==========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from __________ to __________
Commission file number 0-6890
MECHANICAL TECHNOLOGY INCORPORATED
(Exact name of registrant as specified in its charter)
New York 14-1462255
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
325 Washington Avenue Extension, Albany, New York 12205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)218-2500
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act
$1.00 Par Value Common Stock
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
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 X No
The aggregate market value of the registrant's Common Stock held by
nonaffiliates of the registrant on March 31, 2000 (based on the last sale
price of $71.00 per share for such stock reported by NASDAQ for that date)
was approximately $458,010,847.
As of March 31, 2000, the registrant had 11,761,070 shares of Common
Stock outstanding.
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(d) (1) Separate financial statements for Plug Power, Inc., a less than
fifty percent owned entity, filed herewith are set forth on the Index to
Financial Statements on page 4 of the separate financial
section which accompanies this Report, which is incorporated herein by
reference. Plug Power's fiscal year ends December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MECHANICAL TECHNOLOGY INCORPORATED
Date: April 7, 2000 By: /s/ Cynthia A. Scheuer
Cynthia A. Scheuer
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/ Cynthia A. Scheuer Vice President and Chief
Cynthia A. Scheuer Financial Officer April 7, 2000
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent accountants....................................... F-2
Balance sheets as of December 31, 1999 and 1998......................... F-3
Statements of operations for the years ended December 31, 1999 and 1998
and for the period from June 27, 1997 (date of inception) to December
31, 1997, and cumulative amounts from inception........................ F-4
Statements of stockholders' equity for the years ended December 31, 1999
and 1998 and the period from June 27, 1997 (date of inception) to
December 31, 1997...................................................... F-5
Statements of cash flows for the years ended December 31, 1999 and 1998
and the period from June 27, 1997 (date of inception) to December 31,
1997 and cumulative amounts from inception............................. F-6
Notes to financial statements........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and cash flows present fairly, in all
material respects, the financial position of Plug Power Inc. (a development
stage enterprise) at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998
and for the period from June 27, 1997 (date of inception) to December 31,
1997, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Albany, New York
February 8, 2000
F-2
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents, principally commercial
paper........................................... $171,496,286 $ 3,993,122
Restricted cash.................................. 275,000 --
Accounts receivable.............................. 5,212,943 599,955
Inventory........................................ 304,711 14,647
Other current assets............................. 124,380 --
Due from investor................................ -- 685,306
------------ ------------
Total current assets........................... 177,413,320 5,293,030
Restricted cash.................................... 5,600,274 --
Property, plant and equipment, net................. 23,333,791 2,753,492
Investment in affiliate............................ 9,778,250 --
Other assets....................................... -- 46,913
------------ ------------
Total assets................................... $216,125,635 $ 8,093,435
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................. $ 4,644,496 $ 568,007
Acrrued expenses................................. 3,004,126 1,746,239
Deferred grant revenue........................... 200,000 --
Due to investor.................................. -- 286,492
Current portion of capital lease obligation and
long-term debt.................................. 353,175 --
------------ ------------
Total current liabilities...................... 8,201,797 2,600,738
Long-term debt................................... 5,600,274 --
Deferred grant revenue........................... 800,000 --
Capital lease obligation......................... 117,030 --
------------ ------------
Total liabilities.............................. 14,719,101 2,600,738
------------ ------------
Commitments and contingencies
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;
95,000,000 shares authorized; 43,015,508 shares
issued and outstanding, December 31, 1999 and
17,150,000 December 31, 1998.................... 430,155 171,500
Paid-in capital.................................. 249,964,994 20,840,500
Deficit accumulated during the development
stage........................................... (48,988,615) (15,519,303)
------------ ------------
Total stockholders' equity..................... 201,406,534 5,492,697
------------ ------------
Total liabilities and stockholders' equity..... $216,125,635 $ 8,093,435
============ ============
</TABLE>
F-3
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999 and 1998, the period from June 27, 1997
(date of inception)
to December 31, 1997, and cumulative amounts from inception
<TABLE>
<CAPTION>
Cumulative
December 31, December December Amounts from
1999 31, 1998 31, 1997 Inception
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Contract revenue........ $ 11,000,344 $ 6,541,040 $ 1,193,530 $ 18,734,914
Cost of contract
revenue................ 15,497,837 8,863,845 1,226,443 25,588,125
------------ ----------- ----------- ------------
Loss on contracts....... (4,497,493) (2,322,805) (32,913) (6,853,211)
In-process research and
development............ -- -- 4,042,640 4,042,640
Research and development
expense................ 20,506,156 4,632,729 1,300,877 26,439,762
General and
administrative
expense................ 9,928,282 2,753,645 630,033 13,311,960
Interest expense........ 189,586 -- -- 189,586
------------ ----------- ----------- ------------
Operating loss........ (35,121,517) (9,709,179) (6,006,463) (50,837,159)
Interest income......... 3,123,955 93,216 103,123 3,320,294
------------ ----------- ----------- ------------
Loss before equity in
losses of affiliate.. (31,997,562) (9,615,963) (5,903,340) (47,516,865)
Equity in losses of
affiliate.............. (1,471,750) -- -- (1,471,750)
------------ ----------- ----------- ------------
Net loss.............. $(33,469,312) $(9,615,963) $(5,903,340) $(48,988,615)
============ =========== =========== ============
Loss per share:
Basic and diluted..... $ (1.27) $ (0.71) $ (0.62)
============ =========== ===========
Weighted average number
of common shares
outstanding............ 26,282,705 13,616,986 9,500,000
============ =========== ===========
</TABLE>
F-4
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1999 and 1998, and the
period from June 27, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Common stock Additional During the Total
------------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
---------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, June 27, 1997.. -- $ -- $ -- $ -- $ --
Capital contributions... 9,500,000 95,000 9,405,000 9,500,000
Net loss................ (5,903,340) (5,903,340)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1997................... 9,500,000 95,000 9,405,000 (5,903,340) 3,596,660
Capital contributions... 7,650,000 76,500 13,173,500 13,250,000
Deferred rent expense... (2,000,000) (2,000,000)
Amortization of deferred
rent expense........... 50,000 50,000
Compensatory options.... 212,000 212,000
Net loss................ (9,615,963) (9,615,963)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1998................... 17,150,000 171,500 20,840,500 (15,519,303) 5,492,697
Initial public
offering--net.......... 6,782,900 67,829 92,904,049 92,971,878
Capital contributions... 19,058,480 190,585 119,749,979 119,940,564
Stock issued for equity
in affiliate........... 11,250,000 11,250,000
Stock based
compensation........... 2,250,000 2,250,000
Amortization of deferred
rent expense........... 100,000 100,000
Write-off deferred rent
expense................ 1,850,000 1,850,000
Compensatory stock
options................ 978,800 978,800
Stock option exercises.. 24,128 241 41,666 41,907
Net loss................ (33,469,312) (33,469,312)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1999................... 43,015,508 $430,155 $249,964,994 $(48,988,615) $201,406,534
========== ======== ============ ============ ============
</TABLE>
F-5
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999 and 1998, the period from June 27, 1997
(date of inception)
to December 31, 1997, and cumulative amounts from inception
<TABLE>
<CAPTION>
Cumulative
December 31, December December Amounts from
1999 31, 1998 31, 1997 Inception
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cash Flows From
Operating Activities:
Net loss................ $(33,469,312) $(9,615,963) $(5,903,340) $(48,988,615)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization......... 1,352,186 499,142 187,708 2,039,036
In-process research
and development...... -- -- 4,042,640 4,042,640
Equity in losses of
affiliate............ 1,471,750 -- -- 1,471,750
Amortization of
deferred rent........ 100,000 50,000 -- 150,000
Write-off of deferred
rent................. 1,850,000 -- -- 1,850,000
In-kind services...... -- 500,000 -- 500,000
Stock based
compensation......... 2,250,000 -- -- 2,250,000
Compensatory options.. 978,800 212,000 -- 1,190,800
Changes in assets and
liabilities:
Accounts receivable... (4,612,988) 203,602 (803,557) (5,212,943)
Inventory............. (290,064) 18,903 (33,550) (304,711)
Due from investor..... 685,306 (685,306) -- --
Other assets.......... (102,466) -- -- (102,466)
Accounts payable and
accrued expenses..... 5,334,376 1,081,587 1,184,551 7,600,514
Deferred grant
revenue.............. 1,000,000 -- -- 1,000,000
Due to investor....... (286,492) 269,245 17,247 --
------------ ----------- ----------- ------------
Net cash used in
operating
activities......... (23,738,904) (7,466,790) (1,308,301) (32,513,995)
------------ ----------- ----------- ------------
Cash Flows From
Investing Activities:
Purchase of property,
plant and equipment.... (10,788,262) (2,370,269) (361,518) (13,520,049)
------------ ----------- ----------- ------------
Cash used in
investing
activities......... (10,788,262) (2,370,269) (361,518) (13,520,049)
------------ ----------- ----------- ------------
Cash Flows From
Financing Activities:
Contributed capital... 115,242,782 10,750,000 4,750,000 130,742,782
Proceeds from initial
public offering,
net.................. 94,611,455 -- -- 94,611,455
Stock issuance costs.. (1,639,577) -- -- (1,639,577)
Proceeds from stock
option exercises..... 41,907 -- -- 41,907
Cash placed in
escrow............... (5,875,274) -- -- (5,875,274)
Principal payments on
capital lease
obligations.......... (65,963) -- -- (65,963)
Principal payments on
long-term debt....... (285,000) -- -- (285,000)
------------ ----------- ----------- ------------
Net cash provided by
financing
activities......... 202,030,330 10,750,000 4,750,000 217,530,330
------------ ----------- ----------- ------------
Increase in cash and
cash equivalents....... 167,503,164 912,941 3,080,181 171,496,286
Cash and cash
equivalents, beginning
of period.............. 3,993,122 3,080,181 -- --
------------ ----------- ----------- ------------
Cash and cash
equivalents, end of
period................. $171,496,286 $ 3,993,122 $ 3,080,181 $171,496,286
============ =========== =========== ============
</TABLE>
F-6
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations
Plug Power Inc. (the Company), was originally formed as a joint venture
between Edison Development Corporation (EDC) and Mechanical Technology
Incorporated (MTI) in the State of Delaware on June 27, 1997 and succeeded by
merger of all of the assets, liabilities and equity of Plug Power, L.L.C. in
November 1999. The Company is a development stage enterprise formed to
research, develop, manufacture and distribute fuel cells for electric power
generation.
2. Initial Public Offering
In November 1999, the Company completed an initial public offering of
6,782,900 shares of common stock, including 782,900 shares pursuant to the
underwriters' exercise of their over-allotment option (the Initial Public
Offering). The Company received proceeds of $93.0 million, which was net of
$8.7 million of expenses and underwriting discounts relating to the issuance
and distribution of the securities. In connection with this offering, the
Company was converted to a C corporation from a limited liability corporation.
The financial statements and related footnotes have been restated to present
the Company as a C corporation for all periods presented.
3. Significant Accounting Policies
Use of estimates:
The financial statements of the Company have been prepared in conformity
with generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents:
Cash and cash equivalents includes cash on hand and short term investments
with original maturities of three months or less.
The Company has restricted cash in the amount of $5,875,274 which the
Company was required to place in escrow to collateralize debt related to its
purchase of real estate. The escrowed amount is recorded under the balance
sheet captions Restricted cash.
Inventory:
Inventory is stated at lower of cost (first-in, first-out) or market, and
consists of raw materials not yet issued to research projects.
Property, plant and equipment, and long-lived assets:
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over their estimated useful lives ranging from 2 to
20 years.
The Company reviews long-lived assets for impairment whenever any events or
changes in circumstances indicate that the carrying amount of these assets may
not be recoverable.
F-7
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue recognition:
The Company's contract revenue is derived from cost reimbursement
government contracts which generally require the Company to absorb from 25% to
50% of the total costs incurred. Such contracts require the Company to deliver
research and tangible developments in fuel cell technology and system design
and prototype fuel cell systems for test and evaluation by the government
agency. Revenues are recognized in proportion to the costs incurred. Included
in accounts receivable are billed and unbilled work-in-progress on cost
reimbursed government contracts. Total estimated cost to complete a contract
in excess of the awarded contract amounts are charged to operations during the
period such costs are estimated. While the Company's accounting for these
contract costs are subject to audit by the sponsoring agency, in the opinion
of management, no material adjustments are expected as a result of such
audits. At December 31, 1999, the Company had been awarded approximately $40
million of such government contracts to be earned in the future periods.
Deferred revenue:
The Company's deferred grant revenue consists of a government grant
received to promote employment. The agreement requires that the Company meet
certain employment criteria, as defined, over a five year period. If the
Company fails to meet the specified criteria, the Company shall repay the
unearned portion of the grant.
4. Property, Plant and Equipment
Property, plant and equipment at December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
December December 31,
31, 1999 1998
----------- ------------
<S> <C> <C>
Land.............................................. $ 90,000 $ --
Buildings......................................... 14,757,080 --
Construction in progress.......................... 58,373 --
Leasehold improvements............................ 2,768,190 97,889
Machinery and equipment........................... 7,436,619 3,104,887
----------- ----------
25,110,262 3,202,776
Less accumulated depreciation and amortization.... (1,776,471) (449,284)
----------- ----------
Property, plant and equipment, net................ $23,333,791 $2,753,492
=========== ==========
</TABLE>
Depreciation expense was approximately $1,327,187 for the year ended
December 31, 1999, $332,476 for the year ended December 31, 1998, and $29,375
for the period from June 27, 1997 (date of inception) to December 31, 1997.
5. Debt
In connection with the Company's purchase of real estate in July, 1999, the
Company assumed a $6.2 million letter of credit issued by KeyBank National
Association for the express purpose of servicing $6.2 million of debt related
to Industrial Development Revenue Bonds issued by the Town of Colonie
Industrial Development Agency in favor of the acquired property. The debt
matures in 2013 and accrues interest at a variable rate of interest which was
approximately 6% at December 31, 1999. Simultaneous with the assumption, the
Company was required to escrow $6.2 million to collateralize the debt. The
escrowed amount is recorded under the balance sheet captions Restricted cash.
Principal payments due on long-term debt are: 2000, $275,000; 2001, $290,000;
2002, $310,000; 2003 $325,000; 2004 and thereafter, $4,675,275. Interest paid
in 1999 was $189,586.
F-8
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Income Taxes
The Company was a Limited Liability Company (LLC) until its merger into
Plug Power Inc. effective November 3, 1999. For the LLC period the Company was
treated as a partnership for federal and state income tax purposes and
accordingly the Company's income taxes or credits resulting from earnings or
losses were payable by, or accrued to its members. Therefore, no provision was
made for income taxes for financial statements prior to November 3, 1999. The
amount of LLC losses for the period January 1, 1999 to November 2, 1999 was
approximately $28.0 million.
Effective November 3, 1999, the Company is taxed as a corporation for
Federal and State income tax purposes and the effect of deferred taxes
recognized as a result of the change in tax status of the Company have been
included in operations. Deferred tax assets and liabilities are determined
based on the temporary differences between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax rates.
There was no current income tax expense in 1999. The significant components
of deferred income tax expense (benefit) for the year ended December 31, 1999
was as follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Deferred tax expense recognized as a result of change in tax
status...................................................... $ 1,739,000
Deferred tax benefit......................................... (491,000)
Net operating loss carryforward.............................. (1,695,000)
Valuation allowance.......................................... 447,000
-----------
$ --
===========
</TABLE>
The Company's effective income tax rate differed from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Federal statutory tax rate...................................... (35)%
Effect of LLC losses............................................ 33
Effect of change in tax status.................................. 2
Other, net ..................................................... (1)
Change in valuation allowances.................................. 1
---
-- %
===
</TABLE>
The deferred tax assets and liabilities as of December 31, 1999 consist of
the following tax effects relating to temporary differences and carryforwards:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Deferred tax assets (liabilities):
Inventory valuation............................................ $ 30,000
Non-employee stock option...................................... 334,000
Other reserves and accruals.................................... 314,000
Net operating loss............................................. 1,695,000
Property, plant and equipment.................................. (1,926,000)
-----------
447,000
Valuation allowance............................................ (447,000)
-----------
$ --
===========
</TABLE>
F-9
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The valuation allowance at the year end December 31, 1999 is approximately
$447,000. During the year ended December 31, 1999, the valuation allowance
increased by approximately $447,000.
At December 31, 1999, the Company has unused Federal and State net
operating loss carryforwards of approximately $4.2 million. The federal net
operating loss carryforwards if unused will begin to expire during the year
ended December 31, 2019.
7. Loss Per Share
Loss per share for the Company is as follows:
<TABLE>
<CAPTION>
For the period
June 27, 1997
Year Ended Year Ended to
December 31, December December 31,
1999 31, 1998 1997
------------ ----------- --------------
<S> <C> <C> <C>
Numerator:
Net loss....................... $(33,469,312) $(9,615,963) $(5,903,340)
Denominator:
Weighted average number of
common shares outstanding..... 26,282,782 13,616,986 9,500,000
</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 in 1999.
8. Stockholders' Equity
The Company has one class of common stock, par value $.01. Each share of
the Company's common stock is entitled to one vote on all matters submitted to
stockholders. At the inception of the Company, in exchange for EDC's initial
cash contribution of $4,750,000, the Company issued 4,750,000 shares. MTI made
noncash contributions of $4,750,000 consisting of in-process research and
development ($4,042,640), and certain net assets, in exchange for 4,750,000
shares. The amount allocated to the in-process research and development
contributed to the Company by MTI represents its estimated fair value based on
the negotiations of two parties and is consistent with its value under the
cost valuation approach. Under the cost valuation approach, value is measured
by quantifying the cost of replacing the future service capability of the
acquired property without considering the amount of economic benefits that can
be achieved, or the time period over which they might continue.
Contributed in-process research and development was early development stage
property, which did not and currently does not have commercial viability or
any alternative future use and which will require substantial additional
expenditures to commercialize. Accordingly, the assigned value was charged to
operations at the time the Company was formed.
During the year ended December 31, 1998, EDC and MTI made additional total
contributions of $13,250,000 in exchange for 7,650,000 shares. EDC contributed
$7,750,000 in cash for 4,950,000 shares. MTI contributed $3,000,000 in cash,
$2,000,000 of deferred rent related to a below market lease for office and
manufacturing facilities, and $500,000 of in-kind services ($5,500,000 in
total) for 2,700,000 shares. In 1998, MTI purchased options for $191,250,
which entitled MTI to acquire 2,250,000 shares by June, 1999 for $2,250,000.
F-10
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
According to the joint venture agreement, MTI could earn non-cash credits
which will be applied toward the purchase price of shares under option. MTI
could earn these credits based on the Company obtaining certain defined levels
of research contracts. In March 1999, all parties to the agreement mutually
agreed that MTI had earned $2,250,000 of non-cash credit which were used to
acquire 2,250,000 shares.
Accordingly, these shares were issued in March 1999, a charge to operations
of $2,250,000 was recorded under the caption "General and Administrative
Expense," and $191,250 was returned to MTI in accordance with the terms of the
option agreement.
In January 1999, the Company entered into an agreement with MTI and EDC
pursuant to which, the Company had the right to require MTI and EDC to
contribute $7.5 million each in 1999 and $15.0 million each in 2000 in
exchange and for which each would receive common stock valued at $7.50 per
share. The agreement also permitted MTI and EDC to contribute any funds not
previously called by the Company on the termination date of the agreement (the
earlier of December 31, 2000 or upon an initial public offering of the
Company's shares at a price greater than $7.50 per share) in exchange for
shares at a price of $7.50 per share.
During January and February of 1999 MTI and EDC each purchased 300,000
shares of common stock for $1.5 million each.
In September 1999, the Company made a capital call of $4.0 million, and MTI
and EDC each contributed $2.0 million in cash in exchange for 266,667 shares
of common stock. In November 1999, MTI and EDC contributed the remaining $41.0
million in exchange for an aggregate of 5,466,666 shares of common stock.
On June 23, 1999, EDC purchased 704,315 shares of the Company's common
stock for $4,697,782. Also, the Company entered into a purchase agreement with
MTI to acquire approximately 36 acres of land, two commercial buildings and a
residential building located in Latham, New York in exchange for
704,315 shares of common stock.
In February 1999, two investors purchased 1,500,000 shares of common stock
for $10.0 million. In addition, one of the investors received a warrant to
purchase 400,000 shares at a price of $8.50 per share. These warrants were
exercised at the time of the initial public offering.
In April 1999 an investor purchased 299,850 shares of common stock for $2.0
million.
In April 1999, an investor purchased 1,000,000 shares of common stock for
$6.7 million. In connection with the purchase agreement, the investor is
required to spend an aggregate of $840,000 for market research and related
services on behalf of the Company. In the event such amounts are not expended
by April, 2002, up to 111,851 of the previously issued shares may be returned
to the Company. The Company will account for these services by recording a
charge to earnings and a credit to paid-in capital as these services are
rendered. As of December 31, 1999, no services had been provided.
Additionally, the investor received warrants to purchase an additional 350,000
shares of common stock at an exercise price of $8.50 per share. These warrants
were exercised at the time of the initial public offering.
F-11
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Employee Benefit Plans
Stock Option Plans (the Plans):
Effective July 1, 1997, the Company established a stock option plan to
provide employees, consultants, and members of the Board of Directors the
ability to acquire an ownership interest in the Company. Options for employees
generally vest 20% per year and expire ten years after issuance. Options
granted to members of the Board vest 50% upon grant and 25% per year
thereafter. Options granted to consultants vest one-third on the expiration of
the consultant's initial contract term, with an additional one-third vesting
on each anniversary thereafter. At December 31, 1999, there were a total of
3,395,215 options granted and outstanding under this plan. Although no further
options will be granted under this plan, the options previously granted will
continue to vest in accordance with this plan and vested options will be
exercisable for shares of common stock.
In August 1999, our Board of Directors and stockholders adopted the 1999
Stock Option and Incentive Plan. At December 31, 1999 there were 285,500
options granted and outstanding, and an additional 3,409,251 options available
to be issued under the plan. Additionally, the number of shares of common
stock available for issuance under the plan will increase by the amount of any
forfeitures under the 1999 Stock Option and Incentive Plan and under the 1997
Stock Option Plan. The number of shares of common stock under the plan will
further increase January 1 and July 1 of each year by an amount equal to 16.4%
of any net increase in the total number of shares of stock outstanding. The
1999 Stock Option and Incentive Plan permits the Company to: grant incentive
stock options; grant non-qualified stock options; grant stock appreciation
rights; issue or sell common stock with vesting or other restrictions, or
without restrictions; grant rights to receive common stock in the future with
or without vesting; grant common stock upon the attainment of specified
performance goals; and grant dividend rights in respect of common stock.
To date, options granted under this plan generally vest 20% per year and
expire ten years after issuance. These grants may be made to officers,
employees, non-employee directors, consultants, advisors and other key persons
of the Company.
The following table summarizes information about the stock options
outstanding under the Plans at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding
----------------------------
Weighted
Average Average
Remaining Exercise
Exercise price Shares Life Price
-------------- --------- --------- --------
<S> <C> <C> <C>
$1.00........................................... 1,413,400 8.1 $ 1.00
$5.00........................................... 575,275 9.0 $ 5.00
$6.67........................................... 584,040 9.2 $ 6.67
$11.00.......................................... 775,200 9.6 $11.00
$15.00.......................................... 332,800 9.8 $15.00
--------- --- ------
3,680,715 9.0 $ 5.90
</TABLE>
F-12
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the Plan:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise
Subject Price
to Option per Share
--------- ---------
<S> <C> <C>
Option Activity
Balance, June 27, 1997.................................. -- $ --
Granted at fair value................................... 1,132,500 1.00
Forfeited or terminated................................. (18,500) 1.00
---------
Balance December 31, 1997............................... 1,114,000 1.00
Granted at fair value................................... 460,650 3.09
Granted below fair value................................ 197,000 1.00
Forfeited or terminated................................. (96,450) 1.03
---------
Balance December 31, 1998............................... 1,675,200 1.57
Granted at fair value................................... 2,047,039 9.39
Forfeited or terminated................................. (17,396) 7.24
Exercised............................................... (24,128) 1.74
---------
Balance December 31, 1999............................... 3,680,715 $5.90
=========
</TABLE>
At December 31, 1999, 3,409,251 shares of common stock were reserved for
issuance under future stock option exercises.
Accounting for Stock Based Compensation:
The per share weighted average fair value of the options granted during
1999, 1998 and 1997 was $7.19, $0.58 and $0.26, respectively, using the
minimum value method of valuing stock options, for the options granted prior
to the Company's initial public offering and the Black-Scholes pricing model
subsequent to the offering.
The dividend yield was assumed to be zero for all periods. The risk free
interest rate ranged from 5.1% to 6.3% in 1999, 4.5% to 5.6% in 1998 and 5.8%
to 6.1% in 1997. An expected life of 5 years was assumed for each year.
Expected volatility of 114% was used in determining fair value under the
Black-Scholes pricing model and was excluded using the minimum value method.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for its stock options plans and
does not record compensation cost for options granted at fair value. Had the
Company determined compensation cost based on fair value in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," net loss would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
June 27,
Year ended Year ended 1997 to
December 31, December December 31,
1999 31, 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Net loss, as reported.............. $(33,469,312) $(9,615,963) $(5,903,340)
Proforma net loss.................. (34,716,991) (9,775,441) (6,000,628)
Proforma loss per share, basic and
diluted........................... $ (1.32) $ (0.72) $ (0.71)
</TABLE>
F-13
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
During 1998 the Company awarded 197,000 options to key employees for which
issuance was contingent upon the attainment of specified performance
objectives. Of those awarded, 51,500 were forfeited. The difference between
the fair value of the options at the measurement date and the exercise price
of the options was $582,000, and will be charged to expense over the four year
vesting period of the options. The charge to operations was $126,800 and
$212,000 for the years ended December 31, 1999 and 1998 respectively.
Additionally in 1999 the Company modified the terms of certain stock
options. The impact of this modification resulted in a charge to earnings of
$800,000 in 1999.
1999 Employee Stock Purchase Plan:
In 1999, the Company adopted the 1999 Employee Stock Purchase Plan (the
Plan) under which employees will be eligible to purchase shares of the
Company's common stock at a discount through periodic payroll deductions. The
Plan is intended to meet the requirements of Section 423 of the Internal
Revenue Code. After the initial period, purchases will occur at the end of six
month offering periods at a purchase price equal to 85% of the market value of
the Company's common stock at either the beginning of the offering period or
the end of the offering period, whichever is lower. The first offering period
under the plan will begin on January 1, 2000 and will end on April 30, 2000.
Participants may elect to have from 1% to 10% of their pay withheld for
purchase of common stock at the end of the offering period, up to a maximum of
$12,500 within any offering period. The Company has reserved 1,000,000 shares
of common stock for issuance under the Plan. At December 31, 1999, the Company
had not issued any shares under the Plan.
401(k) Savings & Retirement Plan:
The Company offers a 401(k) Savings & Retirement Plan to eligible employees
meeting certain age and service requirements. This plan permits participants
to contribute up to 15% of their salary, up to the maximum allowable by the
Internal Revenue Service regulations. Participants are immediately vested in
their voluntary contributions plus actual earnings thereon. Participants are
vested in the Company's matching contribution based on the years of service
completed. Participants are fully vested upon completion of four years of
service. The Company's expense for this plan was $224,000 and $95,000 for
years ended December 31, 1999 and 1998, respectively, and $23,000 for the
period from June 27, 1997 (date of inception) to December 31, 1997.
10. Related Party Transactions
On June 27, 1997, the Company entered into a distribution agreement with
the EDC. Under the agreement, EDC was appointed the Company's exclusive
independent distributor in Michigan, Ohio, Indiana and Illinois to promote and
assist in the sale of products developed by the Company, subject to certain
terms and conditions.
On June 27, 1997, the Company entered into a management services agreement
with MTI to obtain certain services and lease certain facilities for a period
of one year. At the expiration of this agreement, the Company extended the
existing facilities lease through September 30, 1998. In June 1998, the
Company entered into a new facilities lease which commenced on October 1,
1998, and had a term of ten years with an option for an additional five years.
Rental expense was $231,000 and $378,000 for the years ended December 31, 1999
and 1998, respectively. Rental expense was $79,000 for the period from June
27, 1997 (date of inception) to December 31, 1997. The total amount due MTI
was $0 and $286,492 at December 31, 1999 and 1998, respectively. As part of
the new facilities lease, MTI agreed to reimburse the Company up to $2.0
million for improvements made to the Company's facilities. At December 31,
1998, $685,306 in Company expenditures had not been reimbursed by MTI, and is
included in due from investor. This lease and the management agreement with
MTI have been terminated.
F-14
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In 1999, the Company entered into a purchase agreement with MTI to acquire
approximately 36 acres of land, two commercial buildings and a residential
building located in Latham, New York in exchange for 704,315 shares of common
stock. In connection with the transaction with MTI, the Company has written
off deferred rent expense in the amount of $1,850,000 relating to a 10-year
facilities lease associated with the property. Simultaneous with the closing,
the Company agreed to lease back to MTI certain office and manufacturing space
on a short-term basis through November, 1999.
11. Investment in affiliate
In February 1999, the Company entered into an agreement with GE MicroGen,
Inc. (formerly GE On-Site Power, Inc.), a wholly owned subsidiary of General
Electric Co., to create GE Fuel Cell Systems, L.L.C. (GEFCS) a limited
liability company created to market and distribute fuel cell systems world-
wide. GE MicroGen, Inc. owns 75% of GEFCS and the Company owns 25% of GEFCS.
In connection with the formation of GEFCS, the Company issued 2,250,000 shares
of common stock to GE MicroGen valued at $11,250,000. The Company accounts for
its interest in GEFCS on the equity method of accounting and adjusts its
investment by its proportionate share of income or losses under the caption
"Equity in losses of affiliate". From inception through December 31, 1999,
GEFCS had no revenue and an operating and net loss of approximately
$1,762,000. At December 31, 1999 the difference between the amount at which
the investment is carried and the amount of the underlying equity in net
assets of GEFCS is $9,778,250. Such amount is being amortized on a straight
line basis over a ten year period. For the year ended December 31, 1999,
equity in losses of affiliate was $1,471,750 including goodwill amortization
of $1,031,250.
The Company also issued warrants to GE MicroGen to purchase 3 million
shares at $12.50 per share. These warrants were exercised for a total purchase
price of $37.5 million.
As part of the agreement, the Company will work closely with General
Electric's Corporate Research and Development Center for product development
and manufacturing support. GEFCS will market, sell, install and service fuel
cells systems, designed and manufactured by the Company, world-wide (with the
exception of EDC's exclusive four state territory of Michigan, Ohio, Indiana
and Illinois) for residential and small business power applications up to
35kW. In addition, the Company entered into a ten year distribution agreement
with GEFCS that requires GEFCS purchase from the Company a specified number of
pre- commercial units by December 31, 2000.
In accordance with the terms of the agreement, General Electric will
provide capital, in the form of loans, to fund the purchase of pre-commercial
units during the period ending December 31, 2000. General Electric will also
provide additional capital, in the form of a loan not to exceed $8.0 million,
to fund the operations of GEFCS. The Company has agreed to purchase at least
$11.5 million of additional technical support services over a three year
period.
12. Commitments and contingencies
Litigation:
The Company has disclosed on a Form 8-K filed January 25, 2000 with the
Securities and Exchange Commission that a legal complaint was filed against
the Company, The Detroit Edison Company and EDC alleging the entities
misappropriated business and technical trade secrets, ideas, know-how and
strategies relating to fuel cell systems and breached certain contractual
obligations owed to DCT, Inc. The Company believes 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.
F-15
<PAGE>
PLUG POWER INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentrations of credit risk:
The Company has cash deposits in excess of federally insured limits. The
amount of such deposits is approximately $5.7 million at December 31, 1999.
Capital leases:
The Company leased certain equipment under capital lease transactions
during the year with an original cost of $291,443, which had a net book value
at December 31, 1999 of $195,205 and which is included in machinery and
equipment.
Future minimum non-cancelable lease payments are as follows:
<TABLE>
<S> <C>
2000.............................................................. $ 93,022
2001.............................................................. 93,022
2002.............................................................. 34,068
2003.............................................................. 5,368
---------
225,480
Less amounts representing interest................................ (30,275)
---------
$ 195,205
=========
</TABLE>
13. Subsequent events (unaudited)
Purchase of assets:
On February 18, 2000, the Company signed a definitive agreement with
Gastec, a leading developer of fuel processor technology, located in the
Netherlands, to acquire certain intellectual property and assets related to
fuel processor development for systems ranging up to 100kW in size for $15
million in cash.
Equity investments:
On March 15, 2000, the Company acquired 28% of the aggregate shares of
common stock of Advanced Energy Systems, Inc., a supplier of power electronic
inverters for fuel cell systems for approximately $1.5 million in cash and
7,000 shares of the Company's common stock. In connection with the
transaction, the Company received an exclusive, worldwide, royalty-free
license to use all of Advanced Energy's intellectual property for power
electronic inverters for any fuel cell application.
Development agreements:
On March 15, 2000, the Company finalized a joint development agreement with
GE MicroGen and Joh. Vaillant GmbH u. Co. to develop a combined furnace, hot
water heater, and fuel cell system that will provide both heat and electricity
for the home.
F-16
