SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q X - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________ Commission File Number: 00027527 PLUG POWER INC. (Exact name of registrant as specified in its charter) 968 ALBANY-SHAKER ROAD, LATHAM, NEW YORK 12110 (Address of registrant's principal executive office) (518) 782-7700 (Registrant's telephone number, including area code) Delaware 22-3672377 (State or other jurisdiction (I.R.S. Employer of Incorporation) Identification Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___ No ___ The number of shares of common stock outstanding as of April 30, 2001 was 44,013,057 with a par value of $.01 per share. 1
Plug Power Inc. and Subsidiary INDEX to FORM 10-Q <TABLE> <CAPTION> Page <S> <C> PART I. FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations - Three Month Periods ended March 31, 2001 and March 31, 2000 and Cumulative Amounts from Inception 4 Condensed Consolidated Statements of Cash Flows - Three Month Periods ended March 31, 2001 and March 31, 2000 and Cumulative Amounts from Inception 5 Notes to Condensed Consolidated Financial Statements 6 - 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 PART II. OTHER INFORMATION Item 1 - Legal Proceedings 13 Item 4 - Submission of Matters to a Vote of Security Holders 13 Item 6 - Exhibits and Reports on Form 8-K 13 - 16 Signature 17 </TABLE> 2
Plug Power Inc. and Subsidiary (A Development Stage Enterprise) Condensed Consolidated Balance Sheets <TABLE> <CAPTION> (Unaudited) Assets March 31, 2001 December 31, 2000 ---------------- ----------------- <S> <C> <C> Current assets: Cash and cash equivalents $ 44,683,614 $ 58,511,563 Restricted cash 290,000 290,000 Marketable securities 25,190,013 28,221,852 Accounts receivable 1,184,300 1,415,049 Inventory 2,406,129 2,168,006 Prepaid development costs 1,666,668 2,041,668 Other current assets 640,551 694,178 ------------- ------------- Total current assets 76,061,275 93,342,316 Restricted cash 5,310,274 5,310,274 Property, plant and equipment, net 32,629,807 32,290,492 Intangible assets 5,987,834 6,827,066 Investment in affiliates 9,132,771 9,778,784 Prepaid development costs 825,760 2,513,093 Other assets 767,193 767,193 ------------- ------------- Total assets $ 130,714,914 $ 150,829,218 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 2,950,546 $ 3,479,031 Acrrued expenses 4,964,882 5,934,529 Deferred grant revenue 200,000 200,000 Current portion of capital lease obligation and long-term debt 367,087 377,201 ------------- ------------- Total current liabilities 8,482,515 9,990,761 Long-term debt 5,310,274 5,310,274 Deferred grant revenue 550,000 600,000 Capital lease obligation 14,081 30,346 Other liabilities 767,193 767,193 ------------- ------------- Total liabilities 15,124,063 16,698,574 ------------- ------------- Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; none issued and outstanding - - Common stock, $0.01 par value per share; 245,000,000 shares authorized at March 31, 2001 and 245,000,000 shares authorized at December 31, 2000; 43,981,427 shares issued and outstanding, March 31, 2001 and 43,795,513 shares issued and outstanding December 31, 2000 439,814 437,955 Paid-in capital 269,396,074 268,923,203 Deficit accumulated during the development stage (154,245,037) (135,230,514) ------------- ------------- Total stockholders' equity 115,590,851 134,130,644 ------------- ------------- Total liabilities and stockholders' equity $ 130,714,914 $ 150,829,218 ============= ============= </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 3
Plug Power Inc. and Subsidiary (A Development Stage Enterprise) Condensed Consolidated Statements of Operations (Unaudited) <TABLE> <CAPTION> Three months ended March 31, Cumulative --------------------------------- Amounts from 2001 2000 Inception --------------- -------------- --------------- <S> <C> <C> <C> Contract revenue $ 1,027,249 $ 2,932,793 $ 28,140,363 Cost of contract revenue 1,970,798 3,898,747 40,614,360 --------------- -------------- --------------- Loss on contracts (943,549) (965,954) (12,473,997) In-process research and development - 4,984,000 9,026,640 Research and development expense: Noncash stock-based compensation - - 247,782 Other research and development 16,750,293 11,444,172 108,846,659 General and administrative expense: Noncash stock-based compensation - 31,700 11,035,873 Other general and administrative 1,889,537 1,524,730 20,332,953 Interest expense 77,925 95,470 630,507 --------------- -------------- --------------- Operating loss (19,661,304) (19,046,026) (162,594,411) Interest income 1,292,794 2,308,166 12,794,353 --------------- -------------- --------------- Loss before equity in losses of affiliates (18,368,510) (16,737,860) (149,800,058) Equity in losses of affiliates (646,013) (508,000) (4,444,979) --------------- -------------- --------------- Net loss $ (19,014,523) $ (17,245,860) $ (154,245,037) =============== ============== =============== Loss per share: Basic and diluted $ (0.43) $ (0.40) =============== ============== Weighted average number of common shares outstanding 43,919,731 42,956,186 =============== ============== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 4
Plug Power Inc. and Subsidiary (A Development Stage Enterprise) Condensed Consolidated Statements of Cash Flows (Unaudited) <TABLE> <CAPTION> Three months ended March 31, Cumulative ------------------------------------ Amounts from 2001 2000 Inception ------------- -------------- --------------- <S> <C> <C> <C> Cash Flows From Operating Activities: Net loss (19,014,523) $ (17,245,860) $ (154,245,037) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,019,128 870,000 6,095,982 Equity in losses of affiliates 646,013 508,000 4,444,979 Amortization of intangible asset 839,232 601,500 3,636,666 Amortization of deferred grant revenue (50,000) (50,000) (250,000) In-kind services - - 1,340,000 Stock based compensation - 285,624 11,537,579 Amortization of deferred rent - - 150,000 Write-off of deferred rent - - 1,850,000 In-process research and development - 4,042,640 Changes in assets and liabilities: Accounts receivable 230,749 (90,888) (1,184,300) Inventory (238,123) (1,022,561) (2,406,129) Prepaid development costs 2,062,333 2,507,572 Due from investor - - 286,492 Other assets 53,627 (78,094) (343,637) Accounts payable and accrued expenses (1,498,132) (237,704) 7,867,320 Deferred grant revenue - - 1,000,000 Due to investor - - (286,492) ------------ ------------- -------------- Net cash used in operating activities (15,949,696) (16,459,983) (113,956,365) ------------ ------------- -------------- Cash Flows From Investing Activities: Purchase of property, plant and equipment (1,358,443) (3,658,288) (26,873,011) Purchase of intangible assets - (9,624,500) (9,624,500) Investment in affiliate - (1,500,000) (1,500,000) Marketable securities 3,031,839 - (25,190,013) ------------ ------------- -------------- Cash provided by (used in) investing activities 1,673,396 (14,782,788) (63,187,524) ------------ ------------- -------------- Cash Flows From Financing Activities: Proceeds from issuance of common stock - - 130,742,782 Proceeds from initial public offering, net - - 94,611,455 Stock issuance costs - - (1,639,577) Proceeds from stock option exercises 474,730 657,590 4,718,117 Cash placed in escrow - - (5,875,274) Principal payments on capital lease obligations (26,379) (25,155) (170,000) Principal payments on long-term debt - - (560,000) ------------ ------------- -------------- Net cash provided by financing activities 448,351 632,435 221,827,503 ------------ ------------- -------------- (Decrease) increase in cash and cash equivalents (13,827,949) (30,610,336) 44,683,614 Cash and cash equivalents, beginning of period 58,511,563 171,496,286 - ------------ ------------- -------------- Cash and cash equivalents, end of period $ 44,683,614 $ 140,885,950 $ 44,683,614 ============ ============= ============== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. 5
Plug Power Inc. and Subsidiary (A Development Stage Enterprise) Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Nature of Operations Plug Power Inc. and Subsidiary (the Company), was originally formed as a joint venture between Edison Development Corporation (EDC), a DTE Energy Company, and Mechanical Technology Incorporated (MTI) in the State of Delaware on June 27, 1997 and succeeded by merger of all of the assets, liabilities and equity of Plug Power, L.L.C. in November 1999. The Company is a development stage enterprise formed to research, develop, manufacture and distribute fuel cells for electric power generation. The consolidated financial statements include the accounts of Plug Power Inc. and its wholly owned subsidiary after elimination of significant intercompany transactions. 2. Liquidity The Company's cash requirements depend on numerous factors, including, but not limited to, completion of its product development activities, ability to commercialize its fuel cell systems, and market acceptance of its systems. The Company expects to devote substantial capital resources to continue development programs, establish a manufacturing infrastructure and develop manufacturing processes. The Company believes it will need to raise additional funds to achieve commercialization of its product. However, the Company does not know whether it will be able to secure additional funding, or funding on acceptable terms, to pursue its commercialization plans. If additional funds are raised through the issuance of equity securities, the percentage ownership of our then current stockholders will be reduced. If adequate funds are not available to satisfy either short or long-term capital requirements, the Company may be required to limit operations in a manner inconsistent with its development and commercialization plans, which could affect operations in future periods. 3. Basis of Presentation The condensed consolidated balance sheet as of March 31, 2001, the condensed consolidated statements of operations and condensed consolidated statements of cash flows for the three months ended March 31, 2001 have been prepared by the Company without audit. In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with generally accepted accounting principles, the financial position, results of operations and cash flows for all periods presented, have been made. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2000. Marketable Securities: Marketable securities includes investments in corporate debt securities which are carried at fair value. These investments are considered available for sale, and the difference between the cost and the fair value of these securities would be reflected in other comprehensive income and as a separate component of stockholders' equity. There was no significant difference between cost and fair value of these investments at March 31, 2001. Recent Accounting Pronouncements: In June 1998, and June 1999 the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities- 6
Deferral of the Effective Date of SFAS No. 133." These statements (as amended by SFAS No. 138) establish accounting and reporting standards for derivative instruments and hedging activities. It requires that entities recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The Company adopted SFAS No. 133 on its effective date January 1, 2001 and such adoption did not have a material effect on the Company's financial position, results of operations, or cash flows. 4. Loss Per Share Loss per share for the Company is as follows: <TABLE> <CAPTION> Three months ended --------------------------------- March 31, 2001 March 31, 2000 -------------- -------------- <S> <C> <C> Numerator: Net loss $ (19,014,523) $ (17,245,860) Denominator: Weighted average number of common shares outstanding 43,919,731 42,956,186 </TABLE> No options or warrants outstanding were included in the calculation of diluted loss per share because their impact would have been anti-dilutive. The calculation also excludes 111,851 contingently returnable shares in 2000. 5. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." No benefit for federal or state income taxes has been reported in these condensed consolidated statements of operations as they have been offset by a full valuation allowance. 6. Investments in Affiliates In February 1999, the Company entered into an agreement with GE MicroGen, Inc. (formerly GE On-Site Power, Inc.) a wholly owned subsidiary of General Electric Co. to create GE Fuel Cell Systems, L.L.C. (GEFCS) a limited liability company created to market and distribute fuel cell systems world- wide. GE MicroGen owns 75% of GEFCS and the Company owns 25% of GEFCS. The Company accounts for its interest in GEFCS on the equity method of accounting and adjusts its investment by its proportionate share of income or losses under the caption "Equity in losses of affiliates." During the three months ended March 31, 2001, GEFCS had an operating and net loss of approximately $637,000. For this same period, the Company has recorded equity in losses of this affiliate of approximately $441,000, including goodwill amortization of $281,000. In March 2000, the Company acquired a 28% ownership interest in Advanced Energy Incorporated (AEI), (formerly Advanced Energy Systems, Inc.) in exchange for a combination of $1.5 million cash and Plug Power common stock valued at approximately $828,000. The Company accounts for its interest in AEI on the equity method of accounting and adjusts its investment by its proportionate share of income or losses. During the three months ended March 31, 2001, AEI had sales of approximately $369,000 and an operating and net loss of approximately $206,000. For this same period, the Company has recorded equity in losses of this affiliate of approximately $205,000, including goodwill amortization of $148,000. 7
7. Stockholders' Equity Changes in stockholders' equity for the three months ended March 31, 2001 is as follows: <TABLE> <CAPTION> Deficit Accumulated Total Common stock During the Stockholders' Additional Development Equity Shares Amount Paid-in Capital Stage ----------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance, January 1, 2001 43,795,513 $ 437,955 $268,923,203 $(135,230,514) $134,130,644 Stock option exercises 185,914 1,859 472,871 474,730 Net loss (19,014,523) (19,014,523) ---------------------------------------------------------------------------------------- Balance, March 31, 2001 43,981,427 $ 439,814 $269,396,074 $(154,245,037) $115,590,851 ======================================================================================== </TABLE> 8. Commitments and Contingencies Litigation: The Company has disclosed on a Form 8-K filed January 25, 2000, with the Securities and Exchange Commission, that a legal complaint was filed against the Company, The Detroit Edison Company and EDC alleging the entities misappropriated business and technical trade secrets, ideas, know-how and strategies relating to fuel cell systems and breached certain contractual obligations owed to DCT, Inc. The Company believes that the allegations in the complaint are without merit and is vigorously contesting the litigation. The Company does not believe that the outcome of these actions will have a material adverse effect upon its financial position, results of operations or liquidity; however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of this action. On or about September 14, 2000, a shareholder class action complaint was filed in the federal district court for the Eastern District of New York alleging that the Company and various of its officers and directors violated certain federal securities laws by failing to disclose certain information concerning its products and future prospects. The action was brought on behalf of a class of purchasers of the Company's stock who purchased the stock between February 14, 2000 and August 2, 2000. Subsequently, fourteen additional complaints with similar allegations and class periods were filed. By order dated October 30, 2000, the court consolidated the complaints into one action, entitled Plug Power Inc. Securities Litigation, CV-00- 5553(ERK)(RML). By order dated January 25, 2001, the Court appointed lead plaintiffs and lead plaintiffs' counsel. Subsequently, the plaintiffs served a consolidated amended complaint. The consolidated amended complaint extends the class period to begin on October 29, 1999, and alleges claims under Sectons 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act of 1934, and Rule 10b-5 promulgated thereunder by the Securities & Exchange Commission, 17 C.F.R. 240 10b-5. Plaintiffs allege that the defendants made misleading statements and omissions regarding the state of development of the Company's technology in a registration statement and proxy statement issued in connection with the Company's initial public offering and in subsequent press releases. The Company believes that the allegations in the consolidated amended complaint are without merit and intend to vigorously defend against the claims. The Company does not believe that the outcome of these actions will have a material adverse effect upon its financial position, results of operations or liquidity, however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of these actions. 8
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes thereto included within this report, and our audited financial statements and notes thereto included in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2000. In addition to historical information, this Form 10-Q and the following discussion contain forward-looking statements that reflect our plans, estimates, intentions, expectations and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those set forth under the caption "Risk Factors" in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2000. Overview We are a designer and developer of on-site, energy generation systems utilizing proton exchange membrane (PEM) fuel cells for stationary applications. Plug Power was formed in 1997, as a joint venture between Edison Development Corporation (EDC), a DTE Energy Company and Mechanical Technology Incorporated (MTI). We intend to manufacture residential and commercial stationary fuel cell systems. In February 1999, we entered into an agreement with GE MicroGen (formerly GE On- Site Power) to create GE Fuel Cell Systems, LLC (GEFCS), a joint venture owned 75% by GE MicroGen and 25% by Plug Power, which is dedicated to marketing, selling, installing and servicing our fuel cell systems. Plug Power will serve as GEFCS' exclusive worldwide supplier of PEM fuel cell systems under 35kW designed for residential and small commercial stationary applications. GEFCS will have the exclusive worldwide rights to market, distribute, install and service our systems (other than in the states of Illinois, Indiana, Michigan and Ohio, in which DTE Energy Technologies (DTE) will be our exclusive distributor). Under this arrangement, we will sell our systems directly to GEFCS, which, in turn, will identify qualified resellers who can distribute and service these systems. Plug Power systems sold through GEFCS will be co-branded with both the General Electric and Plug Power names and trademarks, and may also carry the brand of the local reseller. Potential GEFCS resellers include gas and electric utilities and new market entrants such as gas and power marketers, unregulated affiliates of utilities, appliance distributors and energy service companies. To date, GEFCS has entered into distribution agreements with Flint Energies, a Georgia-based rural electric cooperative, NJR Energy Holdings Corporation, an affiliate of New Jersey Natural Gas Company, Kubota Corporation of Japan, Rahimafrooz Energy Services Ltd of Bangladesh, Soroof Trading Development Company Limited of Saudi Arabia and Vaillant Gmbh of Remscheid, Germany, Europe's leading heating appliance manufacturer. Our initial commercial product is expected to be a fully integrated, 60 Hz grid- parallel unit that will operate on natural gas. It is expected to be commercially available, in limited numbers, in the second half of 2001, and will be marketed to a select number of managed customers, including utilities, government entities and our distribution partners, GE MicroGen and DTE. This initial product will be a limited edition commercial fuel cell system that is intended to offer complimentary, quality power while demonstrating the market value of fuel cells as a preferred form of alternative distributed power generation. Subsequent enhancements are expected to expand the market opportunity for fuel cells by lowering the installed cost, decreasing operating and maintenance costs, increasing efficiency, improving reliability, and adding features such as grid independence and co-generation. 9
Since inception, we have devoted substantially all of our resources toward the development of the PEM fuel cell systems and have derived substantially all of our revenue from government research and development contracts. Through March 31, 2001, our stockholders in the aggregate have contributed $228.4 million in cash, including $93.0 million in net proceeds from our initial public offering of common stock, which closed on November 3, 1999 and $32.4 million in other contributions, consisting of in-process research and development, real estate, other in-kind contributions and a 25% interest in GE Fuel Cell Systems. From inception through March 31, 2001, we have incurred losses of $154.2 million and expect to continue to incur losses as we expand our product development and commercialization program and prepare for the commencement of manufacturing operations. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial as a result of, among other factors, the number of systems we produce and install for internal and external testing, the related service requirements necessary to monitor those systems and potential design changes required as a result of field testing. There can be no assurance that we will manufacture or sell residential fuel cell systems successfully or achieve or sustain product revenues or profitability. Results of Operations Comparison of the Three Months Ended March 31, 2001 and March 31, 2000. - ------------------------------------------------------------------------ Revenues. Total revenues for the first quarter ended March 31, 2001 were $1.0 million as compared to $2.9 million for the first quarter ended March 31, 2000. The decrease is primarily the result of reduced government contract activity with the U.S. Department of Energy, as we complete our largest contract with them. Our revenues since inception have been derived primarily from cost reimbursement government contracts relating to the development of PEM fuel cell technology and contract revenue generated from the delivery of PEM fuel cells and related engineering and testing support services for other customers. Our government contracts provide for the partial recovery of direct and indirect costs from the specified government agency, generally requiring us to absorb from 25% to 50% of contract costs incurred. As a result of our cost sharing requirements we will report losses on these contracts as well as any future government contracts awarded. Cost of revenues. Cost of contract revenue includes compensation and benefits for the engineering and related support staff, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies used and other directly allocable general overhead costs allocated to specific government contracts. Cost of contract revenue was $2.0 million for the three months ended March 31, 2001, as compared to $3.9 million for the same period last year. The decrease in contract costs was related to reduced government contract activity. The result was a loss on contracts of $944,000 for the three months ended March 31, 2001 compared to a loss on contracts of $966,000 for the same period last year. Research and Development. Research and development expense includes compensation and benefits for the engineering and related staff, expenses for contract engineers, materials to build prototype units, fees paid to outside suppliers for subcontracted components and services, supplies used, facility related costs, such as computer and network services and other general overhead costs. Research and development expenses increased to $16.8 million for the three months ended March 31, 2001 from $16.4 million for the three months ended March 31, 2000. The amount in 2000 includes a one-time charge of $5.0 million related to the write off of in-process research and development expenses related to our acquisition of intellectual property in the first quarter of 10
2000. Excluding the write off, research and development expenses increased by $5.3 million which is the result of increased research and development activities related to getting our first commercial product to the marketplace during the second half of 2001. General and Administrative. General and administrative expense includes compensation, benefits and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, business development, information and legal services. General and administrative expenses increased slightly to $1.9 million for the three months ended March 31, 2001 from $1.6 million for the three months ended March 31, 2000, due to higher general expenses in support of operations. Interest Expense. Interest expense includes interest on a long-term obligation related to a real estate purchase agreement with MTI in June, 1999, and interest paid on capital lease obligations. Interest expense was of $78,000 for the three months ended March 31, 2001. Interest Income. Interest income consisting of interest earned on our cash, cash equivalents and marketable securities decreased to $1.3 million for the three months ended March 31, 2001 from $2.3 million for the same period last year. Equity in losses of affiliates. Equity in losses of affiliates, representing our minority interest in GE Fuel Cell Systems and Advanced Energy Incorporated, increased to $646,000 for the three months ended March 31, 2001, from $508,000 last year. For the current quarter we have recorded losses of $646,000 including our proportionate share of the losses of GE Fuel Cell Systems and Advanced Energy Incorporated, both of which are accounted for under the equity method of accounting, in the amount of $217,000 and goodwill amortization of our original investments in those entities of $429,000. Income Taxes. No benefit for federal and state income taxes has been reported in the financial statements because the deferred tax asset generated from our net operating losses has been offset by a full valuation allowance. We were taxed as a partnership prior to November 3, 1999, the effective date of our merger into a C corporation, and the federal and state income tax benefits of our losses were recorded by our stockholders. Effective on November 3, 1999, and began accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Liquidity and Capital Resources Summary Our cash requirements depend on numerous factors, including completion of our product development activities, ability to commercialize our residential fuel cell systems, market acceptance of our systems and other factors. We expect to devote substantial capital resources to continue our development programs directed at commercializing our fuel cell systems for worldwide residential use, to hire and train our production staff, develop and expand our manufacturing capacity, begin production activities and expand our research and development activities. We will pursue the expansion of our operations through internal growth and strategic acquisitions and expect such activities will be funded from existing cash and cash equivalents, issuance of additional equity or debt securities or additional borrowings subject to market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to the Company or at all. The failure to raise the funds necessary to finance its future cash requirements or consummate future acquisitions could adversely affect the Company's ability to pursue its strategy and could negatively affect its operations in future periods. 11
We have financed our operations through March 31, 2001, primarily from the sale of equity, which has provided cash in the amount of $228.4 million. As of March 31, 2001, we had cash, cash equivalents and marketable securities totaling $69.9 million and working capital was approximately $67.6 million. As a result of our purchase of real estate from Mechanical Technology, we have escrowed $5.6 million in cash to collateralize the debt assumed on the purchase. Since inception, net cash used in operating activities has been $114.0 million and cash used in investing activities has been $63.2 million. 12
Part II - Other Information ITEM 1 - LEGAL PROCEEDINGS - -------------------------- The Company has disclosed on a Form 8-K filed January 25, 2000, with the Securities and Exchange Commission, that a legal complaint was filed against the Company, The Detroit Edison Company and EDC alleging the entities misappropriated business and technical trade secrets, ideas, know-how and strategies relating to fuel cell systems and breached certain contractual obligations owed to DCT, Inc. The Company believes that the allegations in the complaint are without merit and is vigorously contesting the litigation. The Company does not believe that the outcome of these actions will have a material adverse effect upon its financial position, results of operations or liquidity; however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of this action. On or about September 14, 2000, a shareholder class action complaint was filed in the federal district court for the Eastern District of New York alleging that the Company and various of its officers and directors violated certain federal securities laws by failing to disclose certain information concerning its products and future prospects. The action was brought on behalf of a class of purchasers of the Company's stock who purchased the stock between February 14, 2000 and August 2, 2000. Subsequently, fourteen additional complaints with similar allegations and class periods were filed. By order dated October 30, 2000, the court consolidated the complaints into one action, entitled Plug Power Inc. Securities Litigation, CV-00-5553(ERK)(RML). By order dated January 25, 2001, the Court appointed lead plaintiffs and lead plaintiffs' counsel. Subsequently, the plaintiffs served a consolidated amended complaint. The consolidated amended complaint extends the class period to begin on October 29, 1999, and alleges claims under Sectons 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act of 1934, and Rule 10b-5 promulgated thereunder by the Securities & Exchange Commission, 17 C.F.R. 240 10b-5. Plaintiffs allege that the defendants made misleading statements and omissions regarding the state of development of the Company's technology in a registration statement and proxy statement issued in connection with the Company's initial public offering and in subsequent press releases. The Company believes that the allegations in the consolidated amended complaint are without merit and intend to vigorously defend against the claims. The Company does not believe that the outcome of these actions will have a material adverse effect upon its financial position, results of operations or liquidity, however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of these actions. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- Certain exhibits indicated below are incorporated by reference to documents of Plug Power on file with the Commission. Exhibits nos. 10.25, 10.28, 10.29, 10.30, 10.31, 10.32, 10.33, 10.34, 10.41, 10.38, 10.42 and 10.43 represent the management contracts or compensation plans filed pursuant to Item 14(c) of the Form 10-K. Exhibit No. and Description ---------------------------- 2.1 Agreement and Plan of Merger by and between Plug Power and Plug Power, LLC, a Delaware limited liability company, dated as of October 7, 1999. (1) 3.1 Amended and Restated Certificate of Incorporation of Plug Power. (2) 3.2 Amended and Restated By-laws of Plug Power. (2) 13
3.3 Certificate of Amendment to Amended and Restated Certificate of Incorporation of Plug Power. (3) 4.1 Specimen certificate for shares of common stock, $.01 par value, of Plug Power. (1) 10.1 Amended and Restated Limited Liability Company Agreement of GE Fuel Cell Systems, LLC, dated February 3, 1999, between GE On-Site Power, Inc. and Plug Power, LLC. (1) 10.2 Contribution Agreement, dated as of February 3, 1999, by and between GE On-Site Power, Inc. and Plug Power, LLC. (1) 10.3 Trademark and Trade Name Agreement, dated as of February 2, 1999, between General Electric Company and GE Fuel Cell Systems, LLC. (1) 10.4 Trademark Agreement, dated as of February 2, 1999, between Plug Power LLC and GE Fuel Cell Systems, LLC. (1) 10.5 Distributor Agreement, dated as of February 2, 1999, between GE Fuel Cell Systems, LLC and Plug Power, LLC. (1) 10.6 Side letter agreement, dated February 3, 1999, between General Electric Company and Plug Power LLC. (1) 10.7 Mandatory Capital Contribution Agreement, dated as of January 26, 1999, between Edison Development Corporation, Mechanical Technology Incorporated and Plug Power, LLC and amendments thereto, dated August 25, 1999 and August 26, 1999. (1) 10.8 LLC Interest Purchase Agreement, dated as of February 16, 1999, between Plug Power, LLC and Michael J. Cudahy. (1) 10.9 Warrant Agreement, dated as of February 16, 1999, between Plug Power, LLC and Michael J. Cudahy and amendment thereto, dated July 26, 1999. (1) 10.10 LLC Interest Purchase Agreement, dated as of February 16, 1999, between Plug Power, LLC and Kevin Lindsey. (1) 10.11 LLC Interest Purchase Agreement, dated as of April 1, 1999, between Plug Power, LLC and Antaeus Enterprises, Inc. (1) 10.12 LLC Interest Purchase Agreement, dated as of April 9, 1999, between Plug Power, LLC and Southern California Gas Company. (1) 10.13 Warrant Agreement, dated as of April 9, 1999, between Plug Power, LLC and Southern California Gas Company and amendment thereto, dated August 26, 1999. (1) 10.14 Agreement, dated as of June 26, 1997, between the New York State Energy Research and Development Authority and Plug Power LLC, and amendments thereto dated as of December 17, 1997 and March 30, 1999. (1) 10.15 Agreement, dated as of January 25, 1999, between the New York State Energy Research and Development Authority and Plug Power LLC. (1) 14
10.16 Agreement, dated as of September 30, 1997, between Plug Power LLC and the U.S. Department of Energy. (1) 10.17 Cooperative Agreement, dated as of September 30, 1998, between the National Institute of Standards and Technology and Plug Power, LLC, and amendment thereto dated May 10, 1999. (1) 10.18 Joint venture agreement, dated as of June 14, 1999 between Plug Power, LLC, Polyfuel, Inc., and SRI International. (1) 10.19 Cooperative Research and Development Agreement, dated as of February 12, 1999, between Plug Power, LLC and U.S. Army Benet Laboratories. (1) 10.20 Nonexclusive License Agreement, dated as of April 30, 1993, between Mechanical Technology Incorporated and the Regents of the University of California. (1) 10.21 Development Collaboration Agreement, dated as of July 30, 1999, by and between Joh. Vaillant GMBH. U. CO. and Plug Power, LLC. (1) 10.22 Agreement of Sale, dated as of June 23, 1999, between Mechanical Technology, Incorporated and Plug Power LLC. (1) 10.23 Assignment and Assumption Agreement, dated as of July 1, 1999, between the Town of Colonie Industrial Development Agency, Mechanical Technology, Incorporated, Plug Power, LLC, KeyBank, N.A., and First Albany Corporation. (1) 10.24 Replacement Reimbursement Agreement, dated as of July 1, 1999, between Plug Power, LLC and KeyBank, N.A. (1) 10.25 1997 Membership Option Plan and amendment thereto dated September 27, 1999. (1) 10.26 Trust Indenture, dated as of December 1, 1998, between the Town of Colonie Industrial Development Agency and Manufacturers and Traders Trust Company, as trustee. (1) 10.27 Distribution Agreement, dated as of June 27, 1997, between Plug Power, LLC and Edison Development Corporation and amendment thereto dated September 27, 1999. (1) 10.28 Agreement, dated as of June 27, 1999, between Plug Power, LLC and Gary Mittleman. (1) 10.29 Agreement, dated as of June 8, 1999, between Plug Power, LLC and Louis R. Tomson. (1) 10.30 Agreement, dated as of August 6, 1999, between Plug Power, LLC and Gregory A. Silvestri. (1) 10.31 Agreement, dated as of August 12, 1999, between Plug Power, LLC and William H. Largent. (1) 10.32 Agreement, dated as of August 20, 1999, between Plug Power, LLC and Dr. Manmohan Dhar. (1) 10.33 1999 Stock Option and Incentive Plan. (1) 15
10.34 Employee Stock Purchase Plan. (1) 10.35 Agreement, dated as of August 27, 1999, by Plug Power, LLC, Plug Power Inc., GE On-Site Power, Inc., GE Power Systems Business of General Electric Company, and GE Fuel Cell Systems, L.L.C. (1) 10.36 Registration Rights Agreement to be entered into by the Registrant and the stockholders of the Registrant. (2) 10.37 Registration Rights Agreement to be entered into by Plug Power, L.L.C. and GE On-Site Power, Inc. (2) 10.38 Agreement dated September 11, 2000, between Plug Power Inc. and Gary Mittleman. (3) 10.39 Amendment No. 1 to Distributor Agreement dated February 2, 1999, between GE Fuel Cell Systems L.L.C. and Plug Power Inc. (3) 10.40 Amendment to Distributor Agreement dated February 2, 1999, made as of July 31, 2000, between GE Fuel Cell Systems L.L.C. and Plug Power Inc. (3) 10.41 Agreement, dated as of December 15, 2000, between Plug Power Inc. and Roger Saillant. (3) 10.42 Agreement dated February 13, 2001, between Plug Power Inc. and William H. Largent. (3) 10.43 Amendment dated September 19, 2000 to agreement, dated as of August 6, 1999, between Plug Power Inc. and Gregory A. Silvestri. (3) 10.44 Joint Development Agreement, dated as of June 2, 2000, between Plug Power Inc. and Engelhard Corporation. (3) (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File Number 333-86089). (2) Incorporated by reference to the Company's Form 10-K for the period ending December 31, 1999. (3) Incorporated by reference to the Company's Form 10-K for the period ending December 31, 2000. B) Reports on Form 8-K. None. 16
Signature __________ Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PLUG POWER INC. Date: May 11, 2001 by: /s/ Roger Saillant ---------------------- Roger Saillant Chief Executive Officer by: /s/ David Neumann --------------------- David Neumann Chief Financial Officer 17