UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
(Mark One)
x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2012
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT
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For the transition period from
to
Commission file
number: 1-34392
Plug Power Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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22-3672377
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(State or Other Jurisdiction
of Incorporation or Organization)
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(I.R.S. Identification
Number)
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968 ALBANY SHAKER ROAD, LATHAM, NEW YORK 12110
(Address of Principal Executive Offices, including Zip
Code)
(518) 782-7700
(Registrant’s telephone number, including area
code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par
value $.01 per share
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The NASDAQ Capital
Market
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Series
A Junior Participating Cumulative
Preferred Stock, par value $.01 per share
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The
NASDAQ Capital Market
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Securities
registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes
o
No
x
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
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
o
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer,” “non-accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting company
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o
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o
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x
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o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
The
aggregate market value of the voting and non-voting common equity of the
registrant held by non-affiliates of the registrant on June 30, 2012 was $25,274,021.
As of March 22, 2013, 63,799,068
shares of the registrant’s common stock were issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
3
PART I
Forward-Looking Statements
The
following discussion should be read in conjunction with our accompanying
Consolidated Financial Statements and Notes thereto included within this Annual
Report on Form 10-K. In addition to historical information, this Annual Report
on Form 10-K and the following discussion contain statements that are not
historical facts and are considered forward-looking within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements contain projections of our future results of
operations or of our financial position or state other forward-looking
information. In some cases you can identify these statements by forward-looking
words such as “anticipate,” “believe,” “could,”
“continue,” “estimate,” “expect,” “intend,”
“may,” “should,” “will,”
“would,” “plan,” “projected” or the
negative of such words or other similar words or phrases. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control and that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. Investors are
cautioned not to
unduly
rely on forward-looking statements
because they involve risks and uncertainties, and actual results may differ
materially from those discussed as a result of various factors, including, but
not limited to: the risk that we continue to incur losses and might never
achieve or maintain profitability, the risk that we expect we will need to
raise additional capital to fund our operations and such capital may not be
available to us; the risk that we do not have enough cash to fund our
operations to profitability and if we are unable to secure additional capital,
we may need to reduce and/or cease our operations; the risk that a "going
concern” opinion from our auditors, KPMG LLP, could impair our ability to
finance its operations through the sale of equity, incurring debt, or other
financing alternatives; the recent restructuring plan we adopted may adversely
impact management’s ability to meet financial reporting requirements; our
lack of extensive experience in manufacturing and marketing products may impact
our ability to manufacture and market products on a profitable and large-scale
commercial basis; the risk that unit orders will not ship, be installed and/or
converted to revenue; the risk that pending orders may not convert to purchase
orders; the risk that our continued failure to comply with NASDAQ’s
listing standards may result in our common stock being delisted from the NASDAQ
stock market, which may severely limit our ability to raise additional capital;
the cost and timing of developing, marketing and selling our products and our
ability to raise the necessary capital to fund such costs; the ability to
achieve the forecasted gross margin on the sale of our products; the actual net
cash used for operating expenses may exceed the projected net cash for
operating expenses; the cost and availability of fuel and fueling
infrastructures for our products; market acceptance of our GenDrive systems;
our ability to establish and maintain relationships with third parties with
respect to product development, manufacturing, distribution and servicing and
the supply of key product components; the cost and availability of components
and parts for our products; our ability to develop commercially viable
products; our ability to reduce product and manufacturing costs; our ability to
successfully expand our product lines; our ability to improve system
reliability for our GenDrive systems; competitive factors, such as price
competition and competition from other traditional and alternative energy
companies; our ability to protect our intellectual property; the cost of
complying with current and future federal, state and international governmental
regulations; and other risks and uncertainties discussed under Item
IA—Risk Factors. Readers should not place undue reliance on our
forward-looking statements. These forward-looking statements speak only as of
the date on which the statements were made and are not guarantees of future
performance. Except as may be required by applicable law, we do not undertake
or intend to update any forward-looking statements after the date of this
Annual Report on Form 10-K.
4
Item 1. Business
Company Background
Plug Power
Inc., or the Company, is a leading provider of alternative energy technology
focused on the design, development, commercialization and manufacture of fuel
cell systems for the industrial off-road (forklift or material handling)
market.
We
are focused on proton exchange membrane, or PEM, fuel cell and fuel processing
technologies and fuel cell/battery hybrid technologies, from which multiple
products are available. A fuel cell is an electrochemical device that combines
hydrogen and oxygen to produce electricity and heat without combustion.
Hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas, or LPG,
natural gas, propane, methanol, ethanol, gasoline or biofuels. Hydrogen can
also be obtained from the electrolysis of water. Hydrogen can be purchased
directly from industrial gas providers or can be produced on-site at consumer
locations.
We concentrate our efforts on developing, manufacturing and selling our
hydrogen-fueled PEM GenDrive
®
products on commercial terms
for industrial off-road (forklift or material handling) applications, with a
focus on multi-shift high volume manufacturing and high throughput distribution
sites.
We have
previously
invested in development and
sales activities for low-temperature remote-prime power GenSys
®
products and our GenCore
®
product, which is a hydrogen fueled
PEM fuel cell system to provide back-up power for critical infrastructure.
While Plug Power will continue to service and support GenSys and/or GenCore
products on a limited basis, our main focus is our GenDrive product line.
We sell our
products worldwide, with a primary focus on North America, through our direct
product sales force, original equipment manufacturers, or OEMs, and their
dealer networks. We sell to businesses, government agencies and commercial
consumers.
We were organized
in the State of Delaware on June 27, 1997. We were originally a joint
venture between Edison Development Corporation and Mechanical Technology
Incorporated. In 2007, we acquired all the issued and outstanding equity of
Cellex Power Products, Inc., or Cellex, and General Hydrogen Corporation, or
General Hydrogen. Through these acquisitions, and our continued GenDrive
product development efforts, Plug Power became the first fuel cell company to
offer a complete suite of products; Class 1 - sit-down counterbalance trucks,
Class 2 – stand-up reach trucks and Class 3 – rider pallet trucks
products.
Effective April
1, 2010, we were no longer considered a development stage enterprise since
principal operations began to provide more than insignificant revenues as we
received orders from repeat customers, increased our customer base and had a
significant backlog. Prior to April 1, 2010, we were considered a development
stage enterprise because substantially all of our resources and efforts were
aimed at the discovery of new knowledge that could lead to significant
improvement in fuel cell reliability and durability, and the establishment,
expansion and stability of markets for our products.
Unless the
context indicates otherwise, the terms “Company,” “Plug
Power,” “we,” “our” or “us” as used
herein refers to Plug Power Inc. and its subsidiaries.
Business Strategy
We are committed
to developing effective, economical and reliable fuel cell products and
services for businesses, government agencies and commercial consumers. Building
on our substantial fuel cell application and product integration experience, we
are focused on generating strong relationships with customers who value
increased reliability, productivity, energy security and a sustainable future.
Our business
strategy leverages our unique fuel cell application and integration knowledge
to identify early adopter markets for which we can design and develop
innovative systems and customer solutions that provide superior value,
ease-of-use and environmental design.
5
We have made
significant progress in our analysis of the material handling market. We
believe we have developed reliable products which allow the end customers to
eliminate incumbent power sources from their operations, and realize their
sustainability objectives through clean energy alternatives.
Our strategy is
to focus our resources on the material handling market with our GenDrive
product line, which represents an alternative to lead-acid batteries. Our
strategy also includes the following objectives: decrease product costs by
leveraging the supply chain, lower manufacturing costs, improve system
reliability, expand our sales network to effectively reach more of our targeted
customers and provide customers with high-quality products, service and
post-sales support experience.
Our longer-term
objectives are to deliver economic, social, and environmental benefits in terms
of reliable, clean, cost-effective fuel cell solutions and, ultimately,
sustainability.
We believe
continued investment in research and development is critical to the development
and enhancement of innovative products, technologies and services. In addition
to evolving our direct hydrogen fueled systems, we continue to capitalize on
our investment and expertise in power electronics, controls, and software
design.
Business Organization
We manage our
business as a single reporting segment, emphasizing shared learning across
end-user applications and common supplier/vendor relationships.
Products
We sell and continue to develop a range of fuel cell products to replace
lead-acid batteries in material handling vehicles and industrial trucks for
some of North America’s largest distribution and manufacturing
businesses. Our primary product line is GenDrive®, a hydrogen fueled PEM
fuel cell system to provide power to industrial vehicles. We are focusing our
efforts on material handling applications (forklifts) at multi-shift high
volume manufacturing and high throughput distribution sites where our products
and services provide a unique combination of productivity, flexibility and
environmental benefits. In October, 2011 we introduced our next generation
GenDrive products. These next generation fuel cell units include a
simplified architecture featuring 30% fewer components, and a scalable design
for low power applications, giving customers greater flexibility in managing
their deployments. By the third quarter of 2012, the majority of units
produced and shipped were based on the simplified architecture. During
the fiscal year ended December 31, 2012, we received new orders from Stihl,
Mercedes Benz, Lowe’s, Carter’s and Ace Hardware. We also
experienced add-on orders from Walmart, P&G, Coca-Cola, Sysco, Wegmans,
Kroger and BMW.
We continue to develop and monitor future iterations of our products
aligned with our evolving product roadmap.
Product Support & Services
To promote fuel
cell adoption and maintain post-sale customer satisfaction, we offer a range of
service and support options. These options include installation, commissioning,
remote monitoring, product manuals, as well as on-site technical support.
Additionally,
GenDrive product support and services may also include customer training and
using service personnel from lift truck dealer networks. Such personnel
may assist with the commissioning and installation of GenDrive products and, in
some cases, regularly scheduled preventative maintenance.
Markets/Geography & Order Status
Our commercial
sales for GenDrive products are in the material handling market, which
primarily consist of large fleet, multi-shift operations in high-volume
manufacturing and high-throughput distribution centers. In 2012, the majority
of our GenDrive product installations were in North America.
We shipped 1,391
units and received 731 orders for our GenDrive product during the year ended
December 31, 2012. Of the 1,391 units shipped during 2012, 255 of these were
shipped under a Power Purchase Agreement, and will be recorded as revenue as
monthly lease payments are received. Backlog on December 31, 2012 was 1,309
units representing approximately $25.9 million in invoice value. Backlog on
December 31, 2011 was 1,969 units representing approximately $36.0 million in
invoice value.
6
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2012
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2011
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Product Shipments
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1,391
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1,024
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Cancellations/Adjustments
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-
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37
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Orders
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731
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2,503
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Backlog
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1,309
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1,969
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We have accepted
orders that require certain conditions or contingencies to be satisfied prior
to shipment, some of which are outside of our control. Historically, shipments
made against these orders generally occur between ninety days and twenty-four
months from the date of acceptance of the order.
The assembly of
GenDrive products that we sell is performed at our manufacturing facility in
Latham, New York. Currently, the supply and manufacture of several critical
components used in our products are performed by sole-sourced third-party
vendors in the U.S., Canada and China.
We intend to focus our efforts on developing, manufacturing and selling
our GenDrive products and do not expect to develop or manufacture GenSys or
GenCore products in the near term. The Company took no GenCore or GenSys orders
in 2012 and did not ship any of these products in 2012.
Distribution, Marketing and Strategic
Relationships
We have developed
strategic relationships with well-established companies in key areas including
distribution, service, marketing, supply, technology development and product
development. We sell our products worldwide, with a primary focus on North
America, through our direct product sales force, original equipment
manufacturers, or OEMs, and their dealer networks.
Competition
We are confronted by aggressive competition in all areas of our business.
The markets we address for motive power are characterized by the presence of
well-established battery and combustion generator products in addition to
several competing fuel cell companies. Over the past several years, there
has been price competition in these markets. In addition to overall
pricing, the principal competitive factors in the markets in which we operate
include product features, including size and weight, relative price and
performance, product quality and reliability, design innovation, marketing and
distribution capability, service and support and corporate reputation.
In the
material handling market, we believe our GenDrive products have an advantage
over lead-acid batteries for customers who run high-throughput distribution
centers with multi shift operations by offering increased productivity with
lower operational costs. However, we expect competition in this space to
intensify as competitors attempt to imitate our approach with their own
offerings. Some of these current and potential competitors have substantial
resources and may be able to provide such products and services at little or no
profit or even at a loss to compete with our offerings.
Intellectual Property
We believe that neither we nor our competitors can achieve
a significant proprietary position on the basic technologies currently used in
PEM fuel cell systems. However, we believe the design and integration of our
system and system components, as well as some of the low-cost manufacturing
processes that we have developed, are intellectual property that can be
protected. Our intellectual property portfolio covers among other things: fuel
cell components that reduce manufacturing part count; fuel cell system designs
that lend themselves to mass manufacturing; improvements to fuel cell system
efficiency, reliability and system life; and control strategies, such as added
safety protections and operation under extreme conditions. In general, our
employees are party to agreements providing that all inventions, whether
patented or not, made or conceived while being our employee, which are related
to or result from work or research that we perform, will remain our sole and
exclusive property.
7
During 2012, the U.S. Patent and Trademark
Office, or USPTO, issued two new patents to us and we have a total of 159
issued patents currently active with the USPTO. At the close of 2012, we had
approximately 9 U.S. patent applications pending. The number of pending patent
applications decreased in 2012 relative to 2011. Additionally, we have six
trademarks registered with the USPTO.
On February 29, 2012, we formed a joint venture
company based in France with Axane, S.A. under the name Hypulsion S.A.S to
develop and sell hydrogen fuel cell systems for the European material handling
market. As part of the formation of Hypulsion, we and Hypulsion entered into a
License Agreement dated as of February 29, 2012 under which we granted a
license to Hypulsion of certain intellectual property. Under the License
Agreement, the Company grants to Hypulsion a
royalty-free license to certain intellectual property in the field of
integrated hydrogen fuel cell systems for the material handling market. The license
is exclusive as to the territories of Albania, Austria, Belgium, Bosnia and
Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Finland,
France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Liechtenstein,
Luxemburg, Republic of Macedonia, Malta, Montenegro, the Netherlands, Norway,
Poland, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden,
Switzerland and the United Kingdom (the “Territory”). If the
Company sells its entire equity interest in Hypulsion, the license becomes
non-exclusive one year after such sale. Further, the license becomes
non-exclusive, and the Company may terminate the license, upon any bankruptcy
or dissolution of Hypulsion. Under the License Agreement, the Company receives
a royalty-free license back to certain intellectual property of Hypulsion in
the field of integrated hydrogen fuel cell systems for the material handling
market outside of the Territory.
Government Regulation
Our products and their installations are subject to oversight and
regulation at the state and local level in accordance with state and local
statutes and ordinances relating to, among others, building codes, fire codes,
public safety, electrical and gas pipeline connections and hydrogen siting. The
level of regulation may depend, in part, upon where a system is located.
In addition, product safety standards have been established by the
American National Standards Institute, or ANSI, covering the overall fuel cell
system. The class 1, 2 and 3 GenDrive products are designed with the intent of
meeting the requirements of UL 2267 “Fuel Cell Power Systems for
Installation in Industrial Electric Trucks” and NFPA 505 “Fire
Safety Standard for Powered Industrial Trucks”. The hydrogen tanks used
in these systems have been either certified to ANSI/CSA NGV2-2007
“Compressed Natural Gas Vehicle Fuel Containers” or ISO/TS 15869
“Gaseous hydrogen and hydrogen blends-Land vehicle fuel tanks”. A
limited production of our class 1 GenDrive product was approved by a European
Notified Body to carry the CE Mark. We will continue to design our GenDrive
products to meet ANSI and/or other standards in 2013. We will also pursue the
approval to carry the CE Mark for class 1, 2 and 3 GenDrive Products from a
European Notified Body. The hydrogen tanks used in these systems will be
certified to the Pressure Equipment Directive by a European Notified Body.
Other than these requirements, at this time we do not know what additional
requirements, if any, each jurisdiction will impose on our products or their
installation. We also do not know the extent to which any new regulations may
impact our ability to distribute, install and service our products. As we
continue distributing our systems to our target markets, the federal, state, local
or non-U.S. government entities may seek to
impose regulations or competitors may seek to influence regulations through
lobbying efforts.
Raw Materials
Although most components essential to our
business are generally available from multiple sources, we currently obtain
certain key components including, but not limited to, fuel cell stack materials,
energy storage devices, and other major components from single or limited
sources. In 2010, we signed a supply agreement with Ballard Power Systems, or
Ballard, which continues through December 31, 2014. Under this agreement,
Ballard serves as the exclusive supplier of fuel cell stacks for Plug
Power’s GenDrive product line for North America and select European countries.
An addendum to this agreement was signed on June 30, 2011. We had
contractual obligations under this addendum to purchase 3,250 fuel cell stacks
between the dates of July 2, 2011 and December 31, 2012.
8
We believe there are a few component suppliers
and manufacturing vendors whose loss to us could have a material adverse effect
upon our business and financial condition. Such vendors include Ballard and Air
Squared, Inc. We attempt to mitigate these potential risks by working closely
with these and other key suppliers on product introduction plans, strategic
inventories, coordinated product introductions and internal and external
manufacturing schedules and levels.
Research and Development
Because
the fuel cell industry is characterized by its early state of adoption, our
ability to compete successfully is heavily dependent upon our ability to ensure
a continual and timely flow of competitive products, services, and technologies
to the marketplace. We continue to develop new products and technologies and to
enhance existing products in the areas of cost, size, weight, and in supporting
service solutions in order to drive commercialization.
In October of 2012, we were awarded $2.5 million from the U.S. Department
of Energy to retrofit 15 electronic tow tractors with hydrogen fueled fuel
cells, to be deployed at two FedEx Express airport hub locations. In addition,
we were awarded a grant from the New York State Energy Research and Development
Authority in order to develop fuel cell products that could replace diesel
generators in refrigerated trucks.
We may expand the range of our product offerings and intellectual
property through licensing and/or acquisition of third-party business and
technology. Our research and development expense totaled $5.4 million, $5.7
million and $12.9 million in 2012, 2011 and 2010, respectively. We also had
cost of research and development contract revenue of $2.8 million, $6.2 million
and $6.4 million in 2012, 2011 and 2010, respectively. These expenses represent
the cost of research and development programs that are partially funded under
cost reimbursement research and development arrangements with third parties.
Employees
As of December 31, 2012, we had 156 employees, including 6 temporary
employees. On December 11, 2012, we adopted a restructuring plan to improve
organizational efficiency and conserve working capital needed to support the
growth of our GenDrive business. In doing so, 22 full-time positions were
eliminated at our U.S. facilities. This workforce reduction was substantially
completed on December 13, 2012. As a result of the restructuring, we expect to
reduce annual expenses by $3.0 to $4.0 million.
Financial Information About Geographic
Areas
Please refer to our
Geographic Information included in our Consolidated Financial Statements and
notes thereto included in Part II, Item 8: Financial Statements and
Supplementary Data of this Form 10-K.
Available Information
Our Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act are available free of charge, other than an
investor’s own internet access charges, on the Company’s website
with an internet address of www.plugpower.com as soon as reasonably practicable
after the Company electronically files such material with, or furnishes it to
the Securities and Exchange Commission (SEC). The information contained on our
website is not included as a part of, or incorporated by reference into, this
Annual Report on Form 10-K. The public may read and copy any materials the
Company files with the SEC at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, DC 20549. The public may also obtain information on
the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The SEC’s website address is
http://www.sec.gov.
9
Item 1A. Risk Factors
The following
risk
factors should be considered
carefully in addition to the other information in this Annual Report on Form
10-K. The occurrence of any of the following material risks could harm our
business and future results of operations and could result in the trading price
of our common stock declining and a partial or complete loss of your
investment. These risks are not the only ones that we face. Additional
risks not presently known to us or that we currently consider immaterial may
also impair our business operations and trading price of our common stock.
Except as mentioned under “Quantitative and Qualitative Disclosure
About Market Risk” and except for the historical information contained
herein, the discussion contained in this Annual Report on Form 10-K contains
“forward-looking statements,” within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act, that involve risks and
uncertainties. Please refer to the section entitled
“Forward-Looking Statements.”
We
have incurred losses, anticipate continuing to incur losses and might never
achieve or maintain profitability.
We have not achieved profitability in any
quarter since our formation and we will continue to incur net losses until we
can produce sufficient revenue to cover our costs. Our net losses were
approximately $121.7 million in 2008, $40.7 million in 2009, $47.0 million in
2010, $27.5 million in 2011 and $31.9 million for 2012. As of December 31, 2012, we had an accumulated
deficit of $786.6 million. We anticipate that we will continue to incur losses
until we can produce and sell our products on a large-scale and cost-effective
basis. Substantially all of our losses resulted from costs incurred in
connection with our manufacturing operations, research and development expenses
and from general and administrative costs associated with our operations. We
cannot guarantee when we will operate profitably, if ever. In order to achieve
profitability, among other factors, management must successfully execute our
planned path to profitability in the early adoption markets on which we are
focused, the hydrogen infrastructure that is needed to support our growth
readiness and cost efficiency must be available and cost efficient, we must
continue to shorten the cycles in our product roadmap with respect to product
reliability and performance that our customers expect and successful
introduction of our products into the market, we must accurately evaluate our
markets for, and react to, competitive threats in both other technologies (such
as advanced batteries) and our technology field, and we must continue to lower
our products’ build costs and lifetime service costs. If we are unable to
successfully take these steps, we may never operate profitably, and, even if we
do achieve profitability, we may be unable to sustain or increase our
profitability in the future.
We do not have enough cash to fund our operations to
profitability and if we are unable to secure additional capital, we may be
required to seek strategic alternatives, including but not limited to a
potential business combination or a sale of our company or our business, or
reduce and/or cease our operations.
We have experienced recurring operating losses
and as of December 31, 2012, we had an accumulated deficit of approximately $786.6
million. Substantially all of our accumulated deficit has resulted from costs
incurred in connection with our operating expenses, research and development
expenses and from general and administrative costs associated with our
operations. On December 31, 2012, we had cash and cash equivalents of $9.4
million and net working capital of $6.9 million. This compares to $13.9 million
and $22.5 million, respectively, on December 31, 2011. In addition, based
on the borrowing base calculation and our outstanding loan balance, as of
December 31, 2012 we had no availability under our loan facility with Silicon
Valley Bank, and as of March 29, 2013 this loan facility expired. Given its
expiration, we no longer have access to this facility. We expect that for the
fiscal year 2013, operating cash burn will be approximately $10-$15 million,
which exceeds our cash at December 31, 2012. We expect that we will have
sufficient cash to continue our operations into May of 2013. In light of our
cash position, we may be required to seek strategic alternatives, including but
not limited to a potential business combination or a sale of our company or our
business.
To date, we have funded our operations
primarily through public and private offerings of our common and preferred
stock, our line of credit and maturities and sales of our available for sale
securities. We anticipate incurring substantial additional losses and may never
achieve profitability. Additionally, even if we raise sufficient capital
through equity or debt financing, strategic alliances or otherwise, there can
be no assurances that the revenue or capital infusion will be sufficient to
enable us to develop our business to a level where it will be profitable or
generate positive cash flow.
10
We require significant additional capital funding and such
capital may not be available to us.
In the event that our operating expenses are
higher than anticipated or the gross margins and shipments of our GenDrive
products do not increase as we expect, we may be required to implement
contingency plans within our control to conserve and/or enhance our liquidity
to meet operating needs. Such plans include: our ability to further reduce discretionary
expenses, monetize our real estate assets through a sale-leaseback arrangement
and obtain additional funding from licensing the use of our technologies. We are also exploring various alternatives including debt
and equity financing vehicles, strategic partnerships and government programs
that may be additional funding sources available to us, and/or a sale of the
Company.
Our cash requirements relate primarily to
working capital needed to operate and grow our business, including funding
operating expenses, growth in inventory to support both shipments of new units
and servicing the installed base, and continued development and expansion of
our products. Our ability to achieve profitability and meet future liquidity
needs and capital requirements will depend upon numerous factors, including the
timing and quantity of product orders and shipments, the timing and amount of
our operating expenses; the timing and costs of working capital needs; the
timing and costs of building a sales base; the timing and costs of developing
marketing and distribution channels; the timing and costs of product service
requirements; the timing and costs of hiring and training product staff; the
extent to which our products gain market acceptance; the timing and costs of
product development and introductions; the extent of our ongoing and any new
research and development programs; and changes in our strategy or our planned
activities. If we are unable to fund our operations without additional external
financing and therefore cannot sustain future operations, we may be required to
delay, reduce and/or cease our operations and/or seek bankruptcy protection.
Alternatives we would consider for additional
funding include additional equity or debt financings, a sale-leaseback of our
real estate, or licensing of our technology. In addition to raising capital, we
may also consider strategic alternatives including business combinations,
strategic alliances or joint ventures. If we are unable to obtain
additional capital in 2013, we may not be able to sustain our future operations
and may be required to delay, reduce and/or cease our operations and/or seek
bankruptcy protection. The additional capital from the proceeds of the
February, 2013 offering is expected to fund our operations into May of 2013. We
cannot assure you that any necessary additional financing will be available on
terms favorable to us, or at all. Given the difficult current economic
environment, we believe that it could be difficult to raise additional funds
and there can be no assurance as to the availability of additional financing or
the terms upon which additional financing may be available. Additionally, even
if we raise sufficient capital through additional equity or debt financings,
strategic alternatives or otherwise, there can be no assurance that the revenue
or capital infusion will be sufficient to enable us to develop our business to
a level where it will be profitable or generate positive cash flow. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders could be significantly diluted,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing stockholders. If we incur additional debt, a
substantial portion of our operating cash flow may be dedicated to the payment
of principal and interest on such indebtedness, thus limiting funds available
for our business activities. The terms of any debt securities issued could also
impose significant restrictions on our operations. Broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance, and may adversely impact our ability to raise
additional funds. Similarly, if our common stock is delisted from the NASDAQ
Capital Market, it may limit our ability to raise additional funds. If we raise
additional funds through collaborations and/or licensing arrangements, we might
be required to relinquish significant rights to our technologies, or grant licenses
on terms that are not favorable to us.
The report of our independent registered public
accounting firm expresses substantial doubt about the Company’s ability
to continue as a going concern.
Our auditors, KPMG LLP, have indicated in their report on the
Company’s financial statements for the fiscal year ended December 31,
2012 that conditions exist that raise substantial doubt about our ability to
continue as a going concern due to our recurring losses from operations
and substantial decline in our working capital. A
“going concern” opinion could impair our ability to finance our
operations through the sale of equity, incurring debt, or other financing
alternatives. Our ability to continue as a going concern will depend upon the
availability and terms of future funding, continued growth in product orders
and shipments, improved operating margins and our ability to profitably meet our
after-sale service commitments with existing customers. If we are unable
to achieve these goals, our business would be jeopardized and the Company may
not be able to continue. If we ceased operations, it is likely that all of our
investors would lose their investment.
11
The recent restructuring plan we adopted may adversely
impact management’s ability to meet financial reporting requirements.
On December 11, 2012, we adopted a
restructuring plan to improve organizational efficiency and conserve working
capital needed to support the growth of our GenDrive business. In doing so, 22
full-time positions were eliminated at our U.S. facilities, including positions
in our finance department. This workforce reduction was substantially completed
on December 13, 2012. As a result of the restructuring and associated reduced
headcount, going forward we may lack the resources to adequately meet our
financial reporting requirements.
We may have rescission
liability in connection with the articles published in the Business Review on
January 11, 2013 and January 16, 2013.
The statements made by our Chief Executive Officer in the articles
appearing in the Business Review were published within close proximity to the
time that our registration statement on Form S-1 was filed on January 15, 2013.
It may be determined that such statements constituted an offer to purchase our
securities in violation of Section 5 of the Securities Act of 1933, or the
Securities Act. As a result, we may be subject to contingent rescission
liabilities from those investors who purchase shares and subsequently make a
claim under Sect 12(a)(1) of the Securities Act alleging that we violated
Section 5. If an investor was to successfully win such a claim, we may have an
obligation to make a rescission offer to those investors. Although we believe
the chances are remote, if rescission is required, we may continue to be liable
for the original purchase price, plus interest, for a period of one year under
Section 13 of the Securities Act. If all investors rescinded their securities,
potential liability could amount to over $3.3 million plus one year’s
interest. In additional investors that successfully make such a claim under
Section 12(a)(1) of the Securities Act after already having disposed of the
securities may be entitled to damages and interest. We are not able to quantify or project what such damages would be, but
acknowledge that in certain situations, the damages could potentially be
greater than the value of the purchase price of the securities.
We do not have extensive experience in manufacturing and
marketing our products and, as a result, may be unable to sustain a profitable
commercial market for our new and existing products.
From 1997 to 2008, we focused primarily on
research and development of fuel cell systems. In the latter half of 2008, we
shifted our focus to viable commercialization of our fuel cell products. While
we have been manufacturing our products in small quantities for several years,
we do not have extensive experience in mass-manufacturing and marketing our
products. We do not know whether or when we will be able to develop efficient,
low-cost manufacturing capabilities and processes that will enable us to manufacture
our products in commercial quantities while meeting the quality, price,
engineering, design, and production standards required to profitably market our
products. Even if we are successful in developing our manufacturing
capabilities and processes, we do not know whether we will do so in time to
meet our product commercialization schedule or to satisfy the requirements of
our distributors or customers. Before investing in our common stock, you should
consider the challenges, expenses and difficulties that we will face as an
emerging technology company seeking to sustain a viable commercial market for
our new and existing products. If we are unable to sustain a viable commercial
market for our products, that failure would have a material adverse effect on
our business, prospects, financial condition and results of operations.
Our
purchase orders may not ship, be commissioned or installed, or convert to
revenue, and our pending orders may not convert to purchase orders, which may
have a material adverse effect on our revenue and cash flow.
12
Some of the orders we accept from customers
require certain conditions or contingencies to be satisfied prior to shipment
or prior to commissioning or installation, some of which are outside of our
control. Historically, shipments made against these orders have generally
occurred between ninety days and twenty-four months from the date of acceptance
of the order. Orders received during the year ended December 31, 2012 were 731
units for approximately $18.6 million in value. Backlog on December 31, 2012
was $25.9 million, with approximately $10.7 million of this backlog older than
12 months. The time periods from receipt of an order to shipment date and
installation vary widely and are determined by a number of factors, including
the terms of the customer contract and the customer’s deployment plan.
There may also be product redesign or modification requirements that must be
satisfied prior to shipment of units under certain of our agreements. If the
redesigns or modifications are not completed, some or all of our orders may not
ship or convert to revenue. We also have publicly discussed anticipated,
pending orders with prospective customers; however, those prospective customers
may require certain conditions or contingencies to be satisfied prior to
issuing a purchase order to us, some of which are outside of our control. Such
conditions or contingencies that may be required to be satisfied before we receive
a purchase order may include, but are not limited to, successful product
demonstrations or field trials. Some conditions or contingencies that are out
of our control may include, but are not limited to, government tax policy,
government funding programs, and government incentive programs. Additionally,
some conditions and contingencies may extend for several years. We may have to
compensate customers, by either reimbursement, forfeiting portions of
associated revenue, or other methods depending on the terms of the customer
contract, based on the failure on any of these conditions or contingencies.
This could have an adverse impact on our revenue and cash flow.
Certain GenDrive component quality issues have resulted in
adjustments to our warranty reserves, which negatively impacted our results and
delayed our new order momentum, and unanticipated future product reliability
and quality issues could impair our ability to service long term warranty and
maintenance contracts profitably.
Isolated quality issues have arisen with
respect to certain components in our next-generation GenDrive units that are
currently being used at customer sites. The product and service revenue
contracts we entered into generally provide a one-to-two-year product warranty
to customers from date of installation. We have had to retrofit the units
subject to component quality issues with replacement components that will
improve the reliability of our next-generation GenDrive products for those
customers. We have estimated the costs of satisfying those warranty claims and
recorded a net reserve adjustment of $2.9 million during the year ended
December 31, 2012. As of December 31, 2012, there was approximately $2.0
million of this reserve included in product warranty reserve in the consolidated
balance sheets. However, if any unanticipated additional quality issues or
warranty claims arise, additional material charges may be incurred in the
future. We continue to work with our vendors on these component issues to
recover charges taken and improve quality and reliability of components to
prevent a reoccurrence of the isolated quality issues we have experienced.
However, any liability for damages resulting from malfunctions or design
defects could be substantial and could materially adversely affect our
business, financial condition, results of operations and prospects. In
addition, a well-publicized actual or perceived problem could adversely affect
the market’s perception of our products resulting in a decline in demand
for our products and could divert the attention of our management, which may
materially and adversely affect our business, financial condition, results of
operations and prospects.
Our GenDrive product depends on the availability of
hydrogen and our lack of control over or limited availability of such fuel may
adversely impact our sales and product deployment.
Our products depend largely on the availability
of natural gas and hydrogen gas. We are dependent upon hydrogen suppliers for
success with the profitable commercialization of our GenDrive product. Although
we will continue to work with hydrogen suppliers to mutually agree on terms for
our customers, including, but not limited to, price of the hydrogen molecules,
liquid hydrogen, hydrogen infrastructure and service costs, to the benefit of
our GenDrive product value proposition, ultimately we have no control over such
third parties. If these fuels are not readily available or if their prices are
such that energy produced by our products costs more than energy provided by
other sources, then our products could be less attractive to potential users
and our products’ value proposition could be negatively affected. If
hydrogen suppliers elect not to participate in the material handling market,
there may be an insufficient supply of hydrogen for this market that could
negatively affect our sales and deployment of our GenDrive product.
13
Unless
we lower the cost of our GenDrive products and demonstrate their reliability,
our product sales could be adversely affected.
The initial capital cost of our GenDrive
products is currently higher than many established competing technologies. If
we are unable to successfully complete the development of GenDrive or any
future products we develop that are competitive with competing technologies in
terms of price, reliability and longevity, customers will be unlikely to buy
our products. The profitability of our products depends largely on material and
manufacturing costs. We cannot guarantee that we will be able to lower these
costs to the level where we will be able to produce a competitive product or that any product produced using
lower cost materials and manufacturing processes will not suffer from a
reduction in performance, reliability and longevity.
Our GenDrive products face intense competition and we may
be unable to compete successfully.
The markets for energy products are intensely
competitive. Some of our competitors in the fuel cell sector and in incumbent
technologies are much larger than we are and may have the manufacturing, marketing
and sales capabilities to complete research, development and commercialization
of profitable, commercially viable products more quickly and effectively than
we can. There are many companies engaged in all areas of traditional and
alternative energy generation in the United States, Canada and abroad,
including, among others, major electric, oil, chemical, natural gas, battery,
generator and specialized electronics firms, as well as universities, research
institutions and foreign government-sponsored companies. These firms are
engaged in forms of power generation such as solar and wind power,
reciprocating engines and micro turbines, advanced battery technologies,
generator sets, fast charged technologies and other types of fuel cell
technologies. Many of these entities have substantially greater financial,
research and development, manufacturing and marketing resources than we do.
Technological advances in alternative energy products, battery systems or other
fuel cell technologies may make our products less attractive or render them
obsolete.
We depend on only a few customers for the majority of our
revenues and the loss of any one or more of these customers, or a significant
loss, reduction or rescheduling of orders from any of these customers, would
have a material adverse effect on our business, financial condition and results
of operations.
We
sell most of our products to a small number of customers, and while we are
continually seeking to expand our customer base, we expect this will continue
for the next several years. As of December 31, 2012, four of our customers
comprised approximately 82.2% of the total accounts receivable balance, with
each customer individually representing 63.1%, 7.7%, 6.3%, and 5.1% of that
amount. For the year ended December 31, 2012, contracts with two customers
comprise approximately 43.1% of total consolidated revenues, with each customer
individually representing 27.7%, and 15.4%, of total consolidated revenues,
respectively. Any decline in business with these small numbers of customers
could have an adverse impact on our business, financial condition and results of
operations. Our future success is dependent upon the continued purchases of our
products by a small number of customers. Any fluctuations in demand from such
customers or other customers may negatively impact our business, financial
condition and results of operations. If we are unable to broaden our customer
base and expand relationships with potential customers, our business will
continue to be impacted by unanticipated demand fluctuations due to our
dependence on a small number of customers. Unanticipated demand fluctuations can
have a negative impact on our revenues and business, and an adverse effect on
our business, financial condition and results of operations. In addition, our dependence on a small
number of major customers exposes us to numerous other risks, including: a
slowdown or delay in a customer’s deployment of our products could
significantly reduce demand for our products; reductions in a single
customer’s forecasts and demand could result in excess inventories; the
current or future economic conditions could negatively affect one or more of
our major customers and cause them to significantly reduce operations, or file
for bankruptcy; consolidation of customers can reduce demand as well as
increase pricing pressure on our products due to increased purchasing leverage;
each of our customers has significant purchasing leverage over us to require
changes in sales terms including pricing, payment terms and product delivery
schedules; and concentration of accounts receivable credit risk, which could
have a material adverse effect on our liquidity and financial condition if one
of our major customers declared bankruptcy or delayed payment of their
receivables.
14
One of
our stockholders, Interinvest Corporation Inc or Interinvest, and its
affiliates and associates has substantial control over us and could limit our
other stockholders’ ability to influence the outcome of key transactions,
including a change of control.
As of February 22, 2013, Interinvest owned approximately 15.62% of the
outstanding shares of our common stock. As a result, Interinvest can
significantly influence or control certain matters requiring approval by our
stockholders, including the approval of mergers or other extraordinary
transactions. The interests of Interinvest may differ from our interests and
the interests of our other stockholders, and Interinvest may vote in a way that
may be adverse to our interests and the interests of our other stockholders.
This concentration of ownership may have the effect of delaying, preventing or
deterring key transactions such as a change of control of our Company, could
deprive our stockholders of an opportunity to receive a premium for their
common stock as part of a sale of our Company and might ultimately affect the
market price of our common stock. There may be other stockholders who
beneficially own significant shares of our common stock such that they may
influence or have control over certain Company matters. However, such
stockholders have not yet filed reports to disclose their ownership of us and
we cannot confirm the exact ownership of those stockholders at this time.
The
sale by Interinvest or other significant stockholders of a substantial number
of shares of our common stock could cause the market price of our common stock
to decline and adversely affect our ability to remain listed on an exchange
and/or raise capital through equity offerings.
Interinvest and its affiliates and associates beneficially held 8,905,367
shares of common stock as of February 22, 2013, which represented in the
aggregate approximately 15.62% of our outstanding common stock. If Interinvest,
other significant stockholders or their affiliates sell substantial amounts of
our common stock in the public market, the market price of our common stock
could decrease significantly.
If our
stock price continues to remain below $1.00, our common stock may be subject to
delisting from The NASDAQ Stock Market.
On October 12, 2012, we received a deficiency notice from NASDAQ stating
that we no longer comply with NASDAQ Marketplace Rule 5550(a)(2) because the
bid price of our common stock closed below the required minimum $1.00 per share
for the previous 30 consecutive business days. The notice also indicated that,
in accordance with Marketplace Rule 5810(c)(3)(A), we have a period of 180
calendar days, until April 10, 2013, to regain compliance with Rule 5550(a)(2).
If at any time before April 10, 2013 the bid price of our common stock closes
at $1.00 per share or more for a minimum of 10 consecutive business days,
NASDAQ will notify us that we have regained compliance with Rule 5550(a)(2). In
the event we do not regain compliance with Rule 5550(a)(2) prior to the expiration
of the 180-day period, NASDAQ will notify us that our common stock is subject
to delisting. We may appeal the delisting determination to a NASDAQ hearing
panel and the delisting will be stayed pending until the panel’s
determination. At such hearing, we would present a plan to regain compliance
and NASDAQ would then subsequently render a decision. We are currently
evaluating our alternatives to resolve the listing deficiency. To the extent
that we are unable to resolve the listing deficiency, there is a risk that our
common stock may be delisted from NASDAQ, which would adversely impact
liquidity of our common stock and potentially result in even lower bid prices
for our common stock.
Our stock price has been and could remain volatile, which
could further adversely affect the market price of our stock, our ability to
raise additional capital and/or cause us to be subject to securities class
action litigation.
The market price of our common stock has
historically experienced and may continue to experience significant volatility.
In 2012, the sales price of our common stock fluctuated from a high of $2.60
per share in the first quarter of 2012 to a low of $0.47 per share in the
fourth quarter of 2012. Our progress in developing and commercializing our
products, our quarterly operating results, announcements of new products by us
or our competitors, our perceived prospects, changes in securities’
analysts’ recommendations or earnings estimates, changes in general
conditions in the economy or the financial markets, adverse events related to
our strategic relationships, significant sales of our common stock by existing
stockholders, including one or more of our strategic partners, and other
developments affecting us or our competitors could cause the market price of
our common stock to fluctuate substantially. In addition, in recent years, the
stock market has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many
companies for reasons unrelated to their operating performance and may
adversely affect the price of our common stock. Such market price volatility
could adversely affect our ability to raise additional capital. In addition, we
may be subject to additional securities class action litigation as a result of
volatility in the price of our common stock, which could result in substantial
costs and diversion of management’s attention and resources and could
harm our stock price, business, prospects, results of operations and financial
condition.
15
The loss of one or more of our key supply partners could
have a material adverse effect on our business.
We have certain key suppliers, such as Ballard
and Air Squared, that we rely on for critical components in our products and
there are numerous other components for our products that are sole sourced. A
supplier’s failure to develop and supply components in a timely manner or
at all, or to develop or supply components that meet our quality, quantity or
cost requirements, or our inability to obtain substitute sources of these
components on a timely basis or on terms acceptable to us, could harm our
ability to manufacture our products. For example, in the fourth quarter of
2012, Ballard had temporarily stopped shipping fuel cell stacks for our
GenDrive product line due to a dispute with us, but we have since resolved this
dispute and we are once again in good standing with Ballard as our supplier. In
addition, to the extent that our supply partners use technology or
manufacturing processes that are proprietary, we may be unable to obtain
comparable components from alternative sources.
A robust market for our GenDrive products may never develop
or may take longer to develop than we anticipate.
We believe we have identified viable markets for
our GenDrive products, however our products represent emerging technologies,
and we do not know the extent to which our targeted customers will want to
purchase them and whether end-users will want to use them. If a sizable market
fails to develop or develops more slowly than we anticipate, we may be unable
to recover the losses we will have incurred to develop our products and may be
unable to achieve profitability. The development of a sizable market for our
products may be impacted by many factors which are out of our control,
including: the cost competitiveness of our products; the future costs of
natural gas, hydrogen and other fuels expected to be used by our products;
consumer reluctance to try a new product; consumer perceptions of our products’
safety; regulatory requirements; barriers to entry created by existing energy
providers; and the emergence of newer, more competitive technologies and
products.
We may be unable to establish or maintain relationships
with third parties for certain aspects of continued product development,
manufacturing, distribution and servicing and the supply of key components for
our products.
We will need to maintain and may need to enter
into additional strategic relationships in order to complete our current product
development and commercialization plans. We will also require partners to
assist in the sale, servicing and supply of components for our anticipated
products, which are in development. If we are unable to identify or enter into
satisfactory agreements with potential partners, including those relating to
the distribution, service and support of our anticipated products, we may not
be able to complete our product development and commercialization plans on
schedule or at all. We may also need to scale back these plans in the absence
of needed partners, which would adversely affect our future prospects for
development and commercialization of future products. In addition, any
arrangement with a strategic partner may require us to issue a significant
amount of equity securities to the partner, provide the partner with
representation on our board of directors and/or commit significant financial
resources to fund our product development efforts in exchange for their
assistance or the contribution to us of intellectual property. Any such
issuance of equity securities would reduce the percentage ownership of our then
current stockholders. While we have entered into relationships with suppliers
of some key components for our products, we do not know when or whether we will
secure supply relationships for all required components and subsystems for our
products, or whether such relationships will be on terms that will allow us to
achieve our objectives. Our business prospects, results of operations and
financial condition could be harmed if we fail to secure relationships with
entities which can develop or supply the required components for our products
and provide the required distribution and servicing support. Additionally, the
agreements governing our current relationships allow for termination by our
partners under certain circumstances, some of which are beyond our control. If
any of our current strategic partners were to terminate
any of its agreements with us, there could be a material adverse impact on the
continued development and profitable commercialization of our products and the
operation of our business, financial condition, results of operations and
prospects.
16
We face risks associated with our plans to market,
distribute and service our GenDrive products internationally.
We intend to market, distribute, sell and
service our GenDrive products internationally. We have limited experience
developing and manufacturing our products to comply with the commercial and
legal requirements of international markets. Our success in international
markets will depend, in part, on our ability and that of our partners to secure
relationships with foreign sub-distributors, and our ability to manufacture
products that meet foreign regulatory and commercial requirements. Additionally,
our planned international operations are subject to other inherent risks,
including potential difficulties in enforcing contractual obligations and
intellectual property rights in foreign countries and fluctuations in currency
exchange rates. Also, to the extent our operations and assets are located in
foreign countries, they are potentially subject to nationalization actions over
which we will have no control.
For example, we have formed a joint venture
company based in France with Axane, S.A. under the name Hypulsion to develop
and sell hydrogen fuel cell systems for the European material handling market.
However, for the reasons discussed above, Hypulsion may not be able to
accomplish its goals or become profitable.
Delays in our product development could have a material
impact on the profitable commercialization of our products.
If we experience delays in meeting our
development goals, our products exhibit technical defects, or if we are unable
to meet cost or performance goals, including power output, useful life and
reliability, the profitable commercialization of our products will be delayed.
In this event, potential purchasers of our products may choose alternative
technologies and any delays could allow potential competitors to gain market
advantages. We cannot assure you that we will successfully meet our
commercialization schedule in the future.
We may enter into contracts for products that have not yet
been developed or produced, which may give such customers the right to
terminate their agreements with us.
We may enter into contracts with our customers
for certain products that have not been developed or produced. There can be no
assurance that we will complete the development of these products and meet the
specifications required to fulfill customer agreements and deliver products on
schedule. Pursuant to such agreements, the customers would have the right to
provide notice to us if, in their good faith judgment, we have materially
deviated from such agreements. Should a customer provide such notice, and we
cannot mutually agree to a modification to the agreement, then the customer may
have the right to terminate the agreement, which could adversely affect our
future business.
We may never complete the research and development of
certain commercially viable products, which may adversely affect our revenue,
profitability and result in possible warranty claims.
Other than certain products within our GenSys product
line, which we believe to be commercially viable at this time, we do not know
when or whether we will successfully complete research and development of other
commercially viable products. If we are unable to develop additional
commercially viable products, we may not be able to generate sufficient revenue
to become profitable. The profitable commercialization of our products depends
on our ability to reduce the costs of our components and subsystems, and we
cannot assure you that we will be able to sufficiently reduce these costs. In
addition, the profitable commercialization of our products requires achievement
and verification of their overall reliability, efficiency and safety targets,
and we cannot assure you that we will be able to develop, acquire or license
the technology necessary to achieve these targets. We must complete additional
research and development to fill out product portfolios and deliver enhanced
functionality and reliability in order to manufacture additional commercially viable
products in commercial quantities. In addition, while we are conducting tests
to predict the overall life of our products, we may not have run our products
over their projected useful life prior to large-scale commercialization. As a
result, we cannot be sure that our products will last as long as predicted,
resulting in possible warranty claims and commercial failures.
17
We currently are, and may from time to time become, a named
party in contract disputes for which an adverse outcome could result in us
incurring significant expenses, being liable for damages and subject to
indemnification claims.
From time to time, we may be subject to
contract disputes or litigation. In connection with any disputes or litigation
in which we are involved, we may be forced to incur costs and expenses in
connection with defending ourselves or in connection with the payment of any
settlement or judgment or compliance with any injunctions in connection
therewith if there is an unfavorable outcome. The expense of defending
litigation may be significant. The amount of time to resolve lawsuits is
unpredictable and defending ourselves may divert management’s attention
from the day-to-day operations of our business, which could adversely affect
our business, results of operations, financial condition and cash flows. In
addition, an unfavorable outcome in any such litigation could have a material
adverse effect on our business, results of operations, financial condition and
cash flows.
For example, in July 2008, Soroof Trading
Development Company Ltd., or Soroof, filed a demand for arbitration against GE
Fuel Cell Systems, LLC, or GEFCS, claiming breach of a distributor agreement
and seeking damages of $3 million. Prior to GEFCS’ dissolution in 2006,
we held a 40% membership interest and GE Microgen, Inc., or GEM, held a 60%
membership interest in GEFCS. In January 2010, Soroof requested, and GEM and we
agreed, that the arbitration proceeding be administratively closed pending
final resolution of the matter in United States District Court, Southern
District of New York. On January 22, 2010, Soroof filed a complaint in United States
District Court, Southern District of New York naming, among others, Plug Power
Inc., GEFCS, and GEM as defendants. On January 24, 2012, following a motion for
judgment on the pleadings and motion for summary judgment, the Court dismissed
with prejudice four of Soroof’s claims and dismissed without prejudice
two of Soroof’s claims. The Court also dismissed with prejudice all
claims against GEFCS. Soroof filed an amended complaint on May 14, 2012 against
us, GEM, and General Electric Company, re-pleading the two claims that were
dismissed without prejudice. On December 12, 2012, the parties participated in
a court settlement conference with the presiding judge at the United States
District Court for the Southern District of New York. The case was not resolved
at the settlement conference and discovery continues. Accordingly, we believe
that it is too early to determine whether there is likely exposure to an
adverse outcome and whether or not the probability of an adverse outcome is
more than remote. We, GEFCS, GEM and General Electric Company, or GE, are party
to an agreement under which we agreed to indemnify such parties for up to $1
million of certain losses related to the Soroof distributor agreement. GE has
made a claim for indemnification against us under this agreement for all losses
it may suffer as a result of the Soroof dispute. To the extent that the dispute
results in an adverse outcome for us or for any of the parties we have agreed
to indemnify, we could suffer financially as a result of the damages we would
have to pay on behalf of ourself or our indemnitees. In addition, on January
29, 2013, Chardan Capital Markets LLC, or Chardan, by its counsel, sent a
letter to us claiming that we had entered into and violated an exclusivity
agreement with Chardan in April 2012 in connection with the potential financing
of certain power purchase agreements, whereby the Company would be required to
pay Chardan an agency fee in the event a defined transaction was consummated.
Chardan claims that it introduced us to Sandton Capital Markets, or Sandton, a
potential financier, and that we failed to engage in good faith negotiations
with Sandton. Chardan alleges that we entered into a financing arrangement with
a third party in violation of the exclusivity provision. Chardan claims damages
in excess of $1,250,000. On February 7, 2013, Chardan sent a letter to us
attaching a draft complaint alleging claims of (1) breach of contract and (2)
quantum meruit. Chardan has stated its intention to file the complaint, but we have
not been served with the complaint nor has Chardan stated that it has, in fact,
filed the complaint. We believe that Chardan’s claims are without merit
and on February 7, 2013, our counsel sent a letter to Chardan denying any
wrongdoing or liability on our part in connection with Chardan’s claims.
We intend to vigorously defend this matter and assert any applicable
counterclaims. To the extent, however, that the dispute results in an adverse
outcome for us, we could suffer financially as a result of the damages we would
have to pay.
Failure of our prospective customer demonstrations could
negatively impact demand for our products.
We conduct demonstrations with a number of our
prospective customers, and we plan to conduct additional demonstrations for
prospective customers as required in the future. We may encounter problems and
delays during these demonstrations for a number of reasons, including the
failure of our technology or the technology of third parties, as well as our
failure to maintain and service our products properly. Many of these potential
problems and delays are beyond our control. Any problem or perceived problem with
our demonstrations with these prospective customers could materially harm our reputation and impair
market acceptance of, and demand for, our products.
18
Product liability or defects could negatively impact our
results of operations.
Any liability for damages resulting from
malfunctions or design defects could be substantial and could materially
adversely affect our business, financial condition, results of operations and
prospects. In addition, a well-publicized actual or perceived problem could
adversely affect the market’s perception of our products resulting in a
decline in demand for our products and could divert the attention of our
management, which may materially and adversely affect our business, financial
condition, results of operations and prospects.
The raw materials on which our products rely may not be
readily available or available on a cost-effective basis.
For example, platinum is a key material in our
PEM fuel cells. Platinum is a scarce natural resource and we are dependent upon
a sufficient supply of this commodity. Any shortages could adversely affect our
ability to produce commercially viable fuel cell systems and significantly
raise our cost of producing our fuel cell systems.
Our future plans could be harmed if we are unable to attract
or retain key personnel.
We have attracted a highly skilled management
team and specialized workforce, including scientists, engineers, researchers,
manufacturing, marketing and sales professionals. Our future success will
depend, in part, on our ability to attract and retain qualified management and
technical personnel. We do not know whether we will be successful in hiring or
retaining qualified personnel. Our inability to hire qualified personnel on a
timely basis, or the departure of key employees, could materially and adversely
affect our development and profitable commercialization plans and, therefore,
our business prospects, results of operations and financial condition.
The
market price of our common stock may be adversely affected by market conditions
affecting the stock markets in general, including price and trading
fluctuations on the NASDAQ Capital Market.
Market conditions may result in volatility in the level of, and
fluctuations in, the market prices of stocks generally and, in turn, our common
stock and sales of substantial amounts of our common stock in the market, in
each case being unrelated or disproportionate to changes in our operating
performance. The overall weakness in the economy has recently contributed to
the extreme volatility of the markets which may have an effect on the market
price of our common stock.
Provisions
in our charter documents and Delaware law may discourage or delay an
acquisition that stockholders may consider favorable, which could decrease the
value of our common stock.
Our certificate of incorporation, our bylaws, and Delaware corporate law
contain provisions that could make it harder for a third party to acquire us
without the consent of our board of directors. These provisions include those
that: authorize the issuance of up to 5,000,000 shares of preferred stock in
one or more series without a stockholder vote; limit stockholders’
ability to call special meetings; establish advance notice requirements for
nominations for election to our board of directors or for proposing matters
that can be acted on by stockholders at stockholder meetings; and provide for
staggered terms for our directors. We have a shareholders rights plan that may
be triggered if a person or group of affiliated or associated persons acquires
beneficial ownership of 15% or more of the outstanding shares of our common
stock. In addition, in certain circumstances, Delaware law also imposes
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock.
Adverse changes in general economic conditions in the
United States or any of the major countries in which we do business could
adversely affect our operating results.
We are subject to the risks arising from
adverse changes in global economic conditions. For example, adverse changes in
general economic conditions, continuing economic uncertainties, and the
direction and relative strength of the U.S. economy has become increasingly
uncertain. If economic growth in the United States and other countries slows or
recedes, our current or prospective customers may delay or reduce technology
purchases. This could result in reductions in sales of our products, longer
sales cycles, slower adoption of new technologies and increased price
competition, which could materially and adversely affect our business, results
of operations and financial condition.
19
Our business may become subject to future government
regulation, which may impact our ability to market our products and costs and
price of our products.
Our products are subject to certain federal,
local, and non-U.S. laws and regulations, including, for example, state and
local ordinances relating to building codes, public safety, electrical and gas
pipeline connections, hydrogen transportation and siting and related matters.
See “Business – Government Regulations” for additional
information. Further, as products are introduced into the market commercially,
governments may impose new regulations. We do not know the extent to which any
such regulations may impact our ability to distribute, install and service our
products. Any regulation of our products, whether at the federal, state, local
or foreign level, including any regulations relating to installation and
servicing of our products, may increase our costs and the price of our
products.
Our products use flammable fuels that are inherently
dangerous substances.
Our fuel cell systems use natural gas and
hydrogen gas in catalytic reactions. While our products do not use this fuel in
a combustion process, natural gas and hydrogen gas are flammable fuels that
could leak in a home or business and combust if ignited by another source.
Further, while we are not aware of any accidents involving our products, any
such accidents involving our products or other products using similar flammable
fuels could materially suppress demand for, or heighten regulatory scrutiny of,
our products.
We may not be able to protect important intellectual property
and we could incur substantial costs defending against claims that our products
infringe on the proprietary rights of others.
PEM fuel cell technology was first developed in
the 1950s, and fuel processing technology has been practiced on a large scale
in the petrochemical industry for decades. Accordingly, we do not believe that
we can establish a significant proprietary position in the fundamental
component technologies in these areas. However, our ability to compete
effectively will depend, in part, on our ability to protect our proprietary
system-level technologies, systems designs and manufacturing processes. We rely
on patents, trademarks, and other policies and procedures related to
confidentiality to protect our intellectual property. However, some of our
intellectual property is not covered by any patent or patent application.
Moreover, we do not know whether any of our pending patent applications will
issue or, in the case of patents issued or to be issued, that the claims
allowed are or will be sufficiently broad to protect our technology or
processes. Even if all of our patent applications are issued and are
sufficiently broad, our patents may be challenged or invalidated. We could
incur substantial costs in prosecuting or defending patent infringement suits
or otherwise protecting our intellectual property rights. While we have
attempted to safeguard and maintain our proprietary rights, we do not know
whether we have been or will be completely successful in doing so. Moreover,
patent applications filed in foreign countries may be subject to laws, rules
and procedures that are substantially different from those of the United
States, and any resulting foreign patents may be difficult and expensive to
enforce. In addition, we do not know whether the U.S. Patent & Trademark
Office will grant federal registrations based on our pending trademark
applications. Even if federal registrations are granted to us, our trademark
rights may be challenged. It is also possible that our competitors or others will
adopt trademarks similar to ours, thus impeding our ability to build brand
identity and possibly leading to customer confusion. We could incur substantial
costs in prosecuting or defending trademark infringement suits.
Further, our competitors may independently
develop or patent technologies or processes that are substantially equivalent
or superior to ours. If we are found to be infringing third party patents, we
could be required to pay substantial royalties and/or damages, and we do not
know whether we will be able to obtain licenses to use such patents on
acceptable terms, if at all. Failure to obtain needed licenses could delay or
prevent the development, manufacture or sale of our products, and could
necessitate the expenditure of significant resources to develop or acquire
non-infringing intellectual property.
20
Asserting,
defending and maintaining our intellectual property rights could be difficult
and costly and failure to do so may diminish our ability to compete effectively
and may harm our operating results.
We may need to pursue lawsuits or legal action
in the future to enforce our intellectual property rights, to protect our trade
secrets and domain names, and to determine the validity and scope of the
proprietary rights of others. If third parties prepare and file applications
for trademarks used or registered by us, we may oppose those applications and
be required to participate in proceedings to determine the priority of rights
to the trademark. Similarly, competitors may have filed applications for
patents, may have received patents and may obtain additional patents and
proprietary rights relating to products or technology that block or compete
with ours. We may have to participate in interference proceedings to determine
the priority of invention and the right to a patent for the technology.
Litigation and interference proceedings, even if they are successful, are
expensive to pursue and time consuming, and we could use a substantial amount
of our financial resources in either case.
We rely, in part, on contractual provisions to protect our
trade secrets and proprietary knowledge, the adequacy of which may not be
sufficient.
Confidentiality agreements to which we are
party may be breached, and we may not have adequate remedies for any breach.
Our trade secrets may also be known without breach of such agreements or may be
independently developed by competitors. Our inability to maintain the
proprietary nature of our technology and processes could allow our competitors
to limit or eliminate any competitive advantages we may have.
Our government contracts could restrict our ability to
profitably commercialize our technology.
Some of our technology has been developed with
state and federal government funding in the United States, Canada and other
countries. The United States and Canadian governments have a non-exclusive,
royalty-free, irrevocable world-wide license to practice or have practiced some
of our technology developed under contracts funded by the respective
government. In some cases, government agencies in the United States or Canada
can require us to obtain or produce components for our systems from sources
located in the United States or Canada, respectively, rather than foreign
countries. Our contracts with government agencies are also subject to the risk
of termination at the convenience of the contracting agency, potential
disclosure of our confidential information to third parties and the exercise of
“march-in” rights by the government. March-in rights refer to the
right of the United States or Canadian governments or government agency to
license to others any technology developed under contracts funded by the government
if the contractor fails to continue to develop the technology. The
implementation of restrictions on our sourcing of components or the exercise of
march-in rights could harm our business, prospects, results of operations and
financial condition. In addition, under the Freedom of Information Act, any
documents that we have submitted to the government or to a contractor under a
government funding arrangement are subject to public disclosure that could
compromise our intellectual property rights unless such documents are exempted
as trade secrets or as confidential information and treated accordingly by such
government agencies.
Item
1B. Unresolved Staff Comments
There are no
unresolved comments regarding our periodic or current reports from the staff of
the SEC that were issued 180 days or more preceding the end of our 2012 fiscal
year.
Item 2.
Properties
Our principal
offices are located in Latham, New York. At our 36-acre campus, we own a
140,000 square foot facility that includes our general office building, our
manufacturing facility, and our research and development center. We
believe that this facility is sufficient to accommodate our anticipated
production volumes for at least the next two years.
Item
3. Legal Proceedings
In July 2008, Soroof Trading Development
Company Ltd., or Soroof, filed a demand for arbitration against GE Fuel Cell
Systems, LLC, or GEFCS, claiming breach of a distributor agreement and seeking
damages of $3 million. Prior to GEFCS’ dissolution in 2006, we held a 40%
membership interest and GE Microgen, Inc., or GEM, held a 60% membership
interest in GEFCS. In January 2010, Soroof requested, and GEM and Plug Power
Inc. agreed, that the arbitration proceeding be administratively closed pending
final resolution of the matter in United States District Court, Southern
District of New York. On January 22, 2010, Soroof filed a complaint in United
States District Court, Southern District of New York naming, among others, Plug
Power Inc., GEFCS, and GEM as defendants. On January 24, 2012, following a
motion for judgment on the pleadings and motion for summary judgment, the Court
dismissed with prejudice four of Soroof’s claims and dismissed without
prejudice two of Soroof’s claims. The Court also dismissed with prejudice
all claims against GEFCS. Soroof filed an amended complaint on May 14, 2012
against us, GEM, and General Electric Company, re-pleading the two claims that
were dismissed without prejudice. On December 12, 2012, the parties
participated in a court settlement conference with the presiding judge at the
United States District Court for the Southern District of New York. The case
was not resolved at the settlement conference and discovery continues.
Accordingly, we believe that it is too early to determine whether there is
likely exposure to an adverse outcome and whether or not the probability of an
adverse outcome is more than remote. We, GEFCS, GEM and General Electric
Company, or GE, are party to an agreement under which we agreed to indemnify
such parties for up to $1 million of certain losses related to the Soroof
distributor agreement. GE has made a claim for indemnification against us under
this agreement for all losses it may suffer as a result of the Soroof dispute.
To the extent that the dispute results in an adverse outcome for us or for any
of the parties for which we have agreed to indemnify, we could suffer
financially as a result of the damages we would have to pay on our behalf or
that of our indemnitees.
21
On January 29, 2013, Chardan Capital Markets LLC, or Chardan, by its
counsel, sent a letter to us claiming that we had entered into and violated an
exclusivity agreement with Chardan in April 2012 in connection with the
potential financing of certain power purchase agreements, whereby we would be
required to pay Chardan an agency fee in the event a defined transaction was
consummated. Chardan claims that it introduced us to Sandton Capital Markets,
or Sandton, a potential financier, and that we failed to engage in good faith
negotiations with Sandton. Chardan alleges that we entered into a financing
arrangement with a third party in violation of the exclusivity provision.
Chardan claims damages in excess of $1,250,000. On February 7, 2013, Chardan
sent a letter to us attaching a draft complaint alleging claims of (1) breach
of contract and (2) quantum meruit. Chardan has stated its intention to file
the complaint, but we have not been served with the complaint nor has Chardan
stated that it has, in fact, filed the complaint. We believe Chardan’s
claims are without merit. On February 7, 2013, our counsel sent a letter to
Chardan denying any wrongdoing or liability on our part in connection with
Chardan’s claims. We intend torigorously defend this matter and assert
any applicable counterclaims.
Item
4. Mine Safety Disclosures
Not applicable.
22
PART II
Item 5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
During the years
ended December 31, 2012 and 2011, we issued 403,579 and 133,748 shares,
respectively, of our common stock in connection with matching contributions
under our 401(k) Savings & Retirement Plan. The issuance of these
shares is exempt from registration under Section 3(a)(2) of the Securities
Act of 1933, as amended.
Market
Information.
Our common stock is traded on the NASDAQ Capital Market under
the symbol “PLUG.” As of March 19, 2013, there were approximately 682
record holders of our common stock. However, management believes that a
significant number of shares are held by brokers under a “nominee
name” and that the number of beneficial shareholders of our common stock
exceeds 38,000. The following table sets forth the high and low sale price per
share of our common stock as reported by the NASDAQ Capital Market for the
periods indicated:
|
|
|
|
|
|
|
Sales prices
|
|
High
|
|
Low
|
2012
|
|
|
|
1st Quarter
|
$
|
2.60
|
|
$
|
1.26
|
2nd Quarter
|
$
|
1.41
|
|
$
|
1.10
|
3rd Quarter
|
$
|
1.30
|
|
$
|
0.76
|
4th Quarter
|
$
|
0.92
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
1st Quarter
|
$
|
10.70
|
|
$
|
3.60
|
2nd Quarter
|
$
|
7.80
|
|
$
|
1.91
|
3rd Quarter
|
$
|
2.63
|
|
$
|
1.35
|
4th Quarter
|
$
|
2.71
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
Dividend
Policy.
We have never declared or paid cash dividends on our common
stock and do not anticipate paying cash dividends in the foreseeable future.
Any future determination as to the payment of dividends will depend upon
capital requirements and limitations imposed by our credit agreements, if any,
and such other factors as our board of directors may consider.
Five-Year
Performance Graph
. Below is a line graph comparing the percentage change in
the cumulative total return on the Company’s common stock, based on the
market price of the Company’s common stock, with the total return of
companies included within the NASDAQ Market Index and the companies included
within the Russell 3000 Technology Index for the period commencing
December 31, 2007 and ending December 31, 2012. The calculation of
the cumulative total return assumes a $100 investment in the Company’s
common stock, the NASDAQ Market Index and the Russell 3000 Technology Index on
December 31, 2007 and the reinvestment of all dividends.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
|
|
PLUG POWER INC.
|
|
100.00
|
25.82
|
17.97
|
9.37
|
5.16
|
1.27
|
|
|
RUSSELL 3000 TECHNOLOGY INDEX
|
100.00
|
57.07
|
92.79
|
104.59
|
103.23
|
114.42
|
|
|
NASDAQ MARKET INDEX
|
|
100.00
|
61.17
|
87.93
|
104.13
|
104.69
|
123.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See also Part III
Item 12 in this Annual Report on Form 10-K for additional detail related to
security ownership and related stockholder matters, and for additional detail
on equity compensation plan matters.
24
Item
6. Selected Financial Data
The following
tables set forth selected financial data and other operating information of the
Company. The selected statements of operations and balance sheet data for 2012,
2011, 2010, 2009, and 2008 as set forth below are derived from the audited
Consolidated Financial Statements of the Company. The information is only a
summary and you should read it in conjunction with the Company’s audited
Consolidated Financial Statements and related notes and other financial
information included herein and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Statements Of Operations:
|
|
|
(in thousands, except per share data)
|
|
|
Product and service revenue
|
$
|
24,407
|
|
$
|
23,223
|
|
$
|
15,739
|
|
$
|
4,833
|
|
$
|
4,667
|
Research and development contract revenue
|
1,701
|
|
3,886
|
|
3,598
|
|
7,460
|
|
13,234
|
Licensed technology revenue
|
-
|
|
517
|
|
136
|
|
-
|
|
-
|
Total revenue
|
26,108
|
|
27,626
|
|
19,473
|
|
12,293
|
|
17,901
|
Cost of product and service revenues
|
37,658
|
|
30,670
|
|
23,111
|
|
7,246
|
|
11,442
|
Cost of research and development contract revenues
|
2,805
|
|
6,232
|
|
6,371
|
|
12,433
|
|
21,505
|
Research and development expense
|
5,434
|
|
5,656
|
|
12,901
|
|
16,324
|
|
34,987
|
Selling, general and administrative expenses
|
14,577
|
|
14,546
|
|
25,572
|
|
15,427
|
|
28,333
|
Goodwill impairment charge
|
-
|
|
-
|
|
-
|
|
-
|
|
45,843
|
Gain on sale of assets
|
-
|
|
(673)
|
|
(3,217)
|
|
-
|
|
-
|
Amortization of intangible assets
|
2,306
|
|
2,322
|
|
2,264
|
|
2,132
|
|
2,225
|
Other income (expense), net
|
4,810
|
|
3,673
|
|
570
|
|
560
|
|
4,734
|
Net loss
|
$
|
(31,862)
|
|
$
|
(27,454)
|
|
$
|
(46,959)
|
|
$
|
(40,709)
|
|
$
|
(121,700)
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted
|
$
|
(0.93)
|
|
$
|
(1.46)
|
|
$
|
(3.58)
|
|
$
|
(3.15)
|
|
$
|
(13.62)
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
34,376
|
|
18,778
|
|
13,123
|
|
12,911
|
|
8,938
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
(at end of the period)
|
|
|
|
|
|
|
|
|
|
Unrestricted cash, cash equivalents and available-for-sale securities
|
$
|
9,380
|
|
$
|
13,857
|
|
$
|
21,359
|
|
$
|
62,541
|
|
$
|
104,688
|
Trading securities auction rate debt securities
|
-
|
|
-
|
|
-
|
|
53,397
|
|
52,651
|
Total assets
|
39,460
|
|
55,656
|
|
59,177
|
|
164,185
|
|
209,112
|
Borrowings under line of credit
|
3,381
|
|
5,405
|
|
-
|
|
59,375
|
|
62,875
|
Current portion of long-term obligations
|
650
|
|
-
|
|
-
|
|
533
|
|
401
|
Long-term obligations
|
7,390
|
|
9,577
|
|
3,141
|
|
2,426
|
|
1,313
|
Stockholders' equity
|
15,030
|
|
29,036
|
|
42,913
|
|
88,269
|
|
125,864
|
Working capital
|
6,901
|
|
22,452
|
|
25,556
|
|
60,009
|
|
86,171
|
|
|
|
|
|
|
|
|
|
|
25
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The discussion
contained in this Form 10-K contains “forward-looking statements,”
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, that involve risks and uncertainties. Our actual results could
differ materially from those discussed in this Form 10-K. In evaluating these
statements, you should review Part I, Item 1A: Risk Factors and our
Consolidated Financial Statements and notes thereto included in Part II, Item
8: Financial Statements and Supplementary Data of this Form 10-K.
Overview
We are a
leading provider of alternative energy technology focused on the design,
development, commercialization and manufacture of fuel cell systems for the
industrial off-road (forklift or material handling) market. We continue to
leverage our unique fuel cell application and integration knowledge to identify
early adopter markets for which we can design and develop innovative systems
and customer solutions that provide superior value, ease-of-use and
environmental design. We have made significant progress in our analysis of the
material handling market. We believe we have developed reliable products which
allow the end customers to eliminate incumbent power sources from their
operations, and realize their sustainability objectives through clean energy alternatives.
In October, 2011 we introduced our next generation GenDrive products.
These next generation fuel cell units include a simplified architecture
featuring 30% fewer components, giving customers greater flexibility in
managing their deployments. By the third quarter of 2012, the majority of units
produced and shipped were based on the simplified architecture. During the
fiscal year ended December 31, 2012, we received new orders from Stihl,
Mercedes Benz, Lowe’s, Carter’s and Ace Hardware. We also experienced
add-on orders from Walmart, P&G, Coca-Cola, Sysco, Wegmans, Kroger and BMW.
We have experienced and continue to experience negative cash flows from
operations and we expect to continue to incur net losses in the foreseeable
future. We adopted a restructuring plan on December 11, 2012, aimed at
improving organizational efficiency and to conserve working capital needed to
support the growth of our GenDrive business. As a result of the recent
restructuring, we expect to reduce annual expenses by $3.0 to $4.0 million.
We have experienced recurring operating losses and as of December 31,
2012, we had an accumulated deficit of approximately $786.6 million.
Substantially all of our accumulated deficit has resulted from costs incurred
in connection with our operating expenses, research and development expenses
and from general and administrative costs associated with our operations. We
expect that for fiscal year 2013, operating cash burn will be approximately
$10-$15 million.
Net cash used in operating activities for the year ended December 31, 2012
was $20.2 million. Additionally, on December 31, 2012,
we had cash and cash equivalents of $9.4 million and net working capital of $6.9
million. This compares to $13.9 million and $22.5 million, respectively, at December
31, 2011.
We are party to a Loan and Security Agreement
with Silicon Valley Bank, or SVB, dated as of August 9, 2011 and modified most
recently on November 29, 2012, which expired as of March 29, 2013. The
SVB loan facility provided us with access of up to $15 million of availability,
subject to borrowing base limitations, to support working capital needs.
Given its expiration, we no longer have access to this facility. As of
December 31, 2012, $3.4 million was outstanding under the loan agreement. This
amount was subsequently paid in full in January, 2013. The Company maintains
all of its operating bank accounts with SVB and will continue to assess
opportunities to reestablish a credit facility with SVB.
We believe that our current cash, cash
equivalents and cash generated from future sales, provide sufficient liquidity
to fund our operations into May 2013. This projection is based on our current
expectations regarding product sales, cost structure, cash burn rate and
operating assumptions. To date, we have funded our operations primarily through
public and private offerings of our common and preferred stock, our line of
credit and maturities and sales of our available-for-sale securities. We
anticipate incurring substantial additional losses and may never achieve
profitability.
26
Our cash requirements relate primarily to
working capital needed to operate and grow our business, including funding
operating expenses, growth in inventory to support both shipments of new units
and servicing the installed base, and continued development and expansion of
our products. Our ability to achieve profitability and meet future liquidity
needs and capital requirements will depend upon numerous factors, including the
timing and quantity of product orders and shipments, the timing and amount of
our operating expenses; the timing and costs of working capital needs; the
timing and costs of building a sales base; the timing and costs of developing
marketing and distribution channels; the timing and costs of product service
requirements; the timing and costs of hiring and training product staff; the
extent to which our products gain market acceptance; the timing and costs of
product development and introductions; the extent of our ongoing and any new
research and development programs; and changes in our strategy or our planned
activities. If we are unable to fund our operations without additional external
financing and therefore cannot sustain future operations, we may be required to
delay, reduce and/or cease our operations and/or seek bankruptcy protection.
The Company believes it has potential financing resources in order to
raise the capital necessary to fund operations through fiscal year end 2013. The
Company's current sources of capital include the raising of $2.4 in public
equity offering completed in February, 2013, and the completion of a sale
leaseback of its real estate in Latham, NY on March 27, 2013 as more fully
described in Note 21, Subsequent Events.
Alternatives we would consider for additional
funding include equity or debt financing, a sale-leaseback of our real estate,
or licensing of our technology. In addition to raising capital, we may also
consider strategic alternatives including business combinations, strategic
alliances or joint ventures. Under such conditions, if we are unable to obtain additional
capital in 2013, we may not be able to sustain our future operations and may be
required to delay, reduce and/or cease our operations and/or seek bankruptcy
protection. The additional capital from the proceeds of the February,
2013 offering is expected to fund our operations into May of 2013. We cannot assure you that any necessary additional
financing will be available on terms favorable to us, or at all. Given the
difficult current economic environment, we believe that it could be difficult
to raise additional funds and there can be no assurance as to the availability
of additional financing or the terms upon which additional financing may be
available.
Additionally, even if we raise sufficient
capital through additional equity or debt financing, strategic alternatives or
otherwise, there can be no assurances that the revenue or capital infusion will
be sufficient to enable us to develop our business to a level where it will be
profitable or generate positive cash flow. If we raise additional funds through
the issuance of equity or convertible debt securities, the percentage ownership
of our stockholders could be significantly diluted, and these newly issued
securities may have rights, preferences or privileges senior to those of existing
stockholders. If we incur additional debt, a substantial portion of our
operating cash flow may be dedicated to the payment of principal and interest
on such indebtedness, thus limiting funds available for our business
activities. The terms of any debt securities issued could also impose
significant restrictions on our operations. Broad market and industry factors
may seriously harm the market price of our common stock, regardless of our
operating performance, and may adversely impact our ability to raise additional
funds. Similarly, if our common stock is delisted from the NASDAQ Capital
Market, it may limit our ability to raise additional funds. If we raise
additional funds through collaborations and/or licensing arrangements, we might
be required to relinquish significant rights to our technologies, or grant licenses
on terms that are not favorable to us.
27
Recent Developments
Power Purchase Agreement
On October 1,
2012, we entered into a Power Purchase Agreement (PPA) under which it is
providing a customer with 255 GenDrive units, service and maintenance of the
units and daily delivery of hydrogen in exchange for a monthly utility payment
tied to the amount of energy (kilograms of hydrogen) consumed each month.
The PPA has an initial term of three years with an automatic three year renewal
unless the customer terminates at the end of the initial 3 year term.
On December 28,
2012, Plug Power sold the 255 GenDrive units in use under the PPA to a third
party and leased back the equipment for a period of 6 years to use to fulfill
its obligations under the PPA or at other customer sites as agreed to by the
owner/lessor. The transaction has been recorded by the Company as leased
property under capital lease with a corresponding liability of obligations
under capital lease on the consolidated balance sheets. As of December 31,
2012, assets relating to this agreement were $2,970,000, recorded as leased
property under capital lease, and liabilities relating to this agreement were $1,955,000,
recorded as obligations under capital leases on the consolidated balance sheets.
Under the terms
of the sale leaseback arrangement, the owner/lessor receives full rights of
ownership and title to the GenDrive equipment including all tax credits and tax
basis rights in the equipment. Under the terms of the lease, the Company
has received the rights to rent and use the equipment for the full term of the
lease provided there is no uncured event of default under the lease. The
lease is non-cancellable with no stated or bargain purchase option at the end
of the lease term.
NASDAQ Notice
On October 12, 2012, we received a deficiency notice from The NASDAQ
Stock Market, or the NASDAQ, stating that we no longer comply with NASDAQ
Marketplace Rule 5550(a)(2) because the bid price of our common stock closed
below the required minimum $1.00 per share for the previous 30 consecutive
business days. The notice also indicated that, in accordance with Marketplace
Rule 5810(c)(3)(A), we have a period of 180 calendar days, until April 10,
2013, to regain compliance with Rule 5550(a)(2). If at any time before April
10, 2013 the bid price of our common stock closes at $1.00 per share or more
for a minimum of 10 consecutive business days, NASDAQ will notify us
that we have regained compliance with Rule 5550(a)(2). In the event we do not
regain compliance with Rule 5550(a)(2) prior to the expiration of the 180-day
period, NASDAQ will notify us that our common stock is subject to delisting. We
may appeal the delisting determination to a NASDAQ hearing panel and the
delisting will be stayed pending until the panel’s determination. At such
hearing, we would present a plan to regain compliance and NASDAQ would then
subsequently render a decision. We are currently evaluating our alternatives to
resolve the listing deficiency.
Loan and Security Agreement
On
November 29, 2012 we executed a Third Loan Modification Agreement with SVB,
which, among other things, waived our failure to comply with the Adjusted Quick
Ratio financial covenant as of the months ended September 30, 2012 and October
31, 2012, revised the future Adjusted Quick Ratio covenant level and removed
our ability to request financing for Inventory Placeholder Invoices. On
March 29, 2013, the Company’s revolving credit facility and loan
agreement with Silicon Valley Bank (SVB) expired and was not renewed. The
Company maintains all of its operating bank accounts with SVB and will continue
to assess opportunities to reestablish a credit facility with SVB.
Restructuring
On December 11, 2012, we adopted a restructuring plan to improve
organizational efficiency and conserve working capital needed to support the
growth of our GenDrive business. In doing so, 22 full-time positions were
eliminated at our U.S. facilities. This workforce reduction was substantially
completed on December 13, 2012. As a result of the overall restructuring, we expect to
reduce annual expenses by $3.0 to $4.0 million.
28
Purchase and Sale Agreement and Lease
Agreement
On January 24,
2013, we entered into a Purchase and Sale Agreement with 968 Albany Shaker Road
Associates, LLC (the Buyer). The Purchase and Sale Agreement provides,
among other things, that the Company will sell to the Buyer its property
(building and land) located at 968 Albany Shaker Road, Latham, New York
consisting of approximately 34.45 acres for an aggregate purchase price of
$4,500,000 and that the Company and the Buyer will form a new limited liability
company. The new limited liability company will provide the Company with
monthly distributions.
In connection
with the Purchase and Sale Agreement, we also entered into a Lease Agreement on
January 24, 2013 with the Buyer, pursuant to which the Company leases from the
Buyer a portion of the premises sold pursuant to the Purchase and Sale
Agreement for a term of 15 years.
On March 13,
2013, we entered into an Amendment to Purchase and Sale Agreement (the
“Amendment”) with the Buyer. Among other things, the
Amendment decreases the amount payable to the Company at the closing of the
Purchase and Sale Agreement, increases the value of the Company’s membership
interest in the new limited liability company, and increases the monthly
distributions to be paid by the new limited liability company to the Company.
On March 27,
2013, the Company completed the sale and leaseback transaction of its property
under the terms described above. Additionally, at the closing the Company
issued two standby letters of credit to the benefit of the landlord/lessor that
can be drawn by the beneficiary in the event of default on the lease by Plug
Power. The standby letters total $750,000 and are 100% collateralized by
cash balances of the Company. This cash is restricted from use by the
Company for any other purpose than to collateralize the standby letters.
The standby letters are renewable for a period of ten years and can be
cancelled in part or in full if certain covenants are met and maintained by the
Company.
Shareholder Rights Agreement.
On February 12,
2013, we amended our Shareholder Rights Agreement dated as of June 23, 2009, as
amended, to exempt any investor from purchasing shares of common stock and
accompanying warrants in our public offering on February 13, 2013 of common
stock and warrants to purchase shares of common stock, so long as such investor
and its affiliates and associates do not at any time beneficially own shares of
our common stock equaling or exceeding one-half of one percent more than the
percentage of the then outstanding shares of common stock beneficially owned by
such investor and its affiliates and associates immediately following the
closing of the February 2013 offering. As a result, such ownership by any
such investor will not trigger the exercisability of the preferred share
purchase rights under the Shareholder Rights Agreement that would give each
holder the right to receive upon exercise one ten-thousandth of a share of our
Series A Junior Participating Cumulative Preferred Stock.
Public Offering.
On February 20,
2013, we completed an underwritten public offering of 18,910,000 shares of
common stock and accompanying warrants to purchase 18,910,000 shares of common
stock. The shares and warrants were sold together as a fixed combination,
with each combination consisting of one share of common stock and one warrant
to purchase one share of common stock, at a price to the public of $0.15 per
fixed combination for gross proceeds of approximately $2.8 million. The
warrants have an exercise price of $0.15 per share, are immediately exercisable
and will expire on February 20, 2018. Net proceeds, after underwriting
discounts and commissions and other estimated fees and expenses payable by the
Company, were approximately $2.1 million. The Company intends to use the
net proceeds of the offering for working capital and other general corporate
purposes, including capital expenditures. In connection with the
offering, the Company has granted the underwriters a 45-day option to purchase
up to an additional 2,836,500 shares of common stock to cover over-allotments,
if any.
29
On February 21, 2013, the
Company sold 2,801,800 additional shares of common stock, pursuant to the
underwriter’s exercise of its over-allotment option in connection with
the Company’s recently announced public offering, resulting in additional
net proceeds to the Company of approximately $365,000.
On
May 31, 2011, the Company granted 7,128,563 warrants as part of an underwritten
public offering. As a result of the March 28 and 29, 2012 public offerings
and pursuant to the effect of the anti-dilution provisions, the exercise price
of the warrants was reduced to $2.27 per share of common stock. Simultaneously
with the adjustment to the exercise price, the number of common stock shares
that may be purchased upon exercise of the warrants was increased to 9,421,008
shares. As a result of the February 20 and 21, 2013 public offerings and
pursuant to the effect of the anti-dilution provisions, the exercise price of
the warrants was reduced to $1.13 per share of common stock. Simultaneously
with the adjustment to the exercise price, the number of common stock shares
that may be purchased upon exercise of the warrants was increased to 18,925,389
shares.
Results of Operations
Product and service
revenue.
Product and service revenue relates to revenue recognized from
multiple deliverable revenue arrangements. Effective April 1, 2010, the
Company adopted ASU No. 2009-13 on Topic 605, Revenue Recognition–
Multiple Deliverable Revenue Arrangements retroactive to January 1, 2010
.
ASU
No. 2009-13 amends the FASB ASC to eliminate the residual method of allocation
for multiple-deliverable revenue arrangements, and requires that arrangement
consideration be allocated at the inception of an arrangement to all deliverables
using the relative selling price method. See Note 3, Multiple-Deliverable
Revenue Arrangements of the Consolidated Financial Statements, Part II, Item 8
of this Form 10-K for further discussion of our multiple-deliverable revenue
arrangements.
For
all product and service revenue transactions entered into prior to the
implementation of ASU No. 2009-13, the Company will continue to defer the
recognition of product and service revenue and recognize revenue on a
straight-line basis as the continued service, maintenance and other support
obligations expire, which are generally for periods of twelve to thirty months,
or which can extend over multiple years. While contract terms for those
transactions generally required payment shortly after shipment or delivery and
installation of the fuel cell system and were not contingent on the achievement
of specific milestones or other substantive performance, the multiple-element
revenue obligations within our contractual arrangements were generally not
accounted for separately based on our limited experience and lack of evidence
of fair value of the undelivered components.
Product and
service revenue for the year ended December 31, 2012 increased $1.2 million or 5.1%,
to $24.4 million from $23.2 million for the year ended December 31, 2011.
This increase is primarily related to increased shipments during the current
year. In the product and service revenue category, there were 1,136 fuel
cell systems shipped for the year ended December 31, 2012 as compared to 984
fuel cell systems shipped for the year ended December 31, 2011.
Product and
service revenue for the year ended December 31, 2011 increased $7.5 million, or
47.6%, to $23.2 million from $15.7 million for the year ended December 31,
2010. This increase is primarily related to increased shipments during
the current year. In the product and service revenue category, there were
984 fuel cell shipments for the year ended December 31, 2011 as compared to 562
fuel cell systems shipped for the year ended December 31, 2010.
Research and
development contract revenue.
Research and development contract revenue
primarily relates to cost reimbursement research and development contracts
associated with the development of PEM fuel cell technology. We generally share
in the cost of these programs with our cost-sharing percentages generally
ranging from 30% to 50% of total project costs. Revenue from time and material
contracts is recognized on the basis of hours expended plus other reimbursable
contract costs incurred during the period. We expect to continue certain
research and development contract work that is related to our current product
development efforts.
30
Research and
development contract revenue for the year ended December 31, 2012 decreased $2.2
million, or 56.2%, to $1.7 million from $3.9 million for the year ended
December 31, 2011. The decrease is primarily related to fewer active contracts
during 2012.
Research and
development contract revenue for the year ended December 31, 2011 increased
$288,000, or 8.0%, to $3.9 million from $3.6 million for the year ended
December 31, 2010. The increase is primarily related to two contracts
that began in 2011, partially offset by the completion of contracts from prior
years. In the research and development category, during the twelve months
ended December 31, 2011 we shipped 40 GenDrive fuel cell systems under
government programs.
Cost of product
and service revenue.
Cost of product and service revenue includes the
direct material and labor cost as well as an allocation of overhead costs that
relate to the manufacturing of products we sell. In addition, cost of product
and service revenue also includes the labor and material costs incurred for
product maintenance, replacement parts and service under our contractual
obligations.
Cost of product and service revenue for the year ended December 31, 2012
increased $7.0 million, or 22.8%, to $37.7 million from $30.7 million for the
year ended December 31, 2011. The increase in the cost of product and service
revenue primarily resulted from $2.9 million in additional expenses for
unanticipated warranty claims arising from GenDrive component quality issues
that were identified during the year ended December 31, 2012 combined with the
increase in the number of units shipped in 2012 compared to 2011. During the year
ended December 31, 2012, in the cost of product and service revenue category,
we shipped 1,136 fuel cell systems to end customers as compared to 984 fuel
cell systems shipped during the year ended December, 2011.
Cost
of product and service revenue for the year ended December 31, 2011 increased
$7.6 million, or 32.7%, to $30.7 million from $23.1 million for the year ended
December 31, 2010. The increase is directly related to increased fuel cell
shipments to end customers. In the cost of product and service revenue
category, there were 984 fuel cell shipments for the year ended December 31,
2011 and 562 fuel cell systems shipped for the year ended December 31, 2010.
The increase also includes an allocation of overhead costs charged to cost of
product and service revenue as a result of increased sales and a focus on
commercial production of our product. Accordingly, some of these costs were included in research and development
expense until the second quarter of 2010, due to the Company’s focus on
research and development at that time.
Cost of
research and development contract revenue
. Cost of research and development
contract revenue includes costs associated with research and development
contracts including: cash and non-cash compensation and benefits for
engineering and related support staff, fees paid to outside suppliers for subcontracted
components and services, fees paid to consultants for services provided,
materials and supplies used and other directly allocable general overhead costs
allocated to specific research and development contracts.
Cost of
research and development contract revenue for the year ended December 31, 2012 decreased
$3.4 million, or 55.0% to $2.8 million from $6.2 million for the year ended
December 31, 2011. This decrease is due to fewer active contracts during
2012.
Cost of
research and development contract revenue for the year ended December 31, 2011
decreased $139,000, or 2.2%, to $6.2 million from $6.4 million for the year
ended December 31, 2010. This decrease is primarily related to two new
contracts that began in 2011, partially offset by the completion of contracts
from prior years.
Research
and development expense.
Research and development expense includes:
materials to build development and prototype units, cash and non-cash
compensation and benefits for the engineering and related staff, expenses for
contract engineers, fees paid to outside suppliers for subcontracted components
and services, fees paid to consultants for services provided, materials and
supplies consumed, facility related costs such as computer and network
services, and other general overhead costs associated with our research and
development activities.
Research and
development expense for the year ended December 31, 2012 decreased $0.3 million,
or 3.9%, to $5.4 million from $5.7 million for the year ended December 31,
2011. This decrease was primarily related to a decline in personnel
related expenses, partially offset by a decline in our government funded
programs, which reduced the research and development expenses that can be
allocated to cost of research and development contract revenue in the current
year.
31
Research and
development expense for the year ended December 31, 2011 decreased $7.2
million, or 56.2%, to $5.7 million from $12.9 million for the year ended
December 31, 2010. This decline is primarily a result of our 2010
restructuring, which was focused on the commercialization of our GenDrive
product. Prior to this restructuring the Company’s focus had been
on research and development.
Selling,
general and administrative expenses.
Selling, general and administrative
expenses includes cash and non-cash compensation, benefits and related costs in
support of our general corporate functions, including general management,
finance and accounting, human resources, selling and marketing, information
technology and legal services.
Selling,
general and administrative expenses for the year ended December 31, 2012 increased
$0.1 million, or 0.2%, to $14.6 million from $14.5 million for the year ended
December 31, 2011. This increase was primarily related to a decline in
our government funded programs, which reduced the selling, general and
administrative expenses that can be allocated to cost of research and
development contract revenue in the current year, partially offset by lower
professional fees.
Selling,
general and administrative expenses for the year ended December 31, 2011
decreased $11.0 million, or 43.1%, to $14.6 million from $25.6 million for the
year ended December 31, 2010. This decrease was primarily a result of our
May 2010 restructuring plan, including $8.1 million in charges recorded in 2010
for this restructuring, and a $2.1 million write-off of assets from Plug Power
Canada.
Gain on Sale
of Assets.
Gain on sale of assets represents the gain on sale of leased
assets during 2011, and the sale of inventory, equipment and certain other
assets in 2010.
In December,
2010, the Company assigned all of its rights, title and interest in its leased
property to Somerset Capital Group, Ltd. (Somerset). Due to contingent
provisions in the agreement, the full amount of the sale could not be
recognized at the time. During the quarter ended September 30, 2011 the
contingent provisions of the agreement were met, and an additional $673,000 was
recorded as gain on sale of assets.
Effective October
26, 2010, the Company licensed the intellectual property relating to its
stationary power products, GenCore and GenSys, to IdaTech plc on a
non-exclusive basis. Plug Power maintains ownership of, and the right to
use, the patents and other intellectual property licensed to IdaTech. As
part of the transaction, Plug Power also sold inventory, equipment and certain
other assets related to its stationary power business. Total consideration
for the licensing and assets was $5 million and was received during October
2010. This consideration was net against costs incurred to close the
transaction. Accordingly, $3.2 million was recorded to gain on sale of assets
in 2010.
Amortization of intangible assets.
Amortization of intangible assets represents the amortization associated with
the Company’s acquired identifiable intangible assets from Plug Power
Canada Inc., including acquired technology and customer relationships, which
are being amortized over eight years.
Amortization
of intangible assets remained stable at $2.3 million for the years ended December
31, 2012, December 31, 2011 and December 31, 2010.
Interest
and other income.
Interest and other income and net realized losses
from available-for-sale securities consists primarily of interest earned on our
cash, cash equivalents, available-for-sale and trading securities, other
income, and the net realized gain/loss from the sale of available-for-sale
securities.
Interest and
other income and net realized gains from available-for-sale securities
decreased to $226,000 for the year ended December 31, 2012 from $248,000 for
the year ended December 31, 2011. This decrease is primarily related to lower
rental income, partially offset by a realized loss from available-for-sale
securities recorded in the first quarter of 2011.
32
Interest and
other income and net realized gains from available-for-sale securities
decreased to $248,000 for the year ended December 31, 2011 from $1.1 million
for the year ended December 31, 2010. This decrease is primarily related
to the sale of trading securities and available-for-sale securities during 2011
and 2010.
Gain on
auction rate debt securities repurchase agreement.
In December 2008, the
Company entered into a Repurchase Agreement with the third-party lender such
that the Company may require the third-party lender to repurchase the auction
rate debt securities pledged as collateral for the Credit Line Agreement, at their
par value, from June 30, 2010 through July 2, 2012. As a result of the
Repurchase Agreement entered into with a third party lender in December 2008,
the Company reclassified the auction rate debt securities from
available-for-sale securities to trading securities. The Company elected to
record this item at its fair value in accordance with FASB ASC No. 825-10-25,
Fair Value Option. The third-party lender repurchased the securities on July 1,
2010 in accordance with the Repurchase Agreement. The corresponding Credit Line
Agreement was paid in full on July 1, 2010 in conjunction with the repurchase
of the auction rate debt securities. The change in fair value of approximately
$6.0 million during the year ended December 31, 2010 was recorded as a loss in
the consolidated statements of operations which is offset by the change in fair
value of the auction rate debt securities held as collateral of approximately
$6.0 million that is recorded as a gain in the consolidated statements of
operations for the years ended December 31, 2010.
Change
in fair value of common stock warrant liability.
We account for common
stock warrants in accordance with applicable accounting guidance provided in
ASC 815, Derivatives and Hedging – Contracts in Entity’s Own
Equity, as either derivative liabilities or as equity instruments depending on
the specific terms of the warrant agreement. Derivative warrant liabilities are
valued using the Black-Scholes pricing model at the date of initial issuance
and each subsequent balance sheet date. Changes in the fair value of the
warrants are reflected in the condensed consolidated statement of operations as
change in the fair value of common stock warrant liability.
The
change in fair value of common stock warrant liability for the year ended December
31, 2012 was $4.8 million. This compares to a change of $3.4 million for
the year ended December 31, 2012. The increase in the change in fair value of
$1.4 million, or 40.6%, is primarily due to changes in the Company’s
common stock share price, and changes in volatility of our common stock, which
are significant inputs to the Black-Scholes valuation model.
Interest
and other expense.
Interest and other expense consists of interest related
to the Silicon Valley Bank (SVB) Loan and Security Agreement, loan modification
fees related to the SVB Credit Line Agreement, interest expense on a previous
Credit Line Agreement with a third-party lender, and foreign currency exchange
gain (loss).
Interest and
other expense for the year ended December 31, 2012 was approximately $262,000,
compared to approximately $22,000 for the year ended December 31, 2011. Interest
and other expense related to the SVB Loan and Security Agreement and the SVB Credit
Line Agreement was approximately $256,000 and $12,000, respectively, for the
year ended December 31, 2012 and December 31, 2011.
Interest and
other expense for the year ended December 31, 2011 was approximately $22,000,
compared to approximately $487,000 for the year ended December 31, 2010. The
decline is primarily related to the extinguishment of a previous Credit Line
Agreement with a third-party lender, effective July 1, 2010.
Income taxes.
We did not report a benefit for federal and state income taxes in the
Consolidated Financial Statements as the deferred tax asset generated from our
net operating loss has been offset by a full valuation allowance because it is
more likely than not that the tax benefits of the net operating loss carry
forward will not be realized.
Liquidity and Capital Resources
Our cash requirements relate primarily to
working capital needed to operate and grow our business, including funding
operating expenses, growth in inventory to support both shipments of new units
and servicing the installed base, and continued development and expansion of
our products. Our ability to achieve profitability and meet future liquidity
needs and capital requirements will depend upon numerous factors, including the
timing and quantity of product orders and shipments; the timing and amount of
our operating expenses; the timing and costs of working capital needs; the
timing and costs of building a sales base; the timing and costs of developing
marketing and distribution channels; the timing and costs of product service
requirements; the timing and costs of hiring and training product staff; the
extent to which our products gain market acceptance; the timing and costs of
product development and introductions; the extent of our ongoing and any new
research and development programs; and changes in our strategy or our planned
activities. If we are unable to fund our operations without additional external
financing and therefore cannot sustain future operations, we may be required to
delay, reduce and/or cease our operations and/or seek bankruptcy protection.
33
We have experienced and continue to experience negative cash
flows from operations and we expect to continue to incur net losses in the
foreseeable future. We adopted a restructuring plan on December 11, 2012, aimed
at improving organizational efficiency and conserving working capital needed
to support the growth of our GenDrive business. As a result of the 2012 overall
restructuring, we expect that annual expenses will be reduced by $3.0 to $4.0 million.
The Company incurred net losses of $31.9 million, $27.5
million and $47.0 million for the years ended December 31, 2012, 2011 and 2010,
respectively, and has an accumulated deficit of $786.6 million at December 31,
2012. Substantially
all of our accumulated deficit has resulted from costs incurred in connection
with our research and development expenses from general
and administrative costs associated with our operations. We expect that for
fiscal year 2013, our operating cash burn will be approximately $10-$15
million.
Net cash used in operating activities for the
year ended December 31, 2012 was $20.2 million. Additionally, on December 31,
2012, we had cash and cash equivalents $9.4 million and net working capital of
$6.9 million. This compares to $13.9 million and $22.5 million, respectively,
at December 31, 2011.
We are party to a Loan and Security Agreement with Silicon
Valley Bank, or SVB, which expired as of March 29, 2013. The SVB loan facility
provided up to $15 million of availability, subject to borrowing base
limitations, to support working capital needs. Given its expiration, we no
longer have access to this facility. As of December 31, 2012, $3.4
million was outstanding under the loan agreement. This amount was subsequently
paid in full in January, 2013. The Company maintains all of its operating bank
accounts with SVB and will continue to assess opportunities to reestablish a
credit facility with SVB.
To date, we have funded our operations primarily through public and
private offerings of common and preferred stock, our line of credit and
maturities and sales of our available-for-sale securities. The Company believes it has potential financing sources in
order to raise the capital necessary to fund operations through fiscal year end
2013. The Companys current sources of capital include the raising
of $2.4 million in a public equity offering completed in February, 2013, and
the completion of a sale leaseback of its real estate in Latham, NY on March
27, 2012 as more fully described in Note 21, Subsequent Events of the
consolidated financial statements. We believe that
our current cash, cash equivalents and cash generated from future sales will
provide sufficient liquidity to fund our operations into May 2013. This
projection is based on our current expectations regarding product sales, cost
structure, cash burn rate and operating assumptions.
In addition
to the aforementioned current sources of capital that will provide additional
short term liquidity, the Company is currently exploring various other
alternatives including debt and equity financing vehicles, strategic
partnerships, government programs that may be available to the Company, a sale
of the Company, as well as trying to generate additional sales and increase
margins. However, at this time the Company has no commitments to
obtain any additional funds, and there can be no assurance such funds will be
available on acceptable terms or at all. If the Company is unable to
obtain additional funding and improve its operations, the Companys financial
condition and results of operations may be materially adversely affected and
the Company may not be able to continue operations.
Additionally, even if we raise sufficient
capital through additional equity or debt financing, strategic alternatives or
otherwise, there can be no assurances that the revenue or capital infusion will
be sufficient to enable us to develop our business to a level where it will be
profitable or generate positive cash flow. If we raise additional funds through
the issuance of equity or convertible debt securities, the percentage ownership
of our stockholders could be significantly diluted, and these newly issued
securities may have rights, preferences or privileges senior to those of
existing stockholders. If we incur additional debt, a substantial portion of
our operating cash flow may be dedicated to the payment of principal and
interest on such indebtedness, thus limiting funds available for our business
activities. The terms of any debt securities issued could also impose
significant restrictions on our operations. Broad market and industry factors
may seriously harm the market price of our common stock, regardless of our
operating performance, and may adversely impact our ability to raise additional
funds. Similarly, if our common stock is delisted from the NASDAQ Capital
Market, it may limit our ability to raise additional funds. If we raise
additional funds through collaborations and/or licensing arrangements, we might
be required to relinquish significant rights to our technologies, or grant
licenses on terms that are not favorable to us.
The consolidated financial statements for the year ended
December 31, 2012 were prepared on the basis of a going concern which
contemplates that the Company will be able to realize assets and discharge
liabilities in the normal course of business. Accordingly, they do not give
effect to adjustments that would be necessary should the Company be required to
liquidate its assets. The ability of the Company to meet its total liabilities of $24.4 million
at December 31, 2012, and to continue as a going concern is dependent upon the
availability of future funding, continued growth in orders and shipments, and
the Companys ability to profitably meet its after-sale service commitments
with its existing customers. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
34
During the year
ended December 31, 2012, cash used for operating activities was $20.2 million,
consisting primarily of a net loss of $31.9 million offset, in part, by net
non-cash expenses in the amount of $1.7 million, including $4.4 million for
amortization and depreciation, $2.0 million for stock based compensation, $52,000
for loss on disposal of property, plant and equipment, and a $4.8 million
reduction for the change in fair value of common stock warrant liability. Cash used
by investing activities for the year ended December 31, 2012 was $14,000,
consisting of $78,000 used to purchase property, plant and equipment, offset by
$64,000 in proceeds from the disposal of property, plant, and equipment. Cash
provided by financing activities for the year ended December 31, 2012 was
approximately $15.7 million consisting primarily of $17.2 million in proceeds
from the public offering offset by $1.4 million in public offering costs, $2.0
million net usage for borrowings under line of credit, and $1.9 million in
proceeds from long term debt.
Several
key indicators of liquidity are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
9,380
|
|
$
|
13,857
|
|
$
|
10,955
|
|
|
|
|
|
|
Trading securities - auction rate debt securities at end of period
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
Available-for-sale securities at end of period
|
-
|
|
-
|
|
10,403
|
|
|
|
|
|
|
Borrowings under line of credit at end of period
|
3,381
|
|
5,405
|
|
-
|
|
|
|
|
|
|
Working capital at end of period
|
6,901
|
|
22,452
|
|
25,556
|
|
|
|
|
|
|
Net Loss
|
31,862
|
|
27,454
|
|
46,959
|
|
|
|
|
|
|
Net cash used in operating activities
|
20,165
|
|
33,310
|
|
40,770
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
78
|
|
1,326
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
Under Internal
Revenue Code (IRC) Section 382, the use of loss carryforwards may be limited if
a change in ownership of a company occurs. If it is determined that due to
transactions involving the Company’s shares owned by its 5 percent or
greater shareholders a change of ownership has occurred under the provisions of
IRC Section 382, the Company's federal and state net operating loss
carryforwards could be subject to significant IRC Section 382 limitations.
35
Based upon an IRC
Section 382 study, a Section 382 ownership change occurred in 2012 and 2011
that resulted in all of the Company’s federal and state net operating
loss carryforwards being subject to IRC Section 382 limitations and as a result
of IRC Section 382 limitations, all but approximately $8.8 million of the net
operating loss carryforwards will expire prior to utilization. As a result of
the IRC Section 382 limitations, these net operating loss carryforwards that
will expire unutilized are not reflected in the Company’s gross deferred
tax asset as of December 31, 2012.
The ownership
change also resulted in Net Unrealized Built in Losses per IRS Notice 2003-65
which should result in Recognized Built in Losses during the five year
recognition period of approximately $40.0 million. This translates
into unfavorable book to tax add backs in the Company's 2013 to 2017 U.S.
corporate income tax returns that resulted in a gross deferred tax liability of
$15.2 million at December 31, 2012 with a corresponding reduction to the
valuation allowance. This gross deferred tax liability will offset
certain existing gross deferred tax assets (i.e. capitalized research
expense). This has no impact on the Company's current financial position,
results of operations, or cash flows because of the full valuation allowance.
Contractual Obligations
Contractual obligations as of
December 31, 2012, under agreements with non-cancelable terms are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
<1 year
|
|
1-3 Years
|
|
3-5 Years
|
|
> 5 Years
|
|
Capital lease obligation (A)
|
|
$
|
1,955,128
|
|
$
|
650,379
|
|
$
|
1,304,749
|
|
$
|
-
|
|
$
|
-
|
|
Operating lease obligations (B)
|
|
3,432,887
|
|
658,470
|
|
916,387
|
|
898,575
|
|
959,455
|
|
Purchase obligations (C)(D)
|
|
3,805,419
|
|
1,358,139
|
|
570,240
|
|
570,240
|
|
1,306,800
|
|
Other long-term obligations (E),(F)
|
|
12,650
|
|
12,650
|
|
-
|
|
-
|
|
-
|
|
Line of credit (G)
|
|
3,380,835
|
|
3,380,835
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,586,919
|
|
$
|
6,060,473
|
|
$
|
2,791,376
|
|
$
|
1,468,815
|
|
$
|
2,266,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
On October 1, 2012, Plug Power began providing services at a customer
site under a Power Purchase Agreement (PPA) whereby Plug Power provides a
turn-key solution to power the customer’s entire fleet of material
handling equipment in exchange for a monthly utility payment based on the
amount of energy (kilograms of hydrogen) consumed each month. The
elements of the contract include:
-
Power for 255 forklifts by replacing lead acid batteries with GenDrive
fuel cells
-
On site, service and maintenance of the GenDrive fleet
-
Delivery of an estimated 250 kilograms of pressurized hydrogen
on a daily basis.
The contract is a three year arrangement with an automatic three year
renewal unless the customer provides at least 90 days written notice prior to
the end of the initial 3 year term that they intend to cancel the agreement.
Under the terms of the contract, Plug Power also guarantees 98% uptime on a
weekly average basis for the lift truck fleet and has the right to manage the
fleet spare unit and service requirements to achieve or exceed such targets.
On December 28, 2012, Plug Power sold the GenDrive units in use under
the PPA to a third party and subsequently entered into a lease-back agreement
with an effective start date of October 1, 2012, with the owner/lessor of the
equipment to lease the equipment to Plug Power for a period of 6 years in
order to fulfill obligations under the PPA, or at other customer sites as
agreed to by the owner/lessor. This transaction has been recorded by
the Company as a capital lease. Under the terms of the lease, Plug
Power has received the rights to use the equipment for the full term of the
lease provided there is no uncured event of default under the lease.
|
36
|
(B)
|
The Company has several
non-cancelable operating leases, primarily for hydrogen infrastructure and
fork lift trucks that expire over the next five years. See Note 17
(Commitments and Contingencies) of the Consolidated Financial Statements for
more detail.
|
|
(C)
|
During 2010, the Company signed
a supply agreement with Ballard Power Systems (Ballard) which continues
through December 31, 2014. Under this agreement, Ballard will serve as
the exclusive supplier of fuel cell stacks for the GenDrive product line for
North America and select European countries. An addendum to this
agreement was signed on June 30, 2011. The Company has contractual
obligations under this addendum to purchase 3,250 fuel cell stacks between
the dates of July 2, 2011 and December 31, 2012. The Company also has
contractual obligations related to building maintenance.
|
|
(D)
|
On October 1, 2012, we entered
into a Power Purchase Agreement (PPA) under which it is providing a customer
with 255 GenDrive units, service and maintenance of the units and daily
delivery of hydrogen in exchange for a monthly utility payment tied to the
amount of energy (kilograms of hydrogen) consumed each month. The PPA
has an initial term of three years with an automatic three year renewal
unless the customer terminates at the end of the initial 3 year term. In
relationship to this agreement, the Company has contractual obligations to
purchase $71,280 of hydrogen on a quarterly basis through July 31, 2022.
|
|
(E)
|
The Company has a contractual
obligation to NYSERDA, a New York State Government agency, to pay royalties
to NYSERDA based on 0.5% of net sales of our GenCore and GenSys products if
product is manufactured in the state of New York. See Note 17 (Commitments
and Contingencies) of the Consolidated Financial Statements for more detail.
|
|
(F)
|
The Company has a contractual
obligation pursuant to a development collaboration agreement with General
Electric Company (GE). The Company and GE agreed to extend the terms of the
agreement such that the Company’s remaining obligation to purchase
approximately $363,000 of services as of December 31, 2009 under the
agreement became due and payable; however, the Company and GE entered into a
Lease Agreement for space in the Company’s Latham, New York facility
whereby the parties mutually agreed that the amount owed by the Company to GE
under the development collaboration agreement would be offset by the rent
owed by GE to the Company each month. The development collaboration agreement
is scheduled to terminate on the earlier of (i) December 31, 2014
or (ii) upon the completion of a certain level of program activity. See
Note 17 (Commitments and Contingencies) of the Consolidated Financial
Statements for more detail.
|
|
|
(G)
|
We are a party to a loan and
security agreement, as amended, the Loan Agreement with Silicon Valley Bank,
or SVB, providing us with access to up to $15.0 million of financing in the
form of revolving loans, letters of credit, foreign exchange contracts and
cash management services such as merchant services, direct deposit of
payroll, business credit card and check cashing services. The Loan
Agreement will expire on March 29, 2013. See Note 4 (Loan and Security
Agreement) of the Consolidation Financial Statements for more detail.
|
37
Critical Accounting Estimates
The preparation of
financial statements in conformity with generally accepted accounting
principles and related disclosures requires management to make estimates and
assumptions.
We believe that
the following are our most critical accounting estimates and assumptions the
Company must make in the preparation of its Consolidated Financial Statements
and related disclosures:
Revenue
recognition:
Our fuel cell systems are designed to replace incumbent
electric power technologies in material handling equipment. Our current product
offerings are intended to offer complementary, quality power while
demonstrating the market value of fuel cells as a preferred form of alternative
distributed power generation. Subsequent enhancements to our product are
expected to expand the market opportunity for fuel cells by lowering the
installed cost, decreasing operating and maintenance costs, increasing
efficiency and improving reliability.
Effective April
1, 2010, the Company adopted ASU No. 2009-13 on Topic 605, Revenue
Recognition– Multiple Deliverable Revenue Arrangements retroactive to
January 1, 2010
.
The objective of this ASU is to address the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services (deliverables) separately rather than as a combined unit. Vendors
often provide multiple products or services to their customers. Those
deliverables often are provided at different points in time or over different
time periods. This ASU provides amendments to the criteria in Subtopic 605-25
for separating consideration in multiple-deliverable arrangements. The
amendments in this ASU establish a selling price hierarchy for determining the
selling price of a deliverable. The selling price used for each deliverable
will be based on vendor-specific objective evidence (VSOE) if available,
third-party evidence (TPE) if VSOE is not available, or estimated selling price
(ESP) if neither VSOE nor TPE is available. The amendments in this ASU also
replace the term fair value in the revenue allocation guidance with selling
price to clarify that the allocation of revenue is based on entity-specific
assumptions rather than assumptions of a marketplace participant and expands
the disclosure requirements related to a vendor’s multiple-deliverable
revenue arrangements.
The Company enters into
multiple-deliverable revenue arrangements that may contain a combination of
fuel cell systems or equipment, installation, service, maintenance, fueling and
other support services. The Company was previously prohibited from
separating these multiple deliverables into individual units of accounting
without VSOE of fair value or other TPE of fair value. This evidence was not
available due to our limited experience and lack of evidence of fair value of
the undelivered components of the sale. Without this level of evidence, the
Company had to treat each sale as a single unit of accounting and defer the
revenue recognition of each sale, recognizing revenue over a straight-line
basis as the continued service, maintenance and other support obligations
expired. Under ASU No. 2009-13, the requirement to have VSOE or TPE in order to
recognize revenue has been modified, and it now allows the vendor to make its
best estimate of the standalone selling price of deliverables when more
objective evidence of selling price is not available.
For all product and service
revenue transactions entered into prior to the implementation of ASU No.
2009-13, the Company will continue to defer the recognition of product and
service revenue and recognize revenue on a straight-line basis as the continued
service, maintenance and other support obligations expire, which are generally
for periods of twelve to thirty months, or which extend over multiple years.
While contract terms for those transactions generally required payment shortly
after shipment or delivery and installation of the fuel cell system and were
not contingent on the achievement of specific milestones or other substantive
performance, the multiple-element revenue obligations within our contractual
arrangements were generally not accounted for separately based on our limited
experience and lack of evidence of fair value of the undelivered components.
See Note 3, Multiple-Deliverable
Revenue Arrangements of the Consolidated Financial Statements, Part II, Item 8
of this Form 10-K for further discussion of our multiple-deliverable revenue
arrangements.
Product warranty
reserve
: The product and service revenue contracts entered into as of
January 1, 2010 generally provide a one to two-year product warranty to
customers from date of shipment. We currently estimate the costs of
satisfying warranty claims based on an analysis of past experience and provide
for future claims in the period the revenue is recognized. The Companys product
and service warranty reserve as of December 31, 2012 is approximately $2.7
million and is included in product warranty reserve in the consolidated
balance sheets. Included in this balance is approximately $2.0 million related
to specific GenDrive component quality issues that were identified during the
year ended December 31, 2012.
38
In
addition to the standard product warranty, we have entered into certain
contracts with customers that include extended warranty and maintenance terms
of five to ten years from the date of installation. These contracts are
accounted for as a deliverable in accordance with ASU 2009-13, and accordingly,
revenue generated from these transactions is deferred and recognized in income
over the warranty period. The fair value of the extended warranty and
maintenance deliverable has been estimated using the projected cash outflows to
meet the obligations in the related contract. Projected cash outflows have been
determined using estimated product run hours, failure rates and other
assumptions based on the Company’s historical experience.
Valuation of long-lived assets:
We
assess the impairment of long-lived assets, including identifiable intangible
assets, whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors we consider important that could trigger
an impairment review include, but are not limited to, the following:
-
significant underperformance relative to expected historical or
projected future operating results;
-
significant changes in the manner of our use of the acquired
assets or the strategy for our overall business;
-
significant negative industry or economic trends;
-
significant decline in our stock price for a sustained period;
and
-
our market capitalization relative to net book value.
When
we determine that the carrying value of long-lived assets, including
identifiable intangible assets, may not be recoverable based upon the existence
of one or more of the above indicators of impairment, we would measure any impairment
based upon the provisions of FASB ASC No. 350-35-30-14, Intangibles - Goodwill
and Other and FASB ASC No. 360-10-35-15, Impairment or Disposal of Long-Lived
Assets, as appropriate. Any resulting impairment loss could have a material
adverse impact on our financial condition and results of operations.
Stock Based
Compensation
: We recognize stock-based compensation expense associated with
the vesting of share based instruments in the consolidated statements of
operations. Determining the amount of stock-based compensation to be recorded
requires us to develop estimates to be used in calculating the grant-date fair
value of stock options. We calculate the grant-date fair values using the
Black-Scholes valuation model. The Black-Scholes model requires us to make
estimates of the following assumptions:
Expected
volatility—The estimated stock price volatility was derived based upon
the Company’s actual stock prices over an historical period equal to the
expected life of the options, which represents the Company’s best
estimate of expected volatility.
Expected option
life—The Company’s estimate of an expected option life was
calculated in accordance with the simplified method for calculating the
expected term assumption. The simplified method is a calculation based on the
contractual life and vesting terms of the associated options.
Risk-free
interest rate—We use the yield on zero-coupon U.S. Treasury securities
having a maturity date that is commensurate with the expected life assumption
as the risk-free interest rate.
The
amount of stock-based compensation recognized during a period is based on the
value of the portion of the awards that are ultimately expected to vest. FASB
ASC No. 718-10-55, Compensation - Stock Compensation –
Overall –
Implementation and Guidance Illustrations, requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. The term “forfeitures” is
distinct from “cancellations” or “expirations” and
represents only the unvested portion of the surrendered option. We review
historical forfeiture data and determine the appropriate forfeiture rate based
on that data. We re-evaluate this analysis periodically and adjust the
forfeiture rate as necessary. Ultimately, we will recognize the actual expense
over the vesting period only for the shares that vest.
Warrant accounting
Warrant
Accounting:
We account for common stock warrants in accordance with
applicable accounting guidance provided in Accounting Standards Codification
(ASC) 815, Derivatives and Hedging – Contracts in Entity’s Own
Equity, as either derivative liabilities or as equity instruments depending on
the specific terms of the warrant agreement. In compliance with applicable
securities law, registered common stock warrants that require the issuance of
registered shares upon exercise and do not sufficiently preclude an implied
right to cash settlement are accounted for as derivative liabilities. We
classify these derivative warrant liabilities on the condensed consolidated
balance sheets as a long term liability, which is revalued at each balance
sheet date subsequent to the initial issuance. We use the Black-Scholes pricing
model to value the derivative warrant liability. The Black-Scholes pricing
model, which is based, in part, upon unobservable inputs for which there is
little or no market data, requires the Company to develop its own assumptions.
39
The
Company used the following assumptions for its common stock warrants. The
risk-free interest rate for May 31, 2011 (issuance date), December 31, 2011, and
December 31, 2012 were 0.75%, 0.33% and 0.31%, respectively. The volatility of
the market price of the Companys common stock for May 31, 2011, December 31,
2011 and December 31, 2012 were 94.4%, 78.6%, and 73.5%, respectively. The
expected average term of the warrant
used for all periods was 2.5 years. There was no expected dividend yield for
the warrants granted. As a result, if factors change and different assumptions
are used, the warrant liability and the change in estimated fair value could be
materially different. Generally, as the market price of our common stock
increases, the fair value of the warrant increases, and conversely, as the
market price of our common stock decreases, the fair value of the warrant
decreases. Also, a significant increase in the volatility of the market price
of the Company's common stock, in isolation, would result in a significantly
higher fair value measurement; and a significant decrease in volatility would
result in a significantly lower fair value measurement. Changes in the fair
value of the warrants are reflected in the condensed consolidated statement of
operations as change in fair value of common stock warrant liability.
Recent Accounting
Pronouncements
A discussion of
recently adopted and new accounting pronouncements is included in Note 2
(Summary of Significant Accounting Policies) of the Consolidated Financial
Statements in Part II, Item 8 of this Annual Report on Form 10-K.
40
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
From time to time,
we may invest our cash in government, government backed and interest-bearing
investment-grade securities that we generally hold for the duration of the term
of the respective instrument. We do not utilize derivative financial
instruments, derivative commodity instruments or other market risk sensitive
instruments, positions or transactions in any material fashion. We are not
subject to any material risks arising from changes in interest rates, foreign
currency exchange rates, commodity prices, equity prices or other market
changes that affect market risk sensitive instruments.
Our exposure to
changes in foreign currency rates is primarily related to sourcing inventory from
foreign locations. This practice can give rise to foreign exchange risk
resulting from the varying cost of inventory to the receiving location. The
Company mitigates this risk through local sourcing efforts.
Item
8. Financial Statements and Supplementary Data
The
Company’s Consolidated Financial Statements included in this report
beginning at page F-1 are incorporated in this Item 8 by reference.
Item
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item
9A. Controls and Procedures
(a) Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures.
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures, as
such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this
evaluation, our principal executive officer and our principal financial officer
concluded that, as of the end of the period covered by this annual report, our
disclosure controls and procedures were effective, in that they provide
reasonable assurance that information required to be disclosed by us in the
reports we file or submit, under the Exchange Act, is recorded, processed,
summarized and reported within the time period specified in the SEC’s
rules and forms.
(b)
Management’s Report on Internal Control Over Financial Reporting
Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f)
under the Exchange Act. Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring
Organization of the Treadway Commission. Based on our evaluation under the
framework in
Internal Control—Integrated Framework
, our management
concluded that the Company maintained effective internal control over financial
reporting as of December 31, 2012.
(c)
Changes in Internal Control Over Financial Reporting
There were no
changes in the Company’s internal control over financial reporting
identified in connection with the evaluation of such internal control that occurred
during the Company’s last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Item 9B.
Other Information
Not applicable.
41
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
(a)
DIRECTORS
Incorporated herein
by reference is the information appearing under the captions “Information
about our Directors” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in the Company’s definitive Proxy Statement
for its 2013 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission.
(b)
EXECUTIVE OFFICERS
Incorporated herein
by reference is the information appearing under the captions “Information
about our Executive Officers” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Company’s definitive Proxy
Statement for its 2013 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission.
(c)
CODE OF BUSINESS CONDUCT AND ETHICS
We
have adopted a Code of Business Conduct and Ethics that applies to all
officers, directors, employees and consultants of the Company. The Code
of Business Conduct and Ethics is intended to comply with Item 406 of
Regulation S-K of the Securities Exchange Act of 1934 and with applicable rules
of The NASDAQ Stock Market, Inc. Our Code of Business Conduct and Ethics
is posted on our Internet website under the “Investor” page.
Our Internet website address is
www.plugpower.com.
To the extent
required or permitted by the rules of the SEC and NASDAQ, we will disclose
amendments and waivers relating to our Code of Business Conduct and Ethics in
the same place as our website.
ITEM
11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information
appearing under the caption “Executive Compensation” in the
Company’s definitive Proxy Statement for its 2013 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated herein by
reference is the information appearing under the caption “Principal
Stockholders” in the Company’s definitive Proxy Statement for its
2013 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission.
42
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following
table gives information about the shares of Common Stock that may be issued
upon the exercise of options, restricted stock and common stock warrants under
the Company’s 1999 Stock Option and Incentive Plan, as amended (1999
Stock Option Plan), and the Company’s 2011 Stock Option and Incentive
Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
remaining for future
|
|
|
|
|
|
|
Number of shares to be
|
|
Weighted average
|
|
issuance under equity
|
|
|
|
|
issued upon exercise of
|
|
exercise price of
|
|
|
compensation plans
|
|
|
|
|
|
|
outstanding options,
|
|
outstanding options,
|
|
|
(excluding shares
|
|
|
|
|
|
warrants and rights
|
|
warrants and rights
|
|
reflected in column (a))
|
Plan Category
|
|
(a)
|
|
(b)
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
|
|
11,407,263
|
(1)
|
$
|
3.43
|
|
|
|
5,773,757
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
-
|
|
$
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
|
|
|
|
11,407,263
|
|
$
|
3.43
|
|
|
|
5,773,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents 9,421,008
outstanding common stock warrants, 947,305 outstanding options issued under
the 1999 Stock Option Plan, and 1,038,950 outstanding options issued under
the 2011 Stock Option Plan.
|
(2)
|
Includes shares available for
future issuance under the 2011 Stock Option Plan.
|
ITEM 13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Incorporated herein by
reference is the information appearing under the caption “Principal
Stockholders” in the Company’s definitive Proxy Statement for its
2013 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission.
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
Incorporated herein by
reference is the information appearing under the caption “Independent
Auditors Fees” in the Company’s definitive Proxy Statement for its
2013 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission.
43
PART IV
15(a)(1) Financial Statements
The financial
statements and notes are listed in the Index to Consolidated Financial
Statements on page F-1 of this Report.
15(a)(2) Financial Statement Schedules
The financial
statement schedules are listed in the Index to Consolidated Financial Statements
on page F-1 of this Report.
All other
schedules not filed herein have been omitted as they are not applicable or the
required information or equivalent information has been included in the
consolidated financial statements or the notes thereto.
15(a)(3) Exhibits
Exhibits are
as set forth in the “List of Exhibits” which immediately precedes
the Index to Consolidated Financial Statements on page F-1 of this Report.
44
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
PLUG POWER INC.
|
|
|
By:
|
|
/s/ ANDREW
MARSH
|
|
|
Andrew Marsh,
|
|
|
President, Chief
Executive Officer and Director
|
Date: April 1, 2013
45
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Andrew Marsh, Gerald A. Anderson and
Gerard L. Conway such person’s true and lawful attorney-in-fact and agent
with full power of substitution, for such person and in such person’s
name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, may lawfully do or cause to be done
by virtue hereof.
Date: April 1, 2013
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
/s/
|
ANDREW
MARSH
Andrew Marsh
|
President, Chief Executive
Officer and Director
(Principal Executive
Officer)
|
April 1, 2013
|
|
|
|
|
/s/
|
GERALD A.
ANDERSON
Gerald A. Anderson
|
Chief Financial Officer
(Principal Financial
Officer)
|
April 1, 2013
|
|
|
|
|
/s/
|
LARRY G.
GARBERDING
Larry G. Garberding
|
Director
|
April 1, 2013
|
|
|
|
|
/s/
|
MAUREEN O.
HELMER
Maureen O. Helmer
|
Director
|
April 1, 2013
|
|
|
|
|
/s/
|
DOUGLAS
T. HICKEY
Douglas T. Hickey
|
Director
|
April 1, 2013
|
|
|
|
|
/s/
|
GEORGE C.
McNAMEE
George C. McNamee
|
Director
|
April 1, 2013
|
|
|
|
|
/s/
|
EVGENY MIROSCHNICHENKO
Evgeny Miroschnichenko
|
Director
|
April 1, 2013
|
|
|
|
|
/s/
|
EVGENY
RASSKAZOV
Evgeny Rasskazov
|
Director
|
April 1, 2013
|
|
|
|
|
/s/
|
GARY K.
WILLIS
Gary K. Willis
|
Director
|
April 1, 2013
|
46
Certain exhibits
indicated below are incorporated by reference to documents of Plug Power on
file with the Commission. Exhibits nos. 10.1, 10.2, 10.4, 10.5 and 10.10
through 10.21 represent the management contracts and compensation plans and
arrangements required to be filed as exhibits to this Annual Report on Form
10-K.
Exhibit No.
and Description
3.1
|
Amended and Restated Certificate of Incorporation of Plug Power Inc. (7)
|
|
|
3.2
|
Third Amended
and Restated By-laws of Plug Power Inc. (8)
|
|
|
3.3
|
Certificate of
Amendment to Amended and Restated Certificate of Incorporation of Plug Power
Inc. (7)
|
|
|
3.4
|
Certificate of
Designations, Preferences and Rights of a Series of Preferred Stock of Plug
Power
Inc. classifying and designating the Series A Junior Participating Cumulative
Preferred Stock. (9)
|
|
|
3.5
|
Second
Certificate of Amendment of Amended and Restated Certificate of Incorporation
of Plug
Power Inc. (13)
|
|
|
4.1
|
Specimen
certificate for shares of common stock, $.01 par value, of Plug Power. (2)
|
|
|
4.2
|
Shareholder
Rights Agreement, dated as of June 23, 2009, between Plug Power Inc. and
Registrar
and American Stock Transfer & Trust Company, LLC, as Rights Agent. (9)
|
|
|
4.3
|
Amendment No.
1 To Shareholder Rights Agreement. (11)
|
|
|
4.4
|
Amendment No.
2 To Shareholder Rights Agreement. (17)
|
|
|
4.5
|
Amendment No.
3 To Shareholder Rights Agreement. (19)
|
|
|
4.6
|
Amendment No.
4 To Shareholder Rights Agreement. (24)
|
|
|
4.7
|
Form of
Warrant. (14)
|
|
|
10.1
|
Employee Stock
Purchase Plan. (2)
|
|
|
10.2
|
Severance
Agreement, dated as of July 12, 2007, by and between Plug Power Inc. and
Gerald A.
Anderson. (4)
|
|
|
10.3
|
Executive
Severance Agreement, dated as of July 7, 2007, by and between Plug Power
Inc. and
Gerald A. Anderson. (4)
|
|
|
10.4
|
Indemnification
Agreement, dated as of July 9, 2007, by and between Plug Power Inc. and
Gerald
A. Anderson. (4)
|
|
|
10.5
|
Registration
Rights Agreement, dated as of June 29, 2006, by and between Plug Power
Inc. and
Smart Hydrogen Inc. (1)
|
|
|
47
Exhibit No.
and Description
10.6
|
Form of
Indemnification Agreement entered into with each director. (1)
|
|
|
10.7
|
Plug Power
Executive Incentive Plan. (3)
|
|
|
10.8
|
Employment
Agreement, dated as of April 7, 2008, by and between Andrew Marsh and Plug
Power Inc. (5)
|
|
|
10.9
|
Executive
Employment Agreement, dated as of May 5, 2008, by and between Gerard L.
Conway,
Jr. and Plug Power Inc. (6)
|
|
|
10.10
|
Executive
Employment Agreement, dated as of October 28, 2009, by and between Erik J.
Hansen
and Plug Power Inc. (10)
|
|
|
10.11
|
Executive
Employment Agreement, dated as of February 9, 2010, by and between Adrian
Corless
and Plug Power Inc. (10)
|
|
|
10.12
|
Executive
Employment Agreement, dated as of June 21, 2012, by and between Gerald A.
Anderson
and Plug Power Inc. (22)
|
|
|
10.13
|
Standstill and
Support Agreement, dated as of May 6, 2011 among Plug Power Inc., OJSC
“INTER RAO UES” and OJSC “Third Generation Company of the
Wholesale Electricity Market”. (11)
|
|
|
10.14
|
Master and
Shareholders’ Agreement, dated as of January 24, 2012, by and between
Axane S.A.
and Plug Power, Inc. (18)
|
|
|
10.15
|
License
Agreement dated as of February 29, 2012, by and between Hypulsion, S.A.S. and
Plug
Power Inc. (18)
|
|
|
10.16
|
2011 Stock Option and Incentive
Plan. (12)
|
|
|
10.17
|
Amendment No. 1 to the Plug Power Inc. 2011 Stock Option and Incentive
Plan (21)
|
|
|
10.18
|
Form of Incentive Stock Option
Agreement. (15)
|
|
|
10.19
|
Form of Non-Qualified Stock
Option Agreement for Employees. (15)
|
|
|
10.20
|
Form of Non-Qualified Stock
Option Agreement for Independent Directors. (15)
|
|
|
10.21
|
Form of Restricted Stock Award
Agreement. (15)
|
|
|
10.22
|
Loan and Security Agreement,
dated as of August 9, 2011, by and between Plug Power Inc. and
Silicon Valley Bank. (15)
|
|
|
10.23
|
First Loan Modification
Agreement, dated as of September 28, 2011, by and between Plug Power
Inc. and Silicon Valley Bank. (16)
|
|
|
10.24
|
Second Loan Modification
Agreement, dated as of March 30, 2012, by and between Plug Power
Inc. and Silicon Valley Bank. (20)
|
10.25
|
Third Loan Modification
Agreement, dated as of November 29, 2012, by and between Plug Power
Inc. and Silicon Valley Bank. (23)
|
48
23.1
|
Consent of KPMG LLP. (25)
|
|
|
31.1 and 31.2
|
Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. (25)
|
|
|
32.1 and 32.2
|
Certifications pursuant to 18
U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.(25)
|
101.INS
|
XBRL Instance Document (25)
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document (25)
|
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase (25)
|
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase Document (25)
|
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document (25)
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
(25)
|
|
|
(1)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated June 29, 2006.
|
(2)
|
Incorporated by reference to the
Company’s Registration Statement on Form S-1/A (File Number 333-86089).
|
(3)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated February 15, 2007.
|
(4)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated July 13, 2007.
|
(5)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated April 2, 2008.
|
(6)
|
Incorporated by reference to the
Company’s Form 10-Q for the period ended June 30, 2008.
|
(7)
|
Incorporated by reference to the
Company’s Form 10-K for the period ended December 31, 2008.
|
(8)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated October 28, 2009.
|
(9)
|
Incorporated by reference to the
Company’s Registration Statement on Form 8-A dated June 24, 2009.
|
(10)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated October 28, 2009.
|
(11)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated May 6, 2011.
|
(12)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated May 12, 2011.
|
(13)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated May 19, 2011.
|
(14)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated May 24, 2011.
|
(15)
|
Incorporated by reference to the
Company’s Form 10-Q for the period ended June 30, 2011.
|
(16)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated September 28, 2011.
|
(17)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated March 19, 2012.
|
(18)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated March 21, 2012.
|
(19)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated March 26, 2012.
|
(20)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated April 3, 2012.
|
(21)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated May 18, 2012.
|
(22)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated June 21, 2012.
|
(23)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated December 5, 2012.
|
(24)
|
Incorporated by reference to the
Company’s current Report on Form 8-K dated February 13, 2013.
|
(25)
|
Filed herewith
|
|
|
|
49
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
50
Report of Independent Registered Public
Accounting Firm
The Board of
Directors and Stockholders
Plug Power Inc.:
We have audited the accompanying consolidated balance
sheets of Plug Power Inc. and subsidiaries (the Company) as of December 31,
2012 and 2011, and the related consolidated statements of operations,
comprehensive loss, stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2012. In connection with our
audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule II, Valuation and Qualifying
Accounts. These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Plug Power Inc. and subsidiaries as of December 31, 2012 and 2011,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2012, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
The accompanying consolidated
financial statements and financial statement schedule have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has experienced a substantial decline in
working capital, that raise substantial doubt about its ability to continue as
a going concern. Management’s plans in regard to these matters are also
described in Note 1. The consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of this uncertainty.
/S/ KPMG LLP
Albany, New York
April 1, 2013
F-1
PLUG
POWER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
Assets
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
9,380,059
|
|
$
|
13,856,893
|
|
Accounts receivable, net
|
|
|
4,021,725
|
|
13,388,909
|
|
Inventory
|
|
|
8,550,457
|
|
10,354,707
|
|
Prepaid expenses and other current assets
|
|
|
1,988,457
|
|
1,894,014
|
|
|
Total current assets
|
|
|
23,940,698
|
|
39,494,523
|
Property, plant, and equipment, net
|
|
|
6,708,237
|
|
8,686,840
|
Leased property under capital lease, net
|
|
|
2,969,799
|
|
-
|
Note receivable
|
|
|
570,697
|
|
-
|
Intangible assets, net
|
|
|
5,270,571
|
|
7,474,636
|
|
|
Total assets
|
|
|
$
|
39,460,002
|
|
$
|
55,655,999
|
Liabilities and Stockholders' Equity
|
Current liabilities:
|
|
|
|
|
|
|
Borrowings under line of credit
|
|
|
$
|
3,380,835
|
|
$
|
5,405,110
|
|
Accounts payable
|
|
|
3,558,157
|
|
4,668,721
|
|
Accrued expenses
|
|
|
3,828,045
|
|
3,172,998
|
|
Product warranty reserve
|
|
|
2,671,409
|
|
1,210,909
|
|
Deferred revenue
|
|
|
2,950,375
|
|
2,505,175
|
|
Obligations under capital lease
|
|
|
650,379
|
|
-
|
|
Other current liabilities
|
|
|
-
|
|
80,000
|
|
|
Total current liabilities
|
|
|
17,039,200
|
|
17,042,913
|
|
Obligations under capital lease
|
|
|
1,304,749
|
|
-
|
|
Deferred revenue
|
|
|
4,362,092
|
|
3,036,829
|
|
Common stock warrant liability
|
|
|
475,825
|
|
5,320,990
|
|
Other liabilities
|
|
|
1,247,833
|
|
1,219,602
|
|
|
Total liabilities
|
|
|
24,429,699
|
|
26,620,334
|
Stockholders' equity:
|
|
|
|
|
|
|
Common stock, $0.01 par value per share; 245,000,000 shares authorized;
|
|
|
|
|
Issued (including shares in treasury):
|
|
|
|
|
|
|
|
38,404,764 at December 31, 2012 and 22,924,411 at December 31, 2011
|
384,048
|
|
229,244
|
|
Additional paid-in capital
|
|
|
801,840,491
|
|
784,213,871
|
|
Accumulated other comprehensive income
|
|
|
1,004,412
|
|
928,744
|
|
Accumulated deficit
|
|
|
(786,646,266)
|
|
(754,783,812)
|
|
Less common stock in treasury:
|
|
|
|
|
|
|
165,906 shares at December 31, 2012 and December 31, 2011
|
|
(1,552,382)
|
|
(1,552,382)
|
|
|
Total stockholders' equity
|
|
|
15,030,303
|
|
29,035,665
|
|
|
Total liabilities and stockholders' equity
|
|
|
$
|
39,460,002
|
|
$
|
55,655,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
PLUG POWER INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the years ended
December 31, 2012, 2011 and 2010
|
|
|
2012
|
|
2011
|
|
2010
|
|
Product and service revenue
|
$
|
24,407,127
|
|
$
|
23,223,265
|
|
$
|
15,738,841
|
|
Research and development contract revenue
|
1,701,330
|
|
3,886,114
|
|
3,597,870
|
|
Licensed technology revenue
|
-
|
|
516,563
|
|
135,938
|
|
Total revenue
|
26,108,457
|
|
27,625,942
|
|
19,472,649
|
|
Cost of product and service revenue
|
37,657,699
|
|
30,669,602
|
|
23,111,151
|
|
Cost of research and development contract revenue
|
2,804,817
|
|
6,232,210
|
|
6,370,797
|
|
Research and development expense
|
5,434,235
|
|
5,655,748
|
|
12,901,170
|
|
Selling, general and administrative expenses
|
14,576,998
|
|
14,545,965
|
|
25,572,364
|
|
Gain on sale of assets
|
-
|
|
(673,358)
|
|
(3,217,594)
|
|
Amortization of intangible assets
|
2,306,489
|
|
2,322,876
|
|
2,263,627
|
|
|
Operating loss
|
(36,671,781)
|
|
(31,127,101)
|
|
(47,528,866)
|
|
Interest and other income and net realized losses
|
|
|
|
|
|
|
from available-for-sale securities
|
226,120
|
|
248,430
|
|
1,056,932
|
|
Change in fair value of common stock warrant liability
|
4,845,165
|
|
3,447,153
|
|
-
|
|
Change in fair value of auction rate securities repurchase agreement
|
-
|
|
-
|
|
(5,977,822)
|
|
Net trading gain
|
-
|
|
-
|
|
5,977,822
|
|
Interest and other expense and foreign currency gain (loss)
|
(261,958)
|
|
(22,436)
|
|
(486,987)
|
|
|
Net loss
|
$
|
(31,862,454)
|
|
$
|
(27,453,954)
|
|
$
|
(46,958,921)
|
|
Loss per share:
|
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.93)
|
|
$
|
(1.46)
|
|
$
|
(3.58)
|
|
Weighted average number of common shares outstanding
|
34,376,427
|
|
18,778,066
|
|
13,123,162
|
|
|
|
|
|
|
|
|
Note –
Share and per share information for the prior periods has been retroactively
adjusted to reflect the May 19, 2011 one-for-ten reverse stock split of the
Company’s common stock.
See
accompanying notes to consolidated financial statements.
F-3
PLUG
POWER INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
For
the years ended December 31, 2012, 2011 and 2010
|
|
2012
|
|
2011
|
|
2010
|
Net Loss
|
$
|
(31,862,454)
|
|
$
|
(27,453,954)
|
|
$
|
(46,958,921)
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
75,668
|
|
(55,626)
|
|
276,959
|
|
Unrealized gain (loss) on available-for-sale securities, net
|
-
|
|
18,502
|
|
(114,300)
|
Comprehensive Loss
|
$
|
(31,786,786)
|
|
$
|
(27,491,078)
|
|
$
|
(46,796,262)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
F-4
PLUG
POWER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
For the years ended
December 31, 2012, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
Additional Paid-
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
Shares
|
|
|
|
Amount
|
|
|
in-Capital
|
|
|
Income (Loss)
|
|
|
Shares
|
|
Amount
|
|
Deficit
|
|
|
Equity
|
December 31, 2009
|
|
|
13,059,124
|
|
|
|
$
|
1,305,913
|
|
|
$
|
767,808,572
|
|
|
$
|
803,209
|
|
|
98,620
|
|
|
$
|
(1,278,004)
|
|
|
$
|
(680,370,937)
|
|
|
$
|
88,268,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(46,958,921)
|
|
|
(46,958,921)
|
Other comprehensive income
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
162,659
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162,659
|
Stock based compensation
|
|
|
310,800
|
|
|
|
31,079
|
|
|
1,851,299
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,882,378
|
Reclassification adjustment - stock split
|
|
|
|
-
|
|
|
|
(1,203,293)
|
|
|
1,203,293
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Purchase of treasury stock
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
81,829
|
|
|
(441,506)
|
|
|
-
|
|
|
(441,506)
|
December 31, 2010
|
|
|
13,369,924
|
|
|
|
$
|
133,699
|
|
|
$
|
770,863,164
|
|
|
$
|
965,868
|
|
|
180,449
|
|
|
$
|
(1,719,510)
|
|
|
$
|
(727,329,858)
|
|
|
$
|
42,913,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(27,453,954)
|
|
|
(27,453,954)
|
Other comprehensive loss
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
(37,124)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(37,124)
|
Stock based compensation
|
|
|
221,737
|
|
|
|
2,217
|
|
|
1,848,330
|
|
|
-
|
|
|
833
|
|
|
(3,030)
|
|
|
-
|
|
|
1,847,517
|
Public offering common stock, net
|
|
|
9,332,750
|
|
|
|
93,328
|
|
|
11,831,027
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,924,355
|
Issuance of treasury shares
|
|
|
|
-
|
|
|
|
-
|
|
|
(328,650)
|
|
|
-
|
|
|
(35,000)
|
|
|
328,650
|
|
|
-
|
|
|
-
|
Purchase of treasury shares
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,624
|
|
|
(158,492)
|
|
|
-
|
|
|
(158,492)
|
December 31, 2011
|
|
|
22,924,411
|
|
|
|
$
|
229,244
|
|
|
$
|
784,213,871
|
|
|
$
|
928,744
|
|
|
165,906
|
|
|
$
|
(1,552,382)
|
|
|
$
|
(754,783,812)
|
|
|
$
|
29,035,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(31,862,454)
|
|
|
(31,862,454)
|
Other comprehensive income
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
75,668
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
75,668
|
Stock based compensation
|
|
|
530,353
|
|
|
|
5,304
|
|
|
1,985,850
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,991,154
|
Public offering common stock, net
|
|
|
14,950,000
|
|
|
|
149,500
|
|
|
15,640,770
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,790,270
|
December 31, 2012
|
|
|
38,404,764
|
|
|
|
$
|
384,048
|
|
|
$
|
801,840,491
|
|
|
$
|
1,004,412
|
|
|
165,906
|
|
|
$
|
(1,552,382)
|
|
|
$
|
(786,646,266)
|
|
|
$
|
15,030,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note –
Share and per share information for the prior periods has been retroactively adjusted
to reflect the May 19, 2011 one-for-ten reverse stock split of the
Company’s common stock.
See
accompanying notes to consolidated financial statements.
F-5
PLUG POWER INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years ended December 31, 2012, 2011
and 2010
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,862,454)
|
|
$
|
(27,453,954)
|
|
$
|
(46,958,921)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment, and investment in leased property
|
2,069,672
|
|
2,132,117
|
|
4,969,263
|
|
|
Amortization of intangible assets
|
2,306,489
|
|
2,322,876
|
|
2,263,627
|
|
|
Stock-based compensation
|
2,001,840
|
|
1,452,259
|
|
1,174,576
|
|
|
Loss on disposal of property, plant and equipment
|
51,975
|
|
308,621
|
|
86,794
|
|
|
(Gain) loss on sale of leased assets
|
20,068
|
|
(673,358)
|
|
290,491
|
|
|
Provision for bad debts
|
-
|
|
-
|
|
10,160
|
|
|
Realized loss on available for sale securities
|
-
|
|
22,421
|
|
-
|
|
|
Net unrealized gains on trading securities
|
-
|
|
-
|
|
(5,977,822)
|
|
|
Change in fair value of auction rate debt securities repurchase agreement
|
-
|
|
-
|
|
5,977,822
|
|
|
Change in fair value of common stock warrant liability
|
(4,845,165)
|
|
(3,447,153)
|
|
-
|
|
|
Changes in operating assets and liabilities that provide (use) cash:
|
|
|
|
|
|
|
|
Accounts receivable
|
9,367,539
|
|
(9,192,901)
|
|
(2,193,325)
|
|
|
Inventory
|
(1,294,671)
|
|
1,438,195
|
|
(4,409,582)
|
|
|
Prepaid expenses and other current assets
|
(94,443)
|
|
(310,089)
|
|
1,624,422
|
|
|
Note receivable
|
(570,697)
|
|
-
|
|
-
|
|
|
Accounts payable, accrued expenses, product warranty reserve and other liabilities
|
914,388
|
|
(1,101,356)
|
|
2,618,994
|
|
|
Deferred revenue
|
1,770,463
|
|
1,192,255
|
|
(246,968)
|
|
|
|
Net cash used in operating activities
|
(20,164,996)
|
|
(33,310,067)
|
|
(40,770,469)
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
(77,527)
|
|
(1,326,144)
|
|
(1,100,478)
|
|
|
Investment in leased property, net
|
-
|
|
-
|
|
(2,233,334)
|
|
|
Restricted cash
|
-
|
|
525,000
|
|
1,740,405
|
|
|
Proceeds from disposal of property, plant and equipment
|
63,605
|
|
46,650
|
|
121,564
|
|
|
Proceeds from sale of leased assets
|
-
|
|
673,358
|
|
3,221,168
|
|
|
Proceeds from trading securities
|
-
|
|
-
|
|
59,375,001
|
|
|
Proceeds from maturities and sales of available-for-sale securities
|
-
|
|
10,399,396
|
|
79,754,039
|
|
|
Purchases of available-for-sale securities
|
-
|
|
-
|
|
(42,311,734)
|
|
|
|
Net cash (used in) provided by investing activities
|
(13,922)
|
|
10,318,260
|
|
98,566,631
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
-
|
|
(158,492)
|
|
(441,506)
|
|
|
Proceeds from issuance of common stock and warrants
|
17,192,500
|
|
22,583,877
|
|
-
|
|
|
Stock issuance costs
|
(1,402,230)
|
|
(1,891,378)
|
|
-
|
|
|
Proceeds (repayment) of borrowings under line of credit
|
(2,024,275)
|
|
5,405,110
|
|
(59,375,000)
|
|
|
Proceeds from long-term debt
|
2,105,282
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
(170,222)
|
|
(9,956)
|
|
(1,561,371)
|
|
|
|
Net cash provided by (used in) financing activities
|
15,701,055
|
|
25,929,161
|
|
(61,377,877)
|
|
|
Effect of exchange rate changes on cash
|
1,029
|
|
(35,864)
|
|
(43,865)
|
|
|
Increase (decrease) in cash and cash equivalents
|
(4,476,834)
|
|
2,901,490
|
|
(3,625,580)
|
|
|
Cash and cash equivalents, beginning of year
|
13,856,893
|
|
10,955,403
|
|
14,580,983
|
|
|
Cash and cash equivalents, end of year
|
$
|
9,380,059
|
|
$
|
13,856,893
|
|
$
|
10,955,403
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
F-6
PLUG POWER INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. Nature of Operations
Description of Business
Plug Power
Inc., is a leading provider of alternative energy technology focused on the
design, development, commercialization and manufacture of fuel cell systems for
the industrial off-road (forklift or material handling) market.
We are focused
on proton exchange membrane, or PEM, fuel cell and fuel processing technologies
and fuel cell/battery hybrid technologies, from which multiple products are
available. A fuel cell is an electrochemical device that combines hydrogen and
oxygen to produce electricity and heat without combustion. Hydrogen is derived
from hydrocarbon fuels such as liquid petroleum gas, or LPG, natural gas,
propane, methanol, ethanol, gasoline or biofuels. Hydrogen can also be obtained
from the electrolysis of water. Hydrogen can be purchased directly from
industrial gas providers or can be produced on-site at consumer
locations.
We concentrate our efforts on developing, manufacturing and selling our
hydrogen-fueled PEM GenDrive
®
products on commercial terms
for industrial off-road (forklift or material handling) applications, with a
focus on multi-shift high volume manufacturing and high throughput distribution
sites.
We have previously invested in development and sales activities for
low-temperature remote-prime power GenSys
®
products and our
GenCore
®
product, which is a hydrogen fueled PEM fuel cell
system to provide back-up power for critical infrastructure. While Plug Power
will continue to service and support GenSys and/or GenCore products on a
limited basis, our main focus is our GenDrive product line.
We sell our
products worldwide, with a primary focus on North America, through our direct
product sales force, original equipment manufacturers, or OEMs, and their
dealer networks. We sell to businesses, government agencies and commercial
consumers.
We were organized
in the State of Delaware on June 27, 1997. We were originally a joint
venture between Edison Development Corporation and Mechanical Technology
Incorporated. In 2007, we acquired all the issued and outstanding equity of
Cellex Power Products, Inc., or Cellex, and General Hydrogen Corporation, or
General Hydrogen. Prior to April 1, 2010, we were considered a
development stage enterprise because substantially all of our resources and
efforts were aimed at the discovery of new knowledge that could lead to
significant improvement in fuel cell reliability and durability, and the
establishment, expansion and stability of markets for our products.
Through these
acquisitions, and our continued GenDrive product development efforts, Plug
Power became the first fuel cell company to offer a complete suite of products;
Class 1 - sit-down counterbalance trucks, Class 2 – stand-up reach trucks
and Class 3 – rider pallet trucks products.
Unless the
context indicates otherwise, the terms “Company,” “Plug
Power,” “we,” “our” or “us” as used
herein refers to Plug Power Inc. and its subsidiaries.
Liquidity
Our cash requirements relate primarily to
working capital needed to operate and grow our business, including funding
operating expenses, growth in inventory to support both shipments of new units
and servicing the installed base, and continued development and expansion of
our products. Our ability to achieve profitability and meet future liquidity
needs and capital requirements will depend upon numerous factors, including the
timing and quantity of product orders and shipments; the timing and amount of
our operating expenses; the timing and costs of working capital needs; the
timing and costs of building a sales base; the timing and costs of developing
marketing and distribution channels; the timing and costs of product service
requirements; the timing and costs of hiring and training product staff; the
extent to which our products gain market acceptance; the timing and costs of
product development and introductions; the extent of our ongoing and any new
research and development programs; and changes in our strategy or our planned
activities. If we are unable to fund our operations without additional external
financing and therefore cannot sustain future operations, we may be required to
delay, reduce and/or cease our operations and/or seek bankruptcy protection.
F-7
We have experienced and continue to experience negative cash
flows from operations and we expect to continue to incur net losses in the
foreseeable future. We adopted a restructuring plan on December 11, 2012, aimed
at improving organizational efficiency and conserving working capital needed
to support the growth of our GenDrive business. As a result of the 2012 overall
restructuring, we expect that annual expenses will be reduced by $3.0 to $4.0 million.
The Company incurred net losses of $31.9 million, $27.5
million and $47.0 million for the years ended December 31, 2012, 2011 and 2010,
respectively, and has an accumulated deficit of $786.6 million at December 31,
2012. Substantially
all of our accumulated deficit has resulted from costs incurred in connection
with our research and development expenses general
and administrative costs associated with our operations. We expect that for
fiscal year 2013, our operating cash burn will be approximately $10-$15
million.
Net cash used in operating activities for the
year ended December 31, 2012 was $20.2 million. Additionally, on December 31,
2012, we had cash and cash equivalents $9.4 million and net working capital of
$6.9 million. This compares to $13.9 million and $22.5 million, respectively,
at December 31, 2011.
We are party to a Loan and Security Agreement with Silicon
Valley Bank, or SVB, which expired as of March 29, 2013. The SVB loan facility
provided up to $15 million of availability, subject to borrowing base
limitations, to support working capital needs. Given its expiration, we no
longer have access to this facility. As of December 31, 2012, $3.4
million was outstanding under the loan agreement. This amount was subsequently
paid in full in January, 2013. The Company maintains all of its operating bank
accounts with SVB and will continue to assess opportunities to reestablish a
credit facility with SVB.
To date, we have funded our operations primarily through public and
private offerings of common and preferred stock, our line of credit and
maturities and sales of our available-for-sale securities. The Company believes it has potential financing sources in
order to raise the capital necessary to fund operations through fiscal year end
2013. The Companys current sources of capital include the raising
of $2.4 million in a public equity offering completed in February, 2013, and
the completion of a sale leaseback of its real estate in Latham, NY on March
27, 2012 as more fully described in Note 21, Subsequent Events of the
consolidated financial statements. We believe that
our current cash, cash equivalents and cash generated from future sales will
provide sufficient liquidity to fund our operations into May 2013. This
projection is based on our current expectations regarding product sales, cost
structure, cash burn rate and operating assumptions.
In addition
to the aforementioned current sources of capital that will provide additional
short term liquidity, the Company is currently exploring various other
alternatives including debt and equity financing vehicles, strategic
partnerships, government programs that may be available to the Company, a sale
of the Company, as well as trying to generate additional sales and increase
margins. However, at this time the Company has no commitments to
obtain any additional funds, and there can be no assurance such funds will be
available on acceptable terms or at all. If the Company is unable to
obtain additional funding and improve its operations, the Companys financial
condition and results of operations may be materially adversely affected and
the Company may not be able to continue operations.
Additionally, even if we raise sufficient
capital through additional equity or debt financing, strategic alternatives or
otherwise, there can be no assurances that the revenue or capital infusion will
be sufficient to enable us to develop our business to a level where it will be
profitable or generate positive cash flow. If we raise additional funds through
the issuance of equity or convertible debt securities, the percentage ownership
of our stockholders could be significantly diluted, and these newly issued
securities may have rights, preferences or privileges senior to those of
existing stockholders. If we incur additional debt, a substantial portion of
our operating cash flow may be dedicated to the payment of principal and
interest on such indebtedness, thus limiting funds available for our business
activities. The terms of any debt securities issued could also impose
significant restrictions on our operations. Broad market and industry factors
may seriously harm the market price of our common stock, regardless of our
operating performance, and may adversely impact our ability to raise additional
funds. Similarly, if our common stock is delisted from the NASDAQ Capital
Market, it may limit our ability to raise additional funds. If we raise
additional funds through collaborations and/or licensing arrangements, we might
be required to relinquish significant rights to our technologies, or grant
licenses on terms that are not favorable to us.
The consolidated financial statements for the year ended
December 31, 2012 were prepared on the basis of a going concern which
contemplates that the Company will be able to realize assets and discharge
liabilities in the normal course of business. Accordingly, they do not give
effect to adjustments that would be necessary should the Company be required to
liquidate its assets. The ability of the Company to meet its total liabilities of $24.4 million
at December 31, 2012, and to continue as a going concern is dependent upon the
availability of future funding, continued growth in orders and shipments, and
the Companys ability to profitably meet its after-sale service commitments
with its existing customers. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
F-8
Public Offering
Refer to Note 5, Stockholders’
Equity, for information regarding our 2012 and 2011 public offerings.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The
consolidated financial statements include the financial statements of Plug Power
Inc. and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. It is the
Company’s policy to reclassify prior year consolidated financial
statements to conform to current year presentation.
Subsequent
to the original issuance of the December 31, 2011 consolidated
financial statements, the Company identified an immaterial error related to the
presentation of deferred revenue within the consolidated balance sheets as of
December 31, 2011. Such error has been corrected in the
accompanying consolidated balance sheets through a reduction to deferred
revenue within current liabilities and a corresponding increase to deferred
revenue within non-current liabilities in the amounts of $3,036,829 as of December 31, 2011. This
correction does not affect previously reported total liabilities in the
accompanying consolidated balance sheets, and had no effect on the previously
reported consolidated statements of operations, comprehensive loss, stockholders’
equity, or cash flows for any period.
Cash Equivalents
Cash equivalents
consist of money market accounts with an initial term of less than three
months. For purposes of the consolidated statements of cash flows, the Company
considers all highly-liquid debt instruments with original maturities of three
months or less to be cash equivalents.
Accounts Receivable
Accounts
receivable related to product and service arrangements are recorded when
products are shipped or delivered to customers, as appropriate. Accounts
receivable related to contract research and development arrangements are
recorded when work is completed under the applicable contract. Accounts
receivable are stated at the amount billed to customers and are ordinarily due
between 30 and 60 days after the issuance of the invoice. Accounts are
considered delinquent when more than 90 days past due, and no extended payment
agreements have been granted. Delinquent receivables are reserved or written
off based on individual credit evaluation and specific circumstances of the
customer. The allowance for doubtful accounts and related receivable are
reduced when the amount is deemed uncollectible. As of December 31, 2012
and December 31, 2011, the allowance for doubtful accounts was $0.
Inventory
Inventory is
stated at the lower of cost or market value and consists primarily of raw
materials. In the case of our limited consignment arrangements, we do not relieve
inventory until the customer has accepted the product, at which time the risks
and rewards of ownership have transferred. At December 31, 2012 and 2011,
inventory on consignment was valued at approximately $406,000 and $178,000,
respectively.
F-9
Intangible Assets
Intangible assets
with estimable useful lives are amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment
when certain triggering events occur. Intangible assets consisting of acquired
technology and customer relationships related to Cellex and General Hydrogen
are amortized using a straight-line method over their useful lives of 8 years.
Product and Service Revenue
Effective April
1, 2010, the Company adopted Accounting Standards Update (ASU) ASU No. 2009-13
on Topic 605, Revenue Recognition– Multiple Deliverable Revenue
Arrangements retroactive to January 1, 2010
.
The objective of this ASU
is to address the accounting for multiple-deliverable arrangements to enable
vendors to account for products or services (deliverables) separately rather
than as a combined unit. Vendors often provide multiple products or services to
their customers. Those deliverables often are provided at different points in
time or over different time periods. This ASU provides amendments to the
criteria in Subtopic 605-25 for separating consideration in
multiple-deliverable arrangements. The amendments in this ASU establish a
selling price hierarchy for determining the selling price of a deliverable. The
selling price used for each deliverable will be based on vendor-specific
objective evidence (VSOE) if available, third-party evidence (TPE) if VSOE is
not available, or estimated selling price (ESP) if neither VSOE nor TPE is
available. The amendments in this ASU also replace the term fair value in the
revenue allocation guidance with selling price to clarify that the allocation
of revenue is based on entity-specific assumptions rather than assumptions of a
marketplace participant and expands the disclosure requirements related to a
vendor’s multiple-deliverable revenue arrangements.
The Company
enters into multiple-deliverable revenue arrangements that may contain a
combination of fuel cell systems or equipment, installation, service,
maintenance, fueling and other support services. The Company was
previously prohibited from separating these multiple deliverables into
individual units of accounting without VSOE of fair value or other TPE of fair
value. This evidence was not available due to our limited experience and lack
of evidence of fair value of the undelivered components of the sale. Without
this level of evidence, the Company had to treat each sale as a single unit of
accounting and defer the revenue recognition of each sale, recognizing revenue
over a straight-line basis as the continued service, maintenance and other
support obligations expired. Under ASU No. 2009-13, the requirement to have
VSOE or TPE in order to recognize revenue has been modified, and it now allows
the vendor to make its best estimate of the standalone selling price of
deliverables when more objective evidence of selling price is not available.
Prior to the
adoption of ASU No. 2009-13, the Company applied the guidance within FASB ASC
No. 605-10-S99, Revenue Recognition – Overall – SEC Materials, in
the evaluation of its contracts to determine when to properly recognize
revenue. Under FASB ASC No. 605-10-S99 revenue is recognized when title and
risk of loss have passed to the customer, there is persuasive evidence of an
arrangement, delivery has occurred or services have been rendered, the sales
price is determinable, and collectability is reasonably assured.
The
Company’s initial sales of products were contract-specific arrangements
containing multiple obligations that may include a combination of fuel cell
systems, continued service, maintenance, a supply of hydrogen and other
support. While contract terms generally stipulated that title and risk of
ownership pass and require payment upon shipment or delivery of the fuel cell
system, or acceptance in the case of certain consignment sales, and also
stipulated that payment is not contingent on the achievement of specific
milestones or other substantive performance, the multiple obligations within
the Company’s contractual arrangements were not accounted for separately
based on the Company’s limited commercial experience and lack of evidence
of fair value of the separate elements. As a result, the Company deferred
recognition of product and service revenue and recognized revenue on a
straight-line basis over the stated contractual terms, as the continued
service, maintenance and other support obligations expired, which were
generally for periods of twelve (12) to thirty (30) months or which may have
extended over multiple years.
F-10
For all product
and service revenue transactions entered into prior to the implementation of
ASU No. 2009-13, the Company will continue to defer the recognition of product
and service revenue and recognize revenue on a straight-line basis as the
continued service, maintenance and other support obligations expire, which are
generally for periods of twelve to thirty months, or which extend over multiple
years.
See Note 3,
Multiple-Deliverable Revenue Arrangements for further discussion of our
multiple-deliverable revenue arrangements.
The Company
has also sold products with extended warranties that generally provide for a
five to ten year warranty from the date of installation. These types
of contacts are accounted for as a deliverable in accordance with ASU No.
2009-13, and accordingly, revenue generated from these transactions is deferred
and recognized in income over the warranty period generally on a straight line
basis.
In the case
of the Company’s limited consignment sales, the Company does not begin
recognizing revenue until the customer has accepted the product, at which time
the risks and rewards of ownership have transferred, the price is fixed and the
Company has a reasonable expectation of collection upon billing. The costs
associated with the product, service and other obligations are generally
expensed as they are incurred. At December 31, 2012 and 2011, the Company had
unbilled amounts from product and service revenue in the amount of
approximately $118,000 and $0, respectively, and is included in other current
assets in the consolidated balance sheets. At December 31, 2012 and 2011,
the Company had deferred product and service revenue in the amount of $7.3
million and $5.5 million, respectively, and is included in deferred revenue in
the consolidated balance sheets.
Product Warranty Reserve
Our product and service
revenue contracts generally provide a one to two-year product warranty to
customers from date of shipment. We currently estimate the costs of
satisfying warranty claims based on an analysis of past experience and provide
for future claims in the period the revenue is recognized. The Company’s
product and service warranty reserve as of December 31, 2012 is approximately
$2,671,000 and is included in product warranty reserve in the consolidated
balance sheets. Included in this balance is approximately $2.0 million
related to specific GenDrive component quality issues that were identified
during the year ended December 31, 2012.
Research
and Development Contract Revenue
Research and development
contract revenue primarily relates to cost reimbursement research and
development contracts associated with the development of PEM fuel cell
technology. The Company generally shares in the cost of these programs with
cost sharing percentages generally ranging from 30% to 50% of total project
costs. Revenue from time and material contracts is recognized on the basis of
hours expended plus other reimbursable contract costs incurred during the
period. All allowable work performed through the end of each calendar quarter
is billed, subject to limitations in the respective contracts. We expect to
continue research and development contract work that is directly related to our
current product development efforts. At December 31, 2012 and 2011, the Company
had unbilled amounts from research and development contract revenue in the
amount of approximately $182,000 and $252,000, respectively and is included in
other current assets in the consolidated balance sheets. Unbilled amounts at
December 31, 2012 are expected to be billed during the first quarter of 2013.
Property, Plant and Equipment
Property, plant
and equipment are originally recorded at cost. Maintenance and repairs are
expensed as costs are incurred. Depreciation on plant and equipment is
calculated on the straight-line method over the estimated useful lives of the
assets. The Company records depreciation and amortization over the following
estimated useful lives:
Buildings
|
|
20 years
|
Building improvements
|
|
5–20 years
|
Software, machinery and
equipment
|
|
1–15 years
|
F-11
Leased Property Under Capital Lease
Leased property under capital lease is stated at the present value of minimum
lease payments. Amortization expense is recorded on a straight‑line basis
over 6 years, the shorter of the lease term and the estimated useful life of
the asset. Amortization expense amounted to $129,122 in 2012 and has been
included in cost of product and service revenue in the accompanying
consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived
assets, such as property, plant, and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated undiscounted future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Fair value is determined through various
valuation techniques, including discounted cash flow models, quoted market
values and third party independent appraisals, as considered necessary. Assets
to be disposed of would be separately presented in the balance sheet and
reported at the lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated. The assets and liabilities of a disposal group
classified as held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.
Common Stock Warrant Accounting
We
account for common stock warrants in accordance with applicable accounting
guidance provided in ASC 815, Derivatives and Hedging – Contracts in
Entity’s Own Equity, as either derivative liabilities or as equity
instruments depending on the specific terms of the warrant agreement. In
compliance with applicable securities law, registered common stock warrants
that require the issuance of registered shares upon exercise and do not
sufficiently preclude an implied right to cash settlement are accounted for as
derivative liabilities. We classify these derivative warrant liabilities on the
condensed consolidated balance sheets as a long term liability, which is
revalued at fair value at each balance sheet date subsequent to the initial
issuance. We use the Black-Scholes pricing model to value the derivative
warrant liability. The Black-Scholes pricing model, which is based, in part,
upon unobservable inputs for which there is little or no market data, requires
the Company to develop its own assumptions. The Company used the following
assumptions for its common stock warrants. The risk-free interest rate for December
31, 2012, December 31, 2011 and May 31, 2011 (issuance date), were .31%, .33%
and .75%, respectively. The volatility of the market price of the Company’s
common stock for December 31, 2012, December 31, 2011 and May 31, 2011 were 73.5%,
78.6%, and 94.4%, respectively. The expected average term of the warrant used
for all periods was 2.5 years. There was
no expected dividend yield for the warrants granted. As a result, if factors
change and different assumptions are used, the warrant liability and the change
in estimated fair value could be materially different. Changes in the fair
value of the warrants are reflected in the consolidated statement of operations
as change in fair value of common stock warrant liability.
Income Taxes
Income taxes are
accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in the period that includes the enactment date. A valuation allowance is
recorded to reduce the carrying amounts of deferred tax assets if it is more
likely than not that such assets will not be realized. We did not report a
benefit for federal and state income taxes in the consolidated financial
statements as the deferred tax asset generated from our net operating loss has
been offset by a full valuation allowance because it is more likely than not
that the tax benefits of the net operating loss carryforward will not be
realized.
F-12
The Company accounts for
uncertain tax positions in accordance with FASB ASC No. 740-10-25, Income Taxes
– Overall – Recognition. The Company must recognize in its
financial statements the impact of a tax position, if that position is more likely
than not to be sustained on audit, based on the technical merits of the
position.
Foreign Currency Translation
Foreign currency translation
adjustments arise from conversion of the Company’s foreign
subsidiary’s financial statements to US dollars for reporting purposes,
and are included in accumulated other comprehensive income (loss) in
stockholders’ equity on the accompanying consolidated balance sheets.
Realized foreign currency transaction gains and losses are included in interest
and other expense in the accompanying consolidated statements of operations.
Research and Development
Costs incurred in research and development by
the Company are expensed as incurred.
Joint Venture
We account for investments in joint ventures in
which we have significant influence in accordance with applicable accounting
guidance in Subtopic 323-10,
Investments – Equity Method and Joint
Ventures – Overall
. On February 29, 2012 we completed the formation
of our joint venture with Axane, S.A., a subsidiary of Air Liquide, under the
name HyPulsion (the JV). The principal purpose of the JV is to develop and sell
hydrogen fuel cell systems for the European material handling market. Axane
contributed cash at the closing and will make additional fixed cash
contributions in 2013 and 2014 in exchange for 55% ownership of the JV, subject
to certain conditions. We contributed to the JV the right to use our
technology, including design and technology know-how on GenDrive systems, in
exchange for 45% ownership of the JV. Accordingly, we will share in 45% of the
profits from the JV. We have not contributed any cash to the JV and we are not
obligated to contribute any cash. We have an option in the future to contribute
cash and become a majority owner of the JV.
In accordance with the equity method of
accounting, the Company will increase its investment in the JV by its share of
any earnings, and decrease its investment in the JV by its share of any losses.
Losses in excess of the investment must be restored from future profits before
we can recognize our proportionate share of profits. As of December 31, 2012,
the Company had a zero basis for its investment in the JV.
Stock-Based Compensation
The Company maintains employee
stock-based compensation plans, which are described more fully in Note 6,
Employee Benefit Plans.
Stock-based compensation
represents the cost related to stock-based awards granted to employees and
directors. The Company measures stock-based compensation cost at grant date,
based on the fair value of the award, and recognizes the cost as expense on a
straight-line basis (net of estimated forfeitures) over the option’s
requisite service period.
The Company estimates the fair
value of stock-based awards using a Black-Scholes valuation model. Stock-based
compensation expense is recorded in “Cost of product and service
revenue”, “Research and development expense” and
“Selling, general and administrative expense” in the consolidated
statements of operations based on the employees’ respective function.
The Company records deferred
tax assets for awards that result in deductions on the Company’s income
tax returns, based upon the amount of compensation cost recognized and the
Company's statutory tax rate. Differences between the deferred tax assets
recognized for financial reporting purposes and the actual tax deduction
reported on the Company's income tax return are recorded in additional paid-in
capital if the tax deduction exceeds the deferred tax asset or in the
consolidated statements of operations if the deferred tax asset exceeds the tax
deduction and no additional paid-in capital exists from previous awards.
Excess tax benefits are recognized in the period in which the tax deduction is
realized through a reduction of taxes payable. No tax benefit or expense for
stock-based compensation has been recorded during the years ended December 31,
2012, 2011 and 2010 since the Company remains in a NOL position.
F-13
Per Share Amounts
Basic earnings per common
share are computed by dividing net loss available to common stockholders by the
weighted average number of common shares outstanding during the reporting
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock (such as
convertible preferred stock, stock options, unvested restricted stock, and
common stock warrants) were exercised or converted into common stock or
resulted in the issuance of common stock (net of any assumed repurchases) that
then shared in the earnings of the Company, if any. This is computed by
dividing net earnings by the combination of dilutive common share equivalents,
which is comprised of shares issuable under outstanding warrants, the
Company’s share-based compensation plans, and the weighted average number
of common shares outstanding during the reporting period. Since the Company is
in a net loss position, all common stock equivalents would be considered to be anti-dilutive
and are, therefore, not included in the determination of diluted earnings per
share. Accordingly, basic and diluted loss per share are the same. All
share information for the prior periods has been retroactively adjusted to
reflect the May 19, 2011 one-for-ten reverse stock split of the Company’s
common stock.
The following
table provides the components of the calculations of basic and diluted earnings
per share:
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
2010
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(31,862,454)
|
|
|
$
|
(27,453,954)
|
|
$
|
(46,958,921)
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
|
|
|
|
|
outstanding
|
34,376,427
|
|
|
18,778,066
|
|
13,123,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The dilutive
potential common shares are summarized as follows:
|
|
|
|
At December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
Stock options outstanding
|
|
1,986,255
|
|
|
1,948,997
|
|
432,846
|
Unvested restricted stock
|
|
-
|
|
|
280,771
|
|
437,958
|
Common stock warrants (1)
|
|
9,421,008
|
|
|
7,128,563
|
|
57,143
|
Number of dilutive potential common shares
|
|
11,407,263
|
|
|
9,358,331
|
|
927,947
|
|
|
|
|
|
|
|
|
(1)
|
On May 31,
2011, the Company granted 7,128,563 warrants as part of an underwritten public
offering. As a result of the March 28 and 29, 2012 public offerings
described in Note 5, the number of warrants increased to 9,421,008.
|
Use of Estimates
The consolidated
financial statements of the Company have been prepared in conformity with U.S.
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Subsequent Events
See Note 21, Subsequent
Events, of the Consolidated Financial Statements for an evaluation of
subsequent events and transactions through the date of this filing.
F-14
Recent Accounting Pronouncements
In February 2013,
the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2013-02, “Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income”. This ASU
adds new disclosure requirement for items reclassified out of accumulated other
comprehensive income (“AOCI”). The ASU is effective for fiscal
years, and interim periods within those years, beginning on or after December
15, 2012 and must be applied prospectively. The Company is evaluating the
impact of the standard on its consolidated financial statements and related disclosures.
In December 2011,
the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities”. ASU 2011-11 requires an entity
to disclose information about offsetting and related arrangements to enable users
of its financial statements to understand the effect of those arrangements on
its financial position. ASU No. 2011-11 is effective for interim and annual
periods beginning on or after January 1, 2013 and will be applied
retrospectively. The Company does not expect the adoption of ASU 2011-11 to
have a material impact on its consolidated financial statements.
3. Multiple-Deliverable Revenue
Arrangements
The Company enters into
multiple-deliverable revenue arrangements that may contain a combination of
fuel cell systems or equipment, installation, service, maintenance, fueling and
other support services. The delivered item, equipment, does have value to the
customer on a standalone basis and could be separately sold by another
vendor. In addition, the Company does not include a right of return on
its products. The majority of the Company’s multiple-deliverable revenue
arrangements ship complete within the same quarter.
Under the guidance of the
FASB ASU No. 2009-13, in an arrangement with multiple-deliverables, the
delivered items will be considered a separate unit of accounting if the
following criteria are met:
-
The delivered item or items have value to the customer on a
standalone basis.
-
If the arrangement includes a general right of return relative to
the delivered item(s), delivery or performance of the undelivered item or items
is considered probable and substantially in the control of the vendor.
Deliverables not meeting the
criteria for being a separate unit of accounting are combined with a
deliverable that does meet that criterion. The appropriate allocation of
arrangement consideration and recognition of revenue is then determined for the
combined unit of accounting.
The Company allocates
arrangement consideration to each deliverable in an arrangement based on its
relative selling price. The Company determines selling price using
vendor-specific objective evidence (VSOE), if it exists, otherwise third-party
evidence (TPE). If neither VSOE nor TPE of selling price exists for a unit of
accounting, the Company uses estimated selling price (ESP).
VSOE is generally limited to
the price that a vendor charges when it sells the same or similar products or services
on a standalone basis. TPE is determined based on the prices charged by
competitors of the Company for a similar deliverable when sold
separately. The Company generally expects that it will not be able to
establish VSOE or TPE for certain deliverables due to the lack of standalone
sales and the nature of the markets in which the Company competes, and, as
such, the Company typically will determine selling price using ESP.
F-15
The
objective of ESP is to determine the price at which the Company would transact
if the product or service were sold by the Company on a standalone basis. The
Company’s determination of ESP may involve a weighting of several factors
based on the specific facts and circumstances of the arrangement. Specifically,
the Company may consider the cost to produce the deliverable, the anticipated
margin on that deliverable, the selling price and profit margin for similar
parts, the Company’s ongoing pricing strategy and policies, the value of
any enhancements that have been built into the deliverable and the
characteristics of the varying markets in which the deliverable is sold, as
applicable. The Company will determine ESP for deliverables in future
agreements based on the specific facts and circumstances of the arrangement.
As noted above, in
determining selling price, TPE is generally not readily available due to a lack
of a competitive environment in selling fuel cell technology. However,
when determining selling price for certain deliverables such as service and
maintenance, if available, the Company utilizes prices charged by its
competitors as TPE when estimating its costs for labor hours.
Each deliverable within the
Company’s multiple-deliverable revenue arrangements is accounted for as a
separate unit of accounting under the guidance of ASU No. 2009-13. Once a
standalone selling price for all the deliverables that meet the separation
criteria has been met, whether by VSOE, TPE or ESP, the relative selling price
method is used to proportionately allocate the sale consideration to each
element of the arrangement. The Company plans to analyze the selling prices
used in its allocation of arrangement consideration at a minimum on an annual
basis. Selling prices will be analyzed on a more frequent basis if a
significant change in the Company’s business necessitates a more timely
analysis or if the Company experiences significant variances in its selling
prices.
For all product and service
revenue transactions entered into prior to the implementation of ASU No.
2009-13, the Company will continue to defer the recognition of product and
service revenue and recognize revenue on a straight-line basis as the continued
service, maintenance and other support obligations expire, which are generally
for periods of twelve to thirty months, or which extend over multiple years.
While contract terms for those transactions generally required payment shortly
after shipment or delivery and installation of the fuel cell system and were
not contingent on the achievement of specific milestones or other substantive
performance, the multiple-element revenue obligations within our contractual
arrangements were generally not accounted for separately based on our limited
experience and lack of evidence of fair value of the undelivered components.
At December 31, 2012 and 2011 there was approximately $560,000 and $910,000
included in deferred revenue in the consolidated balance sheets related to
these transactions.
4. Loan and Security Agreement
At December 31,
2012, we were a party to a loan and security agreement, as amended, the Loan
Agreement with Silicon Valley Bank, or SVB, providing us with access to up to
$15.0 million of financing in the form of revolving loans, letters of credit,
foreign exchange contracts and cash management services such as merchant services,
direct deposit of payroll, business credit card and check cashing services. On
November 29, 2012 we executed a Third Loan Modification Agreement with SVB,
which, among other things, waived our failure to comply with the Adjusted Quick
Ratio financial covenant as of the months ended September 30, 2012 and October
31, 2012, revised the future Adjusted Quick Ratio covenant level and removed
our ability to request financing for Inventory Placeholder Invoices. The Loan
Agreement expired on March 29, 2013.
Advances under the
Loan Agreement could not exceed a borrowing base limit calculated using an
advanced rate of 80% on our eligible accounts receivable, subject to certain
reserves established by SVB and other adjustments.
Interest on
advances of credit under the Loan Agreement for financed accounts receivables were
equal to SVB’s prime rate, which was 3.25% per annum at December 31, 2012,
plus 3.0% per annum or, if we maintained at all times during any month an
adjusted quick ratio of 2.0 to 1.0, then SVB’s prime rate plus 1.50% per
annum. The minimum monthly interest charge was $6,000 per month.
The Loan Agreement
was secured by substantially all of our properties, rights and assets,
including substantially all of our equipment, inventory, receivables, intellectual
property and general intangibles.
F-16
The Loan Agreement
included customary representations and warranties for credit facilities of this
type. In addition, the Loan Agreement contained a number of covenants that
imposed significant operating and financial restrictions on our operations,
including restrictions pertaining to, among other things: the condition of
inventory; maintenance of an adjusted quick ratio of at least 1.25 to 1.0;
intellectual property right protection and registration; dispositions of
assets; changes in business, management, ownership or business locations;
mergers, consolidations or acquisitions; incurrence or assumption of
indebtedness; incurrence of liens on any of our property; paying dividends or
making distributions on, or redemptions, retirements or repurchases of, capital
stock; transactions with affiliates; and payments on or amendments to
subordinated debt. At December 31, 2012 we were in compliance with all
covenants except the Adjusted Quick Ratio covenant.
The Loan Agreement
also contained events of default customary for credit facilities of this type
with, in some cases, corresponding grace periods, including, failure to pay any
principal or interest when due, failure to comply with covenants, any material adverse
change occurring, an attachment, levy or restraint on our business, certain
bankruptcy or insolvency events , payment defaults relating to, or acceleration
of, other indebtedness or that could result in a material adverse change to our
business, we or our subsidiaries becoming subject to judgments, claims or
liabilities in an amount individually or in aggregate in excess of $150,000,
any misrepresentations, or any revocation, invalidation, breach or invalidation
of any subordinated debt.
As of December 31,
2012, $3.4 million was outstanding under the loan agreement. This amount was
subsequently paid in full in January, 2013.
In
September 2011, we signed a letter of credit with SVB in the amount of
$525,000. The standby letter of credit is required by the agreement negotiated
between Air Products and Chemicals, Inc., or Air Products, and us to supply
hydrogen infrastructure and hydrogen to Central Grocers at their distribution
center. There are no collateral requirements associated with this letter of
credit.
5. Stockholders’ Equity
Common Stock
The Company
has one class of common stock, par value $.01 per share. Each share of the
Company’s common stock is entitled to one vote on all matters submitted
to stockholders. As of December 31, 2012 and 2011 there were 38,238,858
and 22,758,505, respectively shares of common stock issued and outstanding.
Preferred Stock
The Company
has authorized 5.0 million shares of preferred stock, par value $.01 per
share. The Company’s certificate of incorporation provides that shares of
preferred stock may be issued from time to time in one or more series. The
Company’s Board of Directors is authorized to fix the voting rights, if
any, designations, powers, preferences, qualifications, limitations and
restrictions thereof, applicable to the shares of each series. As of
December 31, 2012 and 2011, there were no shares of preferred stock issued
and outstanding.
The Company
has registered Series A Junior Participating Cumulative Preferred Stock, par
value $.01 per share. As of December 31, 2012 and 2011, there were no
shares of Series A Junior Participating Cumulative Preferred Stock issued and
outstanding.
Equity Issuances and Related Activity
On May 19,
2011, the Company implemented a one-for-ten reverse stock split of its common
stock. As a result of the reverse stock split, each ten (10) outstanding shares
of pre-split common stock were automatically combined into one (1) share of
post-split common stock. Fractional shares received cash and proportional
adjustments were made to the Company’s outstanding stock options and
other equity awards and to the Company’s equity compensation plans to
reflect the reverse stock split. The financial statements for all prior periods
have been retroactively adjusted to reflect this stock split for both common
stock issued and options outstanding.
F-17
On
May 31, 2011, the Company completed an underwritten public offering of
8,265,000 shares of its common stock and warrants to purchase an aggregate of
7,128,563 shares of common stock (including warrants to purchase an aggregate
of 929,813 shares of common stock purchased by the underwriter pursuant to the
exercise of its over-allotment option). Net proceeds, after underwriting
discounts and commissions and other fees and expenses payable by Plug Power,
were $18,289,883 (of this amount $8,768,143 in fair value was recorded as
common stock warranty liability at issuance date). The shares and the warrants
were sold together as a fixed combination, with each combination consisting of
one share of common stock and 0.75 of a warrant to purchase one share of common
stock, at a price to the public of $2.42 per fixed combination. The warrants
are exercisable upon issuance and will expire on May 31, 2016. The exercise
price of the warrants upon issuance was $3.00 per share of common stock and is
subject to weighted average anti-dilution provisions in the event of issuance
of additional shares of common stock and certain other conditions, as further
described in the warrant agreement. Additionally, in the event of a sale of the
Company, and under certain conditions, each warrant holder has the right to
require the Company to purchase such holder’s warrants at a price
determined using a Black-Scholes option pricing model. As a result of the March
28 and 29, 2012 public offerings and pursuant to the effect of the anti-dilution
provisions, the exercise price of the warrants was reduced to $2.27 per share
of common stock. Simultaneously with the adjustment to the exercise price, the
number of common stock shares that may be purchased upon exercise of the
warrants was increased to 9,421,008 shares.
On June 8,
2011, the Company sold 836,750 additional shares of common stock, pursuant to
the underwriter’s partial exercise of its over-allotment option,
resulting in additional net proceeds to Plug Power of $1,874,990.
On July 1, 2011,
the Company sold 231,000 additional shares of common stock, pursuant to the
underwriter’s partial exercise of its over-allotment option, resulting in
additional net proceeds to Plug Power of $527,626.
On March 28, 2012, the Company
completed an underwritten public offering of 13,000,000 shares of its common
stock. The shares were sold at $1.15 per share. Net proceeds, after
underwriting discounts and commissions and other fees and expenses payable by
Plug Power were $13,704,745.
On March 29, 2012, the Company
sold 1,950,000 additional shares of common stock at $1.15 per share, pursuant
to the underwriter’s exercise of its over-allotment option in connection
with the March 28, 2012 underwritten public offering, resulting in additional
net proceeds to Plug Power of $2,085,525.
6. Employee Benefit Plans
Stock Option
Plan
2011 Stock Option and Incentive Plan
On
May 12, 2011, the Company’s stockholders approved the 2011 Stock Option
and Incentive Plan (the 2011 Plan). The 2011 Plan provides for the issuance of
up to a maximum number of shares of common stock equal to the sum of (i)
1,000,000, plus (ii) the number of shares of common stock underlying any grants
pursuant to the 2011 Plan or the Plug Power Inc. 1999 Stock Option and
Incentive Plan that are forfeited, canceled, repurchased or are terminated
(other than by exercise). The shares may be issued pursuant to stock options,
stock appreciation rights, restricted stock awards and certain other
equity-based awards granted to employees, directors and consultants of the
Company. No grants may be made under the 2011 Plan after May 12, 2021. On May
16, 2012, the stockholders approved an amendment to the 2011 Plan, to increase
the number of shares of the Company’s common stock authorized for issuance
under the 2011 Plan from 1,000,000 to 6,500,000.
At
December 31, 2012 there were approximately 2.0 million options
granted and outstanding and 5.8 million options available to be issued under
the 2011 Stock Option Plan. The 2011 Stock Option 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. Options for employees issued under this plan generally vest in equal
annual installments over three years and expire ten years after issuance.
Options granted to members of the Board generally vest one year after issuance.
To date, options granted under the 2011 Stock Option Plan have vesting
provisions ranging from immediate vesting to three years in duration and expire
ten years after issuance.
F-18
Compensation
cost associated with employee stock options represented approximately
$1,408,000 of the total share-based payment expense recorded for the year ended
December 31, 2012. The Company estimates the fair value of stock options
using a Black-Scholes valuation model, and the resulting fair value is recorded
as compensation cost on a straight-line basis over the option vesting period.
Key inputs and assumptions used to estimate the fair value of stock options
include the grant price of the award, the expected option term, volatility of
the Company’s stock, an appropriate risk-free rate, and the
Company’s dividend yield. Estimates of fair value are not intended to
predict actual future events or the value ultimately realized by employees who
receive equity awards, and subsequent events are not indicative of the
reasonableness of the original estimates of fair value made by the Company. The
assumptions made for purposes of estimating fair value under the Black-Scholes
model for the 78,400, 1,618,400 and 150,500 options granted during the years
ended December 31, 2012, 2011 and 2010, respectively were as follows:
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Dividend yield:
|
0%
|
|
0%
|
|
0%
|
Expected term of options (years):
|
6
|
|
6
|
|
6
|
Risk free interest rate:
|
0.80%-1.16%
|
|
1.16%-2.61%
|
|
1.52%-2.93%
|
Volatility:
|
80%
|
|
74%-79%
|
|
94%-95%
|
|
|
|
|
|
|
|
The
Company’s estimate of an expected option term was calculated in
accordance with the simplified method for calculating the expected term
assumption. The estimated stock price volatility was derived from the
Company’s actual historic stock prices over the past six years, which
represents the Company’s best estimate of expected volatility.
A summary of
stock option activity for the year December 31, 2012 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted Average
|
|
Aggregate
|
|
|
|
|
Avgerage Exercise
|
|
Remaining
|
|
Instrinsic
|
|
Shares
|
|
Price
|
|
Contractual Terms
|
|
Value
|
Options outstanding at December 31, 2011
|
|
1,948,997
|
|
$
|
9.84
|
|
8.8
|
|
$
|
-
|
Granted
|
|
78,400
|
|
1.22
|
|
9.3
|
|
-
|
Exercised
|
|
-
|
|
-
|
|
-
|
|
-
|
Forfeited
|
|
(16,471)
|
|
5.89
|
|
-
|
|
-
|
Expired
|
|
(24,671)
|
|
56.06
|
|
-
|
|
-
|
Options outstanding at December 31, 2012
|
|
1,986,255
|
|
$
|
8.95
|
|
7.9
|
|
-
|
Options exercisable at December 31, 2012
|
|
870,918
|
|
16.01
|
|
6.9
|
|
-
|
Options unvested at December 31, 2012
|
|
1,115,337
|
|
3.45
|
|
8.7
|
|
-
|
|
|
|
|
|
|
|
|
|
The weighted
average grant date fair value of options granted during the years ended
December 31, 2012, 2011 and 2010 was $0.83, $3.58 and $3.80, respectively.
There were no stock options exercised during the year ended December 31,
2012. As of December 31, 2012, there was approximately $1,897,000 of
unrecognized compensation cost related to stock option awards to be recognized
over the next three years. The total fair value of stock options that vested
during the years ended December 31, 2012 and 2011 was approximately
$1,407,000 and $952,000, respectively.
Restricted stock
awards vest in equal installments over a period of one to three years.
Restricted stock awards were valued based on the closing price of the
Company’s common stock on the date of grant, and compensation cost is
recorded on a straight-line basis over the share vesting period. The Company did
not issue any restricted stock awards in 2012, and therefore no expense associated
with restricted stock awards was recorded in 2012. Additionally, as of
December 31, 2011, there was no unrecognized compensation cost related to
restricted stock awards to be recognized over the next three years.
A summary of
restricted stock activity for the year ended December 31, 2012 is as
follows:
|
|
|
|
Aggregate
|
|
|
|
|
Intrinsic
|
|
Shares
|
|
Value
|
Unvested restricted stock at December 31, 2011
|
|
280,771
|
|
$
|
572,773
|
Forfeited
|
|
(280,771)
|
|
(572,773)
|
Unvested restricted stock at December 31, 2012
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
F-19
For the years
ended December 31, 2012, 2011, and 2010, the Company recorded expense of
approximately $2.0 million, $1.5 million, and $1.2 million respectively, in
connection with its share based payment awards.
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 100% 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 or less actual losses thereon.
Participants are vested in the Company’s matching contribution based on
years of service completed. Participants are fully vested upon completion of
three years of service. During 2002, the Company began funding its matching
contribution in common stock. Accordingly, the Company has issued 403,579,
133,748 and 90,166 shares of common stock to the Plug Power Inc. 401(k)
Savings & Retirement Plan during 2012, 2011 and 2010,
respectively. These shares have been adjusted to reflect the May 19, 2011
one-for-ten stock split of the Company’s common stock.
The
Company’s expense for this plan, including the issuance of shares, was
approximately $436,000, $374,000 and $441,000 for years ended December 31,
2012, 2011 and 2010, respectively.
Long Term Incentive Plan
On October
28, 2009, the Compensation Committee recommended and the Board of Directors
approved a Long Term Incentive (LTI) Plan pursuant to the terms of the
Company’s 1999 Stock Option and Incentive Plan. Designed as an incentive
vehicle to support employee efforts, the LTI Plan seeks to increase shareholder
value by encouraging Plug Power employees to continue to work diligently to
further the Company’s long term goals.
Under the
LTI Plan, a select group of critical employees received a Restricted Stock Unit
Award Agreement (Agreement) awarding a one-time grant of restricted stock units
(RSUs) calculated using a multiple of the selected employee’s base
salary. According to the Agreement, the restrictions on each
participant’s RSU allocation will lapse over a three year period upon
successful completion of weighted performance-based metrics. Specifically,
restrictions on 25% of RSUs are tied to the Company’s achievement of
revenue targets, while the restrictions on 75% of RSUs are tied to the Company’s
achievement of earnings before interest expense, taxes, depreciation,
amortization and non-cash charges for equity compensation (measurement referred
to in the Agreement as “EBITDAS”) targets. Intended to supplement
the annual employee incentive plan payout, the total number of RSUs lapsing
each year will vary depending on the Company’s progress achieving the
corresponding threshold, target or stretch goals.
In 2012, 2011
and 2010, no threshold, target or stretch revenue and EBITDAS performance-based
metrics were reached. Accordingly, no restrictions have lapsed, and 55%, 25%,
and 20% of the total awarded RSUs were forfeited for the 2012, 2011 and 2010
fiscal years, respectively. Therefore, no expense was recorded during the years
ended December 31, 2012, December 31, 2011, and December 31, 2010,
respectively, associated with these awards.
7. Inventory
Inventory as of December 31, 2012 and December 31, 2011 consisted of the
following:
|
December 31, 2012
|
|
December 31, 2011
|
Raw materials and supplies
|
|
$
|
7,576,862
|
|
$
|
9,159,004
|
Work-in-process
|
|
314,321
|
|
462,832
|
Finished goods
|
|
659,274
|
|
732,871
|
|
|
$
|
8,550,457
|
|
$
|
10,354,707
|
|
|
|
|
|
|
|
|
|
|
F-20
8
.
Note Receivable
On May 25, 2012, we executed a $663,359 Promissory Note with Forem Energy
Group, maturing on May 25, 2022. This note is unsecured and bears interest at
an annual rate of 2.9%. Accordingly, receivables relating to this agreement in
the amount of $570,697 and $59,017 have been recorded as note receivable and
current portion note receivable (prepaid expenses and other current assets),
respectively, in the consolidated balance sheets as of December 31, 2012.
9. Property, Plant and Equipment
Property, plant and equipment at
December 31, 2012 and 2011 consist of the following:
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2012
|
|
2011
|
Land
|
$
|
90,000
|
|
$
|
90,000
|
Buildings
|
15,332,232
|
|
15,332,232
|
Building improvements
|
4,939,283
|
|
4,939,283
|
Software, machinery and equipment
|
13,741,573
|
|
13,941,438
|
|
34,103,088
|
|
34,302,953
|
Less accumulated depreciation
|
(27,394,851)
|
|
(25,616,113)
|
Property, plant, and equipment, net
|
$
|
6,708,237
|
|
$
|
8,686,840
|
|
|
|
|
|
|
|
|
Depreciation expense related to
property, plant and equipment was $1.9 million, $2.1 million and $5.0 million
for the years ended December 31, 2012, 2011 and 2010, respectively.
In the fourth
quarter of 2010, we abandoned our facility in Richmond, B.C. As a result, in
accordance with ASC No. 360-10-35-47, Long-Lived Assets to Be Abandoned, we
recorded depreciation expense in the amount of $2.1 million.
10. Intangible Assets
Intangible
assets, consisting of acquired technology and customer relationships related to
the Cellex and General Hydrogen acquisitions during the year ended December 31,
2007 are amortized using a straight-line method over their useful lives of
eight years. On January 1, 2008, General Hydrogen (Canada) Corporation,
Plug Power Canada Inc. and Cellex Power Products, Inc. amalgamated as Plug
Power Canada Inc.
The gross
carrying amount and accumulated amortization of the Company’s acquired
identifiable intangible assets as of December 31, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Effect of
|
|
|
|
|
Weighted Average
|
|
Gross Carrying
|
|
Accumulated
|
|
Foreign Currency
|
|
|
|
|
Amortization Period
|
|
Amount
|
|
Amortization
|
|
Translation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Technology
|
8 years
|
|
|
$
|
15,900,000
|
|
$
|
(12,156,049)
|
|
$
|
1,234,953
|
|
$
|
4,978,904
|
|
Customer Relationships
|
8 years
|
|
|
1,000,000
|
|
(708,333)
|
|
-
|
|
291,667
|
|
|
|
|
|
|
|
$
|
16,900,000
|
|
$
|
(12,864,382)
|
|
$
|
1,234,953
|
|
$
|
5,270,571
|
The gross carrying amount and
accumulated amortization of the Company’s acquired identifiable
intangible assets as of December 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
|
|
|
|
|
Weighted Average
|
|
Gross Carrying
|
|
Accumulated
|
|
Foreign Currency
|
|
|
|
|
Amortization Period
|
|
Amount
|
|
Amortization
|
|
Translation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Technology
|
8 years
|
|
|
$
|
15,900,000
|
|
$
|
(9,974,597)
|
|
$
|
1,132,529
|
|
$
|
7,057,932
|
|
Customer Relationships
|
8 years
|
|
|
1,000,000
|
|
(583,296)
|
|
-
|
|
416,704
|
|
|
|
|
|
|
|
$
|
16,900,000
|
|
$
|
(10,557,893)
|
|
$
|
1,132,529
|
|
$
|
7,474,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for acquired identifiable intangible assets for the years ended
December 31, 2012, 2011, and 2010 was $2.3 million, $2.3 million, and $2.3
million, respectively. Estimated amortization expense for subsequent years is
as follows:
2013
|
$
|
2,310,532
|
2014
|
2,310,532
|
2015
|
649,507
|
Total
|
$
|
5,270,571
|
11. Accrued Expenses
Accrued expenses at
December 31, 2012 and 2011 consist of:
|
|
|
|
|
|
|
2012
|
|
2011
|
Accrued payroll and compensation related costs
|
$
|
708,495
|
|
$
|
1,687,965
|
Accrued restructuring costs
|
144,489
|
|
109,978
|
Accrued dealer commissions and customer rebates
|
1,097,498
|
|
132,850
|
Other accrued liabilities
|
1,877,563
|
|
1,242,205
|
Total
|
$
|
3,828,045
|
|
$
|
3,172,998
|
|
|
|
|
|
|
|
|
12. Restructuring Charges
On December 11, 2012, we adopted a restructuring plan to improve
organizational efficiency and conserve working capital needed to support the
growth of our GenDrive business. In doing so, 22 full-time positions were
eliminated at our U.S. facilities. This workforce reduction was substantially
completed on December 13, 2012. As a result of the overall restructuring, we expect to
reduce annual expenses by $3.0 to $4.0 million. The Company recorded
restructuring charges of $286,000 within selling, general and administrative
expenses in the consolidated statement of operations for the year ended
December 31, 2012 related to this restructuring. At December 31, 2012,
approximately $136,000 remains in accrued expenses on the consolidated balance
sheets.
During 2010
and 2008, the Company adopted three separate restructuring plans to focus and
align the Company on its objectives, including: a plan to focus and align
the Company on its GenDrive business, and two plans to focus the Company on
becoming a market and sales driven organization. As part of these plans, the
Company implemented reductions in workforce, terminated purchase commitments,
cut back discretionary spending, deferred non-strategic projects, and consolidated
all operations to its Latham, New York headquarters. The Company recorded
restructuring charges and revisions to previous estimates in the amount of $0, $232,054
and $7,592,021 within selling, general and administrative expenses in the
consolidated statement of operations for the years ended December 31, 2012, December
31, 2011 and December 31, 2010, respectively, related to these restructurings.
At December 31, 2012, $10,550 remains in accrued expenses on the
consolidated balance sheets.
F-22
13.
Fair Value Measurements
The Company
complies with the provisions of FASB ASC No. 820, Fair Value Measurements and
Disclosures (ASC 820), in measuring fair value and in disclosing fair value
measurements. ASC 820 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements required under
other accounting pronouncements. FASB ASC No. 820-10-35, Fair Value
Measurements and Disclosures- Subsequent Measurement (ASC 820-10-35), clarifies
that fair value is an exit price, representing the amount that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. ASC 820-10-35-3 also requires that a fair value
measurement reflect the assumptions market participants would use in pricing an
asset or liability based on the best information available. Assumptions include
the risks inherent in a particular valuation technique (such as a pricing
model) and/or the risks inherent in the inputs to the model.
ASC 820-10-35 discusses
valuation techniques, such as the market approach (comparable market prices),
the income approach (present value of future income or cash flow), and the cost
approach (cost to replace the service capacity of an asset or replacement
cost). The statement utilizes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value into three broad
levels. The following is a brief description of those three levels:
Level 1
Inputs – Level 1 inputs are unadjusted quoted prices in active markets
for assets or liabilities identical to those to be reported at fair value. An
active market is a market in which transactions occur for the item to be fair
valued with sufficient frequency and volume to provide pricing information on
an ongoing basis.
Level 2
Inputs – Level 2 inputs are inputs other than quoted prices included
within Level 1. Level 2 inputs are observable either directly or indirectly.
These inputs include: (a) Quoted prices for similar assets or liabilities
in active markets; (b) Quoted prices for identical or similar assets or
liabilities in markets that are not active, such as when there are few
transactions for the asset or liability, the prices are not current, price
quotations vary substantially over time or in which little information is
released publicly; (c) Inputs other than quoted prices that are observable
for the asset or liability; and (d) Inputs that are derived principally
from or corroborated by observable market data by correlation or other means.
Level 3
Inputs – Level 3 inputs are unobservable inputs for an asset or
liability. These inputs should be used to determine fair value only when
observable inputs are not available. Unobservable inputs should be developed
based on the best information available in the circumstances, which might include
internally generated data and assumptions being used to price the asset or
liability.
When determining the fair
value measurements for assets or liabilities required or permitted to be
recorded at and/or marked to fair value, the Company considers the principal or
most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability. When
possible, the Company looks to active and observable markets to price identical
assets. When identical assets are not traded in active markets, the Company
looks to market observable data for similar assets. Nevertheless, certain
assets are not actively traded in observable markets and the Company must use
alternative valuation techniques to derive a fair value measurement.
The following tables summarize the
basis used to measure certain financial assets at fair value on a recurring
basis in the consolidated balance sheets:
Basis
of Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active
|
Significant
|
|
Significant
|
|
|
|
|
|
Markets for Identical
|
|
Other Observable
|
|
Other Unobservable
|
|
|
|
|
|
Items
|
|
Inputs
|
|
Inputs
|
Balance at December 31, 2012
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
475,825
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
475,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active
|
Significant
|
|
Significant
|
|
|
|
|
|
Markets for Identical
|
|
Other Observable
|
|
Other Unobservable
|
|
|
|
|
|
|
Items
|
|
Inputs
|
|
Inputs
|
Balance at December 31, 2011
|
|
Total
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
5,320,990
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,320,990
|
|
|
|
|
|
|
|
|
|
|
|
The following tables show
reconciliations of the beginning and ending balances for assets measured at
fair value on a recurring basis using significant unobservable inputs (i.e.
Level 3):
|
|
Fair Value
|
|
|
Measurement Using
|
|
|
Significant
|
Common stock warrant liability
|
|
Unobservable Inputs
|
|
|
|
Beginning of period - January 1, 2012
|
$
|
5,320,990
|
Change in fair value of common stock warrants
|
(4,845,165)
|
Fair value of common stock warrant liability at December 31, 2012
|
$
|
475,825
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Measurement Using
|
|
|
Significant
|
Common stock warrant liability
|
|
Unobservable Inputs
|
|
|
|
Beginning of period - January 1, 2011
|
$
|
-
|
Issuance of common stock warrants
|
8,768,143
|
Change in fair value of common stock warrants
|
(3,447,153)
|
Fair value of common stock warrant liability at December 31, 2011
|
$
|
5,320,990
|
|
|
|
The following summarizes the
valuation technique for assets measured and recorded at fair value:
Common stock
warrant liability (Level 3): For our common stock warrants, fair value is
based on the Black-Scholes pricing model which is based, in part, upon
unobservable inputs for which there is little or no market data, requiring the
Company to develop its own assumptions.
14. Income Taxes
The components of
(loss) before income taxes and the provision for income taxes for the years
ended December 31, 2012, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
Loss before income taxes:
|
|
2012
|
|
2011
|
|
2010
|
United States
|
|
$
|
(30,399,000)
|
|
$
|
(25,483,000)
|
|
$
|
(38,567,000)
|
Foreign
|
|
(1,463,000)
|
|
(1,971,000)
|
|
(8,392,000)
|
|
|
|
|
|
|
|
|
|
$
|
(31,862,000)
|
|
$
|
(27,454,000)
|
|
$
|
(46,959,000)
|
|
|
|
|
|
|
|
There
was no current income tax expense for the years ended December 31, 2012, 2011
and 2010.
The
significant components of U.S. deferred income tax expense (benefit) for the
years ended December 31, 2012, 2011 and 2010 are as follows:
F-24
|
2012
|
|
2011
|
|
2010
|
Deferred tax expense (benefit)
|
$
|
10,661,000
|
|
$
|
17,774,000
|
|
$
|
(652,000)
|
Net operating loss carryforward expired (generated)
|
26,924,000
|
|
187,597,000
|
|
(14,168,000)
|
Valuation allowance (decrease) increase
|
(37,585,000)
|
|
(205,371,000)
|
|
14,820,000
|
Provision for Income taxes
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant
components of Foreign deferred income tax expense (benefit) for the years ended
December 31, 2012, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Deferred tax benefit
|
$
|
(1,041,000)
|
|
$
|
(1,268,000)
|
|
$
|
(823,000)
|
Net operating loss carryforward expired (generated)
|
(79,000)
|
|
496,000
|
|
(1,081,000)
|
Valuation allowance increase
|
1,120,000
|
|
772,000
|
|
1,904,000
|
Provision for Income taxes
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s effective income
tax rate differed from the federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
U.S. Federal statutory tax rate
|
|
(35.0%)
|
|
(35.0%)
|
|
(35.0%)
|
Deferred state taxes, net of federal benefit
|
|
(3.3%)
|
|
(3.1%)
|
|
(2.4%)
|
Common stock warrant liability
|
|
(5.3%)
|
|
(4.4%)
|
|
0.0%
|
Other, net
|
|
|
0.1%
|
|
0.6%
|
|
(2.7%)
|
Change to uncertain tax positions
|
|
(1.6%)
|
|
(57.5%)
|
|
1.6%
|
Foreign tax rate differential
|
|
|
0.5%
|
|
0.8%
|
|
2.2%
|
Expiring attribute carryforward
|
|
|
0.0%
|
|
5.4%
|
|
1.2%
|
Adjustments to open deferred tax balance
|
|
(5.8%)
|
|
(1.7%)
|
|
0.3%
|
Writeoff of tax attributes due to imposition of Section
|
|
|
|
|
|
|
|
382 limitation
|
|
165.7%
|
|
840.9%
|
|
0.0%
|
Tax credits
|
|
|
0.0%
|
|
(0.3%)
|
|
(0.6%)
|
Change in valuation allowance
|
|
(115.3%)
|
|
(745.7%)
|
|
35.4%
|
|
|
|
|
|
|
|
|
|
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
|
|
|
|
|
|
|
Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of certain assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities as of December 31, 2012 and
2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Foreign
|
|
Years ended December 31,
|
|
Years ended December 31,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Intangible assets
|
$
|
130,000
|
|
$
|
200,000
|
|
$
|
694,000
|
|
$
|
325,000
|
Non-employee stock based compensation
|
(1,556,000)
|
|
(1,556,000)
|
|
-
|
|
-
|
Deferred revenue
|
2,779,000
|
|
2,106,000
|
|
-
|
|
-
|
Other reserves and accruals
|
1,621,000
|
|
1,121,000
|
|
-
|
|
-
|
Research and development tax credit carryforwards
|
|
|
74,000
|
|
1,569,000
|
|
1,533,000
|
Property, plant and equipment
|
1,541,000
|
|
1,127,000
|
|
541,000
|
|
529,000
|
Amortization of stock-based compensation
|
8,495,000
|
|
7,900,000
|
|
-
|
|
-
|
Capitalized research & development expenditures
|
15,846,000
|
|
15,162,000
|
|
5,384,000
|
|
4,760,000
|
Section 382 recognized built in loss
|
(15,202,000)
|
|
(1,819,000)
|
|
-
|
|
-
|
Net operating loss carryforwards
|
3,347,000
|
|
30,271,000
|
|
3,541,000
|
|
3,462,000
|
Total deferred tax asset
|
17,001,000
|
|
54,586,000
|
|
11,729,000
|
|
10,609,000
|
Valuation allowance
|
(17,001,000)
|
|
(54,586,000)
|
|
(11,729,000)
|
|
(10,609,000)
|
Net deferred tax assets
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
The Company has
recorded a valuation allowance, as a result of uncertainties related to the
realization of its net deferred tax asset, at December 31, 2012 and 2011 of approximately
$28.7 million and $65.2 million, respectively. A reconciliation of the current
year change in valuation allowance is as follows:
|
|
|
|
|
|
|
|
|
|
Total
|
|
U.S.
|
|
Foreign
|
Increase in valuation allowance for current year increase in net operating losses:
|
$
|
(2,000)
|
|
$
|
-
|
|
$
|
(2,000)
|
|
|
|
|
|
|
Decrease in valuation allowance for 382 limitations on tax attributes:
|
(26,924,000)
|
|
(26,924,000)
|
|
-
|
Increase in valuation allowance for current year net decrease in deferred tax
|
|
|
|
|
|
assets other than net operating losses:
|
(10,288,000)
|
|
(10,661,000)
|
|
373,000
|
|
|
|
|
|
|
Increase in valuation allowance as a result of foreign currency fluctuation
|
246,000
|
|
-
|
|
246,000
|
Increase in valuation allowance due to current year change of deferred tax assets
|
|
|
|
|
|
as the result of uncertain tax positions.
|
503,000
|
|
-
|
|
503,000
|
Net (decrease) increase in valuation allowance
|
$
|
(36,465,000)
|
|
$
|
(37,585,000)
|
|
$
|
1,120,000
|
|
|
|
|
|
|
The deferred tax
assets have been offset by a full valuation allowance because it is more likely
than not that the tax benefits of the net operating loss carryforwards and
other deferred tax assets may not be realized. Included in the valuation allowance
as of December 31, 2012 and December 31, 2011 are $0.1 million and $1.9
million, respectively of deferred tax assets resulting from the exercise of
employee stock options, which upon subsequent realization of the tax benefits,
will be allocated directly to paid-in capital.
Before the
imposition of IRC Section 382 limitations described below, the Company has
unused federal and state net operating loss carryforwards of approximately $723
million, of which $70.3 million was generated from the operations of H Power
during the period May 31, 1989, through the date of the H Power acquisition,
$2.7 million was generated by Cellex through the date of the Cellex
acquisition, $44.1 million was generated by General Hydrogen through the date
of the General Hydrogen acquisition, and $605.9 million was generated by the
Company from operations through December 31, 2012. The net operating loss
carryforwards if unused will expire at various dates from 2017 through 2032.
Under Internal
Revenue Code (IRC) Section 382, the use of loss carryforwards may be limited if
a change in ownership of a company occurs. If it is determined that due to
transactions involving the Company’s shares owned by its 5 percent or
greater shareholders a change of ownership has occurred under the provisions of
IRC Section 382, the Company's federal and state net operating loss
carryforwards could be subject to significant IRC Section 382 limitations.
Based upon an IRC
Section 382 study, a Section 382 ownership change occurred in 2012 and 2011
that resulted in all of the Company’s federal and state net operating
loss carryforwards being subject to IRC Section 382 limitations and as a result
of IRC Section 382 limitations, all but approximately $8.8 million of the net
operating loss carryforwards will expire prior to utilization. As a result of
the IRC Section 382 limitations, these net operating loss carryforwards that
will expire unutilized are not reflected in the Company’s gross deferred
tax asset as of December 31, 2012.
The ownership
change also resulted in Net Unrealized Built in Losses per IRS Notice 2003-65
which should result in Recognized Built in Losses during the five year
recognition period of approximately $40 million. This translates into
unfavorable book to tax add backs in the Company's 2013 to 2017 U.S. corporate
income tax returns that resulted in a gross deferred tax liability of $15.2
million at December 31, 2012 with a corresponding reduction to the valuation
allowance. This gross deferred tax liability will offset certain existing
gross deferred tax assets (i.e. capitalized research expense). This has
no impact on the Company's current financial position, results of operations,
or cash flows because of the full valuation allowance.
IRC Section 382
also limits the ability for a Company to utilize capital loss and research
credit carryforwards. Approximately $15.5 million of federal capital loss
carryforwards are subject to IRC Section 382 limitations and as a result of the
IRC Section 382 limitations, the entire $15.5 million will expire prior to utilization.
Approximately $15.6 million of Research Credit are subject to IRC Section 382
limitations and as a result of the IRC Section 382 limitations, the entire
$15.6 million will expire prior to utilization.
F-26
At December 31,
2012, the Company has unused foreign net operating loss carryforwards of
approximately $17.8 million. The net operating loss carryforwards if unused
will expire at various dates from 2015 through 2032. At December 31, 2012
the company has Scientific Research and Experimental Development expenditures
of $22.3 million available to offset future taxable income. These
expenditures have no expiry date. At December 31, 2012 the company has
Canadian ITC credit carryforwards of $2.4 million available to offset future
income tax. These credit carryforwards if unused will expire at various
dates from 2013 through 2027. Approximately $3.6 million of the foreign
net operating loss carryforwards, approximately $0.8 million of the Scientific
Research and Experimental Development expenditures and $0.9 million of the
Canadian ITC credit carryforwards represent unrecognized tax benefits and are
therefore, not reflected in the Company's deferred tax asset as of December 31,
2012.
As of December 31,
2012, the Company has no unrepatriated foreign earnings.
A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Unrecognized tax benefits balance at beginning of year
|
$
|
2,046,000
|
|
$
|
17,893,000
|
|
$
|
18,570,000
|
Reductions for tax positions of prior years
|
(503,000)
|
|
(15,875,000)
|
|
(716,000)
|
Currency Translation
|
36,000
|
|
28,000
|
|
39,000
|
Unrecognized tax benefits balance at end of year
|
$
|
1,579,000
|
|
$
|
2,046,000
|
|
$
|
17,893,000
|
The Company
recognizes accrued interest and penalties related to unrecognized tax benefits
as a component of income tax expense. During the year ended December 31, 2012,
the Company recognized $0 in interest and penalties. The Company had $1.2
million in interest and penalties accrued at December 31, 2012.
The Company files
income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. In the normal course of business the Company is subject
to examination by taxing authorities. Open tax years in the U.S. range from
2009 to 2012. Open tax years in the foreign jurisdictions range from 2005 to
2012. However, upon examination in subsequent years, if net operating loss
carryforwards and tax credit carryforwards are utilized, the U.S. and foreign
jurisdictions can reduce net operating loss carryforwards and tax credit
carryforwards utilized in the year being examined if they do not agree with the
carryforward amount. As of December 31, 2012, the Company was not under audit
in the U.S. or non-U.S. taxing jurisdictions. No significant changes to the
amount of unrecognized tax benefits are anticipated within the next twelve
months.
15. Fair Value of Financial Instruments
The following
disclosure of the estimated fair value of financial instruments is made in
accordance with the provision of ASC No. 825-10-65, Financial Instruments
– Transition and Open Effective Date Information (ASC 825-10-65).
Although the estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies, the
estimates presented are not necessarily indicative of the amounts that the
Company could realize in current market exchanges.
The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and
cash equivalents, accounts receivable, accrued interest receivable and payable,
accounts payable and borrowings under line of credit:
The carrying amounts
reported in the consolidated balance sheets approximate fair value because of
the short maturities of these instruments.
16. Supplemental Disclosures of Cash Flows
Information
The following represents
required supplemental disclosures of cash flows information and non-cash
financing and investing activities which occurred during the years ended
December 31, 2012, 2011 and 2010:
F-27
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
Stock-based compensation accrual impact, net
|
$
|
(10,687)
|
|
$
|
395,257
|
|
$
|
707,802
|
Change in unrealized loss/gain on available for sale securities
|
-
|
|
18,502
|
|
(114,300)
|
Cash paid for interest
|
255,896
|
|
12,634
|
|
471,386
|
Transfer of property, plant and equipment to assets held for sale
|
-
|
|
-
|
|
768,779
|
Transfer of investment in leased property to inventory
|
-
|
|
253,786
|
|
-
|
Sale - capital leaseback of property
impact to inventory
|
3,098,921
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
17. Commitments and Contingencies
Alliances and development agreements
General
Electric Company (GE) Entities:
On February 27, 2006, the Company, GE
MicroGen, Inc., and GE restructured their service and equity relationships by
terminating the joint venture and the associated distributor and other
agreements, and entering into a new development collaboration agreement. Under
this agreement, the Company and GE (through its Global Research unit) agreed to
collaborate on programs including, but not limited to, development of tools,
materials and components that can be applied to various types of fuel cell
products. The Company and GE mutually agreed to extend the terms of the
development collaboration agreement such that the Company was obligated to
purchase $1 million of services from GE in connection with this collaboration
prior to December 31, 2009. As of December 31, 2009, the
approximately $363,000 obligation remaining under the extended development
collaboration agreement became due and payable; however, the Company and
GE d/b/a GE Global Research entered into a Lease Agreement dated October 6,
2009 for space in the Company’s Latham, New York facility whereby the
parties mutually agreed that pursuant to section 4 of the Lease Agreement the
amount owed by the Company to GE under the development collaboration agreement
would be offset by the rent owed by GE to the Company each month. The
development collaboration agreement is scheduled to terminate on the earlier of
(i) December 31, 2014 or (ii) upon the completion of a certain
level of program activity. As of December 31, 2012 and 2011, approximately
$11,000 and $110,000, respectively, have been recorded as accrued expenses in
the consolidated balance sheets related to the development collaboration
agreement.
NYSERDA
:
The Company has an obligation to repay the New York State Environmental
Research and Development Authority (NYSERDA) according to royalty payment
provisions in each of the Company’s past and present NYSERDA agreements.
For sales made by a New York State manufacturer, the Company must pay a royalty
to NYSERDA at a rate of 0.5% of net sales of products developed under the
NYSERDA programs; or, for a non-new York State manufacturer, the Company must
pay a royalty to NYSERDA at a rate of 3% of net sales. The royalty payments are
currently calculated at 0.5% of net sales of our GenCore and GenSys products
because we are a New York State manufacturer and both of these products were
developed using some percentage of NYSERDA monies. The Company’s maximum
liability under the NYSERDA royalty provisions is one times the aggregate total
amount of monies received from NYSERDA. If the total amount received from
NYSERDA under an individual agreement is not paid back in royalties to NYSERDA
within fifteen (15) years from the date of that individual agreement, then
that amount is deducted from the aggregate total amount due under the royalty
provisions. For the years ended December 31, 2012 and December 31, 2011,
amounts payable under this agreement were approximately $2,100 and $5,000,
respectively.
Warranty Reserve
The
product and service revenue contracts we entered into generally provide a one
to two-year product warranty to customers from date of installation. We currently
estimate the costs of satisfying warranty claims based on an analysis of past
experience and provide for future claims in the period the revenue is
recognized. Factors that affect our warranty liability include the number
of installed units, estimated material costs, estimated travel, and labor
costs. During the year ended December 31, 2012, and December 31, 2011, we
adjusted our reserve for additional warranty claims arising from GenDrive
component quality issues that were identified during the year. These are
isolated quality issues that were identified in GenDrive units that are
currently being used at customer sites. These units will be retro-fitted
with replacement components that will improve the reliability of our GenDrive
products for our customers.
The following table summarizes product warranty
activity recorded during the year ended December 31, 2012 and 2011:
|
December 31, 2012
|
|
December 31, 2011
|
Beginning balance - January 1
|
|
$
|
1,210,909
|
|
$
|
862,480
|
Additions for current year deliveries
|
|
996,439
|
|
825,421
|
Reductions for payments made
|
|
(2,809,263)
|
|
(1,038,748)
|
Reserve Adjustment
|
|
3,273,324
|
|
561,756
|
Ending balance - December 31
|
|
$
|
2,671,409
|
|
$
|
1,210,909
|
|
|
|
|
|
Leases
As of
December 31, 2012 and 2011, the Company has several non-cancelable
operating leases, primarily for hydrogen infrastructure and fork lift trucks
that expire over the next five years. Minimum rent payments under operating
leases are recognized on a straight‑line basis over the term of the
lease.
On October 1, 2012, the Company entered into a Power Purchase Agreement (PPA) under which it is
providing a customer with 255 GenDrive units, service and maintenance of the
units and daily delivery of hydrogen in exchange for a monthly utility payment
tied to the amount of energy (kilograms of hydrogen) consumed each month.
The PPA has an initial term of three years with an automatic three year renewal
unless the customer terminates at the end of the initial 3 year term. The
minimum lease payments to be received in 2013, 2014, and 2015 are $1,222,023,
$1,324,488 and $993,366, respectively.
F-28
On December
28, 2012, Plug Power sold the 255 GenDrive units in use under the PPA to a
third party and leased back the equipment for a period of 6 years to use to
fulfill its obligations under the PPA or at other customer sites as agreed to
by the owner/lessor. The transaction has been recorded by the Company as leased
property under capital lease with a corresponding liability of obligations under
capital lease on the consolidated balance sheets. As of December 31, 2012,
assets relating to this agreement were $2,969,799, recorded as leased property
under capital lease, and liabilities relating to this agreement were $1,955,128
recorded as obligations under capital lease on the consolidated balance sheets.
Future
minimum lease payments under non-cancelable operating leases (with initial or
remaining lease terms in excess of one year) and future minimum capital lease
payments as of December 31, 2012 are:
|
|
|
|
|
|
|
Year ending December 31,
|
Capital leases
|
|
Operating leases
|
2013
|
$
|
815,184
|
|
$
|
658,470
|
2014
|
815,184
|
|
463,652
|
2015
|
611,388
|
|
452,735
|
2016
|
-
|
|
451,011
|
2017 and thereafter
|
-
|
|
1,407,019
|
Total future minimum lease payments
|
$
|
2,241,756
|
|
$
|
3,432,887
|
|
|
|
|
|
Less amount representing interest (at 9.9%)
|
286,628
|
|
|
Present value of net minimum capital lease payments
|
1,955,128
|
|
|
Less current installments of obligations under capital leases
|
650,379
|
|
|
|
|
|
|
|
|
Obligations under capital leases, excluding current installments
|
$
|
1,304,749
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense and
rental income
for all operating leases for the years ended December 31, 2012, 2011 and 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Minimum rentals
|
|
$
|
764,000
|
|
$
|
887,000
|
|
$
|
2,153,000
|
|
Rental income
|
|
(236,900)
|
|
(161,000)
|
|
(269,000)
|
|
|
|
$
|
527,100
|
|
$
|
726,000
|
|
$
|
1,884,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations of credit risk
Concentrations
of credit risk with respect to receivables exist due to the limited number of
select customers that the Company has initial commercial sales arrangements
with and government agencies. To mitigate credit risk, the Company performs
appropriate evaluation of a prospective customer’s financial condition.
At
December 31, 2012, four customers comprise approximately 82.2% of the
total accounts receivable balance, with each customer individually representing
63.1%, 7.7%, 6.3%, and 5.1% of total accounts receivable, respectively. At
December 31, 2011, five customers comprise approximately 83.0% of the
total accounts receivable balance, with each customer individually representing
27.0%, 17.3%, 16.4%, 12.1% and 10.2% of total accounts receivable, respectively.
For the year
ended December 31, 2012, contracts with two customers comprised 43.1% of total
consolidated revenues, with each customer individually representing 27.7%, and
15.4% of total consolidated revenues, respectively. For the year ended December
31, 2011, contracts with three customers comprise approximately 39.0% of total
consolidated revenues, with each customer individually representing 14.5%,
14.0% and 10.5%, of total consolidated revenues, respectively.
The Company
has cash deposits in excess of federally insured limits. The amount of such
deposits is essentially all cash at December 31, 2012.
F-29
Employment Agreements
The Company is party to
employment agreements with certain executives which provide for compensation
and certain other benefits. The agreements also provide for severance payments
under certain circumstances.
Hydrogen Payment Agreement
Pursuant to
the agreement negotiated between Air Products and the Company to supply
hydrogen infrastructure and hydrogen to Central Grocers at their distribution
center, the Company has an obligation to purchase hydrogen from and pay a
monthly service charge of $23,300 for hydrogen infrastructure to Air Products
for the full term of the contract, which expires on March 19, 2019. Amendment No. 1 to the Hydrogen Payment
Agreement became effective April 1, 2010 and increased the monthly service
charge to $25,971 to accommodate for the addition of two dispensers and
associated piping.
Pursuant to
an agreement negotiated between Linde LLC, (Linde), and the Company to supply
hydrogen infrastructure and hydrogen to a customer under a Power Purchase
Agreement, the Company has an obligation to purchase hydrogen, and pay a
monthly service charge of $10,000 for hydrogen infrastructure to Linde for the
full term of the contract, which expires on July 31, 2022. Under the terms of this agreement, the Company
also has an obligation for the maintenance of the hydrogen infrastructure for a
monthly service charge of $4,500.
18. Licensing Agreement
On October 26,
2010, the Company licensed the intellectual property relating to its stationary
power products, GenCore and GenSys, to IdaTech plc on a non-exclusive
basis. Plug Power maintains ownership of, and the right to use, the
patents and other intellectual property licensed to IdaTech. As part of
the transaction, Plug Power also sold inventory, equipment and certain other
assets related to its stationary power business. Total consideration for
the licensing and assets was $5 million and was received during October 2010.
The consideration was subject to reduction by a maximum of $1 million in
the event that the Company did not deliver certain of the assets sold. As
of December 31, 2010, $1.0 million was included in assets held for sale and
$1.0 million was included in other current liabilities in the consolidated
balance sheets. Upon delivery of those certain assets in the quarter
ended June 30, 2011 the $1.0 million in consideration was released.
19. Geographic Information
The following is
a summary of revenue for the years ended December 31, 2012, 2011 and 2010,
based on physical location of the subsidiary making the sale:
|
2012
|
|
2011
|
|
2010
|
|
|
|
|
|
|
Product and
|
|
|
|
Product and
|
|
|
|
Product
|
|
|
Research and
|
|
service and licensed
|
|
Research and
|
|
service and licensed
|
|
Research and
|
|
and service
|
|
development
|
|
technology
|
|
development
|
|
technology
|
|
development
|
|
revenue
|
|
contract revenue
|
|
revenue
|
|
contract revenue
|
|
revenue
|
|
contract revenue
|
United States
|
$
|
24,407,127
|
|
|
$
|
1,701,330
|
|
$
|
23,739,828
|
|
$
|
3,886,114
|
|
$
|
15,740,087
|
|
$
|
3,463,508
|
Canada
|
-
|
|
|
-
|
|
-
|
|
-
|
|
134,692
|
|
134,362
|
Total
|
$
|
24,407,127
|
|
|
$
|
1,701,330
|
|
$
|
23,739,828
|
|
$
|
3,886,114
|
|
$
|
15,874,779
|
|
$
|
3,597,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets, representing the sum of net book value of property, plant, and
equipment, net book value of leased property under capital leases, note
receivable, and net book value of intangible assets, based on physical location
as of December 31, 2012 and 2011, are as follows:
F-30
|
|
|
|
|
|
|
2012
|
|
2011
|
United States
|
$
|
12,261,233
|
|
$
|
11,561,840
|
Canada
|
3,258,071
|
|
4,599,636
|
Total
|
$
|
15,519,304
|
|
$
|
16,161,476
|
|
|
|
|
|
|
|
|
20. Unaudited Quarterly Financial Data (in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
2012
|
|
2012
|
|
2012
|
|
2012
|
Product and service revenue
|
$
|
7,237
|
|
$
|
7,201
|
|
$
|
4,273
|
|
$
|
5,696
|
Research and development contract revenue
|
515
|
|
458
|
|
502
|
|
226
|
Licensed technonlogy revenue
|
-
|
|
-
|
|
-
|
|
-
|
Net loss
|
(6,583)
|
|
(6,480)
|
|
(10,325)
|
|
(8,474)
|
Loss per share:
|
|
|
|
|
|
|
|
Basic and Diluted
|
(0.28)
|
|
(0.17)
|
|
(0.27)
|
|
(0.22)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
2011
|
|
2011
|
|
2011
|
|
2011
|
Product and service revenue
|
$
|
4,993
|
|
$
|
2,621
|
|
$
|
4,313
|
|
$
|
11,296
|
Research and development contract revenue
|
785
|
|
1,563
|
|
994
|
|
544
|
Licensed technonlogy revenue
|
163
|
|
163
|
|
163
|
|
28
|
Net loss
|
(7,243)
|
|
(6,753)
|
|
(6,291)
|
|
(7,167)
|
Loss per share:
|
|
|
|
|
|
|
|
Basic and Diluted
|
(0.55)
|
|
(0.41)
|
|
(0.28)
|
|
(0.32)
|
|
|
|
|
|
|
|
|
Note: Per share information
for the prior periods has been retroactively adjusted to reflect the May 19,
2011 one-for-ten reverse stock split of the Company’s common stock.
21. Subsequent Events
The Company has
evaluated subsequent events and transactions through the date of this filing
for potential recognition or disclosure in the financial statements and has
noted no other subsequent events requiring recognition or disclosure other than
as stated below:
Equity Offerings
and Related Matters
On February 12,
2013, the Company amended its Shareholder Rights Agreement dated as of June 23, 2009, as
amended, to exempt any investor from purchasing shares of common stock, so long
as such investor and its affiliates and associates do not at any time
beneficially own shares of our common stock equaling or exceeding one-half of
one percent more than the percentage of the then outstanding shares of common
stock beneficially owned by such investor and its affiliates and associates. As
a result, such ownership by any such investor will not trigger the exercisability of the preferred share purchase rights under the Shareholder
Rights Agreement that would give each holder the right to receive upon exercise
one ten-thousandth of a share of our Series A Junior Participating Cumulative
Preferred Stock.
F-31
On February 20,
2013, the Company completed an underwritten public offering of 18,910,000 shares of
common stock and accompanying warrants to purchase 18,910,000 shares of common
stock. The shares and warrants were sold together as a fixed combination,
with each combination consisting of one share of common stock and one warrant
to purchase one share of common stock, at a price to the public of $0.15 per
fixed combination for gross proceeds of approximately $2.8 million. The
warrants have an exercise price of $0.15 per share, are immediately exercisable
and will expire on February 20, 2018. Net proceeds, after underwriting
discounts and commissions and other estimated fees and expenses payable by the
Company, were approximately $2.1 million. The Company intends to use the
net proceeds of the offering for working capital and other general corporate
purposes, including capital expenditures. In connection with the
offering, the Company has granted the underwriters a 45-day option to purchase
up to an additional 2,836,500 shares of common stock to cover over-allotments,
if any.
On February 21, 2013,
the Company sold
2,801,800 additional shares of common stock, pursuant to the
underwriter’s exercise of its over-allotment option in connection with
the public offering, resulting in additional net proceeds to the Company of
approximately $365,000.
On May 31, 2011,
the Company granted 7,128,563 warrants as part of an underwritten public
offering. As a result of the March 28 and 29, 2012 public offerings and
pursuant to the effect of the anti-dilution provisions, the exercise price of
the warrants was reduced to $2.27 per share of common stock. Simultaneously
with the adjustment to the exercise price, the number of common stock shares
that may be purchased upon exercise of the warrants was increased to 9,421,008
shares. As a result of the February 20 and 21, 2013 public offerings and
pursuant to the effect of the anti-dilution provisions, the exercise price of
the warrants was reduced to $1.13 per share of common stock. Simultaneously
with the adjustment to the exercise price, the number of common stock shares
that may be purchased upon exercise of the warrants was increased to 18,925,389
shares.
Building Sale-leaseback
On January 24,
2013, the Company entered into a Purchase and Sale Agreement with 968 Albany Shaker Road
Associates, LLC (the Buyer). The Purchase and Sale Agreement provides,
among other things, that the Company will sell to the Buyer its property
(building and land) located at 968 Albany Shaker Road, Latham, New York
consisting of approximately 34.45 acres for an aggregate purchase price of
$4,500,000 and that the Company and the Buyer will form a new limited liability
company. The new limited liability company will provide the Company with
monthly distributions.
In connection
with the Purchase and Sale Agreement, the Company also entered into a Lease Agreement on
January 24, 2013 with the Buyer, pursuant to which the Company leases from the
Buyer a portion of the premises sold pursuant to the Purchase and Sale
Agreement for a term of 15 years.
On March 13,
2013, the Company entered into an Amendment to Purchase and Sale Agreement (the
“Amendment”) with the Buyer. Among other things, the Amendment
decreases the amount payable to the Company at the closing of the Purchase and
Sale Agreement, increases the value of the Company’s membership interest
in the new limited liability company, and increases the monthly distributions
to be paid by the new limited liability company to the Company.
On March 27, 2013,
the Company completed the sale and leaseback transaction of its property under
the terms described above. Additionally, at the closing the Company
issued two standby letters of credit to the benefit of the landlord/lessor that
can be drawn by the beneficiary in the event of default on the lease by Plug
Power. The standby letters total $750,000 and are 100% collateralized by
cash balances of the Company. This cash is restricted from use by the
Company for any other purpose than to collateralize the standby letters.
The standby letters are renewable for a period of ten years and can be
cancelled in part or in full if certain covenants are met and maintained by the
Company.
F-32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLUG POWER INC. AND SUBSIDIARIES
|
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
Balance at
|
|
Additions
|
|
|
|
Balance at
|
|
|
|
|
|
Beginning of
|
|
Charged to Cost
|
|
Deductions
|
|
End of
|
|
|
|
|
|
Period
|
|
and Expenses
|
|
(Describe)
|
|
Period
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from liability accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product warranty reserve
|
|
|
|
|
|
1,210,909
|
|
4,269,763
|
|
2,809,263
|
(a)
|
2,671,409
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from liability accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product warranty reserve
|
|
|
|
|
|
862,480
|
|
1,387,177
|
|
1,038,748
|
(a)
|
1,210,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Cost of warranty performed
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
Grafico Azioni Plug Power (NASDAQ:PLUG)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Plug Power (NASDAQ:PLUG)
Storico
Da Lug 2023 a Lug 2024