of the common stock warrant liability is based on the Black-Scholes pricing model which is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions. The Company used the following assumptions for its common stock warrants:


	Three months ended
	March 31, 2017	March 31, 2016
Risk-free interest rate	1.01% - 2.01%	0.30% - 1.04%
Volatility	62.0% - 105.20%	56.47% - 108.92%
Expected average term	0.89 - 5.23	0.17 - 2.79

There was no expected dividend yield for the warrants granted. If factors change and different assumptions are used, the warrant liability and the change in estimated fair value could be materially different. Generally, as the market price of our common stock increases, the fair value of the warrant increases, and conversely, as the market price of our common stock decreases, the fair value of the warrant decreases. Also, a significant increase in the volatility of the market price of the Company’s common stock, in isolation, would result in a significantly higher fair value measurement; and a significant decrease in volatility would result in a significantly lower fair value measurement.

The following table shows the activity in the common stock warrant liability (in thousands):


	Three months ended
Common stock warrant liability	March 31, 2017		March 31, 2016
Beginning of period	$	11,387	$	5,735
Change in fair value of common stock warrants		2,280		(1,278)
Exercise of common stock warrants		—		(140)
End of period	$	13,667	$	4,317

11. Commitments and Contingencies

Operating Leases

As of March 31, 2017 and December 31, 2016, the Company has several non-cancelable operating leases (as lessor and as lessee), primarily associated with sale/leaseback transactions that are partially secured by restricted cash (see also Note 1) as summarized below. These leases expire over the next six years. Minimum rent payments under operating

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

leases are recognized on a straight‑line basis over the term of the lease. Leases where the Company is the lessor contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of March 31, 2017 are (in thousands):


	As Lessor		As Lessee
Remainder of 2017	$	13,882	$	9,256
2018		18,510		12,125
2019		18,313		10,936
2020		17,157		9,802
2021		12,922		5,535
2022 and thereafter		4,193		759
Total future minimum lease payments	$	84,977	$	48,413

Rental expense for all operating leases was $3.3 million for the three months ended March 31, 2017 and 2016.

At March 31, 2017 and December 31, 2016, prepaid rent and security deposits associated with sale/leaseback transactions were $11.7 million and $11.8 million, respectively. At March 31, 2017, $1.9 million of the amount is included in prepaid expenses and other current assets and $9.8 million was included in other assets on the unaudited interim consolidated balance sheet. At December 31, 2016, $1.9 million of this amount was included in prepaid expenses and other current assets and $9.9 million was included in other assets on the consolidated balance sheet.

Finance Obligations

During the three months ended March 31, 2017, the Company entered into a sale/leaseback transaction, which was accounted for as a capital lease and reported as part of finance obligations on the Company’s unaudited interim consolidated balance sheet. The outstanding balance of these finance obligations at March 31, 2017 was $32.2 million. The fair value of the finance obligation approximates the carrying value as of March 31, 2017.

Future minimum lease payments under non-cancelable capital leases (with initial or remaining lease terms in excess of one year) as of March 31, 2017 are (in thousands):


	Total		Imputed		Net Present
	Payments		Interest		Value
Remainder of 2017	$	16,631	$	3,236	$	13,395
2018		11,817		2,162		9,655
2019		3,600		1,499		2,101
2020		3,600		1,135		2,465
2021		3,600		711		2,889
2022 and thereafter		1,908		175		1,733
Total future minimum lease payments	$	41,156	$	8,918	$	32,238

In prior years, the Company received cash for future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at March 31, 2017 and December 31, 2016 is $12.3 million and $12.8 million, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximates the carrying value as of March 31, 2017.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

interim consolidated balance sheets as of March 31, 2017 and December 31, 2016, respectively. The fair value of this finance obligation approximates the carrying value as of March 31, 2017.

Restricted Cash

The Company has entered into sale/leaseback agreements associated with its products and services. In connection with these agreements, cash of $52.9 million is required to be restricted as security and will be released over the lease term. The Company has additional letters of credit backed by security deposits as disclosed in the Operating Leases section above.

The Company also has letters of credit in the aggregate amount of $1.0 million associated with an agreement to provide hydrogen infrastructure and hydrogen to a customer at its distribution center and with a finance obligation from the sale/leaseback of its building. Cash collateralizing these letters of credit is also considered restricted cash.

Litigation

Legal matters are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position, or cash flows.

Concentrations of credit risk

Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has initial commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.

At March 31, 2017, one customer comprises approximately 35.6% of the total accounts receivable balance. At December 31, 2016, two customers comprise approximately 59.9% of the total accounts receivable balance, with each customer individually representing 40.0% and 19.9% of total accounts receivable, respectively.

For the three months ended March 31, 2017, 53.4% of total consolidated revenues were associated primarily with Walmart. For the three months ended March 31, 2016, 47.7% of total consolidated revenues were associated primarily with Walmart.

12. Subsequent Events

Exercise of Common Stock Warrants

On April 12, 2017, the Company and Tech Opportunities LLC (“Tech Opps”) entered into an agreement, pursuant to which Tech Opps exercised in full its warrants to purchase an aggregate of 10,501,500 shares of Common Stock, at an exercise price of $1.50 per share, and the Company issued to Tech Opps warrants to acquire up to 5,250,750 shares of common stock at an exercise price of $2.69 per share. The aggregate cash exercise price paid to the Company pursuant to the exercise of the existing warrants was $15.8 million.

During April 2017, the 4,000,000 warrants issued in January 2014 as part of an underwritten public offering with Heights Capital Management Inc., were exercised in full to purchase an aggregate of 4,000,000 shares of Common Stock, at an exercise price negotiated to be $0.65 per share.

Table of Contents

Notes to Interim Consolidated Financial Statements (Unaudited) (continued)

Conversion of Series D Preferred Stock

On April 5, 2017, all of the outstanding shares of Series D Preferred Stock, were converted into an aggregate of 9,548,393 shares of Common Stock, at a conversion price of $1.55. The conversion was done at the election of the holder in accordance with the terms of the offering. No shares of Series D Preferred Stock remain outstanding.

Amazon.com, Inc. Transaction Agreement

On April 4, 2017, the Company and Amazon.com, Inc. (“Amazon”) entered into a Transaction Agreement (the “Transaction Agreement”), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, a warrant to acquire up to 55,286,696 shares of Common Stock, subject to certain vesting events (the “Warrant Shares”). The Company and Amazon entered into the Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at Amazon distribution centers. The existing commercial agreements contemplate future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares, is linked to payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.

At Market Issuance Sales Agreement

On April 3, 2017, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with FBR Capital Markets & Co., as sales agent (“FBR”), pursuant to which the Company may offer and sell, from time to time through FBR, shares of common stock par value $0.01 per share having an aggregate offering price of up to $75.0 million. During April 2017, the Company issued 8,067,152 shares of Common Stock and raised net proceeds, after underwriting discounts and commissions and other fees and expenses, of $18.2 million, pursuant to the Sales Agreement.

Table of Contents

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our accompanying unaudited interim consolidated financial statements and notes thereto included within this report, and our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, filed for the fiscal year ended December 31, 2016. In addition to historical information, this Form 10-Q and the following discussion contain statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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,” “continue,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would,” “plan,” “projected” or the negative of such words or other similar words or phrases. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to: the risk that we continue to incur losses and might never achieve or maintain profitability; the risk that we will need to raise additional capital to fund our operations and such capital may not be available to us; the risk that our lack of extensive experience in manufacturing and marketing products may impact our ability to manufacture and market products on a profitable and large-scale commercial basis; the risk that unit orders will not ship, be installed and/or converted to revenue, in whole or in part; the risk that a loss of one or more of our major customers could result in a material adverse effect on our financial condition; the risk that a sale of a significant number of shares of stock could depress the market price of our common stock; the risk that negative publicity related to our business or stock could result in a negative impact on our stock value and profitability; the risk of potential losses related to any product liability claims or contract disputes; the risk of loss related to an inability to maintain an effective system of internal controls; our ability to attract and maintain key personnel; the risks related to the use of flammable fuels in our products; the risk that pending orders may not convert to purchase orders, in whole or in part; the cost and timing of developing, marketing and selling our products and our ability to raise the necessary capital to fund such costs; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers; the ability to achieve the forecasted gross margin on the sale of our products; the cost and availability of fuel and fueling infrastructures for our products; the risk of elimination of government subsidies and economic incentives for alternative energy products; market acceptance of our products and services, including GenDrive units; our ability to establish and maintain relationships with third parties with respect to product development, manufacturing, distribution and servicing and the supply of key product components; the cost and availability of components and parts for our products; our ability to develop commercially viable products; our ability to reduce product and manufacturing costs; our ability to successfully market, distribute and service our products and services internationally; our ability to improve system reliability for our products; competitive factors, such as price competition and competition from other traditional and alternative energy companies; our ability to protect our intellectual property; the cost of complying with current and future federal, state and international governmental regulations; the risks associated with potential future acquisitions; the volatility of our stock price; and other risks and uncertainties discussed under Item IA—Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed March 10, 2017. Readers should not place undue reliance on our forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made and are not guarantees of future performance. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Form 10-Q.

Overview

Table of Contents

refueling solutions for customer locations. Hydrogen can also be obtained from the electrolysis of water, or produced on-site at consumer locations through a process known as reformation. Currently the Company obtains hydrogen by purchasing it from fuel suppliers for resale to customers.

GenDrive: GenDrive is our hydrogen fueled PEM fuel cell system providing power to material handling vehicles;

GenFuel: GenFuel is our hydrogen fueling delivery system;

GenCare: GenCare is our ongoing maintenance program for GenDrive fuel cells, GenSure products and GenFuel products;

GenKey: GenKey is our turn-key solution combining either GenDrive or GenSure with GenFuel and GenCare, offering complete simplicity to customers transitioning to fuel cell power;

ProGen: ProGen is our fuel cell engine technology, under development for use in mobility and stationary fuel cell systems; and

GenFund: GenFund is a collaboration with leasing organizations to provide cost efficient and seamless financing solutions to customers.

We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers, or OEMs, and their dealer networks.

Recent Developments

Exercise of Common Stock Warrants

On April 12, 2017, the Company and Tech Opportunities LLC (“Tech Opps”) entered into an agreement, pursuant to which Tech Opps exercised in full its warrants to purchase an aggregate of 10,501,500 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), at an exercise price of $1.50 per share, and the Company issued to Tech Opps warrants to acquire up to 5,250,750 shares of common stock at an exercise price of $2.69 per share. The aggregate cash exercise price paid to the Company pursuant to the exercise of the existing warrants was $15.8 million.

Conversion of Series D Preferred Stock

On April 5, 2017, all of the outstanding shares of the Company’s Series D Redeemable Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”), were converted into an aggregate of 9,548,393 shares of Common Stock,

Table of Contents

at a conversion price of $1.55. The conversion was done at the election of the holder in accordance with the terms of the offering. No shares of Series D Preferred Stock remain outstanding.

Amazon.com, Inc. Transaction Agreement

At Market Issuance Sales Agreement

On April 3, 2017, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with FBR Capital Markets & Co., as sales agent (“FBR”), pursuant to which the Company may offer and sell, from time to time through FBR, shares of common stock par value $0.01 per share having an aggregate offering price of up to $75.0 million. During April 2017, the Company issued 8,067,152 shares of Common Stock and raised net proceeds after underwriting discounts and commissions and other fees and expenses of $18.2 million, pursuant to the Sales Agreement.

Results of Operations

Revenue, cost of revenue, gross profit/(loss) and gross margin for the three months ended March 31, 2017 and 2016, were as follows (in thousands):


		Three Months Ended
		March 31,
			Cost of		Gross		Gross
	Revenue		Revenue		Profit/(Loss)		Margin
For the three months ended March 31, 2017:
Sales of fuel cell systems and related infrastructure	$	2,197	$	2,286	$	(89)	(4.1)	%
Services performed on fuel cell systems and related infrastructure		5,149		6,566		(1,417)	(27.5)	%
Power Purchase Agreements		4,311		6,615		(2,304)	(53.4)	%
Fuel delivered to customers		3,491		4,149		(658)	(18.8)	%
Other		87		98		(11)	(12.6)	%
Total	$	15,235	$	19,714	$	(4,479)	(29.4)	%
For the three months ended March 31, 2016:
Sales of fuel cell systems and related infrastructure	$	5,218	$	3,898	$	1,320	25.3	%
Services performed on fuel cell systems and related infrastructure		5,273		5,783		(510)	(9.7)	%
Power Purchase Agreements		2,706		2,881		(175)	(6.5)	%
Fuel delivered to customers		2,010		2,411		(401)	(20.0)	%
Other		125		189		(64)	(51.2)	%
Total	$	15,332	$	15,162	$	170	1.1	%

Table of Contents

Our primary sources of revenue are from sales of fuel cell systems and related infrastructure, services performed on fuel cell systems and related infrastructure, PPAs, and fuel delivered to customers. Revenue from sales of fuel cell systems and related infrastructure represents sales of our GenDrive units, GenSure stationary backup power units, as well as hydrogen fueling infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party.

Revenue – sales of fuel cell systems and related infrastructure. Revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells, such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.

Revenue from sales of fuel cell systems and related infrastructure for the three months ended March 31, 2017 decreased $3.0 million or 57.9%, to $2.2 million from $5.2 million for the three months ended March 31, 2016. There were 34 units recognized as revenue for the three months ended March 31, 2017, compared to 160 for the three months ended March 31, 2016, representing the largest cause for the decrease in revenue from sales of fuel cell systems and related infrastructure. An additional 405 units were shipped during the three months ended March 31, 2017 and held as leased assets. As such, the Company will recognize revenue on these units over the life of the related PPA under “Power Purchase Agreements” in the Consolidated Statement of Operations. No sales associated with hydrogen installations occurred during the three months ended March 31, 2017, however two sites were constructed and held as leased assets. There were also no sales associated with hydrogen installations for the three months ended March 31, 2016. Sales of GenSure units decreased $0.8 million to $1.2 million in the three months ended March 31, 2017, compared to the three months ended March 31, 2016.

Revenue – services performed on fuel cell systems and related infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. At March 31, 2017, there were 8,818 fuel cell units and 30 hydrogen installations under extended maintenance contracts, an increase of 1.4% and 30.4% from 8,695 and 23 at March 31, 2016, respectively.

Revenue from services performed on fuel cell systems and related infrastructure for the three months ended March 31, 2017 decreased $0.1 million or 2.4%, to $5.1 million from $5.3 million for the three months ended March 31, 2016. The number of units under extended maintenance contracts at March 31, 2017 was slightly higher than March 31, 2016, however, revenue decreased due to less billable incidents and nonrecurring revenue in the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

Revenue – Power Purchase Agreements. Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. The equipment and service can be associated with sale/leaseback transactions in which the Company sells fuel cell systems and related infrastructure to a third-party, leases them back and operates them at customers’ locations who are parties to PPAs with the Company. Alternatively, the Company can retain the equipment as leased property and provide it to customers under PPAs. At March 31, 2017, there were 27 GenKey sites associated with PPAs, as compared to 17 at March 31, 2016.

Power Purchase Agreements for the three months ended March 31, 2017 increased $1.6 million or 59.3%, to $4.3 million from $2.7 million for the three months ended March 31, 2016. The increase is due to the increased number of sites the Company has deployed with these types of arrangements.

Revenue – fuel delivered to customers. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party. As part of the GenKey solution, the Company contracts with fuel suppliers to purchase liquid hydrogen, which is then sold to its customers. At March 31, 2017, there were 42 sites associated with fuel contracts, as compared to 25 at March 31, 2016. The sites generally are the same as those which had purchased hydrogen installations within the GenKey solution.

Table of Contents

Revenue associated with fuel delivered to customers for the three months ended March 31, 2017 increased $1.5 million or 73.7%, to $3.5 million from $2.0 million for the three months ended March 31, 2016. The increase in revenue is due to an increase of sites taking fuel deliveries at March 31, 2017, compared to March 31, 2016.

Revenue – other. Other revenue primarily represents cost reimbursement research and development contracts associated with the development of PEM fuel cell technology. We generally share in the cost of these programs with our cost-sharing percentages ranging from 30% to 50% of total project costs. Revenue from time and material contracts is recognized on the basis of hours expended plus other reimbursable contract costs incurred during the period. We expect to continue certain research and development contract work that is related to our current product development efforts. Other miscellaneous revenue is recognized from time to time.

Other revenue for the three months ended March 31, 2017 decreased $38 thousand, or 30.4%, to $87 thousand from $125 thousand for the three months ended March 31, 2017. During the three months ended March 31, 2017, the Company’s other revenue was associated with a research & development project with the European Union. The Company had no revenue associated with a customer stack development program as it did in the three months ended March 31, 2016 which was for $125 thousand.

Cost of revenue – sales of fuel cell systems and related infrastructure. Cost of revenue from sales of fuel cell systems and related infrastructure includes direct materials, labor costs, and allocated overhead costs related to the manufacture of our fuel cells such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.

Cost of revenue from sales of fuel cell systems and related infrastructure for the three months ended March 31, 2017 decreased 41.4%, or $1.6 million, compared to the three months ended March 31, 2016, driven by the decrease in revenue. Gross margin generated from sales of fuel cell systems and related infrastructure was (4.1%) for the three months ended March 31, 2017, down from 25.3% for the three months ended March 31, 2016, due to loss of leverage on fixed costs, caused by fewer unit shipments during the three months ended March 31, 2017 compared to the same period in 2016.

Cost of revenue – services performed on fuel cell systems and related infrastructure. Cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor, material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts. On March 31, 2017, there were 8,818 fuel cell units and 30 hydrogen installations under extended maintenance contracts, an increase of 1.4% and 30.4% from 8,695 and 23 on March 31, 2016, respectively.

Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended March 31, 2017 increased 13.5%, or $0.8 million, to $6.6 million, compared to the three months ended March 31, 2016 of $5.8 million. Gross margin worsened to (27.5%) for the three months ended March 31, 2017 from (9.7%) for the three months ended March 31, 2016. The change versus the prior year is due to ramp up and commercialization costs incurred that are associated with the launch of new configurations in 2016.

Cost of revenue – Power Purchase Agreements. Cost of revenue from PPAs includes payments made to financial institutions for leased equipment and service used to fulfill the PPAs. Leased units are primarily associated with sale/leaseback transactions in which the Company sells fuel cell systems and related infrastructure to a third-party, leases them back, and operates them at customers’ locations who are parties to PPAs with the Company. Alternatively, the Company can hold the equipment for investment and recognize the depreciation and service cost of the assets as cost of revenue from PPAs. At March 31, 2017, there were 27 GenKey sites associated with PPAs, as compared to 17 at March 31, 2016.

Cost of revenue from Power Purchase Agreements for the three months ended March 31, 2017 increased $3.7 million, or 129.6%, to $6.6 million from $2.9 million for the three months ended March 31, 2016. The increase was a result of the increase in the number of customer sites party to these agreements. Gross margin declined to (53.4)% at March 31, 2017 from (6.5)% at March 31, 2016, due primarily to increases in depreciation of capitalized leased asset costs related to sites associated with capital leases of $1.3 million, as well as costs to maintain them, including costs associated with new configurations, as explained above, of $2.2 million.

Table of Contents

Cost of revenue – fuel delivered to customers. Cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers that ultimately is sold to customers. As part of the GenKey solution, the Company contracts with fuel suppliers to purchase liquid hydrogen and separately sells to its customers upon delivery. As of March 31, 2017, there were 42 sites under contract receiving molecule delivery, as compared to 25 at March 31, 2016. The sites generally are the same as those which had purchased hydrogen installations within the GenKey solution.

Cost of revenue from fuel delivered to customers for the three months ended March 31, 2017 increased $1.7 million, or 72.1%, to $4.1 million from $2.4 million for the three months ended March 31, 2016. The increase is due primarily to higher volume of liquid hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements. Gross margin percent improved to (18.8%) during the three months ended March 31, 2017 from (20.0%) during the three months ended March 31 2016 due to improved system efficiencies and better pricing initiatives.

Cost of revenue – other. Other cost of revenue primarily represents costs associated with research and development contracts including: cash and non-cash compensation and benefits for engineering and related support staff, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies used and other directly allocable general overhead costs allocated to specific research and development contracts.

Cost of other revenue for the three months ended March 31, 2017 decreased $91 thousand, or 48.1%, to $98 thousand from $189 thousand for the three months ended March 31, 2016. The Company had no costs associated with a customer stack development program as it did in the three months ended March 31, 2016. The entire cost of other revenue in the period is related to the research & development project with the European Union.

Research and development expense. Research and development expense includes: materials to build development and prototype units, cash and non-cash compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services, and other general overhead costs associated with our research and development activities.

Research and development expense for the three months ended March 31, 2017 increased $1.2 million, or 24.2% to $6.0 million, from $4.8 million for the three months ended March 31, 2016. This increase was primarily related to an increase in development of ProGen, personnel related expenses from higher headcount, focused on refinement of hydrogen infrastructure design, multiple product cost-down programs and prototyping for stack performance enhancement.

Selling, general and administrative expenses. Selling, general and administrative expenses includes cash and non-cash compensation, benefits, amortization of intangible assets and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.

Selling, general and administrative expenses for the three months ended March 31, 2017, increased $0.9 million, or 10.3% from $9.1 million, from $8.3 million for the three months ended March 31, 2016. This increase primarily due to costs associated with increased headcount and increased insurance costs.

Interest and other expense (income), net. Interest and other expense, net consists of interest and other expenses related to interest on our short-term borrowing, long-term debt, obligations under capital lease and our finance obligations, as well as foreign currency exchange gain (loss), offset by interest and other income consisting primarily of interest earned on our cash and cash equivalents, note receivable, and other income. During 2016, the Company entered into a series of capital leases with Generate Lending LLC. In December 2016, the Company entered into a loan and security agreement with NY Green Bank.

Net interest and other expense for the three months ended March 31, 2017, increased $1.7 million as compared to the three months ended March 31, 2016. The increase is attributed to interest on the various financing structures

Table of Contents

described above, offset by interest and other income which remained relatively insignificant for the three months ended March 31, 2017.

Change in fair value of common stock warrant liability. The Company accounts for common stock warrants as common stock warrant liability with changes in the fair value reflected in the consolidated statement of operations as change in the fair value of common stock warrant liability.

The change in fair value of common stock warrant liability for the three months ended March 31, 2017 resulted in an increase in the associated warrant liability of $2.3 million as compared to a decrease of $1.3 million for the three months ended March 31, 2016. These variances are primarily due to changes in the Company’s common stock share price, and changes in volatility of our common stock, which are significant inputs to the Black-Scholes valuation model.

Income taxes. 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 carry forward will not be realized. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Liquidity and Capital Resources

We have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common shareholders of $24.1 million for the three months ended March 31, 2017 and $57.6 million, $55.8 million and $88.6 million for the years ended December 31, 2016, 2015, and 2014, respectively, and had an accumulated deficit of $1.1 billion at March 31, 2017.

Table of Contents

cash used in financing activities for the three months ended March 31, 2017 primarily resulted from redemption of Series D redeemable preferred stock, offset by increases in finance obligations and a decrease in restricted cash. During April 2017, the Company raised $18.2 million pursuant to an At Market Issuance Sales Agreement. Also during April 2017, the Company received proceeds of $18.4 million pursuant to the exercise of warrants.

In previous years, the Company signed sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company had sold certain fuel cell systems and hydrogen infrastructure to the financial institutions, and leased the equipment back to support certain customer locations and to fulfill its varied PPAs. In connection with these operating leases, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s lease obligations. Cash received from customers under the PPAs is used to make lease payments. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements was $41.2 million, which has been fully secured with restricted cash and pledged service escrows.

New York Green Bank Loan

On December 23, 2016, the Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc. entered into a loan and security agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority, (NY Green Bank), pursuant to which NY Green Bank made available to the Company a secured term loan facility in the amount of $25.0 million (Term Loan Facility), subject to certain terms and conditions. The Company borrowed $25.0 million upon closing and incurred costs of $1.2 million. At March 31, 2017, the outstanding principal balance under the Term Loan Facility was $25.0 million. The fair value of the Term Loan Facility approximates the carrying value as of March 31, 2017.

Interest and a varying portion of the principal amount is payable on a quarterly basis and the entire then outstanding principal balance of the Term Loan Facility, together with all accrued and unpaid interest, is due and payable on the maturity date. On the maturity date, the Company may also be required to pay additional fees of up to $1.0 million if the Company is unable to meet certain goals related to the deployment of fuel cell systems in the State of New York and increasing the Company’s number of full-time employees in the State of New York.

Table of Contents

Redeemable Preferred Stock

In December 2016, the Company completed an offering of an aggregate of 18,500 shares of Series D Preferred Stock to purchase 7,381,500 shares of common stock, result in aggregate proceeds of approximately $15.6 million. During the three months ended March 31, 2017, the Company redeemed 3,700 shares of the Series D Preferred Stock, at an aggregate redemption price of approximately $3.7 million. On April 5, 2017, all of the outstanding shares of the Series D Preferred Stock were converted into an aggregate of 9,548,393 shares of the Company’s common stock at a conversion price of $1.55. The conversion was done at the election of the holder in accordance with the terms of the offering. No shares of Series D redeemable preferred stock remain outstanding.

We have historically funded our operations primarily through public and private offerings of common and preferred stock, as well as short-term borrowings, long-term debt and project financing. The Company believes that its current working capital and cash anticipated to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity offerings, will provide sufficient liquidity to fund operations for at least the next twelve months. There is no guarantee that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on our current expectations regarding new project financing and product sales and service, cost structure, cash burn rate and other operating assumptions.

Several key indicators of liquidity are summarized in the following table (in thousands):


	Three months		Year
	ended or at		ended or at
	March 31, 2017		December 31, 2016
Cash and cash equivalents at end of period	$	11,765	$	46,014
Restricted cash at end of period		53,888		54,622
Working capital at end of period		10,449		44,448
Net loss attributable to common shareholders		24,065		57,591
Net cash used in operating activities		23,859		29,636
Purchases of property, plant and equipment and leased property		9,639		58,075
Net cash (used in) provided by financing activities		(786)		69,885

Operating Leases

As of March 31, 2017, the Company has several non-cancelable operating leases (as lessor and as lessee), primarily associated with sale/leaseback transactions that are partially secured by restricted cash as summarized below. These leases expire over the next six years. Minimum rent payments under operating leases are recognized on a straight‑line basis over the term of the lease. Leases where the Company is the lessor contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of March 31, 2017 are (in thousands):


	As Lessor		As Lessee
Remainder of 2017	$	13,882	$	9,256
2018		18,510		12,125
2019		18,313		10,936
2020		17,157		9,802
2021		12,922		5,535
2022 and thereafter		4,193		759
Total future minimum lease payments	$	84,977	$	48,413

Table of Contents

Finance Obligations

During the three months ended March 31, 2017, the Company entered into sale/leaseback transactions, which were accounted for as capital leases and reported as part of finance obligations on the Company’s unaudited interim consolidated balance sheet. The outstanding balance of these finance obligations at March 31, 2017 was $32.2 million. The fair value of the finance obligation approximates the carrying value as of March 31, 2017.

Future minimum lease payments under non-cancelable capital leases (with initial or remaining lease terms in excess of one year) as of March 31, 2017 are (in thousands):


	Total		Imputed		Net Present
	Payments		Interest		Value
Remainder of 2017	$	16,631	$	3,236	$	13,395
2018		11,817		2,162		9,655
2019		3,600		1,499		2,101
2020		3,600		1,135		2,465
2021		3,600		711		2,889
2022 and thereafter		1,908		175		1,733
Total future minimum lease payments	$	41,156	$	8,918	$	32,238

The Company has a capital lease associated with its property in Latham, New York. Liabilities relating to this agreement of $2.3 million and $2.4 million have been recorded as a finance obligation, in the accompanying unaudited interim consolidated balance sheets as of March 31, 2017 and December 31, 2016, respectively. The fair value of this finance obligation approximates the carrying value as of March 31, 2017.

Restricted Cash

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited interim consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of and during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition for multiple element arrangements, bad debts, inventories, intangible assets, valuation of long-lived assets, accrual for loss contracts on service, product warranty reserves, unbilled revenue, common stock warrants, income taxes, stock-based compensation, contingencies, and purchase accounting. We base our estimates and judgments on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about

Table of Contents

(1) the carrying values of assets and liabilities and (2) the amount of revenue and expenses realized that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We refer to the policies and estimates set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates”, as well as a discussion of significant accounting policies included in Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements, both of which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Recent Accounting Pronouncements

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

From time to time, we may invest our cash in government, government backed and interest-bearing investment-grade securities that we generally 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

Table of Contents

transactions in any material fashion. 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.

Our exposure to changes in foreign currency rates is primarily related to sourcing inventory from foreign locations and operations of HyPulsion. This practice can give rise to foreign exchange risk resulting from the varying cost of inventory to the receiving location. The Company reviews the level of foreign content as part of its ongoing evaluation of overall sourcing strategies and considers the exposure to be not significant. Our HyPulsion exposure presently is mitigated by low levels of operations and its sourcing is primarily intercompany in nature and denominated in U.S. dollar.

Item 4 — Controls and Procedures

(a) Disclosure controls and procedures.

The chief executive officer and chief financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures are effective for ensuring that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in filed or submitted reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings

An action has been brought in New York State Supreme Court by General Electric Co. (GE) and an affiliate against the Company seeking $1 million that GE claims is due under an indemnification agreement between GE and the Company. GE seeks indemnification for funds it paid to settle a claim with Soroof Trading Development Co., an entity that had paid funds to GE to become a distributor of the Company’s products. The Company is vigorously defending the action.

Item 1A - Risk Factors

Part I, Item 1A, “Risk Factors” of our most recently filed Annual Report on Form 10-K, filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2016, sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Except to the extent that information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters described in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there have been no material changes to our risk factors disclosed in our most recently filed Annual Report on Form 10-K. However, those risk factors continue to be relevant to an understanding of our business, financial condition and operating results and, accordingly, you should review and consider such risk factors in making any investment decision with respect to our securities.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

Table of Contents

(b) Not applicable.

Item 3 — Defaults Upon Senior Securities

None.

Item 4 — Mine Safety Disclosures

None.

Item 5 — Other Information

(a) None.

(b) None.

Table of Contents

Item 6 — Exhibits


3.1	Amended and Restated Certificate of Incorporation of Plug Power. (1)

3.2	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Plug Power Inc. (1)

3.3	Second Certificate of Amendment of Amended and Restated Certificate of Incorporation of Plug Power Inc. (2)

3.4	Third Certificate of Amendment to Amended and Restated Certificate of Incorporation of Plug Power. (3)

3.5	Third Amended and Restated By-laws of Plug Power Inc. (4)

3.6	Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Plug Power Inc. classifying and designating the Series A Junior Participating Cumulative Preferred Stock. (5).

3.7	Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Plug Power Inc. classifying and designating the Series C Redeemable Convertible Preferred Stock (6)

3.8	Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Plug Power Inc. classifying and designating the Series D Redeemable Convertible Preferred Stock (7)

3.9	Certificate of Correction to Third Certificate of Amendment of Amended and Restated Certificate of Incorporation of Plug Power Inc. dated as of December 21, 2016 (8)

3.10	At Market Issuance Sales Agreement, dated April 3, 2017, by and between Plug Power Inc. and FBR Capital Markets & Co. (9)

3.11	Warrant to Purchase Common Stock, issued April 4, 2017, by and between Plug Power Inc. and Amazon.com NV Investment Holdings LLC (10)

3.12	Transaction Agreement, dated as of April 4, 2017, by between Plug Power Inc. and Amazon.com, Inc. (10)

3.13	Warrant to Purchase Common Stock, issued April 12, 2017, by and between Plug Power Inc. and Tech Opportunities LLC (11)

3.14	Warrant Exercise Agreement, dated as of April 12, 2017, by and between Plug Power Inc. and Tech Opportunities LLC (11)

31.1 and 31.2	Certifications pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (12)

32.1 and 32.2	Certifications pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (12)

101.INS*	XBRL Instance Document (12)
101.SCH*	XBRL Taxonomy Extension Schema Document (12)
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document (12)
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document (12)

Table of Contents

101.LAB*

XBRL Taxonomy Extension Labels Linkbase Document (12)

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document (12)

(1)

Incorporated by reference to the Company’s Form 10-K for the period ended December 31, 2008.

(2)

Incorporated by reference to the Company’s current Report on Form 8-K dated May 19, 2011.

(3)

Incorporated by reference to the Company’s current Report on Form 8-K dated July 25, 2014.

(4)

Incorporated by reference to the Company’s current Report on Form 8-K dated November 2, 2009.

(5)

Incorporated by reference to the Company’s current Report on Form 8-K dated June 24, 2009.

(6)

Incorporated by reference to the Company’s current Report on Form 8-K dated May 20, 2013.

(7)

Incorporated by reference to the Company’s current Report on Form 8-K dated December 21, 2016.

(8)

Incorporated by reference to the Company’s Form 10-K for the period ended December 31, 2016.

(9)

Incorporated by reference to the Company’s current Report on Form 8-K dated April 3, 2017.

(10)

Incorporated by reference to the Company’s current Report on Form 8-K dated April 5, 2017.

(11)

Incorporated by reference to the Company’s current Report on Form 8-K dated April 12, 2017.

(12)

Filed herewith.

*Submitted electronically herewith. Attached as Exhibit 101 are the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in eXtensible Business Reporting Language (XBRL) and tagged as blocks of text: (i) Interim Consolidated Balance Sheets at March 31, 2017 and December 31, 2016; (ii) Interim Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016; (iii) Interim Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2017 and 2016; (iv) Interim Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2017; (v) Interim Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016; and (vi) related notes, tagged as blocks of text.

Table of Contents

Signatures

Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	PLUG POWER INC.

Date: May 9, 2017	By:	/s/ Andrew Marsh
		Andrew Marsh
		President, Chief Executive Officer and Director (Principal Executive Officer)

Date: May 9, 2017	By:	/s/ Paul B. Middleton
		Paul B. Middleton
		Chief Financial Officer (Principal Financial Officer)

Attached files

Stock widget

Investing forum

PLUG POWER INC Reports