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| PLUG > SEC Filings for PLUG > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
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, 2008. 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," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. 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: the risk that unit orders will not ship, be installed and/or convert to revenue, in whole or in part; our ability to develop commercially viable energy products; the cost and timing of developing our energy products; market acceptance of our energy products; our ability to manufacture energy products on a large-scale commercial basis; competitive factors, such as price competition and competition from other traditional and alternative energy companies; the cost and availability of components and parts for our energy products; the cost and availability of fuel and fueling infrastructures for our energy products; our ability to raise the necessary capital to develop, manufacture and market our energy products; our ability to establish relationships with third parties with respect to product development, manufacturing, distribution and servicing and the supply of key product components; our ability to protect our intellectual property; our ability to lower the cost of our energy products and demonstrate their reliability; the cost of complying with current and future governmental regulations; fluctuations in the trading price and volume of our common stock; 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, 2008, as filed on March 16, 2009 as updated by Part II, Item 1A of 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.
Overview
We design, develop and manufacture fuel cell systems for industrial off-road (forklift or material handling) markets and stationary power markets worldwide. We are focused on proton exchange membrane, or PEM, fuel cell and fuel processing technologies and fuel cell/battery hybrid technologies, from which multiple products are available. Fuel cell technology within our principle target markets, material handling power and remote prime power, and our secondary markets, residential and backup power, are still early in the technology adoption life cycle. Accordingly, we are a development stage enterprise because substantially all of our resources and efforts are aimed at the discovery of new knowledge that could lead to significant improvements in system reliability, durability and affordability, and the establishment, expansion and stability of markets for our products. Our two primary product lines are our GenDrive solution for the industrial off-road (forklift or material handling) market and our Gensys solution for prime power applications.
We continue to experience significant net outflows of cash from operations and devote significant efforts towards financial planning in order to forecast future cash spending and the ability to continue product research and development activities and expansion of markets for our products. We continue to survey the market to determine the most solid path to profitability for Plug Power.
We currently offer our hydrogen fueled GenDrive power unit for sale 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 sold, on commercial terms, products to target customers including Wal-Mart, Bridgestone Firestone and Nestle Waters. Our shipments to Central Grocers and Sysco Foods involve greenfield sites for new facilities. 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.
We currently also offer our low-temperature remote-prime, and high-temperature residential GenSys continuous power products. Our low-temperature GenSys unit successfully completed a field trial in rural India in 2008. It is offered for sale on commercial terms to remote telecommunications providers whose sites are located where the grid is unreliable or non-existent. In May 2009, we entered into an agreement for the purchase, installation and maintenance of 200 GenSys prime power fuel cell systems to be installed at cell towers owned and operated by Wireless TT Info Services Limited (WTTIL) in India. In response to the magnitude of this business opportunity, we recently formed Plug Power Energy India Private Limited (Plug Power India), an Indian entity offering sales of our GenSys product to commercial customers. Plug Power India will leverage our core strengths in product development, sales and marketing, and project management, while outsourcing non-core activities.
We continue to develop our high-temperature GenSys unit, which is being tested by the U.S. Department of Energy and National Grid during field trials in 2009. Learning from the trial will help determine system refinements for incorporation into the next-generation system design.
In 2008, manufacturing and sales support was given to our GenCore product which provides backup power to businesses and government in critical infrastructure, specifically in the wireless and wireline telecommunications market. We continue to work with certain established customers on future initiatives related to this product.
Many of our initial sales of GenCore, GenDrive and GenSys products are contract-specific arrangements containing multiple obligations that may include a combination of fuel cell systems, continued service, maintenance, a supply of hydrogen and other support. The multiple obligations within our contractual arrangements are not accounted for separately based on our limited commercial experience and lack of evidence of fair value for the separate elements. As a result, we defer recognition of product and service revenue and recognize revenue on a straight-line basis over the contractual terms as the continued service, maintenance and other support obligations expire, which are generally for periods of twelve (12) to thirty (30) months or in some cases as long as eight (8) years. See "Critical Accounting Policies and Estimates-Revenue Recognition." Our customers have no special right of return, price protection allowances or other sales incentives. We do offer a discount from our manufacturer's suggested retail price to resellers to allow for the mark-up of the reseller.
As we gain experience, including field experience relative to service and warranty of our initial products, the fair values for the multiple elements within our future contracts may become determinable and we may, in future periods, recognize product revenue upon delivery or installation of the product, or we may continue to defer recognition, based on application of appropriate guidance within the Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) No. 105, Generally Accepted Accounting Principles (GAAP) (ASC 105 or FASB Codification), previously referred to as Statement of Financial Accounting Standard (SFAS) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No 162 (SFAS 168). FASB ASC No. 605-25-25, Multiple-Element Arrangements Revenue Recognition, previously discussed in Emerging Issues Task Force (EITF) 00-21, Revenue Arrangements with Multiple Deliverables, EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, or changes in the manner in which we structure contractual agreements, including our agreements with distribution partners.
Product and service revenue. We defer recognition of product and service revenue at the time of shipment and recognize revenue as the continued service, maintenance and other support obligations expire.
Many of our initial sales of product contain multiple obligations that may include a combination of fuel cell systems, continued service, maintenance, fueling and other support. While contract terms generally require payment shortly after shipment or delivery and installation of the fuel cell system and are not contingent on the achievement of specific milestones or other substantive performance, the multiple obligations within our contractual arrangements are generally not accounted for separately based on our limited experience and lack of evidence of fair value of the different components. As a result, we defer 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 in some cases as long as eight years. In the case of our limited consignment sales, we do not begin recognizing revenue on a deferred basis until the customer has accepted the product, at which time the risks and rewards of ownership have transferred, the price is fixed and we have a reasonable expectation of collecting upon billing.
Product and service revenue for the three months ended September 30, 2009 decreased approximately $226,000, or 17.8%, to $1.0 million from $1.3 million for the three months ended September 30, 2008. The decrease is primarily related to fewer current period system shipments partially offset by an increase in non-deferred revenue as well as an increase in revenue from prior period system shipments now being recognized. The non-deferred 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.
In the product and service revenue category, during the three months ended September 30, 2009, we shipped 6 fuel cell systems as compared to 59 fuel cell systems shipped during the three months ended September 30, 2008. In the three months ended September 30, 2009, we recognized approximately $407,000 of revenue for products shipped or delivered or services rendered in the three months ended September 30, 2009, which includes approximately $357,000 of non-deferred revenue as compared to approximately $710,000 of revenue recognized in the three months ended September 30, 2008 for products shipped or delivered or services rendered in the three months ended September 30, 2008, which includes approximately $317,000 of non-deferred revenue. Additionally, in the three months ended September 30, 2009 we recognized approximately $638,000 of product and services revenue from fuel cell shipments made prior to 2009, whereas in the three months ended September 30, 2008 we recognized approximately $561,000 of product and service revenue from fuel cell shipments made prior to 2008.
Product and service revenue for the nine months ended September 30, 2009 increased approximately $361,000, or 11.1%, to $3.6 million from $3.3 million for the nine months ended September 30, 2008. The increase is primarily related to increased revenue from prior period system shipments now being recognized as well as an increase in non-deferred revenue partially offset by decreased revenue related to fewer system shipments. The non-deferred 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.
In the product and service revenue category, during the nine months ended September 30, 2009, we shipped 172 fuel cell systems (32 are related to sales to end customers and 140 were delivered to Central Grocers under a lease arrangement whereby Plug Power retains title and ownership of the equipment and revenue recognition began in the second quarter of 2009) as compared to 207 fuel cell systems shipped during the nine months ended September 30, 2008. In the nine months ended September 30, 2009, we recognized approximately $1.0 million of revenue for products shipped or delivered or services rendered in
the nine months ended September 30, 2009, which includes approximately $934,000 of non-deferred revenue as compared to approximately $1.5 million of revenue recognized in the nine months ended September 30, 2008 for products shipped or delivered or services rendered in the nine months ended September 30, 2008, which includes approximately $690,000 of non-deferred revenue. Additionally, in the nine months ended September 30, 2009 we recognized approximately $2.6 million of product and services revenue from fuel cell shipments made prior to 2009, whereas in the nine months ended September 30, 2008 we recognized approximately $1.7 million of product and service revenue from fuel cell shipments made prior to 2008.
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 20% 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 September 30, 2009 was $1.5 million compared to $2.8 million for the three months ended September 30, 2008. The decrease of $1.3 million or 46.2% is primarily related to the completion and near completion of funded projects in both the United States and Canada as well as a delay in the timing of deliverables in new programs.
Research and development contract revenue for the nine months ended September 30, 2009 was $4.8 million compared to $9.4 million for the nine months ended September 30, 2008. The decrease of $4.6 million or 49.1% is primarily related to the completion and near completion of funded projects in both the United States and Canada as well as a delay in the timing of deliverables in new programs.
Cost of product and service revenue. Cost of product and service revenue includes the direct material cost incurred in the manufacture of the products we sell as well as 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 September 30, 2009 decreased $500,000, or 27.3%, to $1.3 million compared to $1.8 million in the three months ended September 30, 2008. The decrease is related to decreased product and service fuel cell system shipments. There were 6 shipments for the three months ended September 30, 2009 as compared to 59 for the three months ended September 30, 2008.
Cost of product and service revenue for the nine months ended September 30, 2009 decreased $2.7 million, or 43.4%, to $3.6 million compared to $6.3 million in the nine months ended September 30, 2008. Although product and service fuel cell system shipments were 172 for the nine months ended September 30, 2009 as compared to 207 for the nine months ended September 30, 2008, 140 of the 172 shipments are being accounted for under a lease arrangement which commenced in the second quarter of 2009. Therefore, the cost of product and service revenue recognized on those 140 shipments consists of depreciation.
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 September 30, 2009 decreased $1.0 million, or 25.8%, to $2.8 million compared to $3.8 million in the three months ended September 30, 2008. This decrease reflects a reduced effort on funded contracts due to the completion or near completion of several major contracts in the United States and Canada as well as a delay in the timing of deliverables for new programs.
Cost of research and development contract revenue for the nine months ended September 30, 2009 decreased $6.8 million, or 46.6%, to $7.8 million compared to $14.5 million in the nine months ended September 30, 2008. This decrease reflects a reduced effort on funded contracts due to the completion or near completion of several major contracts in the United States and Canada as well as a delay in the timing of deliverables for new programs.
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 decreased to $4.4 million for the three months ended September 30, 2009 compared to $7.7 million in the three months ended September 30, 2008. This decrease was a direct result of the corporate restructuring plans announced in June and December of 2008, which included a reduced workforce and a reduction in non-strategic research and development projects.
Research and development expense decreased to $12.8 million for the nine months ended September 30, 2009 compared to $26.6 million in the nine months ended September 30, 2008. This decrease was a direct result of the corporate restructuring plans announced in June and December of 2008, which included a reduced workforce and a reduction in non-strategic research and development projects.
Selling, general and administrative expenses.Selling, general and administrative expenses includes cash and non-cash compensation, benefits and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.
Selling, general and administrative expenses for the three months ended September 30, 2009 decreased to $4.0 million compared to $4.8 million in the three months ended September 30, 2008. This decrease was a direct result of the corporate restructuring plans announced in June and December of 2008.
Selling, general and administrative expenses for the nine months ended September 30, 2009 decreased to $11.7 million compared to $19.6 million in the nine months ended September 30, 2008. This decrease was a direct result of the corporate restructuring plans announced in June and December of 2008.
Amortization of intangible assets. Amortization of intangible assets represents the amortization associated with the Company's acquired identifiable intangible assets from Cellex and General Hydrogen, including acquired technology and customer relationships, which are being amortized over eight years.
Amortization of intangible assets was approximately $544,000 for the three months ended September 30, 2009, compared to $563,000 for the three months ended September 30, 2008. The decrease is related to foreign currency fluctuations.
Amortization of intangible assets was $1.6 million for the nine months ended September 30, 2009, compared to $1.7 million for the nine months ended September 30, 2008. The decrease is related to foreign currency fluctuations.
Interest and other income and net realized gains from available-for-sale securities. Interest and other income and net realized gains from available-for-sale securities consists primarily of interest earned on our cash, cash equivalents, available-for-sale and trading securities, other income, and the net realized gain/loss from the sale of available-for-sale securities.
Interest and other income and net realized gains from available-for-sale securities decreased to approximately $627,000 for the three months ended September 30, 2009 from approximately $1.9 million for the three months ended September 30, 2008. This decrease is primarily related to lower cash balances coupled with lower yields on our investments due to a declining rate environment. Total net realized gains/losses from the sale of available-for-sale securities was $0 for the three months ended September 30, 2009 and $0 for the three months ended September 30, 2008. Interest income on trading securities and available-for-sale securities for the three months ended September 30, 2009 and 2008 was approximately $284,000 and $525,000, respectively. Also included in the three months ended September 30, 2008 is a $1.3 million gain relating to the termination of Technology Partnerships Canada (TPC) agreements as discussed in Note 8, Repayable Government Assistance.
Interest and other income and net realized gains from available-for-sale securities decreased to approximately $1.3 million for the nine months ended September 30, 2009 from $4.6 million for the nine months ended September 30, 2008. This decrease is primarily related to lower cash balances coupled with lower yields on our investments due to a declining rate environment. Total net realized gains/losses from the sale of available-for-sale securities was $0 for the nine months ended September 30, 2009 and a net gain of approximately $392,000 for the nine months ended September 30, 2008. Interest income on trading securities and available-for-sale securities for the nine months ended September 30, 2009 was approximately $964,000 and $2.8 million, respectively. Also included in the nine months ended September 30, 2008 is a $1.3 million gain relating to the termination of Technology Partnerships Canada (TPC) agreements as discussed in Note 8, Repayable Government Assistance.
Impairment loss on available-for-sale securities.Due to the liquidity issues in the credit and capital markets, the market for auction rate debt securities began experiencing auction failures in February 2008, and there have been no successful auctions for the securities held in our portfolio since the failures began. Given the lack of liquidity in the market for auction rate debt securities, the Company concluded that the estimated fair value of these securities had become lower than the cost of these securities, and, based on an analysis of the other than temporary impairment factors, management determined that this difference represented a decline in fair value that was other than temporary. Accordingly, the Company recorded an other than temporary impairment charge of approximately $789,000 and $5.3 million in the three and nine months ended September 30, 2008, respectively, in the condensed consolidated statements of operations.
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 net realized gains on trading securities for the three and nine months ended September 30, 2009 was approximately $570,000 and $4.1 million, respectively.
Interest and other expense. Interest and other expense 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 foreign currency exchange gain/(loss).
Interest and other expense for the three months ended September 30, 2009 and 2008 was approximately $286,000. Interest expense related to the Credit Line Agreement was approximately $216,000 and $0, respectively, for the three months ended September 30, 2009 and 2008.
Interest and other expense for the nine months ended September 30, 2009 was approximately $900,000, compared to approximately $614,000 for the nine months ended September 30, 2008. Interest expense related to the Credit Line Agreement was approximately $652,000 and $0, respectively, for the nine months ended September 30, 2009 and 2008.
Income taxes. We did not report a benefit for federal and state income taxes in the condensed consolidated financial statements for the three and nine months ended September 30, 2009 and 2008 as the deferred tax asset generated from our net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized.
Liquidity and Capital Resources
Our cash requirements depend on numerous factors, including completion of our product development activities, our ability to commercialize our energy products, market acceptance of our systems and other factors. We expect to devote substantial capital resources to continue our development programs directed at commercializing our energy products for worldwide use, hiring and training our sales and service staff, developing and expanding our manufacturing capacity and continuing to expand our research and development activities. We expect to pursue the expansion of our operations through internal growth and strategic acquisitions and expect that such activities will be funded from existing cash, cash equivalents, trading securities, available-for-sale . . .
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