<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
X - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ________ TO _________
Commission File Number: 00027527
PLUG POWER INC.
(Exact name of registrant as specified in its charter)
968 ALBANY-SHAKER ROAD, LATHAM, NEW YORK 12110
(Address of registrant's principal executive office)
(518) 782-7700
(Registrant's telephone number, including area code)
DELAWARE 22-3672377
(State or other jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock outstanding as of July 31, 2000 was
43,525,785 with a par value of $.01 per share.
1
<PAGE>
PLUG POWER INC.
INDEX to FORM 10-Q
PART I. FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations - Three Month
and Six Month Periods ended June 30, 2000 and June 30, 1999
and Cumulative Amounts from Inception 4
Condensed Consolidated Statements of Cash Flows - Six Month
Periods ended June 30, 2000 and June 30, 1999 and
Cumulative Amounts from Inception 5
Notes to Condensed Consolidated Financial Statements 6 - 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 17
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 6 - Exhibits and Reports on Form 8-K 18 - 21
Signature 21
2
<PAGE>
PLUG POWER INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, 2000 December 31, 1999
------------------ --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $110,797,623 $171,496,286
Restricted cash 275,000 275,000
Marketable securities 11,242,180 --
Accounts receivable 4,632,854 5,212,943
Inventory 2,606,335 304,711
Prepaid development costs 2,166,667 --
Other current assets 466,898 124,380
------------ ------------
Total current assets 132,187,557 177,413,320
Restricted cash 5,600,274 5,600,274
Property, plant and equipment, net 28,747,562 23,333,791
Intangible assets 8,505,528 --
Investment in affiliates 11,142,696 9,778,250
Prepaid development costs 4,208,333 --
------------ ------------
Total assets $190,391,950 $216,125,635
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,543,264 $ 4,644,496
Accrued expenses 5,016,380 3,004,126
Deferred grant revenue 200,000 200,000
Current portion of capital lease obligation
and long-term debt 356,103 353,175
------------ ------------
Total current liabilities 10,115,747 8,201,797
Long-term debt 5,600,274 5,600,274
Deferred grant revenue 700,000 800,000
Capital lease obligation 66,544 117,030
------------ ------------
Total liabilities 16,482,565 14,719,101
------------ ------------
Commitments and contingencies (see footnote 6)
Stockholders' equity:
Preferred stock, $0.01 par value per share; 5,000,000
shares authorized; none issued and outstanding -- --
Common stock, $0.01 par value per share;
245,000,000 shares authorized at June 30, 2000 and
95,000,000 shares authorized at December 31, 1999;
43,515,935 shares issued and outstanding, June 30,
2000 and 43,015,508 shares issued and
outstanding, December 31, 1999 435,159 430,155
Paid-in capital 257,741,859 249,964,994
Deficit accumulated during the development stage (84,267,633) (48,988,615)
------------ ------------
Total stockholders' equity 173,909,385 201,406,534
------------ ------------
Total liabilities and stockholders' equity $190,391,950 $216,125,635
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------- -------------------------------
Three months ended June 30, Six months ended June 30, Cumulative
--------------------------------- ------------------------------- Amounts
2000 1999 2000 1999 from Inception
--------------------------------- ------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Contract revenue $ 2,417,764 $ 1,957,778 $ 5,350,557 $ 3,695,535 $ 24,085,471
Cost of contract revenue 3,491,553 2,934,430 7,390,300 5,117,834 32,978,425
-------------- ------------ -------------- ------------- --------------
Loss on contracts (1,073,789) (976,652) (2,039,743) (1,422,299) (8,892,954)
In-process research and
development -- -- 4,984,000 -- 9,026,640
Research and
development expense 16,932,662 4,799,472 28,376,834 7,780,246 54,816,596
General and administrative 1,696,570 2,670,636 3,253,000 5,599,736 16,564,960
Interest expense 59,145 -- 154,615 -- 344,201
-------------- ------------ -------------- ------------- --------------
Operating loss (19,762,166) (8,446,760) (38,808,192) (14,802,281) (89,645,351)
Interest income 2,184,312 174,283 4,492,478 218,033 7,812,772
-------------- ------------ -------------- ------------- --------------
Loss before equity in
losses of affiliates (17,577,854) (8,272,477) (34,315,714) (14,584,248) (81,832,579)
Equity in losses of affiliates (455,304) (312,948) (963,304) (500,448) (2,435,054)
-------------- ------------ -------------- ------------- --------------
Net loss $ (18,033,158) $ (8,585,425) $ (35,279,018) $ (15,084,696) $ (84,267,633)
============== ============ ============== ============= ==============
Loss per share:
Basic and diluted $ (0.42) $ (0.37) $ (0.82) $ (0.71)
============== ============ ============== =============
Weighted average number of
common shares
outstanding 43,151,810 23,468,613 43,053,998 21,299,034
============== ============ ============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, Cumulative
----------------------------------- Amounts from
2000 1999 Inception
----------------------------------- ---------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (35,279,018) $ (15,084,696) $ (84,267,633)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,770,000 224,217 3,809,036
In-process research and development -- -- 4,042,640
Equity in losses of affiliate 963,304 500,448 2,435,054
Amortization of intangible assets 1,118,971 -- 1,118,971
Amortization of deferred rent -- 100,000 150,000
Write-off of deferred rent -- 1,850,000 1,850,000
In-kind services -- -- 500,000
Stock based compensation 253,924 2,406,250 2,503,924
Compensatory options 63,400 80,400 1,254,200
Changes in assets and liabilities:
Accounts receivable 580,089 (416,447) (4,632,854)
Inventory (2,301,624) -- (2,606,335)
Due from investor -- 685,306 286,492
Prepaid development costs (1,375,000) -- (1,375,000)
Other current assets (342,518) (45,053) (444,984)
Accounts payable and accrued expenses 1,911,022 2,359,206 9,511,536
Deferred grant revenue (100,000) -- 900,000
Due to investor -- (278,882) (286,492)
------------- -------------- ---------------
Net cash used in operating activities (32,737,450) (7,619,251) (65,251,445)
------------- -------------- ---------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (7,183,771) (5,498,919) (20,703,820)
Purchase of intangible assets (9,624,500) -- (9,624,500)
Investment in affiliate (1,500,000) -- (1,500,000)
Marketable securities (11,242,180) -- (11,242,180)
------------- -------------- ---------------
Cash used in investing activities (29,550,451) (5,498,919) (43,070,500)
------------- -------------- ---------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock -- 26,367,782 130,742,782
Proceeds from initial public offering, net -- -- 94,611,455
Stock issuance costs -- -- (1,639,577)
Proceeds from stock option exercises 1,636,796 -- 1,678,703
Cash placed in escrow -- -- (5,875,274)
Principal payments on capital lease
obligations (47,558) -- (113,521)
Principal payments on long-term debt -- -- (285,000)
------------- -------------- ---------------
Net cash provided by financing activities 1,589,238 26,367,782 219,119,568
------------- -------------- ---------------
(Decrease) increase in cash and cash equivalents (60,698,663) 13,249,612 110,797,623
Cash and cash equivalents, beginning of period 171,496,286 3,993,122 --
------------- -------------- ---------------
Cash and cash equivalents, end of period $ 110,797,623 $ 17,242,734 $ 110,797,623
============= ============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PLUG POWER INC.
Notes to Condensed Consolidated Financial Statements
1. NATURE OF OPERATIONS
Plug Power Inc. (Company) was originally formed as a joint venture between
Edison Development Corporation (EDC) and Mechanical Technology Incorporated
(MTI) on June 27, 1997 and succeeded by merger to all of the assets,
liabilities and equity of Plug Power, L.L.C. in November 1999. The Company
is a development stage enterprise formed to research, develop, manufacture
and distribute fuel cells for electric power generation.
2. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 2000, the condensed
consolidated statements of operations for the three and six month periods
ended June 30, 2000 and 1999 and the condensed consolidated statements of
cash flows for the six month periods ended June 30, 2000 and 1999 have been
prepared by the Company without audit. In the opinion of management, all
adjustments, which consist solely of normal recurring adjustments, necessary
to present fairly in accordance with generally accepted accounting
principles, the financial position, results of operations and cash flows for
all periods presented, have been made. The results of operations for the
interim periods presented are not necessarily indicative of the results that
may be expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K filed for the fiscal year ended December 31,
1999.
Marketable Securities: Marketable securities includes investments in
corporate debt securities which are carried at fair value. These investments
are considered available for sale, and the difference between the cost and
the fair value of these securities will be reflected in other comprehensive
income and as a separate component of stockholders' equity. There was no
significant difference between cost and fair value of these investments at
June 30, 2000.
Recent Accounting Pronouncements: In March 2000, the Financial Accounting
Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting
for Certain Transactions Involving Stock Compensation -- an Interpretation
of APB Opinion No. 25". FIN 44 clarifies the application of APB Opinion No.
25 including the following: the definition of an employee for purposes of
applying APB Opinion No. 25; the criteria for determining whether a plan
qualifies as a non compensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is generally effective July 1, 2000. The Company does
not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
In December, 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition. The Company is required to
apply the provisions of SAB 101 in the fourth quarter of 2000, however, the
Company does not expect the application of SAB 101 to have a material impact
on the Company's financial position or results of operations.
6
<PAGE>
3. LOSS PER SHARE
Loss per share for the Company is as follows:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2000 2000 2000 2000
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Numerator
Net loss $(18,033,158) $(8,585,425) $(35,279,018) $(15,084,696)
Denominator
Weighted average number of
Common shares 43,151,810 23,468,613 43,053,998 21,299,034
</TABLE>
No options or warrants outstanding were included in the calculation of
diluted loss per share because their impact would have been anti-dilutive.
The calculation also excludes 111,851 contingently returnable shares.
4. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." No benefit for federal or state income taxes has been reported in
these condensed consolidated statements of operations as they have been
offset by a full valuation allowance because it is more likely than not that
the tax benefits of the net operating loss carryforward may not be realized.
5. INVESTMENTS IN AFFILIATES
In February 1999, the Company entered into an agreement with GE MicroGen,
Inc. (formerly GE On-Site Power, Inc.) a wholly owned subsidiary of General
Electric Co. to create GE Fuel Cell Systems, L.L.C. (GEFCS) a limited
liability company created to market and distribute fuel cell systems world-
wide. GE MicroGen owns 75% of GEFCS and the Company owns 25% of GEFCS. The
Company accounts for its interest in GEFCS on the equity method of
accounting and adjusts its investment by its proportionate share of income
or losses. During the six months ended June 30, 2000, GEFCS had revenues
(fee income) of approximately $1,329,000 and an operating and net loss of
approximately $147,000.
The company recently completed an amendment to its distribution agreement
with GE Fuel Cell Systems that defines product specifications and delivery
schedules for pre-commercial and commercial model introductions. The new
agreement allows GE to extend the existing 10-year agreement by an
additional 5 years. Given the Company's revised product introduction
schedule, which is expected to be during the first half of 2002, it does not
expect any significant sales to GE before the first half of 2002.
In March 2000, the Company acquired a 28% ownership interest in Advanced
Energy Systems, Inc. (AES) in exchange for a combination of $1.5 million
cash and Plug Power common stock valued at approximately $828,000. The
Company accounts for its interest in AES on the equity method of accounting
and adjusts its investment by its proportionate share of income or losses.
During the six months ended June 30, 2000, AES had sales of approximately
$702,000 and an operating and net loss of approximately $378,000.
7
<PAGE>
6. GASTEC TRANSACTION
In February 2000, Plug Power acquired all of Gastec's intellectual property,
and certain fixed assets, related to fuel processor development for fuel
cell systems capable of producing up to 100 kW of electricity. The total
purchase price was $14,800,000, paid in cash. In connection with the
transaction, the Company recorded in-process research and development
expense in the amount of $4,984,000, fixed assets in the amount of $192,000
and intangible assets in the amount of $9,624,000 (including a trained
workforce for $357,000).
The in-process research and development was valued using an income approach
which reflects the present value of future avoided costs the Company
estimates it would otherwise have spent if it were to acquire the exclusive
rights to this technology, for its remaining useful life, from another
entity. The Company then discounted the net avoided cost using a 40%
discount rate which the Company believes to be consistent with the risk
associated this early stage technology. This amount was further adjusted to
reflect the technology's stage of completion, of approximately 30%, in order
to reflect the value of the in-process research and development attributable
to the efforts of the seller up to the date of the transaction.
Fixed assets were capitalized at their fair value and will be depreciated
over their useful life.
In connection with the transaction, the Company acquired the services of
employees experienced in the fuel cell industry. Accordingly, the Company
has capitalized the estimated cost savings associated with recruiting,
relocating and training a similar workforce.
The remaining $9,267,000 has been capitalized as an intangible asset. This
amount together with the value attributable to the trained workforce has
been capitalized and will be amortized over the next 36 months.
7. STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the six months ended June 30, 2000 is as
follows:
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Total
Common Stock Additional Development Stockholders'
Shares Amount Paid-in Capital Stage Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 2000 43,015,508 $ 430,155 $ 249,964,994 $ (48,988,615) $ 201,406,534
Stock issued for equity in 7,000 70 827,680 827,750
affiliate
Stock issued for development 104,869 1,048 4,998,952 5,000,000
agreement
Stock issued to employees 3,041 31 253,893 253,924
Compensatory stock options 63,400 63,400
Stock option exercises 385,517 3,855 1,632,940 1,636,795
Net loss (35,279,018) (35,279,018)
-------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 43,515,935 $ 435,159 $ 257,741,859 $ (84,267,633) $ 173,909,385
===========================================================================================
</TABLE>
8
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Development agreements:
In April, 2000, the Company finalized a joint development agreement with
AXIVA GmbH, to develop a high temperature membrane electrode unit (MEU).
Under the agreement, Plug Power and Axiva will exclusively work together on
the development of a high temperature MEU for Plug Power's stationary fuel
cell system applications. As part of the agreement Plug Power will
contribute an estimated $4.1 million (not to exceed $4.5 million) to fund
its share of the development efforts over the next twelve months. As of June
30, 2000, the Company has contributed $1.5 million under the terms of the
agreement. In connection with the transaction, the Company has recorded $1.5
million under the balance sheet caption "Prepaid development costs" and will
amortize these costs as they are incurred.
In June 2000, the Company finalized a joint development agreement with
Engelhard Corporation for development and supply of advanced catalysts to
increase the overall performance and efficiency of Plug Power's fuel
processor - the front end of the fuel cell system. As part of the agreement,
over the next three years, Plug Power will contribute $10 million to fund
Engelhard's development efforts and Engelhard will purchase $10 million of
Plug Power's common stock. The agreements also specify rights and
obligations for Engelhard to supply product to Plug Power over the next 10
years. As of June 30, 2000, the Company has contributed $5 million under the
terms of the agreement while Engelhard has purchased $5 million of Plug
Power common stock. In connection with the transaction, the Company has
recorded $5 million under the balance sheet caption "Prepaid development
costs" and will amortize these costs as they are incurred.
Litigation:
The Company has disclosed on a Form 8-K filed January 25, 2000, with the
Securities and Exchange Commission, that a legal complaint was filed against
the Company, The Detroit Edison Company and EDC alleging the entities
misappropriated business and technical trade secrets, ideas , know-how and
strategies relating to fuel cell systems and breached certain contractual
obligations owed to DCT, Inc. The Company continues to believe the
allegations made against it are without merit and intends to vigorously
contest the litigation, but the ultimate outcome is of course uncertain. Due
to the early stage of this litigation, we cannot determine whether any loss
will result from the ultimate outcome.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements and Notes thereto
included within this report, and our audited financial statements and notes
thereto included in our Annual Report on Form 10-K filed for the fiscal year
ended December 31, 1999. In addition to historical information, this Form 10-Q
and the following discussion contain forward-looking statements that reflect our
plans, estimates, intentions, expectations and beliefs. Our actual results could
differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those set forth under the caption "Risk Factors" in our Annual
Report on Form 10-K filed for the fiscal year ended December 31, 1999.
OVERVIEW
Plug Power is a designer and developer of on-site, electricity generation
systems utilizing proton exchange membrane (PEM) fuel cells for residential
applications. GE Fuel Cell Systems, LLC, a joint venture 75% owned by General
Electric's GE Power Systems business and 25% owned by Plug Power, will market,
sell, service, and install our product.
Plug Power was formed in June 1997 as a joint venture to further the
development of fuel cells for electric power generation in residential and other
applications. We are a development stage company and expect to bring our first
commercial product to market in 2002. We recently completed an amendment to our
distribution agreement with GE Fuel Cell Systems that defines product
specifications and delivery schedules for pre-commercial and commercial model
introductions. The new agreement also allows GE to extend the existing 10-year
agreement by an additional 5 years.
We continue to advance the development of our product. As a result of the
continuous review of our development progress we have adjusted our production
schedule for the remainder of this year and now plan to manufacture a total of
125 pre-commercial systems in year 2000. Through the first half of the year we
have produced 61 pre-commercial systems for both onsite and offsite testing. At
the end of the second quarter we had 27 field test systems, fueled by natural
gas, providing power to homes and other buildings. These field systems,
combined with others installed in Plug Power's R&D facilities, have accumulated
over 47,000 hours of run time during the first six months of 2000. While these
systems are not our final commercial design they enable us to gather meaningful
data that is critical to the design of our initial commercial product which is
now expected to be available during the first half of 2002. We do not expect
significant product sales until after we begin commercial production.
Since inception, we have devoted substantially all of our resources toward
the development of the PEM fuel cell systems and have derived substantially all
of our revenue from government research and development contracts. Through June
30, 2000, our stockholders in the aggregate have contributed $225.4 million in
cash, including $93.0 million in net proceeds from our initial public offering
of common stock, which closed on November 3, 1999 and $25.5 million in other
contributions, consisting of in-process research and development, real estate,
other in-kind contributions and a 25% interest in GE Fuel Cell Systems.
10
<PAGE>
From inception through June 30, 2000, we have incurred losses of $84.3
million and expect to continue to incur losses as we expand our product
development and commercialization program and prepare for the commencement of
manufacturing operations. We expect that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial as a result of, among
other factors, the number of systems we produce and install for internal and
external testing, the related service requirements necessary to monitor those
systems and potential design changes required as a result of field testing.
There can be no assurance that we will manufacture or sell residential fuel cell
systems successfully or achieve or sustain product revenues or profitability.
ALLIANCES AND DEVELOPMENT AGREEMENTS
Since our inception in June 1997, we have formed strategic alliances with
suppliers of key components, developed distributor and customer relationships,
and entered into development and demonstration programs with electric utilities,
government agencies and other energy providers.
GASTEC: In February 2000, Plug Power acquired all of Gastec's intellectual
property, and certain fixed assets, related to fuel processor development for
fuel cell systems capable of producing up to 100 kW of electricity. The total
purchase price was $14,800,000, paid in cash. In connection with the
transaction, the Company recorded in-process research and development expense in
the amount of $4,984,000, fixed assets in the amount of $192,000 and intangible
assets in the amount of $9,624,000 (including a trained workforce for $357,000).
The in-process research and development was valued using an income approach
which reflects the present value of future avoided costs the Company estimates
it would otherwise have spent if it were to acquire the exclusive rights to this
technology, for its remaining useful life, from another entity. The Company then
discounted the net avoided cost using a 40% discount rate which the Company
believes to be consistent with the risk associated this early stage technology.
This amount was further adjusted to reflect the technology's stage of
completion, of approximately 30%, in order to reflect the value of the in-
process research and development attributable to the efforts of the seller up to
the date of the transaction. Fixed assets were capitalized at their fair value
and will be depreciated over their useful life. In connection with the
transaction, the Company acquired the services of employees experienced in the
fuel cell industry. Accordingly, the Company has capitalized the estimated cost
savings associated with recruiting, relocating and training a similar workforce.
The remaining $9,267,000 has been capitalized as an intangible asset. This
amount together with the value attributable to the trained workforce has been
capitalized and will be amortized over the next 36 months.
AXIVA: In April, 2000, the Company finalized a joint development agreement with
AXIVA GmbH, to develop a high temperature membrane electrode unit (MEU). Under
the agreement, Plug Power and Axiva will exclusively work together on the
development of a high temperature MEU for Plug Power's stationary fuel cell
system applications. As part of the agreement Plug Power will contribute an
estimated $4.1 million (not to exceed $4.5 million) to fund its share of the
development efforts over the next twelve months. As of June 30, 2000, the
Company has contributed $1.5 million under the terms of the agreement. In
connection with the transaction, the Company has recorded $1.5 million under the
balance sheet caption "Prepaid development costs" and will amortize these costs
as they are incurred.
ENGELHARD: In June 2000, the Company finalized a joint development agreement
with Engelhard Corporation for development and supply of advanced catalysts to
increase the overall performance and efficiency of Plug Power's fuel processor -
the front end of the fuel cell system. As part of the agreement,
11
<PAGE>
over the next three years, Plug Power will contribute $10 million to fund
Engelhard's development efforts and Engelhard will purchase $10 million of Plug
Power's common stock. The agreements also specify rights and obligations for
Engelhard to supply product to Plug Power over the next 10 years. As of June 30,
2000, the Company has contributed $5 million under the terms of the agreement
while Engelhard has purchased $5 million of Plug Power common stock. In
connection with the transaction, the Company has recorded $5 million under the
balance sheet caption "Prepaid development costs" and will amortize these costs
as they are incurred.
ADVANCED ENERGY SYSTEMS: In March 2000, the Company acquired a 28% ownership
interest in Advanced Energy Systems, Inc. (AES) in exchange for a combination of
$1.5 million cash and Plug Power stock valued at approximately $828,000. The
Company accounts for its interest in AES on the equity method of accounting and
adjusts its investment by its proportionate share of income or losses. During
the six months ended June 30, 2000, AES had sales of approximately $702,000 and
an operating and net loss of approximately $378,000.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2000 and June 30, 1999.
Revenues. Our revenues during this period were derived primarily from cost
reimbursement government contracts relating to the development of PEM fuel cell
technology and contract revenue generated from the delivery of PEM fuel cells
and related engineering and testing support services for other customers. Our
government contracts provide for the partial recovery of direct and indirect
costs from the specified government agency, generally requiring us to absorb
from 25% to 50% of contract costs incurred.
Total revenues for the second quarter ended June 30, 2000, were $2.4
million as compared to $2.0 million for the second quarter of 1999. This is the
result of increased commercial contract revenue in the amount of $0.4 million,
while the overall level of government contract revenue earned remained
consistent. Government contract revenue represents approximately 80% of our
total revenue. As a result of our cost sharing requirements for government
contracts, we will report losses on these contracts as well as any future
government contracts awarded.
During the second quarter of 2000, the Company manufactured 39 pre-
commercial residential fuel cell systems. The specifications of our current pre-
commercial systems do not conform to the specifications originally agreed upon
with GE in February 1999. As a result, GE is no longer contractually obligated
to purchase the 485 units under its take or pay commitment and we no longer
anticipate the projected $10.3 million in revenue from GE in 2000. Additionally,
we do not expect any significant sales to GE until our commercial product is
available during the first half of 2002.
Cost of revenues. Cost of contract revenue includes compensation and
benefits for the engineering and related support staff, fees paid to outside
suppliers for subcontracted components and services, fees paid to consultants
for services provided, materials and supplies used and other directly allocable
general overhead costs. Cost of contract revenue was $3.5 million for the three
months ended June 30, 2000, as compared to $2.9 million for the same period last
year. The increase in contract costs were related to increased effort on those
contracts with greater cost sharing requirements, combined with the additional
staff and related support costs necessary to earn the additional commercial
contract revenue. The result was a loss on
12
<PAGE>
contracts of $1.1 million for the three months ended June 30, 2000 compared to a
loss on contracts of $1.0 million last year.
We expect the cost to produce our initial systems to be higher than their
sales price under the terms of our arrangements with our two distributors, GE
Fuel Cell Systems and Edison Development and expect to continue to experience
costs in excess of product revenues until we achieve higher production levels,
which we do not anticipate until after 2003.
Research and Development. Research and development expense includes
compensation and benefits for the engineering and related staff, expenses for
contract engineers, materials to build prototype units, fees paid to outside
suppliers for subcontracted components and services, supplies used, facility
related costs, such as computer and network services and other general overhead
costs. Research and development expenses increased to $16.9 million for the
three months ended June 30, 2000 from $4.8 million for the three months ended
June 30, 1999. The increase was primarily attributable to the growth of our
research and development activities, $11.5 million, including the production of
39 test and evaluation residential PEM fuel cell systems and amortization in the
amount of $0.6 million related to the portion of the Gastec purchase price which
has been capitalized and recorded on our balance sheet under the caption
"Intangible assets."
General and Administrative. General and administrative expense includes
compensation, benefits and related costs in support of our general corporate
functions, including general management, finance and accounting, human
resources, business development, information and legal services. General and
administrative expenses decreased to $1.7 million for the three months ended
June 30, 2000 from $2.7 million for the three months ended June 30, 1999. The
decrease is due to a one-time charge, in 1999, in the amount of $1.9 million for
write off of deferred rent expense offset by an increase of $0.9 million for
increased personnel cost and general expenses associated with expanding business
operations.
In June 1999, the Company entered into a real estate purchase agreement
with Mechanical Technology to acquire our current facility, a portion of which
we previously leased from them. As a result, we wrote off deferred rent expense
in the amount of $1.9 million during the quarter ended June 30, 1999.
Interest Expense. Interest expense of $59,000 for the three months ended
June 30, 2000 consists of interest on a long-term obligation related to a real
estate purchase agreement with Mechanical Technology in June, 1999, and interest
paid on capital lease obligations.
Interest Income. Interest income consists of interest earned on our cash
and cash equivalents and increased to $2.2 million for the three months ended
June 30, 2000 from $174,000 for the same period last year. The increase was due
to interest earned on higher balances of cash and cash equivalents available
throughout the second quarter of 2000, which is result of our initial public
offering of common stock and the exercise of warrants and stock purchase
commitments by our existing stockholders.
Equity in losses of affiliates. Equity in losses of affiliate increased to
$455,000 for the three months ended June 30, 2000 from $313,000 last year.
Equity in losses of affiliates for the period ended June 30, 2000 in the amount
of $455,000 is our proportionate share of the losses of GE
13
<PAGE>
Fuel Cell Systems and Advanced Energy Systems in the amount of $26,000 and
goodwill amortization on those investments in the amount of $429,000, which we
account for under the equity method of accounting.
Income Taxes. No benefit for federal and state income taxes has been
reported in the financial statements because the deferred tax asset generated
from our net operating loss for the three month period ended June 30, 2000 has
been offset by a full valuation allowance because it is more likely than not
that the tax benefits of the net operating loss carryforward may not be
realized.
We were taxed as a partnership prior to November 3, 1999, the effective
date of our merger into a C corporation, and the federal and state income tax
benefits of our losses were recorded by our stockholders. Effective on November
3, 1999, and began accounting for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes."
Comparison of the Six Months Ended June 30, 2000 and June 30, 1999.
Revenues. Our revenues during this period were derived primarily from cost
reimbursement government contracts relating to the development of PEM fuel cell
technology and contract revenue generated from the delivery of PEM fuel cells
and related engineering and testing support services for other customers. Our
government contracts provide for the partial recovery of direct and indirect
costs from the specified government agency, generally requiring us to absorb
from 25% to 50% of contract costs incurred.
Total revenues for the six months ended June 30, 2000 were $5.4 million as
compared to $3.7 million for the same period in 1999. This is primarily the
result of increased commercial contract revenue in the amount of $1.1 million.
Government contract revenue represents approximately 80% of our total revenue.
As a result of our cost sharing requirements for government contracts, we will
report losses on these contracts as well as any future government contracts
awarded.
During the first half of 2000, the Company manufactured 61 pre-commercial
residential fuel cell systems. The specifications of our current pre-commercial
systems do not conform to the specifications originally agreed upon with GE in
February 1999. As a result, GE is no longer contractually obligated to purchase
the 485 units under its take or pay commitment and we no longer anticipate the
projected $10.3 million in revenue from GE in 2000. Additionally, we do not
expect any significant sales to GE until our commercial product is available
during the first half of 2002.
Cost of revenues. Cost of contract revenue includes compensation and
benefits for the engineering and related support staff, fees paid to outside
suppliers for subcontracted components and services, fees paid to consultants
for services provided, materials and supplies used and other directly allocable
general overhead costs allocated to specific government contracts. Cost of
contract revenue was $7.4 million for the six months ended June 30, 2000, as
compared to $5.1 million for the same period last year. The increase in contract
costs were related to increased effort on those contracts with greater cost
sharing requirements, combined with the additional staff and related support
costs necessary to earn the additional contract revenue. The result was a loss
on contracts of $2.0 million for the six months ended June 30, 2000 compared to
a loss on contracts of $1.4 million last year.
14
<PAGE>
We expect the cost to produce our initial systems to be higher than their
sales price under the terms of our arrangements with our two distributors, GE
Fuel Cell Systems and Edison Development and expect to continue to experience
costs in excess of product revenues until we achieve higher production levels,
which we do not anticipate until after 2003.
Research and Development. Research and development expense includes
compensation and benefits for the engineering and related staff, expenses for
contract engineers, materials to build prototype units, fees paid to outside
suppliers for subcontracted components and services, supplies used, facility
related costs, such as computer and network services and other general overhead
costs. Research and development expenses increased to $33.4 million for the six
months ended June 30, 2000 from $7.8 million for the six months ended June 30,
1999. The increase was a result of a one-time charge of $5.0 million related to
the write off of in-process research and development related to our acquisition
of intellectual property acquired from Gastec and amortization of $1.1 million
related to the portion of the Gastec purchase price which has been capitalized
and recorded on our balance sheet under the caption "Intangible assets." The
remaining increase, $19.5 million, is attributable to the growth of our research
and development activities, including the production of 61 test and evaluation
residential PEM fuel cell systems.
General and Administrative. General and administrative expense includes
compensation, benefits and related costs in support of our general corporate
functions, including general management, finance and accounting, human
resources, business development, information and legal services. General and
administrative expenses decreased to $3.3 million for the six months ended June
30, 2000 from $5.6 million for the six months ended June 30, 1999. The decrease
was primarily due to a $2.3 million charge for non-cash stock-based
compensation, a $1.9 million charge for the write-off of deferred rent expense,
both further explained below, offset by an increase of $1.9 million for
increased personnel cost and general expenses associated with expanding business
operations.
Our original formation agreements provided for Mechanical Technology to
earn non-cash credits relating to services it rendered prior to our formation in
connection with securing future government contracts. Upon our formation,
Mechanical Technology contributed its fuel cell operations to us and we received
the right to these government contracts if ever awarded in the future. When
these contracts were awarded to us, Mechanical Technology earned the non-cash
credits, entitling it to receive 2,250,000 shares of common stock with a fair
value at the time of grant of $2.3 million. Accordingly, we recognized $2.3
million in non-cash stock-based compensation expense during the three months
ended March 31, 1999.
In June 1999, the Company entered into a real estate purchase agreement
with Mechanical Technology to acquire our current facility, a portion of which
we previously leased from them. As a result, we wrote off deferred rent expense
in the amount of $1.9 million during the quarter ended June 30, 1999.
Interest Expense. Interest expense of $155,000 for the six months ended
June 30, 2000 consists of interest on a long-term obligation related to a real
estate purchase agreement with Mechanical Technology in June, 1999, and interest
paid on capital lease obligations.
15
<PAGE>
Interest Income. Interest income consists of interest earned on our cash
and cash equivalents and increased to $4.5 million for the six months ended June
30, 2000 from $218,000 for the same period last year. The increase was due to
interest earned on higher balances of cash and cash equivalents available
throughout the first half of 2000, which is result of our initial public
offering of common stock and the exercise of warrants and stock purchase
commitments by our existing stockholders.
Equity in losses of affiliates. Equity in losses of affiliate increased to
$963,000 for the six months ended June 30, 2000 from $500,000 last year. Equity
in losses of affiliates during the six months ended June 30, 2000 in the amount
of $963,000 is our proportionate share of the losses of GE Fuel Cell Systems and
Advanced Energy Systems in the amount of $253,000 and goodwill amortization on
those investments in the amount of $710,000, which we account for under the
equity method of accounting.
Income Taxes. No benefit for federal and state income taxes has been
reported in the financial statements because the deferred tax asset generated
from our net operating loss for the three month period ended March 31, 2000 has
been offset by a full valuation allowance because it is more likely than not
that the tax benefits of the net operating loss carryforward may not be
realized.
We were taxed as a partnership prior to November 3, 1999, the effective
date of our merger into a C corporation, and the federal and state income tax
benefits of our losses were recorded by our stockholders. Effective on November
3, 1999, and began accounting for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes."
LIQUIDITY AND CAPITAL RESOURCES
Summary
Our cash requirements depend on numerous factors, including completion of
our product development activities, ability to commercialize our residential
fuel cell systems, market acceptance of our systems and other factors. We expect
to devote substantial capital resources to continue our development programs
directed at commercializing our fuel cell systems for worldwide residential use,
to hire and train our production staff, develop and expand our manufacturing
capacity, begin production activities and expand our research and development
activities. We will pursue the expansion of our operations through internal
growth and strategic acquisitions and expect such activities will be funded from
existing cash and cash equivalents, issuance of additional equity or debt
securities or additional borrowings subject to market and other conditions.
There can be no assurance that such additional financing will be available on
terms acceptable to the Company or at all. The failure to raise the funds
necessary to finance its future cash requirements or consummate future
acquisitions could adversely affect the Company's ability to pursue its strategy
and could negatively affect its operations in future periods. We anticipate
incurring substantial additional losses over at least the next several years and
believe that our current cash balances will provide us with sufficient capital
to fund operations for at least the next 12 months.
We have financed our operations through June 30, 2000, primarily from the
sale of equity, which has provided cash in the amount of $225.4 million. As of
June 30, 2000, we had
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unrestricted cash, cash equivalents and marketable securities totaling $122.0
million and working capital was approximately $122.0 million. As a result of our
purchase of real estate from Mechanical Technology, we have escrowed $5.8
million in cash to collateralize the debt assumed on the purchase.
During the six months ended June 30, 2000, net cash used in operating
activities was $32.7 million, including $5.0 million related to the write off of
in-process research and development related to our acquisition of intellectual
property acquired from Gastec. Cash used in investing activities during the six
months ended June 30, 2000, was $29.6 million, including $11.2 million for the
purchase of marketable securities. Excluding the purchase of marketable
securities, cash used in investing activities was $18.4 million consisting of
$7.2 million for the purchase of property, plant and equipment, $9.7 million
representing the goodwill portion of the purchase price related to the
acquisition of intellectual property from Gastec and $1.5 million for a 28%
ownership interest in Advanced Energy Systems.
Since inception, net cash used in operating activities has been $65.3
million and cash used in investing activities has been $43.1 million
IMPACT OF YEAR 2000
In late 1999, we completed a review and evaluation of the potential impact
that the change in the date to the Year 2000 will have on our computer systems
and concluded that all of our major computer systems were able to recognize and
appropriately process dates commencing in the Year 2000. As a result of those
planning and implementation efforts, the Company experienced no significant
disruptions in mission critical information technology and non-information
technology systems and believes those systems successfully responded to the Year
2000 date change.
Our historical cost to assess our Year 2000 readiness has been negligible.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its internal systems, or the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
--------------------------
On January 25, 2000, DCT, Inc. filed a complaint against Plug Power, The Detroit
Edison Company and Edison Development Corporation, alleging that these entities
misappropriated from DCT business and technical trade secrets, ideas, know-how
and strategies relating to fuel cell systems and breached certain contractual
obligations owed to DCT. We believe the allegations made against us are without
merit and we intend to vigorously contest the litigation. Discovery is currently
underway. Due to the early stage of this litigation, we cannot determine whether
any loss will result from the ultimate outcome.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
At the Company's Annual Meeting of Shareholders ("Annual Meeting") held on May
24, 2000, the Company's shareholders approved the following:
(1) To elect the following directors as Class I Directors, each to serve until
the Company's 2003 annual meeting of stockholders and until his successor
is duly elected and qualified:
<TABLE>
<CAPTION>
Against/ Broker
Nominee For Withheld Abstain Non-Votes
------- --------------------------------------------
<S> <C> <C> <C> <C>
Gary Mittleman 37,538,037 23,047 -- --
Walter L. Robb 37,538,037 23,047 -- --
Anthony F. Earley, Jr. 37,538,037 23,047 -- --
(2) To approve an amendment
to the Company's
Certificate of
Incorporation increasing
the number of authorized
shares of Common Stock
from 95,000,000 to
245,000,000 37,287,322 243,622 29,212 --
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
A) Exhibits.
2.1 Agreement and Plan of Merger by and between Plug Power and Plug Power,
LLC, a Delaware limited liability company, dated as of October 7, 1999. *
3.1 Amended and Restated Certificate of Incorporation of Plug Power. *
3.2 Amended and Restated By-laws of Plug Power. *
4.1 Specimen certificate for shares of common stock, $.01 par value, of Plug
Power. *
10.1 Amended and Restated Limited Liability Company Agreement of GE Fuel
Cell Systems, LLC, dated February 3, 1999, between GE On-Site Power, Inc.
and Plug Power, LLC *
10.2 Contribution Agreement, dated as of February 3, 1999, by and between GE
On-Site Power, Inc. and Plug Power, LLC. *
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<PAGE>
10.3 Trademark and Trade Name Agreement, dated as of February 2, 1999,
between General Electric Company and GE Fuel Cell Systems, LLC. *
10.4 Trademark Agreement, dated as of February 2, 1999, between Plug Power
LLC and GE Fuel Cell Systems, LLC. *
10.5 Distributor Agreement, dated as of February 2, 1999, between GE Fuel
Cell Systems, LLC and Plug Power, LLC. *
10.6 Side letter agreement, dated February 3, 1999, between General Electric
Company and Plug Power LLC. *
10.7 Mandatory Capital Contribution Agreement, dated as of January 26, 1999,
between Edison Development Corporation, Mechanical Technology Incorporated
and Plug Power, LLC and amendments thereto, dated August 25, 1999 and August
26, 1999. *
10.8 LLC Interest Purchase Agreement, dated as of February 16, 1999, between
Plug Power, LLC and Michael J. Cudahy. *
10.9 Warrant Agreement, dated as of February 16, 1999, between Plug Power,
LLC and Michael J. Cudahy and amendment thereto, dated July 26, 1999. *
10.10 LLC Interest Purchase Agreement, dated as of February 16, 1999,
between Plug Power, LLC and Kevin Lindsey. *
10.11 LLC Interest Purchase Agreement, dated as of April 1, 1999, between
Plug Power, LLC and Antaeus Enterprises, Inc. *
10.12 LLC Interest Purchase Agreement, dated as of April 9, 1999, between
Plug Power, LLC and Southern California Gas Company. *
10.13 Warrant Agreement, dated as of April 9, 1999, between Plug Power, LLC
and Southern California Gas Company and amendment thereto, dated August 26,
1999. *
10.14 Agreement, dated as of June 26, 1997, between the New York State
Energy Research and Development Authority and Plug Power LLC, and amendments
thereto dated as of December 17, 1997 and March 30, 1999. *
10.15 Agreement, dated as of January 25, 1999, between the New York State
Energy Research and Development Authority and Plug Power LLC. *
10.16 Agreement, dated as of September 30, 1997, between Plug Power LLC and
the U.S. Department of Energy. *
10.17 Cooperative Agreement, dated as of September 30, 1998, between the
National Institute of Standards and Technology and Plug Power, LLC, and
amendment thereto dated May 10, 1999. *
10.18 Joint venture agreement, dated as of June 14, 1999 between Plug Power,
LLC, Polyfuel, Inc., and SRI International. *
10.19 Cooperative Research and Development Agreement, dated as of February
12, 1999, between Plug Power, LLC and U.S. Army Benet Laboratories. *
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<PAGE>
10.20 Nonexclusive License Agreement, dated as of April 30, 1993, between
Mechanical Technology Incorporated and the Regents of the University of
California. *
10.21 Development Collaboration Agreement, dated as of July 30, 1999, by and
between Joh. Vaillant GMBH. U. CO. and Plug Power, LLC. *
10.22 Agreement of Sale, dated as of June 23, 1999, between Mechanical
Technology, Incorporated and Plug Power LLC. *
10.23 Assignment and Assumption Agreement, dated as of July 1, 1999, between
the Town of Colonie Industrial Development Agency, Mechanical Technology,
Incorporated, Plug Power, LLC, KeyBank, N.A., and First Albany
Corporation. *
10.24 Replacement Reimbursement Agreement, dated as of July 1, 1999, between
Plug Power, LLC and KeyBank, N.A. *
10.25 1997 Membership Option Plan and amendment thereto dated September 27,
1999. *
10.26 Trust Indenture, dated as of December 1, 1998, between the Town of
Colonie Industrial Development Agency and Manufacturers and Traders Trust
Company, as trustee. *
10.27 Distribution Agreement, dated as of June 27, 1997, between Plug Power,
LLC and Edison Development Corporation and amendment thereto dated September
27, 1999. *
10.28 Agreement, dated as of June 27, 1999, between Plug Power, LLC and Gary
Mittleman. *
10.29 Agreement, dated as of June 8, 1999, between Plug Power, LLC and Louis
R. Tomson. *
10.30 Agreement, dated as of August 6, 1999, between Plug Power, LLC and
Gregory A. Silvestri. *
10.31 Agreement, dated as of August 12, 1999, between Plug Power, LLC and
William H. Largent. *
10.32 Agreement, dated as of August 20, 1999, between Plug Power, LLC and
Dr. Manmohan Dhar.*
10.33 1999 Stock Option and Incentive Plan. *
10.34 Employee Stock Purchase Plan. *
10.35 Agreement, dated as of August 27, 1999, by Plug Power, LLC, Plug Power
Inc., GE On-Site Power, Inc., GE Power Systems Business of General Electric
Company, and GE Fuel Cell Systems, L.L.C. *
10.36 Registration Rights Agreement to be entered into by the Registrant and
the stockholders of the Registrant. *
10.37 Registration Rights Agreement to be entered into by Plug Power, L.L.C.
and GE On-Site Power, Inc. *
23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1
hereto). *
24.1 Powers of Attorney (included on signature page). *
20
<PAGE>
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File Number 333-86089)
27.1 Financial Data Schedule
B) Reports on Form 8-K.
On May 4, 2000, we filed a Form 8-K with the Securities and Exchange
Commission announcing the issuance of a press release announcing first
quarter results and product development update.
SIGNATURE
__________
Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PLUG POWER INC.
DATE: AUGUST 11, 2000 BY: /s/ GARY MITTLEMAN
----------------------
GARY MITTLEMAN
CHIEF EXECUTIVE OFFICER
BY: /s/ WILLIAM H. LARGENT
--------------------------
WILLIAM LARGENT
CHIEF FINANCIAL OFFICER
21
