UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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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 |
(State or Other Jurisdiction of
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(I.R.S. Employer
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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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 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,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
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 number of shares of common stock, par value of $.01 per share, outstanding as of August 5, 2011 was 22,665,240.
PLUG POWER INC.
INDEX to FORM 10-Q
PART I. FINANCIAL INFORMATION |
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Page |
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Item 1 – Interim Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets – June 30, 2011 and December 31, 2010 |
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3 |
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4 |
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Condensed Consolidated Statements of Cash Flows
– Six months ended
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5 |
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6 |
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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23 |
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
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36 |
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36 |
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37 |
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37 |
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds |
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37 |
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38 |
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38 |
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38 |
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38 |
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40 |
2
PART 1. FINANCIAL INFORMATION
Item 1 – Interim Financial Statements (Unaudited)
Plug Power Inc. and Subsidiaries |
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Condensed Consolidated Balance Sheets |
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(Unaudited) |
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June 30, |
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December 31, |
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2011 |
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2010 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
27,151,258 |
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$ |
10,955,403 |
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Available-for-sale securities |
- |
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10,403,315 |
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Accounts receivable, less allowance of $10,160 in 2011 and $10,160 in 2010 |
4,130,940 |
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4,196,361 |
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Inventory |
7,628,018 |
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10,539,116 |
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Assets held for sale |
- |
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1,000,000 |
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Prepaid expenses and other current assets |
1,357,134 |
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1,584,466 |
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Total current assets |
40,267,350 |
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38,678,661 |
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Restricted cash |
525,000 |
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525,000 |
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Property, plant and equipment, net |
9,506,063 |
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9,838,631 |
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Investment in leased property, net |
- |
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263,239 |
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Intangible assets, net |
8,848,390 |
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9,871,394 |
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Total assets |
$ |
59,146,803 |
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$ |
59,176,925 |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
$ |
1,208,218 |
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$ |
3,560,048 |
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Accrued expenses |
3,644,267 |
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4,336,229 |
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Product warranty reserve |
971,100 |
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862,480 |
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Current portion long term debt |
- |
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9,956 |
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Deferred revenue |
3,748,253 |
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4,349,749 |
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Other current liabilities |
70,698 |
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1,901,372 |
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Total current liabilities |
9,642,536 |
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15,019,834 |
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Warrant liability |
6,977,623 |
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- |
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Other liabilities |
1,273,575 |
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1,243,728 |
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Total liabilities |
17,893,734 |
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16,263,562 |
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Stockholders' equity: |
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Common stock, $0.01 par value per share; 245,000,000 shares authorized; |
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Issued (including shares in treasury): |
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22,574,555 at June 30, 2011 and 13,369,924 at December 31, 2010 |
225,745 |
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1,336,992 |
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Additional paid-in capital |
782,834,787 |
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769,659,871 |
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Accumulated other comprehensive income |
1,070,402 |
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965,868 |
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Accumulated deficit |
(741,325,726) |
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(727,329,858) |
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Less common stock in treasury: |
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165,741 shares at June 30, 2011 and 180,449 shares at December 31, 2010 |
(1,552,139) |
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(1,719,510) |
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Total stockholders' equity |
41,253,069 |
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42,913,363 |
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Total liabilities and stockholders' equity |
$ |
59,146,803 |
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$ |
59,176,925 |
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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.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Plug Power Inc. and Subsidiaries |
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Condensed Consolidated Statements of Operations |
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(Unaudited) |
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Product and service revenue |
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$ |
2,620,845 |
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$ |
2,325,769 |
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$ |
7,614,250 |
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$ |
5,488,946 |
Research and development contract revenue |
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1,562,719 |
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778,017 |
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2,347,943 |
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1,985,991 |
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Licensed technology revenue |
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163,125 |
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- |
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326,250 |
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- |
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Total revenue |
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4,346,689 |
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3,103,786 |
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10,288,443 |
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7,474,937 |
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Cost of product and service revenue |
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4,931,170 |
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4,542,373 |
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11,621,623 |
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7,830,226 |
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Cost of research and development contract revenue |
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2,473,516 |
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1,679,372 |
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3,810,596 |
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3,560,886 |
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Research and development expense |
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1,106,248 |
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4,381,814 |
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2,168,974 |
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9,868,531 |
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Selling, general and administrative expenses |
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3,882,917 |
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10,540,814 |
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7,444,515 |
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14,398,531 |
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Amortization of intangible assets |
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588,473 |
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566,880 |
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1,169,962 |
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1,129,055 |
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Operating loss |
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(8,635,635) |
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(18,607,467) |
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(15,927,227) |
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(29,312,292) |
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Interest and other income and net realized losses |
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from available-for-sale securities |
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87,224 |
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268,622 |
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121,122 |
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610,661 |
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Change in fair value of warrant liability |
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1,790,520 |
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- |
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1,790,520 |
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- |
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Change in fair value of auction rate securities repurchase agreement |
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- |
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(2,469,113) |
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- |
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(3,135,032) |
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Net trading gain |
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- |
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2,469,113 |
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- |
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3,135,032 |
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Interest and other expense and foreign currency gain (loss) |
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5,223 |
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(177,110) |
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19,717 |
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(373,074) |
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Net loss |
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$ |
(6,752,668) |
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$ |
(18,515,955) |
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$ |
(13,995,868) |
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$ |
(29,074,705) |
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Loss per share: |
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Basic and diluted |
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$ |
(0.41) |
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$ |
(1.41) |
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$ |
(0.95) |
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$ |
(2.22) |
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Weighted average number of common shares |
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outstanding |
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16,320,235 |
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13,116,175 |
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14,781,215 |
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13,080,315 |
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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.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Plug Power Inc. and Subsidiaries |
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Condensed Consolidated Statements of Cash Flows |
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(Unaudited) |
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Six months ended |
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June 30, |
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2011 |
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2010 |
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Cash Flows From Operating Activities: |
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Net loss |
$ |
(13,995,868) |
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$ |
(29,074,705) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation of property, plant and equipment, and investment in leased property |
1,053,465 |
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1,612,944 |
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Amortization of intangible assets |
1,169,962 |
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1,129,055 |
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Stock-based compensation |
1,002,824 |
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892,410 |
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Loss on disposal of property, plant and equipment |
308,891 |
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42,340 |
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Provision for bad debts |
- |
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10,160 |
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Realized loss on available for sale securities |
22,421 |
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- |
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Net unrealized gains on trading securities |
- |
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(3,135,032) |
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Change in fair value of auction rate debt securities repurchase agreement |
- |
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3,135,032 |
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Change in fair value of warrant liability |
(1,790,520) |
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- |
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Changes in assets and liabilities: |
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Accounts receivable |
66,054 |
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(1,075,248) |
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Inventory |
4,164,884 |
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(3,751,612) |
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Prepaid expenses and other current assets |
227,216 |
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1,822,181 |
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Accounts payable and accrued expenses |
(4,799,707) |
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4,051,074 |
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Deferred revenue |
(601,496) |
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(162,346) |
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Net cash used in operating activities |
(13,171,874) |
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(24,503,747) |
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Cash Flows From Investing Activities: |
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Purchase of property, plant and equipment |
(1,065,335) |
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(1,214,992) |
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Investment in leased property, net |
- |
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(283,561) |
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Restricted cash |
- |
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(72) |
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Proceeds from disposal of property, plant and equipment |
45,000 |
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35,000 |
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Proceeds from trading securities |
- |
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33,925,001 |
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Proceeds from maturities and sales of available-for-sale securities |
10,399,396 |
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45,904,306 |
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Purchases of available-for-sale securities |
- |
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(30,011,638) |
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Net cash provided by investing activities |
9,379,061 |
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48,354,044 |
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Cash Flows From Financing Activities: |
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Purchase of treasury stock |
(158,492) |
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(441,506) |
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Proceeds from issuance of common stock and warrants |
22,027,166 |
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- |
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Stock issuance costs |
(1,862,293) |
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- |
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Repayment of borrowings under line of credit |
- |
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(33,925,000) |
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Principal payments on long-term debt |
(9,956) |
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(207,751) |
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Net cash provided by (used in) financing activities |
19,996,425 |
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(34,574,257) |
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Effect of exchange rate changes on cash |
(7,757) |
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(67,709) |
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Increase (decrease) in cash and cash equivalents |
16,195,855 |
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(10,791,669) |
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Cash and cash equivalents, beginning of period |
10,955,403 |
|
14,580,983 |
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Cash and cash equivalents, end of period |
$ |
27,151,258 |
|
$ |
3,789,314 |
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
Plug Power Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Description of Business
Plug Power Inc., or the Company, is a leading provider of alternative energy technology and is involved in the design, development, commercialization and manufacture of fuel cell systems for the industrial off-road (forklift or material handling) market. Plug Power has also provided product development for the back-up and stationary power markets worldwide. Effective April 1, 2010, the Company was no longer considered a development stage enterprise since its principal operations began to provide more than insignificant revenues as the Company received orders from repeat customers, increased its customer base and had a significant backlog. Prior to April 1, 2010, the Company was 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.
The Company is 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 (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.
The Company concentrates its 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.
The Company sells its products worldwide, with a primary focus on North America, through our direct product sales force, original equipment manufacturers (OEMs) and their dealer networks. We sell to business, industrial and government customers.
6
The Company was incorporated in the State of Delaware on August 13, 1999 and prior to that time operated as a joint venture between Edison Development Corporation and Mechanical Technology Incorporated. The Company’s common stock became listed on The NASDAQ Stock Market on October 29, 1999. In 2007, we merged with and acquired all the assets, liabilities and equity of Cellex Power Products, Inc. (Cellex) and General Hydrogen Corporation (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. The launch of our Class 2 product occurred in January of 2010.
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.
Although the Company had a significant amount of available-for-sale securities, as described further below, as of December 31, 2010, neither the Company nor any of its subsidiaries was an “investment company” pursuant to the Investment Company Act of 1940, as amended.
Liquidity
We have experienced recurring operating losses and we anticipate incurring substantial additional losses. Including the receipt of $20.2 million in net proceeds from the capital raise completed in the quarter ended June 30, 2011, we had approximately $27.2 million of cash and cash equivalents at June 30, 2011 to fund our future operations. Additionally, subsequent to June 30, 2011, we entered into a revolving credit facility arrangement with Silicon Valley Bank (SVB) providing availability to an additional $7 million to support working capital needs (See Note 18, Subsequent Events, of the condensed consolidated financial statements of this Form 10-Q for further disclosure on the credit facility with SVB). We believe that our current cash, cash equivalents and cash generated from future sales, in conjunction with the availability of the credit facility, will provide sufficient liquidity to fund operations through the end of 2012. This projection is based on our current expectations regarding product sales, cost structure, cash burn rate and operating assumptions (including those specified in the May 2010 restructuring plan). 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. 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, 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. As a result, we can provide no assurance that we will be able to fund our operations beyond 2012 without additional external financing. If additional funding is required beyond 2012, alternatives the Company would consider include equity or debt financings, strategic alliances or joint ventures. Under such conditions, if we are unable to obtain additional capital prior to the end of 2012, we may not be able to sustain our future operations into 2013 and may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection. 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 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. 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. 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.
7
As of June 30, 2011, we had cash and cash equivalents of $27.2 million and working capital of $30.6 million.
2. Basis of Presentation
Principles of Consolidation: The accompanying unaudited condensed interim consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. It is the Company’s policy to reclassify prior period consolidated financial statements to conform to current period presentation.
Interim Financial Statements : The accompanying unaudited condensed interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with U.S. generally accepted accounting principles (GAAP), the financial position, results of operations and cash flows for all periods presented, have been made. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.
Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2010.
8
The information presented in the accompanying condensed consolidated balance sheet as of December 31, 2010 has been derived from the Company’s December 31, 2010 audited consolidated financial statements. All other information has been derived from the Company’s unaudited condensed consolidated financial statements as of June 30, 2011 and for the three and six months ending June 30, 2011 and 2010.
Use of Estimates: The unaudited condensed interim consolidated financial statements have been prepared in conformity with GAAP, 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.
Stock Split : The financial statements for all prior periods have been retroactively adjusted to reflect the May 19, 2011 one-for-ten reverse stock split of the Company’s common stock. See Note 6, Stockholders’ Equity, of the condensed consolidated financial statements for more detail.
Significant Accounting Policies:
Warrant accounting
We account for common stock warrants in accordance with applicable accounting guidance provided in ASC 815, Derivatives and Hedging Contracts in Entitys 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. The Company used the following assumptions for its common stock warrants. The risk-free interest rate for May 31, 2011 (issuance date) and June 30, 2011 were .75% and .56%, respectively. The volatility of the market price of the Companys common stock for May 31, 2011 (issuance date) and June 30, 2011 were 94.4% and 87.6%, respectively. The expected average term of the warrant used for both 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 condensed consolidated statement of operations as change in fair value of warrant liability.
Recent Accounting Pronouncements:
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820), which provides common fair value measurement and disclosure requirements in accordance with GAAP and International Financial Reporting Standards (IFRS). The amendments explain how to measure fair value and will improve the comparability of fair value measurement presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. This authoritative guidance is to be applied prospectively and is effective during interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the impact, if any, of this new accounting update and plans to adopt this new standard on January 1, 2012 and does not believe adoption of this new standard will have a material effect on its consolidated financial position, consolidated results of operations, and liquidity.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. Reclassification adjustments between net income and other comprehensive income must be shown on the face of the statement(s), with no resulting change in net earnings. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholder’s equity. This authoritative guidance is to be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the impact, if any, of this new accounting update and plans to adopt this new standard on January 1, 2012 and does not believe adoption of this new standard will have a material effect on its consolidated financial position, consolidated results of operations, and liquidity.
9
3. 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.
10
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.
The following tables summarize the basis used to measure certain financial assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheets:
Basis of Fair Value Measurements
Balance at June 30, 2011 |
Total |
Quoted Prices
|
Significant Other
|
Significant
|
|||||||
Warrant Liability |
$ |
6,977,623 |
$ |
|
$ |
|
$ |
6,977,623 |
|||
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
Total |
Quoted Prices
|
Significant Other
|
Significant
|
|||||||
Available-for-sale securities – U.S. treasury securities |
$ |
10,403,315 |
$ |
10,403,315 |
$ |
— |
$ |
— |
|||
|
|
|
|
|
|
|
|
|
The following tables show reconciliations of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (i.e. Level 3) for the six months ended June 30, 2011:
Warrant Liability |
Fair Value
|
|
Beginning of period |
$ |
- |
|
|
|
Issuance of common stock warrants |
|
8,768,143 |
|
|
|
Change in fair value of warrant liability |
|
(1,790,520) |
|
|
|
Fair value of warrant liability at June 30, 2011 |
$ |
6,977,623 |
|
|
|
The following summarizes the valuation technique for assets and liabilities measured and recorded at fair value:
Available-for-sale securities: For our level 1 securities, which represent U.S. treasury securities, fair value is based on quoted market prices.
Warrant liability: For our level 3 securities, which represent 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.
11
4. Earnings Per Share
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, adjusted for unvested restricted stock. 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 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. The financial statements for all prior periods have 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:
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
||||||||||||
|
|
|
June 30, |
|
|
|
June 30, |
|
|
|
June 30, |
|
|
|
June 30, |
|
||||
|
|
|
2011 |
|
|
|
2010 |
|
|
|
2011 |
|
|
|
2010 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
|
(6,752,668 |
) |
|
$ |
|
(18,515,955 |
) |
|
$ |
|
(13,995,868 |
) |
|
$ |
|
(29,074,705 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares |
|
|
16,320,235 |
|
|
|
13,116,175 |
|
|
|
14,781,215 |
|
|
|
13,080,315 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The potential dilutive common shares are summarized as follows:
|
|
At
|
||
|
|
2011 |
|
2010 |
Stock options outstanding |
|
1,059,953 |
|
564,419 |
Unvested restricted stock |
|
409,164 |
|
554,370 |
Warrants (1) |
|
7,128,563 |
|
57,143 |
Number of potential dilutive common shares |
|
8,597,680 |
|
1,175,932 |
(1) |
On May 31, 2011, the Company granted 7,128,563 warrants as part of an underwritten public offering. On May 4, 2007, the Company granted 57,143 warrants (as adjusted for the reverse stock split) to the shareholders of General Hydrogen as part of the acquisition of that company. Those warrants expired on May 4, 2011. |
12
5. Intangible Assets
The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets related to Plug Power Canada Inc. as of June 30, 2011 are as follows:
|
|
Weighted
Average
|
|
Gross
Carrying
|
|
Accumulated
|
|
Effect of
Currency
|
|
Total |
||||
Acquired Technology |
|
8 years |
|
$ |
15,900,000 |
|
$ |
(8,884,179) |
|
$ |
1,353,369 |
|
$ |
8,369,190 |
Customer Relationships |
|
8 years |
|
|
1,000,000 |
|
|
(520,800) |
|
|
— |
|
|
479,200 |
|
|
|
|
$ |
16,900,000 |
|
$ |
(9,404,979) |
|
$ |
1,353,369 |
|
$ |
8,848,390 |
6. Stockholders’ Equity
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.
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). 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 . 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 warranty liability at issuance date). The warrants are exercisable upon issuance and will expire on May 31, 2016. The exercise price of the warrants is $3.00 per share of common stock. The warrants include weighted-average anti-dilution protection and, in the event of a sale of the Company, and under certain conditions, each warrantholder has the right to require the Company to purchase such holder’s warrants at a price determined using a Black-Scholes option pricing model.
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 $ 517,624.
13
Changes in stockholders’ equity for the six months ended June 30, 2011 are as follows:
|
Common Stock |
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
|||||||||||
|
Shares |
|
Amount |
|
Additional Paid- in-Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Shares |
|
Amount |
|
Accumulated Deficit |
|
Total Stockholders' Equity |
|
Total Comprehensive Loss |
|||||||
December 31, 2010 |
13,369,924 |
|
$ |
1,336,992 |
|
$ |
769,659,871 |
|
$ |
965,868 |
|
180,449 |
|
$ |
(1,719,510) |
|
$ |
(727,329,858) |
|
$ |
42,913,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net loss |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(13,995,868) |
|
(13,995,868) |
|
(13,995,868) |
|||||||
Foreign currency translation gain |
- |
|
- |
|
- |
|
86,032 |
|
- |
|
- |
|
- |
|
86,032 |
|
86,032 |
|||||||
Unrealized gain on available-for-sale securities |
- |
|
- |
|
- |
|
18,502 |
|
- |
|
- |
|
- |
|
18,502 |
|
18,502 |
|||||||
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(13,891,334) |
||||||
Stock based compensation |
102,881 |
|
1,029 |
|
994,561 |
|
- |
|
- |
|
- |
|
- |
|
995,590 |
|
|
|||||||
Reclassification adjustment - stock split |
- |
|
(1,203,293) |
|
1,203,293 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
|||||||
Public offering common stock, net |
9,101,750 |
|
91,017 |
|
11,305,712 |
|
- |
|
- |
|
- |
|
- |
|
11,396,729 |
|
|
|||||||
Issuance of treasury shares |
- |
|
- |
|
(328,650) |
|
- |
|
(35,000) |
|
328,650 |
|
- |
|
- |
|
|
|||||||
Purchase of treasury shares |
- |
|
- |
|
- |
|
- |
|
20,292 |
|
(161,279) |
|
- |
|
(161,279) |
|
|
|||||||
June 30, 2011 |
22,574,555 |
|
$ |
225,745 |
|
$ |
782,834,787 |
|
$ |
1,070,402 |
|
165,741 |
|
$ |
(1,552,139) |
|
$ |
(741,325,726) |
|
$ |
41,253,069 |
|
|
7. 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 six months ended June 30, 2011 and 2010:
|
|
June 30,
|
|
June 30,
|
||
Stock-based compensation accrual impact |
|
$ |
(10,021) |
|
$ |
586,652 |
Change in unrealized gain (loss) on available-for-sale securities |
|
|
18,502 |
|
|
(58,237) |
Cash paid for interest |
|
|
- |
|
|
360,289 |
Transfer of leased assets to inventory |
|
|
263,239 |
|
|
- |
Transfer of assets held for sale to inventory |
|
|
1,000,000 |
|
|
- |
14
8. Restructuring Charges
On May 25, 2010, the Company adopted a restructuring plan to focus and align the Company on its GenDrive business. As part of this plan, the Company consolidated all operations into its Latham, New York headquarters. At June 30, 2011, $704,199 remains in accrued expenses on the condensed consolidated balance sheets.
The accrued restructuring charges relating to the May 2010 restructuring are comprised of the following at June 30, 2011:
|
Accrued
restructuring
January 1, 2011 |
|
Adjustments to,
additional accrued
charges |
|
Cash payments |
|
Accrued
restructuring
June 30, 2011 |
||||
Personnel Related |
$ |
- |
|
$ |
24,095 |
|
$ |
(24,095) |
|
$ |
- |
Net Lease Obligations |
|
687,696 |
|
|
16,503 |
|
|
- |
|
|
704,199 |
Total |
$ |
687,696 |
|
$ |
40,598 |
|
$ |
(24,095) |
|
$ |
704,199 |
During 2008, the Company adopted two restructuring plans to focus the Company on becoming a market and sales driven organization, to drive revenue growth, improve organizational efficiency and to position the Company for long-term profitability. As part of the plans, the Company implemented reductions in workforce, terminated purchase commitments, charged off inventory related to lapsed product lines, cut back discretionary spending, and deferred non strategic projects. At June 30, 2011, $497,642 remains in accrued expenses on the condensed consolidated balance sheets.
The accrued restructuring charges relating to the two 2008 restructurings are comprised of the following at June 30, 2011:
|
Accrued
restructuring
January 1, 2011 |
|
Adjustments to,
additional accrued
charges |
|
Cash payments |
|
Accrued
restructuring
June 30, 2011 |
||||
Contract Cancellation |
$ |
547,356 |
|
$ |
- |
|
$ |
(49,714) |
|
$ |
497,642 |
Net Lease Obligations |
|
157,516 |
|
|
- |
|
|
(157,516) |
|
|
- |
Total |
$ |
704,872 |
|
$ |
- |
|
$ |
(207,230) |
|
$ |
497,642 |
15
9. Credit Line Agreement and Auction Rate Debt Securities Repurchase Agreement
In December 2008, the Company entered into a Credit Line Agreement with a third-party lender with a maximum availability of $62.9 million. The Company’s auction rate debt securities included in trading securities were pledged as collateral for the Credit Line Agreement. As of December 31, 2008, the Company had drawn down $62.9 million on this line of credit. During the six months ended June 30, 2010, approximately $33.9 million of auction rate debt securities were sold by the third-party lender holding the collateral which resulted in a corresponding reduction in amounts outstanding under the Credit Line Agreement. The Credit Line Agreement had interest at a variable rate equal to the average rate of interest earned by the Company on the auction rate debt securities pledged as collateral for the Credit Line Agreement. Interest expense on the advances on the Credit Line Agreement was approximately $296,000 for the six months ended June 30, 2010.
The advances on the Credit Line Agreement were repayable on demand by the third-party lender. If the third-party lender had exercised its right to demand repayment of the advances under the Credit Line Agreement prior to June 30, 2010 (the date upon which the Company could first exercise its rights under the Repurchase Agreement discussed below), the third-party lender was required to arrange alternative financing on terms substantially the same as the Credit Line Agreement or the third party lender must repurchase the auction rate debt securities pledged as collateral for the Credit Line Agreement at their par value.
In December 2008, the Company also 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 full settlement for the advances on the Credit Line Agreement. The Company elected to record this item at its fair value in accordance with ASC No. 825-10-25 to allow consistent treatment of this repurchase agreement and the underlying collateral. At June 30, 2010, the fair value of this item was approximately $2.8 million and was recorded as an asset on the condensed consolidated balance sheets. The change in the fair value of the Repurchase Agreement for the six months ended June 30, 2010 was approximately $3.1 million and was recorded as a realized loss on the condensed consolidated statements of operations.
Effective July 1, 2010, all auction rate debt securities were repurchased at par by the third-party lender holding the collateral under the Repurchase Agreement which resulted in a corresponding reduction in amounts outstanding and the extinguishment of the Credit Line Agreement.
16
10. Debt and Lease Arrangement
In March 2009, the Company signed a $1.7 million promissory note issued by Key Equipment Finance Inc. (Key Equipment) for the purpose of financing GenDrive products leased to Central Grocers, beginning on April 1, 2009. Monthly installments of $32,900 were due through March 2014 and the note was subject to interest at a fixed rate of 7.23% per annum on a 360-day year. The Company was initially required to pledge $1.8 million in cash to collateralize the debt, which was to decrease over time in accordance with decreases in the outstanding balance of the debt. This note was also secured by the equipment that was leased to Central Grocers as described in the Master Security Agreement and Collateral Schedule No. 01 dated as of March 20, 2009, together known as the Master Security Agreement. The promissiory note was paid in full during the year ended December 31, 2010.
On April 1, 2009, the Company began leasing the GenDrive products to Central Grocers. The terms of the arrangement were 60 monthly installments of $32,900. Upon expiration of the 60 months (initial term of the lease), Central Grocers had the option to renew the lease for an additional five years at mutually agreed upon pricing, to purchase all equipment for a purchase price equal to the then fair market value thereof, or to return the equipment to the Company. The Company shall provide maintenance in accordance with the lease agreement.
In December 2010, the Company assigned all of its rights, title and interest in the lease to Somerset Capital Group, Ltd. (Somerset), but the Company will continue to provide maintenance in accordance with the lease agreement. In conjunction with the assignment of the lease, the Key Equipment promissory note was completely paid off by the Company and the collateralized cash was released to the Company. The Company sold all of the equipment under the lease to Somerset.
During 2010, the Company entered into the second phase of leased assets with Central Grocers. The terms of the arrangement were 60 monthly installments of $24,640. Upon expiration of the 60 months (initial term of the lease), Central Grocers had the option to renew the lease for an additional five years at mutually agreed upon pricing, to purchase all equipment for a purchase price equal to the then fair market value thereof, or to return the equipment to the Company. The Company shall provide maintenance in accordance with the lease agreement.
In December 2010, the Company assigned all of its rights, title and interest in the second phase lease to Somerset, but the Company will continue to provide maintenance in accordance with the lease agreement. The Company sold all of the equipment under the second phase lease to Somerset.
In July 2009, the Company signed a letter of credit with Key Bank in the amount of $525,000. The standby letter of credit is required by the agreement negotiated between Air Products and Chemicals, Inc. (Air Products) and the Company to supply hydrogen infrastructure and hydrogen to Central Grocers at their distribution center. The standby letter of credit is collateralized by cash held in a restricted account and is recorded as restricted cash in the condensed consolidated balances sheets as of June 30, 2011 and December 31, 2010.
In October 2009, the Company entered into a 15 month financing arrangement for an electrolyzer. The outstanding balance of the debt as of December 31, 2010 was approximately $10,000 and was recorded as current portion of long term debt in the condensed consolidated balance sheets. This debt was paid in full during the first quarter of 2011.
17
11. Available-For-Sale Securities
The amortized cost and fair value of the Company’s available-for-sale securities as of December 31, 2010 were as follows:
|
Amortized
|
|
Gross
|
|
Gross
|
|
Estimated
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities |
$ |
10,421,817 |
|
$ |
- |
|
$ |
18,502 |
|
$ |
10,403,315 |
|
|
|
|
|
|
|
|
|
|
|
|
Included in the above table are two securities where the current fair value is less than the related amortized cost at December 31, 2010. These unrealized losses do not reflect any deterioration of the credit worthiness of the issuers of the securities. All securities are of investment grade. The unrealized losses on these temporarily impaired securities are a result of changes in interest rates for fixed-rate securities where the interest rate received is less than the current rate available for new offerings of similar securities and changes in market spreads as a result of shifts in supply and demand. The contractual maturities of available-for-sale securities were in the quarter ended March 31, 2011 for balances as of December 31, 2010.
The Company recognized gross gains, gross losses and proceeds on available-for-sale securities for each of the six months ended June 30 as follows:
|
2011 |
2010 |
||
Proceeds on Sales |
$ |
- |
$ |
9,978,083 |
Proceeds on Maturities |
$ |
10,399,396 |
$ |
35,926,223 |
Gross Realized Gains |
$ |
- |
$ |
- |
Gross Realized Losses |
$ |
22,421 |
$ |
- |
12. 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 825-10-65, Financial Instruments, which requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. 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.
18
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: The carrying amounts reported in the condensed consolidated balance sheets approximate fair value because of the short maturities of these instruments.
13. 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. Total revenue recognized under multiple-deliverable revenue arrangements in the three and six months ended June 30, 2011 was approximately 59.6% and 70.6% of total product and service revenue, respectively. Total revenue recognized under multiple-deliverable revenue arrangements in the three and six months ended June 30, 2010 was approximately 34.6% and 47.5% of total product and service revenue, respectively. 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.
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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 each element of the arrangement to the sale consideration. 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.
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14. 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 condensed consolidated balance sheets, respectively until all assets have been sold. Upon the sale of assets in the quarter ended June 30, 2011, the $1.0 million of consideration was released.
15. Income Taxes
Under Internal Revenue Code (IRC) Section 382, the use of net operating loss carryforwards, capital loss carryforwards and other tax credit carryforwards may be limited if a change in ownership of a company occurs. If it is determined that due to transactions involving the Companys shares owned by its five percent stockholders a change of ownership has occurred under the provisions of IRC Section 382, the Company's net operating loss, capital loss and tax credit carryforwards could be subject to significant IRC Section 382 limitations.
At December 31, 2010, the Company had approximately $573.4 million in Federal and state net operating loss carryforwards and $15.5 million in Federal research and experimentation tax credit carryforwards (of which $5.7 million represents an uncertain tax position), which resulted in $217.9 million and $9.8 million, respectively, in gross deferred tax assets that are recorded on the Companys balance sheet at December 31, 2010. These gross deferred tax assets are offset by a full valuation allowance, resulting in net deferred tax assets of zero. During 2011, as a result of certain equity transactions by five percent stockholders, an ownership change occurred for IRC Section 382 purposes. As a result of the ownership change, approximately $22 to $60 million of the Company's Federal and state net operating loss and recognized built in loss carryforwards are available. The remaining net operating loss and recognized built in loss carryforwards will expire prior to utilization. As a result, the Companys gross deferred tax asset and related valuation allowance will decrease by approximately $195 to $209 million. Additionally, the $15 million of Federal research and experimentation tax credit carryforwards will now expire prior to utilization, resulting in the Company's gross deferred tax asset and related valuation allowance decreasing by $9.8 million. These decreases have no impact on the Companys current financial position, results of operations, or cash flows because of the full valuation allowance.
The adoption of the IRC Section 1374 approach prescribed in Notice 2003-65 with respect to the ownership change for the Company resulted in Net Unrealized Built in Losses which should result in Recognized Built in Losses during the five year recognition period of approximately $6.5 to $34 million. This will translate into unfavorable book to tax add backs in the Company's 2011 to 2016 U.S. Corporate Income Tax returns that will generate a gross deferred tax liability at the ownership change date of approximately $2.5 to $13 million and 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 Companys current financial position, results of operations, or cash flows because of the full valuation allowance.
The Company is in the process of completing a formal IRC Section 382 study to determine the actual amount of the Federal and state net operating losses available and the actual amount of Built in Losses required to be recognized during the five year recognition period.
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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 t han 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.
17. Commitments and Contingencies
The Equipment Sale Agreement Addendum No. 1 between Ballard and the Company was executed on June 30, 2011. This addendum relates to a committed purchase by the Company of a total of 3,250 Ballard fuel cell stacks between the dates of July 1, 2011 and December 31, 2012. The amount of this commitment is approximately $9.4 million. In conjunction with this agreement, the Company paid a one-time non-recurring engineering fee of $450,000 to Ballard to be used at Ballard’s sole discretion for the purposes of product development, cost reduction and production implementation.
18. 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.
On August 9, 2011, the Company entered into a loan and security agreement (the Loan Agreement) with SVB providing that in return for paying an up front fee of $52,250 the Company has access to up to $7 million of financing in the form of (i) revolving loans, (ii) letters of credit, (iii) foreign exchange contracts and (iii) cash management services such as merchant services, direct deposit of payroll, business credit card and check cashing services. Advances under the Loan Agreement cannot exceed a borrowing base limit calculated using (A) an advanced rate of 80% on the Company's eligible accounts and (B) an advanced rate of 25% on the Company's eligible inventory (subject to a limit of the lesser of (a) $2 million and (b) 30% of all outstanding advances), subject to certain reserves established by SVB and other adjustments. The aggregate amount of outstanding letters of credit, foreign exchange contract financing and amounts utilized for cash management services cannot exceed a sublimit of $750,000 in the aggregate at any time.
Interest on advances of credit under the Loan Agreement for: (i) financed accounts receivables is equal to (a) SVBs prime rate, which is currently 3.25% per annum, plus 3.0% per annum or (b) if the Company maintains during any month at all times an adjusted quick ratio of 2.0 to 1.0, then SVBs prime rate plus 1.50% per annum; and (ii) financed inventory is equal to (a) SVBs prime rate plus 5.25% per annum or (b) if the Company maintains during any month at all times an adjusted quick ratio of 2.0 to 1.0, then SVBs prime rate plus 3.25% per annum. The minimum monthly interest charge is $4,000 per month. The Loan Agreement will be used by the Company to support its current working capital needs.
The Loan Agreement is secured by substantially all of the Company's properties, rights and assets, including substantially all of its equipment, inventory, receivables, intellectual property and general intangibles.
The Loan Agreement includes customary representations and warranties for credit facilities of this type. In addition, the Loan Agreement contains a number of covenants that will impose significant operating and financial restrictions on the Company's operations, including restrictions pertaining to, among other things: (i) the condition of inventory; (ii) maintenance of an adjusted quick ratio of at least 1.50 to 1.0; (iii) intellectual property right protection and registration; (iv) dispositions of assets; (v) changes in business, management, ownership or business locations; (vi) mergers, consolidations or acquisitions; (vii) incurrence or assumption of indebtedness; (viii) incurrence of liens on any of the Company's property; (ix) paying dividends or making distributions on, or redemptions, retirements or repurchases of, capital stock; (x) transactions with affiliates; and (xi) payments on or amendments to subordinated debt.
The Loan Agreement also contains events of default customary for credit facilities of this type with, in some cases, corresponding grace periods, including, (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants, (iii) any material adverse change occurring, (iv) an attachment, levy or restraint on our business, (v) certain bankruptcy or insolvency events , (vi) payment defaults relating to, or acceleration of, other indebtedness or that could result in a material adverse change to the Company's business, (vii) the Company or its subsidiaries becoming subject to judgments, claims or liabilities in an amount individually or in aggregate in excess of $150,000.00, (vii) any misrepresentations, or (viii) any revocation, invalidation, breach or invalidation of any subordinated debt.
The Loan Agreement will expire on August 8, 2012. The Loan Agreement may be terminated prior to August 8, 2012; however, the Company would be required to pay a $70,000 early termination fee in connection with a termination (i) by the Company for any reason or (ii) by SVB upon notice and after the occurrence and during the continuance of an event of default.
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes thereto included within this report, and our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2010. In addition to historical information, this Form 10-Q and the following discussion contain statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements contain projections of our future results of operations or of our financial position or state other forward-looking information. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would,” “plan,” “projected” or the negative of such words or other similar words or phrases. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned not to 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: expectations regarding expected shipments of GenDrive units for 2011 and 2012, the risk that we continue to incur losses and might never achieve or maintain profitability, the risk that the additional capital we may need to raise to fund our operations may not be available; the risk that the previously disclosed expected uses of the Company’s recently raised capital may change; our lack of extensive experience in manufacturing and marketing products may impact our ability to manufacture and market products on a profitable and large-scale commercial basis; the risk that unit orders will not ship, be installed and/or converted to revenue, in whole or in part; the risk that pending orders may not convert to purchase orders, in whole or in part; the cost and timing of developing, marketing and selling our products and our ability to raise the necessary capital to fund such costs; 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, but are not limited to, those set forth in Item 1A-Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed on March 31, 2011 as updated by Part II, Item 1A of our Form 10-Q for the quarter ended March 31, 2011 and this Form 10-Q. Readers should not place undue reliance on our forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made and are not guarantees of future performance. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Form 10-Q.
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Overview
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. Plug Power has also developed products for the back-up and stationary power markets worldwide. Effective April 1, 2010, the Company was no longer considered a development stage enterprise since principal operations began to provide more than insignificant revenues as the Company received orders from repeat customers, increased its customer base and had a significant backlog. Prior to April 1, 2010, the Company was 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.
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 successfully introduced new GenDrive product offerings to augment our product suite and allow full site conversions. We have sold, on commercial terms, product offerings to target customers including Walmart, FedEx Freight, Coca-Cola Bottling Co., Sysco Foods and Central Grocers. Our sales to Central Grocers and Sysco Foods involve “greenfield” conversion sites. Greenfield sites offer the potential for the greatest financial benefits to our customers by eliminating the need for customers to make capital investments in batteries and the associated chargers, storage and changing systems.
In the three and six months ended June 30, 2011, we received orders for 431 and 986 GenDrive units, respectively. Our backlog of 1,296 orders as of June 30, 2011 represents approximately $24.2 million in potential future revenue and we expect approximately 60 percent of these orders to ship throughout the remainder of 2011. With this increase in orders, and expected engineering improvements that utilize common components across product lines, we expect to drive down material costs by 30 to 40 percent. Implementation is currently underway and we expect these improvements to begin to impact our financial results by the end of 2011. 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. Accordingly, in 2010, we restructured and consolidated our operations to focus on the GenDrive business. This restructuring is expected to decrease our operating expenses by $12 to $15 million annually starting in 2011.
Including the receipt of $20.2 million in net proceeds from the capital raise completed in the quarter ended June 30, 2011, we had approximately $27.2 million of cash and cash equivalents at June 30, 2011 to fund our future operations. Additionally, subsequent to June 30, 2011, we entered into a revolving credit facility arrangement with Silicon Valley Bank (SVB) providing availability to an additional $7 million to support working capital needs (See "Liquidity and Capital Resources" for further disclosure on the credit facility with SVB). We believe that our current cash, cash equivalents and cash generated from future sales, in conjunction with the availability of the credit facility, will provide sufficient liquidity to fund operations through the end of 2012. This projection is based on our current expectations regarding product sales, cost structure, cash burn rate and operating assumptions
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(including those specified in the May 2010 restructuring plan described below). Our ability to achieve profitability, future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments, the extent to which we can effectuate the May 2010 restructuring plan; 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.
As a result, we can provide no assurance that we will be able to fund our operations beyond 2012 without external financing. If we are unable to obtain additional capital prior to the end of 2012, we may not be able to sustain our future operations into 2013 and may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection. 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 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.
Recent Developments
Stock Split. 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.
Stock Option Plan. On May 12, 2011, the 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). Shares tendered or held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall not be available for future issuance under the Plan. In addition, upon exercise of Stock Appreciation Rights, the gross number of shares exercised shall be deducted from the total number of shares remaining available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 200,000 shares of Stock may be granted to any one individual grantee during any one calendar year period and no more than 1,000,000 shares of Stock shall be issued in the form of Incentive Stock Options. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.
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Stock options granted under the 2011 Plan may be either incentive stock options or non-qualified stock options. The exercise price per share for the common stock covered by a stock option granted shall be determined by the administrator at the time of grant but shall not be less than 100 percent of the fair market value on the date of grant. In the case of an incentive stock option that is granted to a ten percent owner, the option price of such incentive stock option shall be not less than 110 percent of the fair market value on the grant date. The term of each stock option shall be fixed by the administrator, but no stock option shall be exercisable more than ten years after the date the stock option is granted. In the case of an incentive stock option that is granted to a ten percent owner, the term of such stock option shall be no more than five years from the date of grant.
The exercise price of a stock appreciation right granted under the 2011 Plan shall not be less than 100 percent of the fair market value of the common stock on the date of grant. Stock appreciation rights may be granted by the administrator independently of any stock option granted pursuant to the 2011 Plan. Stock appreciation rights shall be subject to such terms and conditions as shall be determined from time to time by the administrator. The term of a stock appreciation right may not exceed ten years.
The 2011 Plan also provides for restricted stock awards, deferred stock awards, unrestricted stock awards, cash-based awards, performance share awards and performance-based awards to covered employees as defined in the 2011 Plan.
No grants of stock options and other awards may be made under the 2011 Plan after the tenth anniversary of the effective date of the 2011 Plan and no grants of incentive stock options may be made under the 2011 Plan after the tenth anniversary of the date the 2011 Plan is approved by the Board.
Public Offering. 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). 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. Net proceeds, after underwriting discounts and commissions and other fees and expenses payable by Plug Power, were $18,289,883. The warrants are exercisable upon issuance and will expire on May 31, 2016. The exercise price of the warrants is $3.00 per share of common stock. The warrants include weighted-average anti-dilution protection and, in the event of a sale of the Company, each warrantholder has the right to require the Company to purchase such holder’s warrants at a price determined using a Black-Scholes option pricing model.
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 $ 517,624 .
Nasdaq Listing . On June 6, 2011, the Company received a letter from The Nasdaq Stock Market advising that the Company had regained compliance with the Nasdaq Capital Market's minimum bid price requirement for continued listing as set forth in Nasdaq Listing Rule 5550(a)(2).
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Equipment Sale Agreement. The Equipment Sale Agreement Addendum No. 1 between Ballard and the Company was executed on June 30, 2011. This addendum relates to a committed purchase by the Company of a total of 3,250 Ballard fuel cell stacks between the dates of July 1, 2011 and December 31, 2012. The amount of this commitment is approximately $9.4 million. In conjunction with this agreement, the Company paid a one-time non-recurring engineering fee of $450,000 to Ballard to be used at Ballard’s sole discretion for the purposes of product development, cost reduction and production implementation.
Loan and Security Agreement. The Company entered into a revolving credit facility arrangement with Silicon Valley Bank (SVB) providing availability to an additional $7 million to support working capital needs (See "Liquidity and Capital Resources" for further disclosure on the credit facility with SVB).
Customer Growth. On April 5, 2011, the Company announced that WinCo Foods LLC will use 184 GenDrive fuel cell units to power its electric lift truck fleet at its 800,000 sq. ft. grocery distribution center in Modesto, California. This transaction with WinCo Foods marks Plug Power’s first large grocery installation in California. At the same time, the GenDrive units being developed for WinCo’s European-style moving mast lift trucks will offer Plug Power a segue into the European material handling industry with a reliable product. The material handling industry in Europe is approximately a $5.7B USD market and provides an opportunity for expansion for Plug Power.
On June 29, 2011, the Company announced that Kroger Co. will use 161 GenDrive fuel cell units in its food distribution center in Compton, California.
Results of Operations
Product and service revenue. 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. As a result of implementing ASU No. 2009-13, we recognized approximately $1.6 million and $5.4 million of revenue during the three and six months ended June 30, 2011, respectively, that would have been deferred under the Company’s previous guidance for multiple-deliverable revenue arrangements. We recognized approximately $805,000 and $2.6 million of revenue during the three and six months ended June 30, 2010, respectively, that would have been deferred under the Company’s previous guidance for multiple-deliverable revenue arrangements. The Company anticipates that the effect of the adoption of this guidance on subsequent periods will be primarily based on the arrangements entered into and the timing of shipment of deliverables. See Note 13, Multiple-Deliverable Revenue Arrangements, of the condensed consolidated financial statements, Part I, Item 1 of this Form 10-Q 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.
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Product and service revenue for the three months ended June 30, 2011 increased $295,000, or 12.7%, to $2.6 million from $2.3 million for the three months ended June 30, 2010. Despite a decrease in shipments quarter over quarter, the increase is primarily related to more revenue being recognized on the current year shipments as a result of contractual terms of the sale agreements. The prior year revenue did not include $1.4 million of revenue on 67 units since certain contractual terms were not met. The change in revenue recorded on current quarter shipments was also partially offset by a decrease in revenue from prior period system shipments that have now been fully accreted into income. A portion of product and service revenue represents revenue associated with replacement parts or services not covered by service agreements or other similar types of sales where the Company has no continuing obligation after the parts are shipped or delivered or after services are rendered. This portion of product and service revenue is approximately $733,000 and $789,000, respectively for the three months ended June 30, 2011 and 2010.
In the product and service revenue category, during the three months ended June 30, 2011, we shipped 73 fuel cell systems as compared to 97 fuel cell systems shipped during the three months ended June 30, 2010. In the three months ended June 30, 2011, we recognized approximately $2.3 million of revenue for products shipped or delivered or services rendered in the three months ended June 30, 2011, as compared to approximately $1.6 million of revenue recognized in the three months ended June 30, 2010 for products shipped or delivered or services rendered in that quarter. Additionally, in the three months ended June 30, 2011, we recognized approximately $290,000 of product and services revenue from fuel cell shipments made prior to 2011, whereas in the three months ended June 30, 2010, we recognized approximately $731,000 of product and service revenue from fuel cell shipments made prior to 2010.
Product and service revenue for the six months ended June 30, 2011 increased $2.1 million, or 38.7%, to $7.6 million from $5.5 million for the six months ended June 30, 2010. The increase is primarily related to an increase in current period system shipments partially offset by a decrease in revenue from prior period system shipments that have now been fully accreted into income. A portion of product and service revenue represents revenue associated with replacement parts or services not covered by service agreements or other similar types of sales where the Company has no continuing obligation after the parts are shipped or delivered or after services are rendered. This portion of product and service revenue is approximately $1.4 million and $1.3 million, respectively for the six months ended June 30, 2011 and 2010.
In the product and service revenue category, during the six months ended June 30, 2011, we shipped 217 fuel cell systems as compared to 201 fuel cell systems (191 were related to sales to end customers and 10 were delivered to Central Grocers under a lease arrangement whereby Plug Power retained title and ownership of the equipment until it subsequently sold the leases) shipped during the six months ended June 30, 2010. In the six months ended June 30, 2011, we recognized approximately $6.8 million of revenue for products shipped or delivered or services rendered in the six months ended June 30, 2011, as compared to approximately $3.9 million of revenue recognized in the six months ended June 30, 2010 for products shipped or delivered or services rendered in that quarter. Additionally, in the six months ended June 30, 2011, we recognized approximately $764,000 of product and services revenue from fuel cell shipments made prior to 2011, whereas in the six months ended June 30, 2010, we recognized approximately $1.6 million of product and service revenue from fuel cell shipments made prior to 2010.
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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. Revenue from fixed fee contracts is recognized on the basis of percentage of completion. We expect to continue certain research and development contract work that is directly related to our current product development efforts.
Research and development contract revenue for the three months ended June 30, 2011 increased approximately $785,000, or 100.9%, to $1.6 million from $778,000 for the three months ended June 30, 2010. The increase is primarily related to billings under programs that began in the second quarter of 2011.
Research and development contract revenue for the six months ended June 30, 2011 increased approximately $362,000, or 18.2%, to $2.3 million from $2.0 million for the six months ended June 30, 2010. The increase is primarily related to billings under programs that began in the second quarter of 2011.
Licensed technology revenue. Licensed technology revenue relates to the sale of licensing rights and engineering assistance. This revenue is being amortized over a twelve month period.
Licensed technology revenue for the three and six months ended June 30, 2011 was approximately $163,000 and $326,000, respectively.
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 three months ended June 30, 2011 increased approximately $389,000, or 8.6%, to $4.9 million from $4.5 million for the three months ended June 30, 2010. There were 73 fuel cell system shipments for the three months ended June 30, 2011 as compared to 97 for the three months ended June 30, 2010. Despite the decrease in system shipments, the increase is primarily related to additional costs charged to cost of product and service revenue as a result of the restructuring of the Company to focus on commercial production of our product. Accordingly, some of these costs were included in research and development expense prior to this quarter, due to the Company’s focus on research and development at that time.
Cost of product and service revenue for the six months ended June 30, 2011 increased approximately $3.8 million, or 48.4%, to $11.6 million from $7.8 million for the six months ended June 30, 2010. The increase is primarily related to increased product and service fuel cell system shipments to end customers. There were 217 fuel cell system shipments for the six months ended June 30, 2011 as compared to 201 for the six months ended June 30, 2010. There were zero and 10 fuel cell system shipments being accounted for under a lease arrangement during the six months ended June 30, 2011 and 2010, respectively. The cost of leased units is recorded on the unaudited condensed consolidated balance sheets as investment in leased property. The increase also includes additional costs charged to cost of product and service revenue as a result of the restructuring of the Company to focus on commercial production of our product. Accordingly, some of these costs were included in research and development expense prior to this quarter, due to the Company’s focus on research and development at that time.
29
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 three months ended June 30, 2011 increased approximately $794,000, or 47.3%, to $2.5 million from $1.7 million for the three months ended June 30, 2010. This increase is primarily related to billings under programs that began in the second quarter of 2011.
Cost of research and development contract revenue for the six months ended June 30, 2011 increased approximately $250,000, or 7.0%, to $3.8 million from $3.6 million for the six months ended June 30, 2010. This increase is primarily related to billings under programs that began in the second quarter of 2011.
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 three months ended June 30, 2011 decreased approximately $3.3 million, or 74.8%, to $1.1 million from $4.4 million for the three months ended June 30, 2010. This decrease was primarily a result of the corporate restructuring plan announced in May 2010 to focus and align the Company on its GenDrive business as well as the wind-down of our operations in Plug Power Energy India Private Limited and Plug Power Canada Inc. The decrease was also coupled with our 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 in the prior year comparable quarter, due to the Company’s focus on research and development at that time.
Research and development expense for the six months ended June 30, 2011 decreased approximately $7.7 million, or 78.0%, to $2.2 million from $9.9 million for the three months ended June 30, 2010. This decrease was primarily a result of the corporate restructuring plan announced in May 2010 to focus and align the Company on its GenDrive business as well as the wind-down of our operations in Plug Power Energy India Private Limited and Plug Power Canada Inc. The decrease was also coupled with our 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 in the prior year comparable quarter, due to the Company’s focus on research and development at that time.
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.
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Selling, general and administrative expenses for the three months ended June 30, 2011 decreased approximately $6.7 million, or 63.2%, to $3.9 million from $10.5 million for the three months ended June 30, 2010. The decrease was primarily the result of the corporate restructuring plan announced in May 2010 to focus and align the Company on its GenDrive business as well as the wind-down of our operations in Plug Power Energy India Private Limited and Plug Power Canada Inc. The Company incurred $6.4 million in selling, general and administrative expenses during the three months ended June 30, 2010 related to the restructuring.
Selling, general and administrative expenses for the six months ended June 30, 2011 decreased approximately $7.0 million, or 48.3%, to $7.4 million from $14.4 million for the six months ended June 30, 2010. The decrease was primarily the result of the corporate restructuring plan announced in May 2010 to focus and align the Company on its GenDrive business as well as the wind-down of our operations in Plug Power Energy India Private Limited and Plug Power Canada Inc. The Company incurred $6.4 million in selling, general and administrative expenses during the three months ended June 30, 2010 related to the restructuring.
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 increased to approximately $588,000 for the three months ended June 30, 2011, compared to approximately $567,000 for the three months ended June 30, 2010. The increase is related to foreign currency fluctuations.
Amortization of intangible assets increased to approximately $1.2 million for the six months ended June 30, 2011, compared to approximately $1.1 million for the six months ended June 30, 2010. The increase is related to foreign currency fluctuations.
Interest and other income and net realized losses from available-for-sale securities. 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 securities, trading securities and other income.
Interest and other income and net realized losses from available-for-sale securities for the three months ended June 30, 2011 decreased approximately $181,000, or 67.5%, to $87,000 from $269,000 for the three months ended June 30, 2010. The decrease is primarily related to the sale of trading securities and available-for-sale securities during 2011 and 2010. Also contributing were lower cash balances coupled with lower yields on our investments due to a declining interest rate environment. Interest income on trading securities and available-for-sale securities for the three months ended June 30, 2010 was approximately $76,000 and $32,000, respectively. Rental income for the three months ended June 30, 2011 and 2010 was approximately $87,000 and $92,000, respectively.
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Interest and other income and net realized losses from available-for-sale securities for the six months ended June 30, 2011 decreased approximately $490,000, or 80.2%, to $121,000 from $611,000 for the six months ended June 30, 2010. The decrease is primarily related to the sale of trading securities and available-for-sale securities during 2011 and 2010. Also contributing were lower cash balances coupled with lower yields on our investments due to a declining interest rate environment and decreased rental income received from our Latham facility. Interest income on trading securities and available-for-sale securities for the six months ended June 30, 2011 was approximately $0 and $5,000, respectively. Interest income on trading securities and available-for-sale securities for the six months ended June 30, 2010 was approximately $253,000 and $108,000, respectively. Rental income for the six months ended June 30, 2011 and 2010 was approximately $138,000 and $180,000, respectively.
Change in fair value of warrant liability. We account for common stock warrants in accordance with applicable accounting guidance provided in ASC 815, Derivatives and Hedging Contracts in Entitys 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 warrant liability.
The change in fair value of warrant liability for the three and six months ended June 30, 2011 resulted in income of $1.8 million and $1.8 million, respectively due to a decrease in the Companys common stock share price and changes in volatility of our common stock during the period of warrant issuance through June 30, 2011.
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 a 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 $2.5 million and $3.1 million during the three and six months ended June 30, 2010 was recorded as a loss in the condensed consolidated statements of operations which is offset by the change in fair value of the auction rate debt securities held as collateral of approximately $2.5 million and $3.1 million that is recorded as a gain in the condensed consolidated statements of operations for the three and six months ended June 30, 2010.
Interest and other expense and foreign currency gain (loss). Interest and other expense and foreign currency gain (loss) consists of interest on repayable government assistance amounts related to the activities of Cellex and General Hydrogen, interest related to the Credit Line Agreement and long term debt, and foreign currency exchange gain (loss).
Interest and other expense and foreign currency gain (loss) for the three months ended June 30 , 2011 and 2010 was approximately $5,000 and ($177,000), respectively. Interest expense related to the Credit Line Agreement was approximately $0 and $139,000, respectively, for the three months ended June 30 , 2011 and 2010.
Interest and other expense and foreign currency gain (loss) for the six months ended June 30 , 2011 and 2010 was approximately $20,000 and ($373,000), respectively. Interest expense related to the Credit Line Agreement was approximately $0 and $296,000, respectively, for the six months ended June 30 , 2011 and 2010.
Income taxes. We did not report a benefit for federal and state income taxes in the condensed consolidated financial statements for the three and six months ended June 30, 2011 and 2010 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.
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Liquidity and Capital Resources
We have experienced recurring operating losses and as of June 30, 2011, we had an accumulated deficit of approximately $741.3 million. Substantially all of our losses resulted from costs incurred in connection with our operating expenses, research and development expenses and from general and administrative costs associated with our operations. To date, we have funded our operations primarily through private and public 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. Our May 2010 restructuring plan, which involves focusing on our GenDrive business and consolidating our operations into our Latham, New York facility, is expected to reduce these losses going forward. We anticipate that the restructuring will reduce our annual operating expenses by approximately $12 to $15 million annually starting in 2011.
Including the receipt of $20.2 million in net proceeds from the capital raise completed in the quarter ended June 30, 2011, we had approximately $27.2 million of cash and cash equivalents at June 30, 2011 to fund our future operations. Additionally, subsequent to June 30, 2011, we entered into a revolving credit facility arrangement with Silicon Valley Bank (SVB) providing availability to an additional $7 million to support working capital needs. See the below discussion for additional information regarding the revolving credit facility. We believe that our current cash, cash equivalents and cash generated from future sales, in conjunction with the availability of the credit facility, will provide sufficient liquidity to fund operations through the end of 2012. This projection is based on our current expectations regarding product sales, cost structure, cash burn rate and operating assumptions (including those specified in the May 2010 restructuring plan). 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. 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, 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. As a result, we can provide no assurance that we will be able to fund our operations beyond 2012 without additional external financing. If additional funding is required beyond 2012, alternatives the Company would consider include equity or debt financings, strategic alliances or joint ventures. Under such conditions, if we are unable to obtain additional capital prior to the end of 2012, we may not be able to sustain our future operations into 2013 and may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection. 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 equity or debt financing, strategic alliances or otherwise, there can be no assurances that the revenue or capital infusion will be sufficient to enable to 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. 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.
33
Several key indicators of liquidity are summarized in the following table:
(in thousands) |
|
Six months
|
|
Six months
|
|
Year
|
|||
Cash and cash equivalents at end of period |
|
$ |
27,151 |
|
$ |
3,789 |
|
$ |
10,955 |
Available-for-sale securities at end of period |
|
|
- |
|
|
32,009 |
|
|
10,403 |
Trading securities – auction rate debt securities at
|
|
|
- |
|
|
22,607 |
|
|
- |
Borrowings under line of credit at end of period |
|
|
- |
|
|
25,450 |
|
|
- |
Working capital at end of period |
|
|
30,625 |
|
|
33,005 |
|
|
23,659 |
Net loss |
|
|
13,996 |
|
|
29,075 |
|
|
46,959 |
Net cash used in operating activities |
|
|
13,172 |
|
|
24,504 |
|
|
40,770 |
Purchase of property, plant and equipment |
|
|
1,065 |
|
|
1,215 |
|
|
1,100 |
Effective July 1, 2010, all auction rate debt securities were repurchased at par by the third-party lender holding the collateral under the Repurchase Agreement which resulted in a corresponding reduction in amounts outstanding and the extinguishment of the Credit Line Agreement (See Note 9, Credit Line Agreement and Auction Rate Debt Securities Repurchase Agreement, of the condensed consolidated financial statements).
Our cash requirements depend on numerous factors, including completion of our product development activities, ability to commercialize our fuel cell systems, market acceptance of our systems and other factors. As of June 30, 2011, we had cash and cash equivalents of $27.2 million and working capital of $30.6 million.
On August 9, 2011, the Company entered into a loan and security agreement (the Loan Agreement) with SVB providing that in return for paying an up front fee of $52,250 the Company has access to up to $7 million of financing in the form of (i) revolving loans, (ii) letters of credit, (iii) foreign exchange contracts and (iii) cash management services such as merchant services, direct deposit of payroll, business credit card and check cashing services. Advances under the Loan Agreement cannot exceed a borrowing base limit calculated using (A) an advanced rate of 80% on the Company's eligible accounts and (B) an advanced rate of 25% on the Company's eligible inventory (subject to a limit of the lesser of (a) $2 million and (b) 30% of all outstanding advances), subject to certain reserves established by SVB and other adjustments. The aggregate amount of outstanding letters of credit, foreign exchange contract financing and amounts utilized for cash management services cannot exceed a sublimit of $750,000 in the aggregate at any time.
Interest on advances of credit under the Loan Agreement for: (i) financed accounts receivables is equal to (a) SVBs prime rate, which is currently 3.25% per annum, plus 3.0% per annum or (b) if the Company maintains during any month at all times an adjusted quick ratio of 2.0 to 1.0, then SVBs prime rate plus 1.50% per annum; and (ii) financed inventory is equal to (a) SVBs prime rate plus 5.25% per annum or (b) if the Company maintains during any month at all times an adjusted quick ratio of 2.0 to 1.0, then SVBs prime rate plus 3.25% per annum. The minimum monthly interest charge is $4,000 per month. The Loan Agreement will be used by the Company to support its current working capital needs.
The Loan Agreement is secured by substantially all of the Company's properties, rights and assets, including substantially all of its equipment, inventory, receivables, intellectual property and general intangibles.
The Loan Agreement includes customary representations and warranties for credit facilities of this type. In addition, the Loan Agreement contains a number of covenants that will impose significant operating and financial restrictions on the Company's operations, including restrictions pertaining to, among other things: (i) the condition of inventory; (ii) maintenance of an adjusted quick ratio of at least 1.50 to 1.0; (iii) intellectual property right protection and registration; (iv) dispositions of assets; (v) changes in business, management, ownership or business locations; (vi) mergers, consolidations or acquisitions; (vii) incurrence or assumption of indebtedness; (viii) incurrence of liens on any of the Company's property; (ix) paying dividends or making distributions on, or redemptions, retirements or repurchases of, capital stock; (x) transactions with affiliates; and (xi) payments on or amendments to subordinated debt.
The Loan Agreement also contains events of default customary for credit facilities of this type with, in some cases, corresponding grace periods, including, (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants, (iii) any material adverse change occurring, (iv) an attachment, levy or restraint on our business, (v) certain bankruptcy or insolvency events , (vi) payment defaults relating to, or acceleration of, other indebtedness or that could result in a material adverse change to the Company's business, (vii) the Company or its subsidiaries becoming subject to judgments, claims or liabilities in an amount individually or in aggregate in excess of $150,000.00, (vii) any misrepresentations, or (viii) any revocation, invalidation, breach or invalidation of any subordinated debt.
The Loan Agreement will expire on August 8, 2012. The Loan Agreement may be terminated prior to August 8, 2012; however, the Company would be required to pay a $70,000 early termination fee in connection with a termination (i) by the Company for any reason or (ii) by SVB upon notice and after the occurrence and during the continuance of an event of default.
During the six months ended June 30, 2011, cash used for operating activities was $13.2 million, consisting primarily of a net loss of $14.0 million offset, in part, by non-cash expenses in the amount of $1.8 million, including $2.2 million for amortization and depreciation, $1.0 million for stock based compensation, $309,000 for loss on disposal of property, plant and equipment and a $1.8 million reduction for the change in fair value of warranty liability. Cash provided by investing activities for the six months ended June 30, 2011 was $9.4 million, consisting primarily of $10.4 million of maturities (net of purchases) of available-for-sale securities offset by $1.1 million used to purchase property, plant and equipment. Cash provided by financing activities for the six months ended June 30, 2011 was approximately $20.0 million consisting primarily of $22.0 million in proceeds from the public offering offset by $1.9 million in public offering costs, $158,000 for the purchase of treasury stock and $10,000 in principal payments on long-term debt.
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Income Taxes
Under Internal Revenue Code (IRC) Section 382, the use of net operating loss carryforwards, capital loss carryforwards and other tax credit carryforwards may be limited if a change in ownership of a company occurs. If it is determined that due to transactions involving the Companys shares owned by its five percent stockholders a change of ownership has occurred under the provisions of IRC Section 382, the Company's net operating loss, capital loss and tax credit carryforwards could be subject to significant IRC Section 382 limitations.
At December 31, 2010, the Company had approximately $573.4 million in Federal and state net operating loss carryforwards and $15.5 million in Federal research and experimentation tax credit carryforwards (of which $5.7 million represents an uncertain tax position), which resulted in $217.9 million and $9.8 million, respectively, in gross deferred tax assets that are recorded on the Companys balance sheet at December 31, 2010. These gross deferred tax assets are offset by a full valuation allowance, resulting in net deferred tax assets of zero. During 2011, as a result of certain equity transactions by five percent stockholders, an ownership change occurred for IRC Section 382 purposes. As a result of the ownership change, approximately $22 to $60 million of the Company's Federal and state net operating loss and recognized built in loss carryforwards are available. The remaining net operating loss and recognized built in loss carryforwards will expire prior to utilization. As a result, the Companys gross deferred tax asset and related valuation allowance will decrease by approximately $195 to $209 million. Additionally, the $15 million of Federal research and experimentation tax credit carryforwards will now expire prior to utilization, resulting in the Company's gross deferred tax asset and related valuation allowance decreasing by $9.8 million. These decreases have no impact on the Companys current financial position, results of operations, or cash flows because of the full valuation allowance.
The adoption of the IRC Section 1374 approach prescribed in Notice 2003-65 with respect to the ownership change for the Company resulted in Net Unrealized Built in Losses which should result in Recognized Built in Losses during the five year recognition period of approximately $6.5 to $34 million. This will translate into unfavorable book to tax add backs in the Company's 2011 to 2016 U.S. Corporate Income Tax returns that will generate a gross deferred tax liability at the ownership change date of approximately $2.5 to $13 million and 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 Companys current financial position, results of operations, or cash flows because of the full valuation allowance.
The Company is in the process of completing a formal IRC Section 382 study to determine the actual amount of the Federal and state net operating losses available and the actual amount of Built in Losses required to be recognized during the five year recognition period.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of and during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to bad debts, inventories, intangible assets, equity investments, unbilled revenue, income taxes and contingencies. We base our estimates and judgments on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We refer to the policies and estimates set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The following material change or modification has been made to the policies since December 31, 2010:
On May 31, 2011, the Company granted 7,128,563 warrants as part of an underwritten public offering. We account for common stock warrants in accordance with applicable accounting guidance provided in ASC 815, Derivatives and Hedging Contracts in Entitys 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. The Company used the following assumptions for its common stock warrants. The risk-free interest rate for May 31, 2011 (issuance date) and June 30, 2011 were .75% and .56%, respectively. The volatility of the market price of the Companys common stock for May 31, 2011 (issuance date) and June 30, 2011 were 94.4% and 87.6%, respectively. The expected average term of the warrant used for both 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 condensed consolidated statement of operations as change in fair value of warrant liability.
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Recent Accounting Pronouncements
A discussion of recent accounting pronouncements is included in Note 2, Basis of Presentation, of the unaudited condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
We generally invest our excess 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. Accordingly, we believe that, while the investment-grade securities we may hold are subject to changes in the financial standing of the issuer of such securities, 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.
As of December 31, 2010, all of the Company’s operations have been relocated to the United States. A portion of the Company’s total financial performance was attributable to residual operations from both Canada and India. Our exposure to changes in foreign currency rates primarily related from short-term inter-company transactions with our previous Canadian and Indian subsidiaries and from client receivables in different currencies. As exchange rates vary, the Company’s results can be materially affected.
In addition, the Company may source inventory among its worldwide suppliers. This practice can give rise to foreign exchange risk resulting from the varying cost of inventory to the receiving location as well as from the revaluation of intercompany balances. The Company mitigates this risk through local sourcing efforts.
Item 4 – Controls and Procedures
(a) Evaluation of disclosure controls and procedures
As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934, our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
(b) Changes in internal controls over financial reporting
As required by Rule 13a-15(d) under the Securities Exchange Act of 1934, our management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the period covered by this report.
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PART II. OTHER INFORMATION
On May 26, 2011, Plug Power Inc. was served with a complaint that was filed by Alpha Equities Ltd. on May 6, 2011 in the Supreme Court of British Columbia against Plug Power Inc. and Plug Power Canada Inc. alleging breach of contract related to Plug Power Canada Inc.’s lease of premises in Richmond, British Columbia. The plaintiff is seeking damages relating to the restoration of the premises and unpaid rent. On July 28, 2011, Plug Power Inc. submitted a Response to plaintiff’s Civil Claim and we intend to vigorously defend this action. Accordingly, while there continue to be on-going discussions between the parties, the Company believes it is too early to determine that 1) there is likely exposure to an adverse outcome; and 2) whether or not the probability of an adverse outcome is more than remote.
Part II, Item 1A, “Risk Factors” of our most recently filed Annual Report on Form 10-K with the Securities and Exchange Commission, filed on March 31, 2011, sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Except to the extent that information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters described in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there have been no material changes to our risk factors disclosed in our most recently filed Annual Report on Form 10-K. However, those risk factors continue to be relevant to an understanding of our business, financial condition and operating results and, accordingly, you should review and consider such risk factors in making any investment decision with respect to our securities.
Item 2
- Unregistered Sales of Equity Securities and Use of Proceeds
(a) During the three months ended June 30, 2011, we issued 121,068 shares 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.
(b) Not applicable.
(c) None.
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Item 3 – Defaults Upon Senior Securities
None.
Item 4 – Removed and Reserved
None.
(a) None.
(b) None.
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31.1 and 31.2 |
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Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (7) |
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32.1 and 32.2 |
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Certifications pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (7) |
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101.INS* |
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XBRL Instance Document (7) |
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101.SCH* |
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XBRL Taxonomy Extension Schema Document (7) |
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101.CAL* |
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XBRL Taxonomy Extension Calculation Linkbase Document (7) |
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101.DEF* |
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XBRL Taxonomy Extension Definition Linkbase Document (7) |
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101.LAB* |
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XBRL Taxonomy Extension Labels Linkbase Document (7) |
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101.PRE* |
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XBRL Taxonomy Extension Presentation Linkbase Document (7) |
(1) |
Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ended December 31, 2008. |
(2) |
Incorporated by reference from the Company’s Registration Statement on Form 8-A dated June 24, 2009. |
(3) |
Incorporated by reference from the Company’s Current Report on Form 8-K dated October 28, 2009. |
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(4) |
Incorporated by reference from the Company’s Current Report on Form 8-K dated May 12, 2011. |
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(5) |
Incorporated by reference from the Company’s Current Report on Form 8-K dated May 19, 2011. |
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(6) |
Incorporated by reference from the Company’s Current Report on Form 8-K dated May 24, 2011. |
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(7) |
Furnished herewith |
* Submitted electronically herewith. Attached as Exhibit 101 are the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in eXtensible Business Reporting Language (XBRL) and tagged as blocks of text: (i) Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010; (ii) Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010; (iii) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010; and (iv) related notes, tagged as blocks of text. Pursuant to Rule 406T of Regulation S-T this data is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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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.
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PLUG POWER INC. |
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Date: August 11, 2011 |
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By: |
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/s/ Andrew Marsh |
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Andrew Marsh |
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President, Chief Executive Officer and Director (Principal Executive Officer) |
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Date: August 11, 2011 |
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By: |
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/s/ Gerald A. Anderson |
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Gerald A. Anderson |
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Chief Financial Officer (Principal Financial Officer) |
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40
EXHIBIT 10.2
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE PLUG POWER INC.
2011 STOCK OPTION AND INCENTIVE PLAN
Name of Optionee: |
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No. of Option Shares: |
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Option Exercise Price per Share: |
$ |
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[FMV on Grant Date (110% of FMV if a 10% owner)] |
Grant Date: |
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Expiration Date: |
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[up to 10 years (5 if a 10% owner)] |
Pursuant to the Plug Power Inc. 2011 Stock Option and Incentive Plan as amended through the date hereof (the Plan), Plug Power Inc. (the Company) hereby grants to the Optionee named above an option (the Stock Option) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $.01 per share (the Stock), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.
Incremental
Number of
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Exercisability Date |
_____________ (___%) |
____________ |
_____________ (___%) |
____________ |
_____________ (___%) |
____________ |
_____________ (___%) |
____________ |
_____________ (___%) |
____________ |
* Max. of $100,000 per yr.
In the event of a Sale Event as defined in Section 1 of the Plan, this Stock Option shall become vested and exercisable in full as of the effective date of such Sale Event, whether or not this Stock Option or any portion thereof is vested and exercisable at such time, and may be exercised in accordance with the provisions hereof and of the Plan. Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Companys receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the shares attested to.
2
3
The Administrators determination of the reason for termination of the Optionees employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.
4
PLUG POWER INC. |
By: |
Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.
Dated: |
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Optionees Signature |
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Optionees name and address: |
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5
Exhibit 10.3
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY EMPLOYEES
UNDER the plug power inc.
2011 STOCK OPTION AND INCENTIVE PLAN
Name of Optionee: |
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No. of Option Shares: |
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Option Exercise Price per Share: |
$ |
Grant Date: |
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Expiration Date: |
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Pursuant to the Plug Power Inc. 2011 Stock Option and Incentive Plan as amended through the date hereof (the Plan), Plug Power Inc. (the Company) hereby grants to the Optionee named above an option (the Stock Option) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $.01 per share (the Stock) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended.
Incremental Number of
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Exercisability Date |
_____________ (___%) |
____________ |
_____________ (___%) |
____________ |
_____________ (___%) |
____________ |
_____________ (___%) |
____________ |
_____________ (___%) |
____________ |
In the event of a Sale Event as defined in Section 1 of the Plan, this Stock Option shall become vested and exercisable in full as of the effective date of such Sale Event, whether or not this Stock Option or any portion thereof is vested and exercisable at such time, and may be exercised in accordance with the provisions hereof and of the Plan. Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Companys receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.
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3
The Administrators determination of the reason for termination of the Optionees employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.
4
PLUG POWER INC. |
By: |
Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.
Dated: |
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Optionees Signature |
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Optionees name and address: |
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5
Exhibit 10.4
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER the plug power inc.
2011 STOCK OPTION AND INCENTIVE PLAN
Name of Optionee: |
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No. of Option Shares: |
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Option Exercise Price per Share: |
$ |
Grant Date: |
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Expiration Date: |
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[10 years from Grant Date] |
Pursuant to the Plug Power Inc. 2011 Stock Option and Incentive Plan as amended through the date hereof (the Plan), Plug Power Inc. (the Company) hereby grants to the Optionee named above, who is a Director of the Company but is not an employee of the Company, an option (the Stock Option) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $.01 per share (the Stock), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended.
In the event of a Sale Event as defined in Section 1 of the Plan, this Stock Option shall become vested and exercisable in full as of the effective date of such Sale Event, whether or not this Stock Option or any portion thereof is vested and exercisable at such time, and may be exercised in accordance with the provisions hereof and of the Plan.. Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Companys receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.
2
3
PLUG POWER INC. |
By: |
Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.
Dated: |
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Optionees Signature |
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Optionees name and address: |
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4
LIBC/3587145.2
Exhibit 10.5
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE plug power inc.
2011 STOCK OPTION AND INCENTIVE PLAN
Name of Grantee:
No. of Shares:
Grant Date:
Pursuant to the Plug Power Inc. 2011 Stock Option and Incentive Plan (the Plan) as amended through the date hereof, Plug Power Inc. (the Company) hereby grants a Restricted Stock Award (an Award) to the Grantee named above. Upon acceptance of this Award, the Grantee shall receive the number of shares of Common Stock, par value $.01 per share (the Stock) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan. The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator.
Number
of
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Vesting Date |
_____________ (___%) |
____________ |
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Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Stock. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3.
2
PLUG POWER INC. |
By: |
Title:
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.
Dated: |
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Grantees Signature |
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Grantees name and address: |
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3
EXHIBIT 10.6
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this Agreement ) dated as of August 9, 2011 (the Effective Date ) is between (a) SILICON VALLEY BANK , a California corporation (Bank), (b) PLUG POWER INC. , a Delaware corporation (Borrower), and provides the terms on which Bank shall lend to Borrower, and Borrower shall repay Bank. The parties agree as follows:
Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP; provided that if at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrower or Bank shall so request, Borrower and Bank shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided, further , that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower shall provide Bank financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Notwithstanding the foregoing, all financial calculations (whether for pricing covenants, or otherwise) shall be made with regard to Borrower only and not on a consolidated basis. The term financial statements includes the notes and schedules. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13 of this Agreement. All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code to the extent such terms are defined therein. All references to Dollars or $ are United States Dollars, unless otherwise noted.
1
(f) Early Termination . This Agreement may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three (3) Business Days after written notice of termination is given to Bank; or (ii) by Bank at any time after the occurrence and during the continuance of an Event of Default, effective immediately upon delivery of written notice to Borrower. If this Agreement is terminated (A) by Bank in accordance with clause (ii) in the foregoing sentence, or (B) by Borrower for any reason, Borrower shall pay to Bank a non refundable termination fee in an amount equal to Seventy Thousand Dollars ($70,000.00) (the Early Termination Fee). The Early Termination Fee shall be due and payable on the effective date of such termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations. Notwithstanding the foregoing, Bank hereby waives the Early Termination Fee if Bank closes on the refinance and re-documentation of this Agreement under any division of Bank (which refinance or re-documentation shall be in its sole and exclusive discretion) prior to the Maturity Date.
(g) Maturity . This Agreement shall terminate and all Obligations outstanding hereunder shall be immediately due and payable in full on the Maturity Date.
(h) Suspension of Advances . Borrowers ability to request that Bank make Credit Extensions hereunder will terminate if, in Banks good faith business discretion, there has been a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations when due, or there has been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank prior to the Effective Date.
2.1.2 Letters of Credit .
(a) Upon Borrowers request, Bank may, in its good faith business discretion, issue or have issued Letters of Credit denominated in Dollars or a Foreign Currency for Borrowers account. The aggregate Dollar Equivalent amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letters of Credit Reserve) may not exceed the amounts set forth in Section 2.1.1(b) above. Any such aggregate amounts utilized hereunder, to the extent not cash secured as set forth herein, shall reduce the amount otherwise available for Credit Extensions hereunder. At any time when Borrowers unrestricted cash maintained with Bank is less than Five Million Dollars ($5,000,000.00), Borrower shall provide to Bank cash collateral in an amount equal to (i) with respect to outstanding Letters of Credit denominated in Dollars, one hundred and five percent (105.0%), and (ii) with respect to outstanding Letters of Credit denominated in a currency other than Dollars, one hundred ten percent (110.0%), of the Dollar Equivalent amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Banks standard Application and Letter of Credit Agreement (the Letter of Credit Application ). Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guaranteed by Bank and opened for Borrowers account or by Banks interpretations of any Letters of Credit issued by Bank for Borrowers account, and Borrower understands and agrees that Bank shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrowers instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto, except for errors or mistakes directly resulting from Banks gross negligence or willful misconduct.
2
(b) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit Application.
(c) Borrower may request that Bank issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letters of Credit, Bank shall treat such demand as an Advance to Borrower of the equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.
(d) To guard against fluctuations in currency exchange rates, upon the issuance of any Letters of Credit payable in a Foreign Currency, Bank shall create a reserve (the Letter of Credit Reserve ) in an amount equal to ten percent (10.0%) of the Dollar Equivalent amount of such Letters of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate.
(e) Borrower shall pay Banks customary fees and expenses for the issuance or renewal of Letters of Credit, upon the issuance of such Letter of Credit, each anniversary of the issuance during the term of such Letter of Credit, and upon the renewal of such Letter of Credit by Bank.
2.1.3 Foreign Exchange Sublimit . Upon Borrowers request, Bank may, in its good faith business discretion, permit Borrower to use a portion of its availability hereunder (which amount is set forth in Section 2.1.1(b)) to enter into foreign exchange contracts with Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency (each, a FX Forward Contract ) on a specified date (the Settlement Date ). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to a reserve of ten percent (10.0%) of each outstanding FX Forward Contract. If the FX Forward Contracts are not cash secured as contemplated herein, the amount otherwise available for Credit Extensions hereunder shall be reduced by an amount equal to ten percent (10.0%) of each outstanding FX Forward Contract (the FX Reduction Amount ). Any amounts needed to fully reimburse Bank for any amounts not paid by Borrower in connection with FX Forward Contracts will be treated as Advances and will accrue interest at the interest rate applicable to Advances. At any time when Borrowers unrestricted cash maintained with Bank is less than Five Million Dollars ($5,000,000.00), Borrower shall provide to Bank cash collateral in an amount consistent with Banks current foreign exchange contracts policies to secure all of the Obligations relating to all outstanding FX Forward Contracts.
3
2.1.4 Cash Management Services Sublimit . Upon Borrowers request, Bank may, in its good faith business discretion, permit Borrower to use a portion of its availability hereunder (which amount is set forth in Section 2.1.1(b)) for Banks cash management services, which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in Banks various cash management services agreements (collectively, the Cash Management Services ). Any amounts Bank pays on behalf of Borrower for any Cash Management Services, to the extent not cash secured as contemplated herein, shall reduce the amount otherwise available for Credit Extensions hereunder. At any time when Borrowers unrestricted cash maintained with Bank is less than Five Million Dollars ($5,000,000.00), Borrower shall provide to Bank cash collateral in an amount consistent with Banks current cash management services policies to secure all of the Obligations relating to all outstanding Cash Management Services.
4
(b) With respect to Advances based upon Inventory Placeholder Invoices:
(i) Borrower shall pay to Bank, on the first day of each Reconciliation Period, all accrued Finance Charges on the Advances made based upon Inventory Placeholder Invoices; and
(ii) Borrower will pay the principal amount of the Advances made based upon an Inventory Placeholder Invoice on the earliest of: (A) the date on which the aggregate amount of such Advances exceeds the Inventory Placeholder Availability Amount (but only up to the amount exceeding the Inventory Placeholder Availability Amount) or (B) the Maturity Date (including any early termination). Each payment will also include all accrued Finance Charges with respect to such Advance and all other amounts then due and payable hereunder.
(c) Borrower may prepay all or any portion of any Advance at any time without premium or penalty; provided, however, that Borrower shall pay the Early Termination Fee as set forth in Section 2.1.1(f) if such prepayment is in connection with the early termination of this Agreement pursuant to Section 2.1.1(f) hereof.
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(d) each of the representations and warranties in this Agreement (other than those in Sections 5.3 and 5.4) shall be true, accurate, and correct in all material respects on the date of the Invoice Transmittal and on the effective date of each Credit Extension and no Event of Default shall have occurred and be continuing, or result from the Credit Extension. Each Credit Extension is Borrowers representation and warranty on that date that the representations and warranties in this Agreement (other than those in Sections 5.3 and 5.4) are true, accurate, and correct in all material respects as of such date.
4.1 Grant of Security Interest . Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein shall be and shall at all times continue to be a first priority perfected security interest in the Collateral subject only to Permitted Liens that are permitted to have priority over Banks Liens hereunder. If Borrower shall at any time acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Bank.
7
Borrower represents and warrants as follows:
The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect ) or (v) constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrowers business.
8
Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate. Each Patent which it owns or purports to own and which is material to Borrowers business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrowers business has been judged invalid or unenforceable, in whole or in part. To the best of Borrowers knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrowers business. Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.
5.6 No Material Deviation in Financial Statements and Deterioration in Financial Condition . All consolidated financial statements for Borrower and its Subsidiaries delivered to Bank fairly present in all material respects Borrowers consolidated financial condition and Borrowers consolidated results of operations as of the date thereof. There has not been any material deterioration in Borrowers consolidated financial condition since the date of the most recent financial statements submitted to Bank.
9
Borrower shall do all of the following:
10
(b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.
(f) Provide Bank with, as soon as available, but not later than thirty (30) days following each Reconciliation Period, and contemporaneously with each request for an Advance based upon an Inventory Placeholder Invoice, Inventory reports for the Inventory valued on a first-in, first-out basis at the lower of cost or market (in accordance with GAAP), together with such other Inventory reports as are reasonably requested by Bank, in form and detail acceptable to Bank.
(g) Provide Bank prompt written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any Copyright, including any subsequent ownership right of Borrower in or to any Copyright, Patent or Trademark not shown in the IP Agreement, and (iii) Borrowers knowledge of an event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property.
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6.3 Taxes . Make, and cause each Subsidiary to make, timely payment of all foreign, federal, state and local taxes or assessments (other than taxes and assessments which Borrower is contesting in good faith, with adequate reserves maintained in accordance with GAAP) and will deliver to Bank, on demand, appropriate certificates attesting to such payments.
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(c) Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Banks rights and remedies under this Agreement and the other Loan Documents.
Borrower shall not do any of the following without Banks prior written consent.
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Borrower shall not, without at least fifteen (15) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless each such new office or business location contains less than Twenty Five Thousand Dollars ($25,000.00) in Borrowers assets or property), (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, (5) change any organizational number (if any) assigned by its jurisdiction of organization, or (6) deliver any portion of the Collateral to a bailee, unless (i) after delivery of such Collateral all bailee locations in the aggregate would contain less than Two Hundred Fifty Thousand Dollars ($250,000.00) in Borrowers assets or property and (ii) Bank and such bailee are parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral.
Borrower hereby agrees upon Borrower adding any new office or business location, including any warehouse, Borrower will cause its landlord to enter into a landlord consent in favor of Bank prior to such new office or business location containing Twenty Five Thousand Dollars ($25,000.00) of Collateral.
7.4 Indebtedness . Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
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8.2 Covenant Default. Borrower fails or neglects to perform any obligation in Section 2.8 or Section 6 of this Agreement or violates any covenant in Section 7 of this Agreement or fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant or agreement contained in this Agreement, any Loan Documents and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, grace and cure periods provided under this Section 8.2 shall not apply to financial covenants or any other covenants that are required to be satisfied, completed or tested by a date certain;
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8.10 Guaranty . (a) Any guaranty of any Obligations terminates or ceases for any reason to be in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any guaranty of the Obligations; (c) any circumstance described in Sections 8.3, 8.4, 8.5, 8.6, 8.7, or 8.8 of this Agreement occurs with respect to any Guarantor; (d) the death, liquidation, winding up, or termination of existence of any Guarantor; or (e) (i) a material impairment in the perfection or priority of Banks Lien in the collateral provided by Guarantor or in the value of such collateral or (ii) a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations occurs with respect to any Guarantor; or
8.11 Governmental Approvals. Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal (i) has, or could reasonably be expected to have, a Material Adverse Change, or (ii) adversely affects the legal qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to materially adversely affect the status of or legal qualifications of Borrower or any of its Subsidiaries to hold any Governmental Approval in any other jurisdiction.
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All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.
If to Borrower: |
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New York law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in New York; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided to Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrowers actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL .
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12.8 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.
12.9 Survival . All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied. The obligation of Borrower in Section 12.2 of this Agreement to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.
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12.10 Confidentiality . In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Banks Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, each a Bank Entity and collectively, the Bank Entities ); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferees or purchasers agreement to the terms of this Section 12.10); (c) as required by law, regulation, subpoena, or other order; (d) to Banks regulators or as otherwise required in connection with Banks examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is: (i) either in the public domain other than as a result of Banks breach of this Section 12.10 or is in Banks possession when disclosed to Bank; or (ii) disclosed to Bank by a third party on a nonconfidential basis if Bank does not know that the third party is prohibited from disclosing the information.
Bank Entities may use the confidential information for reporting purposes and the development and distribution of databases and market analyses so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly prohibited by Borrower. The provisions of the immediately preceding sentence shall survive the termination of this Agreement.
Account is any account as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.
Account Debtor is as defined in the Code and shall include, without limitation, any person liable on any Financed Receivable, such as, a guarantor of the Financed Receivable and any issuer of a letter of credit or bankers acceptance.
Adjusted Quick Ratio is the ratio of (a) Quick Assets to (b) Current Liabilities.
Adjustments are all discounts allowances, returns, recoveries, disputes, claims of any kind (including, without limitation, counterclaims or warranty claims), offsets, defenses, rights of recoupment, rights of return, or short payments, asserted by or on behalf of any Account Debtor for any Financed Receivable.
Advance is defined in Section 2.1.1 of this Agreement.
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Advance Rate is (a) with respect to requests for Advances based upon Eligible Accounts, eighty percent (80.0%), net of any offsets related to each specific Account Debtor, including, without limitation, Deferred Revenue and deposits, or such other percentage as Bank establishes under Section 2.1.1 of this Agreement and (b) with respect to requests for Advances based upon Inventory Placeholder Invoices, twenty-five percent (25.0%), net of any offsets related to each specific Account Debtor, including, without limitation, Deferred Revenue and deposits, or such other percentage as Bank establishes under Section 2.1.1 of this Agreement
Affiliate of any Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Persons senior executive officers, directors, partners, and, for any Person that is a limited liability company, that Persons managers and members.
Agreement is defined in the preamble of this Agreement.
Applicable Rate is (a) with respect to Financed Receivables based upon specific Eligible Accounts, a floating per annum rate equal to the Prime Rate plus three percent (3.0%), provided, however, for any Subject Month (as of the first calendar day of such Reconciliation Period), to the extent that Borrower maintained an Adjusted Quick Ratio of at least 2.0 to 1.0 at all times during the applicable Testing Month, the Applicable Rate shall be a floating per annum rate equal to the Prime Rate plus one and one half of one percent (1.50%) and (b) with respect to Financed Receivables based upon Inventory Placeholder Invoices, a floating per annum rate equal to the Prime Rate plus five and one quarter of one percent (5.25%), provided, however, for any Subject Month (as of the first calendar day of such Reconciliation Period), to the extent that Borrower maintained an Adjusted Quick Ratio of at least 2.0 to 1.0 at all times during the applicable Testing Month, the Applicable Rate shall be a floating per annum rate equal to the Prime Rate plus three and one quarter of one percent (3.25%).
Bank is defined in the preamble of this Agreement.
Bank Entities is defined in Section 12.10.
Bank Expenses are all audit fees and expenses and other out-of-pocket costs and expenses (including reasonable documented attorneys fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.
Borrower is defined in the preamble of this Agreement.
Borrowers Books are all Borrowers books and records including ledgers, federal and state tax returns, records regarding Borrowers assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
Borrowing Resolutions are, with respect to any Person, those resolutions adopted by such Persons Board of Directors and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its Secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.
Business Day is any day that is not a Saturday, Sunday or a day on which Bank is closed.
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Cash Equivalents means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poors Ratings Group or Moodys Investors Service, Inc.; (c) Banks certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.
Cash Management Services is defined in Section 2.1.4.
Claims is defined in Section 12.2 of this Agreement.
Code is with respect to Borrower or any tangible assets located in the United States, the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of New York; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Banks Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of New York, the term Code shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
Collateral is any and all properties, rights and assets of Borrower described on Exhibit A .
Collateral Account is any Deposit Account, Securities Account, or Commodity Account.
Collections are all funds received by Bank from or on behalf of an Account Debtor for Financed Receivables.
Commodity Account is any commodity account as defined in the Code with such additions to such term as may hereafter be made.
Compliance Certificate is attached as Exhibit B .
Contingent Obligation is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co‑made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but Contingent Obligation does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.
Control Agreement is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Collateral Account.
Copyrights are any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.
Credit Extension is any Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash Management Services, or any other extension of credit by Bank for Borrowers benefit.
Current Liabilities are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrowers Total Liabilities that mature within one (1) year, but in any event excluding any Deferred Revenue.
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Deferred Revenue is all amounts received or invoiced, as appropriate, in advance of performance under contracts and not yet recognized as revenue.
Deposit Account is any deposit account as defined in the Code with such additions to such term as may hereafter be made.
Dollar Equivalent is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.
Dollars , dollars or use of the sign $ means only lawful money of the United States and not any other currency, regardless of whether that currency uses the $ sign to denote its currency or may be readily converted into lawful money of the United States.
Early Termination Fee is defined in Section 2.1.1(f) of this Agreement.
Effective Date is defined in the preamble hereof.
Eligible Accounts are billed Accounts in the ordinary course of Borrowers business that meet all Borrowers representations and warranties in Section 5.3 of this Agreement, have been, at the option of Bank, confirmed in accordance with Section 2.1.1(d) of this Agreement, and are due and owing from Account Debtors deemed creditworthy by Bank in its good faith business discretion. Without limiting the fact that the determination of which Accounts are eligible hereunder is a matter of Bank discretion in each instance, Eligible Accounts shall not include the following Accounts (which listing may be amended or changed in Banks discretion with notice to Borrower):
(a) Accounts for which the Account Debtor is Borrowers Affiliate, officer, employee, or agent;
(b) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;
(c) Accounts owing from an Account Debtor which does not have its principal place of business in the United States unless otherwise approved by Bank in writing on a case-by-case basis in its sole discretion;
(d) Accounts billed and/or payable outside of the United States unless otherwise approved by Bank in writing on a case-by-case basis in its sole discretion;
(e) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called contra accounts, accounts payable, customer deposits or credit accounts), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the ordinary course of its business;
(f) Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;
(g) Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a sale guaranteed, sale or return, sale on approval, or other terms if Account Debtors payment may be conditional;
(h) Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);
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(i) Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrowers failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);
(j) Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtors satisfaction of Borrowers complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);
(k) Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;
(l) Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank in its good faith business discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called bill and hold accounts);
(m) Accounts for which the Account Debtor has not been invoiced;
(n) Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrowers business;
(o) Accounts subject to chargebacks or other payment deductions taken by an Account Debtor;
(p) Accounts arising from product returns and/or exchanges (sometimes called warranty or RMA accounts);
(q) Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(r) Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue); and
(s) Accounts for which Bank in its good faith business judgment determines collection to be doubtful after consultation with Borrower, including, without limitation, accounts represented by refreshed or recycled invoices.
Eligible Inventory means, at any time, the aggregate of Borrowers Inventory that: (a) consists of raw materials or finished goods, in good, new, and salable condition, which is not perishable, returned, consigned, obsolete, not sellable, damaged, or defective, and is not comprised of demonstrative or custom inventory, works in progress, packaging or shipping materials, or supplies; (b) is not subject to an invoice issued by Borrower in respect of any purchase order, (c) meets all applicable governmental standards; (d) has been manufactured in compliance with the Fair Labor Standards Act; (e) Borrower has acquired title to and for which Borrower is the sole owner; (f) is not subject to any Liens, except the first priority Liens in favor of Bank under this Agreement or any of the other Loan Documents or Permitted Liens that are permitted to have priority over Banks Liens hereunder; (g) is located at a property owned by Borrower or for which Bank has obtained a fully-executed lien release and access agreement satisfactory to Bank in its sole discretion; and (h) meets all Borrowers representations and warranties in Section 5.4 of this Agreement and (i) is acceptable to Bank in Banks good faith business discretion.
Equipment is all equipment as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
ERISA is the Employee Retirement Income Security Act of 1974, and its regulations.
Events of Default are set forth in Section 8 of this Agreement.
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Exchange Act is the Securities Exchange Act of 1934, as amended.
Facility Fee is defined in Section 2.4 of this Agreement.
Finance Charges is defined in Section 2.5 of this Agreement.
Financed Receivables are all those Eligible Accounts and Inventory Placeholder Invoices, including their proceeds which Bank finances and makes an Advance in respect thereof, as set forth in Section 2.1.1 of this Agreement. A Financed Receivable stops being a Financed Receivable (but remains Collateral) when the Advance made for the Financed Receivable has been fully paid.
Financed Receivable Balance is the total outstanding gross face amount, at any time, of any Financed Receivable.
Foreign Currency means lawful money of a country other than the United States.
FX Forward Contract is defined in Section 2.1.3.
FX Reduction Amount is defined in Section 2.1.3.
GAAP is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.
Good Faith Deposit is defined in Section 2.10 of this Agreement.
Governmental Authority is any nation or government, any state, or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.
Guarantor is any Person that becomes a guarantor of the Obligations after the Effective Date.
Indebtedness is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations.
Indemnified Person is defined in Section 12.2 of this Agreement.
Insolvency Proceeding is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
Intellectual Property means all of Borrowers right, title, and interest in and to the following:
(a) its Copyrights, Trademarks and Patents;
(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;
(c) any and all source code;
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(d) any and all design rights which may be available to Borrower;
(e) any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and
(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
Inventory is all inventory as defined in the Code in effect on the Effective Date with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrowers custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
Inventory Account Balance is the aggregate amount of Advances based upon Inventory Placeholder Invoices outstanding at any time.
Inventory Placeholder Availability Amount is lesser of (a) Two Million Dollars ($2,000,000.00), (b) twenty five percent (25.0%) of Borrowers Eligible Inventory and (c) thirty percent (30.0%) of the outstanding amount of all Advances.
Inventory Placeholder Invoice is the value of Borrowers Eligible Inventory.
Investment is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
Invoice Transmittal shows Eligible Accounts which Bank may finance and, for each such Account, includes the Account Debtors, name, address, invoice amount, invoice date and invoice number, and, with respect to requests for Credit Extensions made pursuant to Sections 2.1.2, 2.1.3 and/or 2.1.4, includes (i) the type of Credit Extension requested and (ii) the requested amount of such Credit Extension.
IP Agreement is that certain Intellectual Property Security Agreement between Borrower and Bank dated as of the Effective Date, as amended.
Key Person is Borrowers Chief Executive Officer, who is as of the Effective Date, Andrew Marsh and Borrowers Chief Financial Officer, who is as of the Effective Date, Gerald Anderson.
Letter of Credit means a standby letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank, including, without limitation, as set forth in Section 2.1.2.
Letter of Credit Application is defined in Section 2.1.2(a).
Letter of Credit Reserve has the meaning set forth in Section 2.1.2(d).
Lien is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.
Loan Documents are, collectively, this Agreement, the Perfection Certificate, the IP Agreement, the SVB Control Agreement, other Control Agreements, the Borrowing Resolutions, any subordination agreements, any note, or notes or guaranties executed by Borrower and/or any Guarantor, and any other present or future agreement between Borrower and/or any Guarantor and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.
Lockbox is defined in Section 2.8 of this Agreement.
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Material Adverse Change is: (a) a material impairment in the perfection or priority of Banks Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a substantial likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 6 of this Agreement during the next succeeding financial reporting period.
Maturity Date is 364 days from the Effective Date.
Minimum Finance Charge is Four Thousand Dollars ($4,000.00).
Obligations are Borrowers obligations to pay when due any debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrowers duties under the Loan Documents.
Operating Documents are, for any Person, such Persons formation documents, as certified with the Secretary of State of such Persons state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.
Patents means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
Perfection Certificate is defined in Section 5.1 of this Agreement.
Permitted Accounts is defined in Section 6.5(a).
Permitted Indebtedness is:
(a) Borrowers Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date which is shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness secured by Permitted Liens (other than those liens described in clause (e) of Permitted Liens);
(f) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(g) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
Permitted Investments are:
(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date which are shown on the Perfection Certificate (but specifically excluding any future Investments in any Subsidiaries unless otherwise permitted hereunder);
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(b) Investments consisting of Cash Equivalents;
(c) Investments by Borrower in Subsidiaries for the ordinary and necessary current operating expenses of such Subsidiaries in an amount not to exceed Seven Hundred Fifty Thousand Dollars ($750,000.00) in the aggregate in any fiscal year;
(d) Investments consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business not to exceed Twenty Five Thousand Dollars ($25,000.00) in the aggregate outstanding at any time; and
(e) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business.
Permitted Liens are:
(a) Liens existing on the Effective Date which are shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on Borrowers Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;
(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000.00) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; and
(d) leases or subleases of real property granted in the ordinary course of Borrowers business (or, if referring to another Person, in the ordinary course of such Persons business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrowers business (or, if referring to another Person, in the ordinary course of such Persons business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein; and
(e) Liens on real property and proceeds of the sale thereof incurred in connection with the mortgage of Borrowers real property located at 968 Albany Shaker Road, Latham, New York 12110;and
(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (e), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase.
Person is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
Prime Rate is the Prime Rate as quoted in the Wall Street Journal print edition on such day (or, if such day is not a day on which the Wall Street Journal is published, the immediately preceding day on which the Wall Street Journal was published).
Quick Assets is, on any date, Borrowers unrestricted cash and Cash Equivalents maintained with Bank and/or Banks Affiliates, plus net billed accounts receivable that are not outstanding ninety (90) days or more from invoice date.
Reconciliation Period is each calendar month.
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Registered Organization is any registered organization as defined in the Code with such additions to such term as may hereafter be made.
Requirement of Law is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
Responsible Officer is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.
Restricted License is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrowers interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with Banks right to sell any Collateral.
SEC shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.
Securities Account is any securities account as defined in the Code with such additions to such term as may hereafter be made.
Settlement Date is defined in Section 2.1.3.
Subject Month is the month which is two (2) calendar months after any Testing Month.
Subordinated Debt is indebtedness incurred by Borrower subordinated to all of Borrowers now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.
Subsidiary is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower or Guarantor.
SVB Control Agreement is that certain Securities Account Control Agreement by and among SVB Securities, Penson Financial Services, Inc., Borrower, and Bank of even date herewith.
Testing Month is any month with respect to which Bank has tested Borrowers Adjusted Quick Ratio to determine the Applicable Rate.
Total Liabilities is on any day, obligations that should, under GAAP, be classified as liabilities on Borrowers consolidated balance sheet, including all Indebtedness.
Trademarks means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
Transfer is defined in Section 7.1 of this Agreement.
[Signature page follows.]
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IN WITNESS WHEREOF, this Agreement, and all documents executed in connection therewith, or relating thereto, have been negotiated, prepared and deemed to be executed by Borrower in the United States of America. In addition, this Agreement is being executed as of the Effective Date.
BORROWER
PLUG POWER INC.
By:
/s/ Gerald A. Anderson
Name: Gerald A. Anderson
Title: Chief Financial Officer
BANK
SILICON VALLEY BANK
By:
/s/ Michael McMahon
Name:
Michael McMahon
Title:
Vice President
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EXHIBIT A
The Collateral consists of all of Borrowers right, title and interest in and to the following:
All goods, equipment, inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, general intangibles (including payment intangibles), accounts (including health-care receivables), documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, all certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and any copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, now owned or later acquired; any patents, trademarks, service marks and applications therefor; trade styles, trade names, any trade secret rights, including any rights to unpatented inventions, know‑how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; or any claims for damages by way of any past, present and future infringement of any of the foregoing; and
All Borrowers books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.
Notwithstanding the foregoing, Collateral expressly excludes the real property located at 968 Albany Shaker Road, Latham, New York 12110.
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EXHIBIT B
SPECIALTY FINANCE DIVISION
Compliance Certificate
I, an authorized officer of PLUG POWER INC. (Borrower) certify under the Loan and Security Agreement (as amended, the Agreement) between Borrower and Silicon Valley Bank (Bank) as follows for the period ending _____________________________ (all capitalized terms used herein shall have the meaning set forth in the Agreement):
Borrower represents and warrants for each Financed Receivable (other than Financed Receivables based upon Inventory Placeholder Invoices):
Each Financed Receivable is an Eligible Account;
Borrower is the owner with legal right to sell, transfer, assign and encumber such Financed Receivable;
The correct amount is on the Invoice Transmittal and is not disputed;
Payment is not contingent on any obligation or contract and Borrower has fulfilled all its obligations as of the Invoice Transmittal date;
Each Financed Receivable is based on an actual sale and delivery of goods and/or services rendered, is due to Borrower, is not in default, has not been previously sold, assigned, transferred, or pledged and is free of any liens, security interests and encumbrances other than Permitted Liens;
There are no defenses, offsets, counterclaims or agreements for which the Account Debtor may claim any deduction or discount;
Borrower reasonably believes no Account Debtor is insolvent or subject to any Insolvency Proceedings;
Borrower has not filed or had filed against it Insolvency Proceedings and does not anticipate any filing;
Bank has the right to endorse and/or require Borrower to endorse all payments received on Financed Receivables and all proceeds of Collateral; and
No representation, warranty or other statement of Borrower in any certificate or written statement given to Bank in connection with the Loan Documents contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained in the certificates or statement not misleading in light of the circumstances in which it was made.
Additionally, Borrower represents and warrants as follows:
Borrower and each Subsidiary is duly existing and in good standing in its jurisdiction of formation and qualified and licensed to do business in, and in good standing in, any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrowers organizational documents, nor constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material Adverse Change.
Borrower has good title to the Collateral, free of Liens except Permitted Liens. All inventory is in all material respects of good and marketable quality, free from material defects.
Borrower is not an investment company or a company controlled by an investment company under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change. None of Borrowers or any Subsidiarys properties or assets have been used by Borrower or any Subsidiary or, to the best of Borrowers knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted except where the failure to obtain or make such consents, declarations, notices or filings would not reasonably be expected to cause a Material Adverse Change.
With respect to Inventory Placeholder Invoices, Borrower represents and warrants that all of Borrowers Inventory which is the subject of any Inventory Placeholder Invoice is and will continue to be Eligible Inventory.
Borrower is in compliance with the financial covenant(s) set forth in Section 6.7 of this Agreement. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.
Financial Covenant
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Required | Actual | Compliance |
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Adjusted Quick Ratio |
>1.50:1.0 | ____:1.0 | Yes No |
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Applicable Rate Reduction |
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Required | Actual | Eligible for Reduction |
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Adjusted Quick Ratio |
>2.0:1.0 | ____:1.0 | Yes No |
All other representations and warranties in this Agreement are true and correct in all material respects on this date, and Borrower represents that there is no existing Event of Default.
Sincerely,
PLUG POWER INC.
Signature
Title
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Date
Exhibit 31.1
I, Andrew Marsh, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plug Power Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 11, 2011
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by: |
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/s/ Andrew Marsh |
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Andrew Marsh |
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Chief Executive Officer |
Exhibit 31.2
I, Gerald A. Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plug Power Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 11, 2011
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by: |
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/s/ Gerald A. Anderson |
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Gerald A. Anderson |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Plug Power Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2011 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Andrew Marsh, Chief Executive Officer of the Company, certify, solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certification is being furnished and not filed, and shall not be incorporated into any documents for any other purpose, under the Securities Exchange Act of 1934, as amended or the Securities Act of 1933, as amended. A signed original of this written statement required by § 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
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/s/ Andrew Marsh |
Andrew Marsh |
Chief Executive Officer |
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August 11, 2011 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Plug Power Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2011 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Gerald A. Anderson, Chief Financial Officer of the Company, certify, solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certification is being furnished and not filed, and shall not be incorporated into any documents for any other purpose, under the Securities Exchange Act of 1934, as amended or the Securities Act of 1933, as amended. A signed original of this written statement required by § 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
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/s/ Gerald A. Anderson |
Gerald A. Anderson |
Chief Financial Officer |
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August 11, 2011 |