GenKey: GenKey is our ~~turn-key~~vertically integrated “turn-key” solution combining either GenDrive or GenSure fuel cell power with GenFuel fuel and GenCare aftermarket service, offering complete simplicity to customers transitioning to fuel cell power; and

ProGen: ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans. This includes the Plug Power MEA (membrane electrode assembly), a critical component of the fuel cell stack used in zero-emission fuel cell electric vehicle engines, in which Plug Power is the largest producer in North America.

We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers ~~or OEMs,~~ and their dealer networks. We manufacture our commercially-viable products in Latham, ~~NY.~~NY, Rochester, NY and Spokane, WA and support liquid hydrogen generation and logistics in Charleston, TN.

Liquidity

~~We were organized as a corporation in the State of Delaware on June 27, 1997.~~

~~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.~~

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~~Liquidity~~

Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses, growth in inventory to support both shipments of new units and servicing the installed base, growth in equipment leased to customers under long-term arrangements, funding the growth in our GenKey “turn-key” solution, which includes the installation of our customers’ hydrogen infrastructure as well as production and delivery of the hydrogen fuel, continued development and expansion of our products, payment of lease/financing obligations under sale/leaseback financings, and the repayment or refinancing of our long-term debt. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments; attaining and expanding positive gross margins across all product lines; the timing and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of developing marketing and distribution channels; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers and to repay or refinance our long-term debt, and the terms of such agreements that may require us to pledge or restrict substantial amounts of our cash to support these financing arrangements; 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 timing and costs of product development and introductions; the extent of our ongoing and new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations with positive cash flows and cannot obtain external financing, we may not be able to sustain future operations. As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.

We have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common ~~shareholders~~stockholders of ~~$52.6~~$46.2 million and $49.1 million for the six months ended June 30, ~~2019~~2020 and ~~$78.2 million, $130.2 million and $57.6 million for the years ended December 31, 2018, 2017, and 2016,~~2019, respectively, and had an accumulated deficit of ~~$1.3~~$1.4 billion at June 30, ~~2019.~~2020.

During the six months ended June 30, 2019, cash used in operating activities was $48.5 million, consisting of a net loss attributable to the Company of $52.5 million, net outflows from fluctuations in working capital and other assets and liabilities of $18.5 million, and offset by the impact of non-cash charges/gains of $22.5 million. The changes in working capital were related to an increase in inventory, and prepaid expenses and other assets combined with a decrease in deferred revenue and offset by decreases in accounts receivable and increases in accounts payable, accrued expenses, and other liabilities. As of June 30, 2019, we had cash and cash equivalents of $19.8 million and net working capital of $50.2 million. By comparison, at December 31, 2018, we had cash and cash equivalents of $38.6 million and net working capital of $9.2 million.

Net cash used in investing activities for the six months ended June 30, 2019, totaled $6.3 million and included purchases of property plant and equipment, purchases of intangible assets, outflows associated with materials, labor, and overhead necessary to construct new leased property and proceeds in connection with sales of leased assets. Cash outflows related to equipment that we sell and equipment we lease directly to customers are included in net cash used in operating activities and net cash used in investing activities, respectively. Net cash provided by financing activities for the six months ended June 30, 2019 totaled $80.0 million and primarily resulted from net proceeds of $28.3 million from the sale of our common stock, $100.0 million from a new debt facility, some of which was used to pay approximately $50.3 million of finance obligations and $17.6 million of previously outstanding long-term debt, including accrued interest. In addition, there was a $25.6 million increase in cash flows from new finance obligations.

In March 2018, we issued $100.0 million in aggregate principal amount of 5.5% Convertible Senior Notes due in 2023 (Convertible Senior Notes). The total net proceeds from this offering, after considering costs of the issuance, were approximately $95.9 million. Approximately $43.5 million of the proceeds were used for the cost of a capped call and a common stock forward, both of which are hedges related to the Convertible Senior Notes. See Note 8, Convertible Senior notes for more details.

The Company enters into sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company sells certain fuel cell systems and hydrogen infrastructure to the financial institutions and leases the equipment back to support certain customer locations and to fulfill

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its varied Power Purchase Agreements (PPAs). In connection with certain operating leases, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s finance obligations. Cash received from customers under the PPAs is used to make payments against our finance obligations. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements at June 30, 2019 is $121.3 million, which have been secured with restricted cash, security deposits and pledged service escrows of $122.8 million.

The Company has a master lease agreement with Wells Fargo (Wells Fargo MLA) to finance the Company’s commercial transactions with Walmart. The Wells Fargo MLA was entered into in 2017 and amended in 2018. Pursuant to the Wells Fargo MLA, the Company sells fuel cell systems and hydrogen infrastructure to Wells Fargo and then leases them back and operates them at Walmart sites under lease agreements with Walmart. The total remaining lease payments to Wells Fargo were $84.7 million at June 30, 2019. Transactions completed under the Wells Fargo MLA in 2018 and 2019 were accounted for as operating leases and therefore the sales of the fuel cell systems and hydrogen infrastructure were recognized as revenue for the year ended December 31, 2018 and three and six months ended June 30, 2019. Transactions completed under the Wells Fargo MLA in 2017 were accounted for as capital leases. The difference in lease classification is due to changes in financing terms and their bearing on lease assessment criteria. Also included in the remaining lease payments to Wells Fargo is a sale/leaseback transaction in 2015 that was accounted for as an operating lease. In connection with the Wells Fargo MLA, the Company has a customer guarantee for a majority of the transactions. The Wells Fargo MLA transactions in 2018 and 2019 required a letter of credit for the unguaranteed portion totaling $28.5~~million.~~

During the second quarter of 2019, the Company entered into additional, similar master lease agreements with Wells Fargo and Crestmark to finance subscription programs with other customers. These financings were done in the form of sale/leaseback arrangements and accounted for as operating leases, hence sales of the fuel cell equipment were included in the three months ended June 30, 2019. Total remaining lease payments under these leases at June 30, 2019 were $26.3 million. These lease payments are secured by cash collateral and letters of credit backed by restricted cash.

In November 2018, the Company completed a private placement of an aggregate of 35,000 shares of the Company’s Series E Convertible Preferred Stock, par value $0.01 per share (Series E Preferred Stock) resulting in net proceeds of approximately $30.9 million. See Note 10, Redeemable Preferred Stock for additional information.

In March 2019, the Company entered into a loan and security agreement with Generate Lending, LLC (Generate Capital) borrowing $85.0 million. The initial proceeds of the loan were used to pay in full the Company’s long-term debt and accrued interest of $17.6 million, under the loan agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority (NY Green Bank) and terminate approximately $50.3 million of certain equipment leases with Generate Plug Power SLB II, LLC as well as repurchase of the associated leased equipment. During April 2019, the Company borrowed an additional $15.0 million under this debt facility. See Note 7, Long-Term Debt for additional information.

~~In March 2019, the Company sold 10 million shares of common stock for an issue price of $2.35 per share resulting in net proceeds of $23.5 million.~~

In the second quarter of 2019, the Company issued 2.1 million shares of common stock through its At Market Issuance Sales Agreement (ATM) resulting in net proceeds of $5.5 million. There were no ATM transactions in the first quarter of 2019.

We have historically funded our operations primarily through public and private offerings of ~~common~~equity and ~~preferred stock,~~debt, as well as short-term borrowings, long-term debt and project ~~financings, and Convertible Senior Notes.~~financings. The Company believes that its current working capital and cash anticipated to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity and debt offerings, including our at-the-market offering, will provide sufficient liquidity to fund operations for at least one year after the date the financial statements are issued. There is no guarantee that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on our current expectations regarding new project financing and product sales and service, cost structure, cash burn rate

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and other operating assumptions. ~~Additionally,~~

During the six months ended June 30, 2020, net cash used in operating activities was $111.2 million, consisting primarily of a net loss attributable to the Company ~~has~~of $46.1 million, and net outflows from fluctuations in working capital and other assets and liabilities of $61.1 million. The changes in working capital ~~sources available, including~~primarily were related to increases in various current asset and liability accounts. As of June 30, 2020, we had cash and cash equivalents of $152.5 million and net working capital of $186.3 million. By comparison, at December 31, 2019, we had cash and cash equivalents of $139.5 million and net working capital of $162.5 million.

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Net cash used in investing activities for the six months ended June 30, 2020 totaled $56.6 million and included net cash paid for acquisitions, purchases of property, plant and equipment, and outflows associated with materials, labor, and overhead necessary to construct new leased property. Cash outflows related to equipment that we lease directly to customers are included in net cash used in investing activities.

Net cash provided by financing activities for the six months ended June 30, 2020 totaled $181.6 million and primarily resulted from the issuance of convertible senior notes, and proceeds from borrowing on long-term debt, offset by the repurchase of convertible senior notes and related capped calls.

Public and Private Offerings of Equity and Debt

Common Stock Issuances

On April 13, 2020, the Company entered into an At Market Issuance Sales ~~Agreement.~~Agreement (ATM), with B. Riley FBR, Inc., as sales agent, or FBR, pursuant to which the Company may offer and sell, from time to time through FBR, shares of Company common stock having an aggregate offering price of up to $75.0 million. As of the date of this filing, the Company did not issue any shares of common stock pursuant to the ATM.

In the second quarter of 2019, the Company issued 2.1 million shares of common stock pursuant to an ATM entered into with FBR, as sales agent, on April 3, 2017, resulting in net proceeds of $5.5 million. There were 0 sales under the ATM in the first quarter of 2019.

In March 2019, the Company issued and sold in a registered direct offering an aggregate of 10 million shares of its common stock at a purchase price of $2.35 per share for net proceeds of approximately $23.5 million.

In December 2019, the Company issued and sold in a registered public offering an aggregate of 46 million shares of its common stock at a purchase price of $2.75 per share for net proceeds of approximately $120.4 million.

Convertible Senior Notes

In May 2020, the Company issued $212.8 million in aggregate principal amount of 3.75% convertible senior notes due 2025, which we refer to herein as the 3.75% Convertible Senior Notes. The total net proceeds from this offering, after deducting costs of the issuance, were $205.1 million. The Company used $90.2 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to repurchase $66.3 million of the $100 million in aggregate principal amount of 5.5% Convertible Senior Notes due 2023, which we refer to herein as the 5.5% Convertible Senior Notes. In addition, the Company used approximately $15.3 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to enter into privately negotiated capped called transactions.

In September 2019, the Company issued a $40.0 million in aggregate principal amount of 7.5% convertible senior note due 2023, which we refer to herein as the 7.5% Convertible Senior Note. The Company’s total obligation, net of interest accretion, due to the holder was $48.0 million. The total net proceeds from this offering, after deducting costs of the issuance, were $39.1 million. As of June 30, 2020, the outstanding balance of the note, net of related discount and issuance costs, was $41.0 million. On July 1, 2020, the note automatically converted fully into 16.0 million shares of common stock.

Operating and Finance Leases

The Company enters into sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company sells certain fuel cell systems and hydrogen infrastructure to the financial institutions and leases the equipment back to support certain customer locations and to fulfill its varied Power Purchase Agreements (PPAs). Transactions completed under the sale/leaseback arrangements are generally accounted for as operating leases and therefore the sales of the fuel cell systems and hydrogen infrastructure are recognized as revenue. In connection with certain sale/leaseback transactions, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s finance obligations. Cash received from customers under the PPAs

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is used to make payments against the Company’s finance obligations. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements at June 30, 2020 was $293.7 million, $233.8 million of which were secured with restricted cash, security deposits backing letters of credit, and pledged service escrows.

The Company has varied master lease agreements with Wells Fargo Equipment Finance, Inc., or Wells Fargo, to finance the Company’s commercial transactions with various customers. The Wells Fargo lease agreements were entered into during 2017, 2018, and 2019. NaN sale/leaseback transactions were entered with Wells Fargo during the six months ended June 30, 2020. Pursuant to the lease agreements, the Company sells fuel cell systems and hydrogen infrastructure to Wells Fargo and then leases them back and operates them at Walmart sites. The Company has a customer guarantee for a large portion of the transactions entered into in connection with such lease agreements. The Wells Fargo lease agreements required letters of credit for the unguaranteed portion totaling $50.6 million as of June 30, 2020. The total remaining lease liabilities owed to Wells Fargo were $103.2 million at June 30, 2020.

Over recent years, including in 2019, the Company has entered into master lease agreements with multiple institutions such as Key Equipment Finance (KeyBank), SunTrust Equipment Finance & Lease Corp. (now known as Truist Bank), and First American Bancorp, Inc. (First American). In the first half of 2020, the Company entered into additional lease agreements with KeyBank, First American and Truist Bank. Similar to the Wells Fargo lease agreements, the primary purpose of these agreements is to finance commercial transactions with varied customers. Most of the transactions with these financial institutions required cash collateral for the unguaranteed portions totaling $172.3million as of June 30, 2020. Similar to the Wells Fargo lease agreements, in many cases the Company has a customer guarantee for a large portion of the transactions. The total remaining lease liabilities owed to these financial institutions were $190.5 million at June 30, 2020.

Long-Term Debt

In March 2019, the Company entered into a loan and security agreement (Loan Agreement) with Generate Lending, LLC (Generate Capital) pursuant to which the Company borrowed $85.0 million (Term Loan Facility). The initial proceeds of the loan were used to pay in full the Company’s long-term debt and accrued interest of $17.6 million under the loan agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority, and terminate approximately $50.3 million of certain equipment leases with Generate Plug Power SLB II, LLC as well as repurchase the associated leased equipment. In April 2019 and November 2019, the Company borrowed an additional $15.0 million and $20.0 million, respectively, under the Term Loan Facility with Generate Capital at 12% interest to fund working capital for ongoing deployments and other general corporate purposes. On March 31, 2020, the outstanding balance was $107.5 million. The principal and interest payments are paid primarily by restricted cash.

On May 6, 2020, the Company and Generate amended the Loan Agreement to, among other things, (i) provide an incremental term loan facility in the amount of $50.0 million, which has been fully funded, (ii) provide for additional, incremental term loans in an aggregate amount not to exceed $50.0 million, which are available to the Company in Generate Capital’s sole discretion, (iii) reduce the interest rate on all loans to 9.50% from 12.00% per annum, and (iv) extend the maturity date to October 31, 2025 from October 6, 2022. Based on the amortization schedule as June 30, 2020, the outstanding balance of $141.2 million under the Term Loan Facility will be fully paid by March 31, 2024.

On July 10, 2020 the Company borrowed an additional $25.0 million under the amended Loan Agreement. See Note 8, Long-Term Debt, for additional information.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The ~~accompanying~~ unaudited interim condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. ~~All significant intercompany~~Intercompany balances and transactions have been eliminated in consolidation.

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Interim Financial Statements

The accompanying unaudited interim condensed 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 GAAP have been condensed or omitted. These unaudited interim 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, ~~2018.~~2019.

The information presented in the accompanying unaudited interim condensed consolidated balance ~~sheet~~sheets as of December 31, ~~2018,~~2019 has been derived from the Company’s December 31, ~~2018~~2019 audited consolidated financial statements. ~~All other information has been derived from the unaudited interim condensed consolidated financial statements of the Company.~~

Leases

The Company is a lessee in noncancelable (1) operating leases, primarily related to sale/leaseback transactions with financial institutions for deployment of the Company’s products at certain customer sites, and (2) finance leases, also primarily related to sale/leaseback transactions with financial institutions for similar commercial purposes. The Company accounts for leases in accordance with ~~ASC~~Accounting Standards Codification (ASC) Topic 842, Leases (ASC Topic 842). , as amended.

The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right of use (ROU) asset and a lease liability (i.e. finance obligation) at the lease commencement date. For operating leases, the lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases, and is subsequently measured at amortized cost using the effective interest method.

Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term and (3) the lease payments.

·

●

ASC Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit

in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

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·

●

The lease term for all of the Company’s leases includes the noncancelable period of the lease, plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.

·

●

Lease payments included in the measurement of the lease liability comprise fixed payments, and the exercise price of a Company option to purchase the underlying asset if the Company is reasonably certain to exercise the option.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease

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incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of the useful life of the underlying asset or the end of the lease term unless the lease transfers ownership of the underlying asset to the Company or the Company is reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability. The Company’s leases do not contain variable lease payments.

ROU assets for operating and finance leases are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. NoNaN impairment losses have been recognized to date.

The Company monitors for events or changes in circumstances that require a reassessment ~~of one~~ of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset.

Operating and finance lease ROU assets are presented within leased property, net on the unaudited interim condensed consolidated balance ~~sheet.~~sheets. The current portion of operating and finance lease liabilities is included in finance obligations within current liabilities and the long-term portion is presented in finance obligations within noncurrent liabilities on the unaudited interim condensed consolidated balance ~~sheet.~~sheets.

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company has elected to apply the short-term lease recognition and measurement exemption for other classes of leased assets. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.

Revenue Recognition

The Company enters into contracts that may contain one or a combination of fuel cell systems and infrastructure, installation, maintenance, spare parts, fuel delivery and other support services. Contracts containing fuel cell systems and related infrastructure may be sold or provided to customers under a ~~Power Purchase Agreement (PPA),~~PPA, discussed further below.

The Company does not include a right of return on its products other than rights related to standard warranty provisions that permit repair or replacement of defective goods. The Company accrues for anticipated standard warranty costs at the same time that revenue is recognized for the related product, or when circumstances indicate that warranty costs will be incurred, as applicable. ~~Only a limited number of fuel cell units are under standard warranty.~~

Revenue is measured based on the transaction price specified in a contract with a customer, subject to the allocation of the transaction price to distinct performance obligations as discussed below. The Company recognizes revenue when it satisfies a performance obligation by transferring ~~control over~~ a product or service to a customer.

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The Company accounts for each distinct performance obligation of within its arrangements as a ~~distinct~~separate unit of accounting if the items under the performance obligation have value to the customer on a standalone basis. The Company considers a performance obligation to be distinct and have a standalone value if the customer can benefit from the good or service either on its own or together with other resources readily available to the customer and the Company’s promise to transfer the goods or service to the customer is separately identifiable from other promises in the contract. The Company allocates revenue to each distinct performance obligation based on relative standalone selling prices.

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Payment terms for sales of fuel cells, infrastructure and service to customers are typically 30 to 90 days. Sale/leaseback transactions with financial institutions are invoiced and collected upon transaction closing. Service is prepaid upfront in a majority of the arrangements. The Company does not adjust the transaction price for a significant financing component when the performance obligation is expected to be fulfilled within a year.

In 2017, in separate transactions, the Company issued to each of Amazon and Walmart warrants to purchase shares of the Company’s common stock. The Company presents the provision for common stock warrants within each revenue-related line item on the unaudited interim ~~condensed~~ consolidated statements of operations. This presentation reflects a discount that those common stock warrants represent, and therefore revenue is net of these non-cash charges. The provision of common stock warrants is allocated to the relevant revenue-related line items based upon the expected mix of the revenue for each respective contract. See Note 12, Warrant Transaction Agreements, for more details.

Nature of goods and services

The following is a description of principal activities from which the Company generates its revenue.

(i)

Sales of Fuel Cell Systems and Related Infrastructure

~~(i)Sales of Fuel Cell Systems and Related Infrastructure~~

Revenue from sales of fuel cell systems and related infrastructure represents sales of our GenDrive units, GenSure stationary backup power units, as well as hydrogen fueling infrastructure.

The Company considers comparable list prices, as well as historical average pricing approaches to determine standalone selling prices for GenDrive fuel cells. The Company uses observable evidence from similar products in the market to determine standalone selling prices for GenSure stationary backup power units and hydrogen fueling infrastructure. The determination of standalone selling prices of the Company’s performance obligations requires significant judgment, including continual assessment of pricing approaches and available observable evidence in the market. Once relative standalone selling prices are determined, the Company proportionately allocates the transaction price to each performance obligation within the customer arrangement. The allocated transaction price related to fuel cell systems and spare parts ~~and hydrogen infrastructure~~ is recognized as revenue at a point in time which usually occurs at shipment (and occasionally upon delivery) ~~for fuel cells and spare parts and upon customer acceptance for~~. Revenue on hydrogen infrastructure ~~depending on the terms of the arrangement,~~installations is generally recognized at the point at which transfer of control passes to the customer, which usually occurs upon customer acceptance of the hydrogen infrastructure. In certain instances, control of hydrogen infrastructure installations transfers to the customer over time, and the related revenue is recognized over time as the performance obligation ~~has been~~is satisfied. The Company uses an input method to determine the amount of revenue to recognize during each reporting period based on the Company’s efforts to satisfy the performance obligation.

(ii)Services performed on fuel cell systems and related infrastructure

Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. The transaction price allocated to services as discussed above is generally recognized as revenue over time on a straight-line basis over the expected service period.

In substantially all of its commercial transactions, the Company sells extended maintenance contracts that generally provide for a five to ten year service period from the date of product ~~installation.~~installation in exchange for an up-front payment. Services include monitoring, technical support, maintenance and services that provide for ~~97-98%~~97% to 98% uptime of the fleet. These services are accounted for as a separate performance obligation, and accordingly, revenue generated from these transactions, subject to the proportional allocation of transaction price, is deferred and recognized ~~in income~~as revenue over the term of the contract, generally on a straight-line basis. Additionally, the Company may enter into annual service and extended maintenance contracts that are billed monthly. Revenue generated from these transactions is recognized ~~in income~~as revenue on a straight-line basis over the term of the contract. Costs are recognized as incurred over the term of the contract. Sales of spare parts are included within service revenue on the ~~accompanying~~ unaudited interim ~~condensed~~ consolidated statements of operations. When costs are projected to exceed revenues over the life of the extended maintenance contract, an accrual for loss contracts is recorded.

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Costs are estimated based upon historical experience and consider the estimated impact of the Company’s cost reduction initiatives. The actual results may differ from these estimates.

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Upon expiration of the extended maintenance contracts, customers either choose to extend the contract or switch to purchasing spare parts and maintaining the fuel cell systems on their own.

(iii)Power Purchase Agreements

Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution.

When fuel cell systems and related infrastructure are provided to customers through a PPA, revenues associated with these agreements are treated as rental income and recognized on a straight-line basis over the life of the agreements.

In conjunction with entering into a PPA with a customer, the Company may enter into sale/leaseback transactions with third-party financial institutions, whereby the fuel cells, a majority of the related infrastructure and, in some cases, service are sold to the third-party financial institution and leased back to the Company through either an operating or finance lease.

Certain of the Company’s sale/leaseback transactions with third-party financial institutions are required to be accounted for as ~~financing~~finance leases. As a result, no0 upfront revenue was recognized at the closing of these transactions and a finance obligation for each lease was established. The fuel cell systems and related infrastructure that are provided to customers through these PPAs are ~~considered~~classified as leased property, onnet in the ~~accompanying~~ unaudited interim condensed consolidated balance ~~sheet.~~sheets. Costs to service the leased property, depreciation of the leased property, and other related costs are ~~considered~~included in cost of PPA revenue onin the ~~accompanying~~ unaudited interim condensed consolidated statements of operations. Interest cost associated with finance leases is presented within interest and other expense, net onin the ~~accompanying~~ unaudited interim condensed consolidated ~~statement~~statements of operations.

The Company also has sale/leaseback transactions with financial institutions, which were required to be accounted for as an operating ~~lease.~~leases. The Company has ~~rental expense~~lease obligations associated with these sale/leaseback agreements with financial ~~institutions.~~institutions paid over the term of the agreements. At inception of these sale/lease transactions, the Company records a right of use asset value which is amortized over the term of the lease and recognized in conjunction with the interest expense on the obligation collectively as rental expense. Rental expense is recognized on a straight-line basis over the life of the agreements and is characterized as cost of PPA revenue on the ~~accompanying~~ unaudited interim condensed consolidated statements of operations.

The Company ~~adopted ASC Topic 842, effective January 1, 2018.~~includes all lease and non-lease components (i.e., maintenance services) related to PPAs within PPA revenue.

To recognize revenue, the Company, as lessee, is required to determine whether each sale/leaseback arrangement meets operating lease criteria. As part of the ~~adoption,~~assessment of these criteria, the Company ~~elected~~estimates certain key inputs to the ~~practical expedient~~associated calculations such as: 1) discount rate it uses to ~~not separate~~discount the unpaid lease payments to present value and ~~non-lease components (i.e. maintenance services) within its rental income related to all PPA-related assets.~~2) useful life of the underlying asset(s):

●

ASC Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in its leases because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate to estimate the discount rate for each lease.

●

In order for a lease to be classified as an operating lease, the lease term cannot exceed 75% (major part) of the estimated useful life of the leased asset. The average estimated useful life of the fuel cells is 10 years, and the average estimated useful life of the hydrogen infrastructure is 20 years. These estimated useful lives are compared to the term of each lease to ensure that 75% of the estimated useful life of the assets is not exceeded which allows the Company to meet the operating lease criteria.

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(iv)Fuel Delivered to Customers

Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site. Fuel is delivered to customers under stand-ready arrangement, with no long-term commitment.

The Company purchases hydrogen fuel from suppliers in certain cases (and produces hydrogen onsite) and sells to its customers upon delivery. Revenue and cost of revenue related to this fuel is recorded as dispensed and is included in the respective “Fuel delivered to customers” lines on the ~~accompanying~~ unaudited interim ~~condensed~~ consolidated statements of operations.

Contract costs

The Company expects that incremental commission fees paid to employees as a result of obtaining sales contracts are recoverable and therefore the Company capitalizes them as contract costs.

14

~~Table of Contents~~

Capitalized commission fees are amortized on a straight-line basis over the period of time ~~over~~ which the transfer of goods or services to which the assets relate occur, typically ranging from 5 to 10 years. Amortization of the capitalized commission fees is included in selling, general and administrative expenses.

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses.

Cash Equivalents

~~Cash equivalents consist of money market accounts with an initial term of less than three months.~~ For purposes of the unaudited interim condensed consolidated statements of cash flows, the Company considers all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents. At June 30, 2020, cash equivalents consisted of money market accounts. The Company’s cash and cash equivalents are deposited with financial institutions located in the ~~U.S.~~United States and may at times exceed insured limits.

Equity Instruments – Common Stock ~~Warrant Accounting~~Warrants

~~The Company accounts for common stock warrants as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement.~~

~~Derivative Liabilities~~

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 currently classify these derivative warrant liabilities on the accompanying unaudited interim condensed consolidated balance sheet as a long-term liability, which are revalued at each balance sheet date subsequent to the initial issuance, using the Black-Scholes pricing model. This 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. Changes in the fair value of the warrants are reflected in the accompanying unaudited interim condensed consolidated statements of operations as change in fair value of common stock warrant liability.

~~Equity Instruments~~

Common stock warrants that meet certain applicable requirements of ASC Subtopic 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, and other related guidance, including the ability of the Company to settle the warrants without the issuance of registered shares or the absence of rights of the grantee to require cash settlement, are accounted for as equity instruments. The Company classifies these equity instruments within additional paid-in capital on the ~~accompanying~~ unaudited interim condensed consolidated balance ~~sheet.~~ sheets.

Common stock warrants accounted for as equity instruments represent the warrants issued to Amazon and Walmart as discussed in Note ~~11,~~12, Warrant Transaction Agreements. ~~These~~The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606) (ASU 2019-08), which requires entities to measure and classify share-based payment awards granted to a customer by applying the guidance under Topic 718, as of January 1, 2019. As a result, the amount recorded as a reduction of revenue is measured based on the grant-date fair value of the warrants. Except for the third tranche, the fair value of all warrants ~~are remeasured~~was measured at ~~each financial reporting~~January 1, 2019, the adoption date ~~prior~~of ASU 2019-08. For the third tranche, the fair value will be determined when the second tranche vests. At that time, the fair value will also be determined for that tranche.

In order to ~~vesting, using~~calculate warrant charges, the ~~Monte Carlo pricing model. Once these warrants vest, they are no longer remeasured. This~~Company uses the Black-Scholes pricing model, which ~~is based, in part, upon~~requires key inputs including volatility and risk-free interest rate and certain unobservable inputs for which there is little or no market data, ~~requires~~requiring the Company to develop its own assumptions. ~~Changes in~~The Company estimates the fair value ~~resulting from remeasurement~~ of ~~common stock~~unvested warrants, ~~issued in connection with~~considered to be probable of vesting. Based on this estimated fair value, the ~~Amazon Transaction Agreement and the Walmart Transaction Agreement, as described in Note 11, Warrant Transaction Agreements, and~~Company determines warrant charges, which are recorded ~~as cumulative catch up adjustments~~ as a reduction of ~~revenue.~~revenue in the unaudited interim condensed consolidated statement of operations.

~~Convertible Senior Notes~~

The Company accounts for the issued Convertible Senior Notes with separate liability and equity components. The carrying amount of the liability component was initially determined by estimating the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the estimated fair value of the liability component from the par value of the Convertible Senior Notes as a whole as of the date of issuance. This difference represents a debt discount that is amortized to interest expense, with a corresponding increase to the carrying amount of the liability component, over the

1516

~~Table of Contents~~

term of the Convertible Senior Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The Company has allocated issuance costs incurred to the liability and equity components. Issuance costs attributable to the liability component are being amortized to expense over the respective term of the Convertible Senior Notes, and issuance costs attributable to the equity components were netted with the respective equity component in additional paid-in capital.

Use of Estimates

The unaudited interim condensed consolidated financial statements of the Company have been prepared in conformity with ~~GAAP,~~U.S. generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications ~~and Correction of Immaterial Errors~~

Reclassifications are made, whenever necessary, to prior period financial statements to conform to the current period presentation. ~~The provision for common stock warrants presented historically as one line item on the condensed consolidated statements~~As of operations has been allocated to each of the relevant revenue line items. This reclassification did not have an impact on gross profit (loss) or net loss within the unaudited interim condensed consolidated statements of operations or major categories within the condensed consolidated statements of cash flows in the periods presented.

In the third quarter of 2018, it was determined that the presentation in our unaudited interim condensed consolidated statements of operations of certain service arrangements and the amortization of the associated finance obligations had not been appropriately accounted for resulting in an overstatement of our revenue and cost of revenue. This previous presentation resulted in a gross up of these line items and had no impact on our gross profit (loss) or net loss. The Company corrected the prior period unaudited interim condensed consolidated financial statements to be consistent with the current period presentation and will correct comparable financial information in future filings. ~~The amount reclassified from revenue on service performed on fuel cell systems and related infrastructure to cost of revenue on PPAs for the three and six months ended~~ June 30, 2018 was $0.8 million and $1.6 million, respectively. The amount reclassified from cost of revenue on service performed on fuel cell systems and related infrastructure to cost of revenue on PPAs for the three and six months ended June 30, 2018 was $1.0 million and $2.2 million, respectively. The Company does not consider the impact of the prior period correction to be material to the prior period unaudited interim condensed consolidated financial statements.2020, there have been no such reclassifications.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June ~~2018, an accounting update was issued to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC Topic 718,~~ ~~Compensation-Stock Compensation~~, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of ASC Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that ASC Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that ASC Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606, ~~Revenue from Contracts with Customers~~. The amendments in this accounting update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC Topic 606. The Company adopted this update on January 1, 2019 and it did not have a material effect on the unaudited interim condensed consolidated financial statements.

16

~~Table of Contents~~

~~Recently Issued and Not Yet Adopted Accounting Pronouncements~~

~~In May 2019,~~ 2016, Accounting Standards Update (ASU) ~~2019-05,~~2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued to provide an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. Adoption of this update is optional and within scope of Topic 326, ~~Financial Instruments – Credit Losses,~~ ~~effective for fiscal years beginning after December 15, 2019. The Company is evaluating the adoption method and impact this update will have on the consolidated financial statements.~~

issued. Also, In April 2019, Accounting Standards Update (ASU) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to make improvements to updates 2016-01, Financial Instruments – Overall (Subtopic 825-10), 2016-13, Financial Instruments – Credit Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). ~~This is update is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the adoption method and impact this update will have on the consolidated financial statements.~~

~~In November 2018,~~ ~~Accounting Standards Update (ASU) 2018-18, Collaborative Arrangements (Topic 808), was issued to clarify the interaction between ASC Topic 808,~~ ~~Collaborative Arrangements,~~ and Topic 606. Adoption of this update is effective for all reporting periods beginning after December 15, 2019. The Company is evaluating the impact this update will have on the consolidated financial statements.

~~In August 2018,~~ ~~Accounting Standards Update (ASU) 2018-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)~~, was issued to help entities evaluate the accounting for fees paid by a customer in cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in this update are effective for public companies beginning after December 15, 2019. Early adoption of the amendments in this update are permitted. The Company is evaluating the adoption method and impact this update will have on the consolidated financial statements.

~~In January 2017,~~ ~~Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350)~~, was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This accounting update is effective for years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The company is evaluating the adoption method and does not think that this will have a material impact on the consolidated financial statements.

~~In August 2016,~~ ~~Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows~~, was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This accounting update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact this update will have on the consolidated financial statements.

~~In June 2016,~~ ~~Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued.~~ ASU 2016-13 significantly changes how entities account for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, that are not measured at fair value through net income. The ASU requires a number of changes to the assessment of credit losses, including the utilization of an expected credit loss model, which requires consideration of a broader range of information to estimate expected credit losses over the entire lifetime of the asset, including losses where probability is considered remote. Additionally, the standard requires the estimation of lifetime expected losses for trade receivables and contract assets that are classified as current. The Company adopted these standards effective January 1, 2020 and determined the impact of the standards to be immaterial to the consolidated financial statements.

In April 2019, Accounting Standards Update (ASU) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to make improvements to updates 2016-01, Financial Instruments – Overall (Subtopic 825-10), 2016-13, Financial Instruments – Credit Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). The Company adopted this standard effective January 1, 2020 and determined the impact of this standard to be immaterial to the consolidated financial statements.

In January 2017, Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350), was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The Company adopted this standard effective January 1, 2020.

In August 2016, Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230)s: Classification of Certain Cash Receipts and Cash Payments, was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted this standard in 2019 and determined the impact of this standard to be immaterial to the consolidated financial statements.

Recently Issued and Not Yet Adopted Accounting Pronouncements

In August 2020, Accounting Standards Update (ASU) 2020-06, Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, was issued to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.

17

This update is effective ~~beginning~~ after ~~January 1, 2020.~~December 15, 2021. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.

In March 2020, Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This update is effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.

In March 2020, Accounting Standards Update (ASU) 2020-03, Codification Improvements to Financial Instruments, was issued to make various codification improvements to financial instruments to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. This update will be effective at various dates as described in this ASU. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.

In December 2019, Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, was issued to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. This update will be effective beginning after December 15, 2020. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.

3. Acquisitions

Giner ELX, Inc. Acquisition

On June 22, 2020, the Company acquired 100% of the outstanding shares of Giner ELX, Inc. (Giner ELX). Giner ELX is developer of electrolysis hydrogen generators which is used for on-site refueling of hydrogen fuel cells.

The fair value of consideration paid by the Company in connection with the Giner ELX acquisition was as follows (in thousands):


Cash	$	25,820
Plug Power Stock		19,263
Contingent consideration		7,140
Total consideration		52,223

The contingent consideration represents the estimated, preliminary fair value associated with earn-out payments of $16.0 million that the sellers are eligible to receive. Of the total earnout consideration, $8.0 million is related to the achievement of the Allagash earn-out, $2.0 million is associated with the receipt of certain customer opportunities (purchase orders or other contracts) by December 31, 2021, and $6.0 million is associated with the achievement of certain revenue targets for years 2021 through 2023. The Allagash earn-out is achieved when the Company has produced at least 2 PEM electrolyzer stacks of one megawatt each, utilizing the dry build process and meets certain technical specifications as more fully described in the merger agreement. To be fully paid, the Allagash earn-out needs to be satisfied by July 31, 2023 and is reduced by approximately 8.33% each month beyond this date. In addition to the above, should the earn-out revenue exceed 150% of the 2023 target, the sellers will receive warrants with a value of $5.0 million and if the earn-out revenue exceeds 200% of the 2023 revenue target, the sellers will receive warrants with a value of $10.0 million. The warrants are exercisable within two years of issuance.

18

The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):


Accounts receivable	$	1,237
Inventory		4,108
Prepaid expenses and other assets		(4,707)
Property, plant and equipment		596
Identifiable intangibles		29,930
Accounts payable, accrued expenses and other liabilities		(1,887)
Deferred revenue		(2,347)
Total net assets acquired, excluding goodwill		26,930

The preliminary fair value of acquired identified intangible assets were calculated with the assistance of an independent valuator and were determined through a variety of valuation techniques.

Identifiable intangibles consisted of developed technology, non-compete agreements, estimated in-process research and development (IPR&D), and customer relationships.

The fair value of acquired developed technology and non-complete agreements was nominal.

The fair value of the acquired IPR&D totaling $29.0 million has been calculated using the multi-period excess earnings method (MPEEM) approach which is a variant of the income approach. The basic principle of the MPEEM approach is that a single asset, in isolation, is not capable of generating cash flow for an enterprise. Several assets are brought together and exploited to generate cash flow. Therefore, to determine cash flow from the exploitation of IPR&D, one must deduct the related expenses incurred for the exploitation of other assets used for the generation of overall cash flow and revenues. The fair value of IPR&D was estimated by discounting the net cash flow derived from the expected revenues attributable to the acquired IPR&D. The fair value of the acquired customer relationships totaling 0.3 million has been calculated using a distributor method approach, which is a variant of the MPEEM under the income approach.

In addition to identifiable intangible asset, the fair value of the deferred revenue was determined using a cost build-up approach. The direct cost of fulfilling the obligation plus a normal profit margin was used to determine the value of the assumed deferred revenue liability.

Included in the purchase consideration are three contingent earn-out payments (as described above): the Allagash earn-out, the customer opportunities, and the revenue targets. Due to the nature of the Allagash and customer opportunities, as outlined in the purchase agreement, a scenario based method (SBM) was used to value these contingent payments as the payments are milestone based in nature. The revenue targets are achieved when certain revenue thresholds are met, and the catch-up provision creates path-dependency. As such, the revenue targets were valued using Monte Carlo Simulation.

Included in Giner ELX’s net assets acquired are net deferred tax liabilities of $6.1 million. In connection of the acquisition of these net deferred tax liabilities, the Company reduced its valuation allowance by $5.2 million and recognized a tax benefit $5.2 million during the three- and six- months ended June 30, 2020.

Goodwill associated with the Giner ELX acquisition was calculated as follows (in thousands):


Consideration paid	$	52,223
Less: net assets acquired		(26,930)
Total goodwill recognized		25,293

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The goodwill consists of the Company’s increased capabilities in green hydrogen supply through the production of electrolyzers. The synergies with the Company’s production of hydrogen storage and dispensing equipment is important to the Company as the demand for green hydrogen increases.

United Hydrogen Group Inc. Acquisition

On June 18, 2020, the Company acquired 100% of the outstanding shares of United Hydrogen Group Inc. (UHG). UHG produces and sells liquid hydrogen.

The fair value of consideration paid by the Company in connection with the Giner ELX acquisition was as follows (in thousands):


Cash	$	19,466
Plug Power Stock		30,410
Contingent consideration		1,110
Total consideration		50,986

Included in cash and common stock in the above table is $1.3 million of cash and $6.5 million of common stock that was paid in April 2020 to purchase a convertible note in UHG. This convertible note included terms that allowed for reduction of the purchase price if the Company was to complete the acquisitions. As such, this note was cancelled in conjunction with the closing of this acquisition.

A portion of the purchase price of UHG was in the form of contingent consideration. The contingent consideration is contingent on future performance related to the expansion of the liquefication capacity of the Charleston, Tennessee liquid hydrogen plant (the Charleston Plant). The Company’s liability for this contingent consideration was measured at fair value based on the Company’s expectations of achieving the expansion milestone. The expected performance was assessed by management which was discounted to present value in order to derive a fair value of the contingent consideration.

In accordance with the merger agreement, the Company is obligated to pay $1.5 million by June 30, 2021 once the liquefication capacity of the Charleston Plant is complete to the UHG’s stockholders. Due to the level of progress made as of the reporting date, it is estimated that a payout will be made. As a result, the Company has recorded $1.1 million as the fair value of the contingent consideration.

The Company’s liability for contingent consideration was preliminarily measured and estimated at fair value based on unobservable inputs, and was considered a level 3 financial instrument. The fair value of the liability determined was primarily driven by the Company’s expectations of reaching the performance milestone. The expected milestone of expansion of the liquefication capacity of the Charleston Plant was discounted to present value in order to derive a fair value of the contingent consideration. The primary inputs of the calculation were the probabilities of achieving the milestone and a discount rate. At June 30, 2020 the Company has recorded $1.1 million as the fair value of contingent consideration.

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~~Table~~

The following table summarizes the preliminary allocation of ~~Contents~~the purchase price to the estimated fair value of the net assets acquired, excluding goodwill (in thousands):


Accounts receivable		444
Inventory		89
Prepaid expenses and other assets		1,152
Property, plant and equipment		41,244
Leased property		796
Identifiable intangibles		2,338
Long-term debt		(13,080)
Other liabilities		(13,820)
Accounts payable, accrued expenses, deferred revenue and finance obligations		(4,560)
Total net assets acquired, excluding goodwill		14,603

The preliminary fair value of acquired identified intangible assets were calculated with the assistance of an independent valuator and were determined through a variety of valuation techniques.

Identifiable intangibles consisted of developed technology, as described above. The fair value of the developed technology totaling $2.3 million has been calculated using the relief from royalty approach which is a variant of the income approach. The application of the relief from royalty approach involves estimating the value of an intangible asset by quantifying the present value of the stream of market derived royalty payments that the owner of the intangible asset is exempted or ‘relieved’ from paying.

Additionally the Company estimated the fair value of an unfavorable customer contract. The fair value of the acquired unfavorable customer contract was calculated using a with and with-out analysis which is a variant of the income approach. Cash flows were calculated using pricing per terms of the existing contract and then compared to cash flows using expected market pricing. The difference between the two cash flows was used to determine the fair value of the contract.

UHG will be eligible to receive earn-out payments, contingent on the company achieving certain milestones (successful completion of construction and achieving a defined capacity/production level). Due to the milestone nature of the payments, a scenario based method (SBM) was used to value these contingent payments.

Goodwill associated with the UHG acquisition was calculated as follows (in thousands):


Consideration paid	$	50,986
Less: net assets acquired		(14,603)
Total goodwill recognized		36,383

Goodwill consists of the Company’s ability to expand liquid hydrogen manufacturing capability with an established management team. The Company now has capabilities in liquid hydrogen generation, liquefaction and distribution logistics, which is important in a growing hydrogen market.

The above estimates are preliminary in nature and subject to adjustments. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired are expected to be collectible. We have not identified any material unrecorded pre-acquisition contingencies where the related asset or

21

liability, or an impairment is probable and the amount can be reasonably estimated. Purchased goodwill is not expected to be deductible for tax purposes.

3.

The results of the Giner ELX and UHG are included in the Company’s results for the three and six months ended June 30, 2020 and are considered immaterial.

4. Earnings Per Share

Basic earnings per common ~~share~~stock are computed by dividing net loss attributable to common ~~shareholders~~stockholders by the weighted average number of common ~~shares~~stock outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options, unvested restricted stock, common stock warrants, and preferred stock) 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~~stock equivalents, which is comprised of shares issuable under outstanding warrants, the conversion of preferred stock, and the Company’s share-based compensation plans, and the weighted average number of common ~~shares~~stock 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 potentially dilutive ~~potential common shares~~securities are summarized as follows:


	At June 30,
	2020	2019
Stock options outstanding (1)	16,273,120	21,258,304
Restricted stock outstanding (2)	4,455,484	2,504,392
Common stock warrants (3)	110,573,392	115,824,142
Preferred stock (4)	—	17,933,591
Convertible Senior Notes (5)	72,872,730	43,630,020
Number of dilutive potential shares of common stock	204,174,726	201,150,449

At June 30,


2019

2018
Stock options outstanding (1)

21,258,304

19,977,576
Restricted stock outstanding  (2)

2,504,392

207,347
Common stock warrants (3)

115,824,142

115,824,142
Preferred stock (4)

17,933,591

2,782,075
Convertible Senior Notes (5)

43,630,020

43,630,020
Number of dilutive potential common shares

201,150,449

182,421,160
(1)During the three months ended June 30, 2020 and 2019, the Company granted 174,649 and 339,392 stock options, respectively. During the six months ended June 30, 2020 and 2019, the Company granted 174,649 and 364,392 stock options, respectively.

~~(1)~~

~~During the three months ended June 30, 2019 and 2018, the Company granted 339,392 and 484,667~~(2)During the three months ended June 30, 2020 and 2019, the Company granted 96,649 and 339,392 shares of restricted stock, respectively. During the six months ended June 30, 2020 and 2019, the Company granted 94,649 and 364,392 shares of restricted stock, ~~options,~~ respectively. ~~During the six months ended June 30, 2019 and 2018, the Company granted 364,392, and 484,667 stock options, respectively.~~

~~(2)~~

During the three months ended June 30, 2019 and 2018, the Company granted 339,392 and zero shares of restricted stock, respectively. During the six months ended June 30, 2019 and 2018, the Company granted 364,392 and zero shares of restricted stock, respectively.

~~(3)~~

In April 2017, the Company issued 5,250,750 warrants with an exercise price of $2.69 per warrant, as described in Note 9, Stockholders’ Equity. Of these warrants issued in April 2017, none have been exercised as of June 30, 2019.

(3)In April 2017, the Company issued warrants to acquire up to 55,286,696 of the Company’s common stock as part of a transaction agreement with Amazon, subject to certain vesting events, as described in Note ~~11,~~12, Warrant Transaction Agreements. Of these warrants issued, ~~none~~NaN have been exercised as of June 30, ~~2019.~~2020.

In July 2017, the Company issued warrants to acquire up to 55,286,696 of the Company’s common stock as part of a transaction agreement with Walmart, subject to certain vesting events, as described in Note ~~11,~~12, Warrant Transaction Agreements. Of these warrants issued, ~~none~~NaN have been exercised as of June 30, ~~2019.~~2020.

~~(4)~~

The preferred stock amount represents the dilutive potential common shares of the Series C and E redeemable convertible preferred stock, based on the conversion price of the preferred stock as of June 30, 2019 and 2018, respectively. Of the 10,431 Series C redeemable preferred stock issued on May 16, 2013, 7,811(4)The preferred stock amount represents the dilutive potential on the shares of common stock as a result of the conversion of the Series C Redeemable Convertible Preferred Stock (Series C Preferred Stock) and Series E Redeemable Preferred Stock (Series E Preferred Stock), based on the conversion price of each preferred stock as of June 30, 2020, and 2019, respectively. Of the 10,431 shares of Series C Preferred Stock issued on May 16, 2013, all shares had been converted to common stock as of June 30, 2020. On November 1, 2018, the Company issued 35,000 shares of Series E Preferred Stock. As of December 31, 2019, 30,462 shares of the Series E Preferred Stock had been converted to common stock through June 30, 2019 and 2018, with the remainder still outstanding. On November 1, 2018, the Company issued 35,000 shares of Series E redeemable convertible preferred stock. As of June 30, 2019, all Series E redeemable convertible preferred stock are outstanding.

~~(5)~~

~~In March 2018, the Company issued $100.0 million in aggregate principal amount of 5.5% Convertible Senior Notes. See Note 8, Convertible Senior Notes.~~

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~~Table~~

converted to common stock and 4,038 shares were redeemed for cash. The remaining 500 shares of ~~Contents~~Series E Preferred Stock were converted to common stock in January 2020.

(5)In March 2018, the Company issued the 5.5% Convertible Senior Notes. In September 2019, the Company issued the $7.5% Convertible Senior Note. In May 2020, the Company issued the 3.5 % Convertible Senior Notes and repurchased $66.3 million of the 5.5% Convertible Senior Notes. See Note 9, Convertible Senior Notes.

4.

5. Inventory

Inventory as of June 30, ~~2019~~2020 and December 31, ~~2018 consists~~2019 consisted of the following (in thousands):


	June 30,		December 31,
	2020		2019
Raw materials and supplies – production locations	$	72,222	$	48,011
Raw materials and supplies – customer locations		10,291		9,241
Work-in-process		27,289		12,529
Finished goods		4,769		2,610
Inventory	$	114,571	$	72,391

6. Leased Property

Leased property at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30,

December 31,

2019

2018

Raw materials and supplies - production locations

$
47,324

$
32,941

Raw materials and supplies - customer locations

9,247

6,755

Work-in-process

12,538

5,589

Finished goods

4,081

2,625

Inventory

$
73,190

$
47,910


	June 30,		December 31,
	2020		2019
Right of use assets – operating	$	237,467	$	198,068
Right of use assets – finance		42,161		41,475
Capitalized costs of lessor assets		46,034		41,465
Less: accumulated depreciation		(50,941)		(36,268)
Leased property, net	$	274,721	$	244,740

~~5. Leased Property~~

~~Leased property at June 30, 2019 and December 31, 2018 consists of the following (in thousands):~~

June 30,

December 31,

2019

2018

Right of use assets - operating

$
111,176

$
76,747

Right of use assets - finance

35,677

39,905

Capitalized costs of lessor assets

45,690

41,040

Less: accumulated depreciation

(22,088)

(10,941)

Leased property, net

$
170,455

$
146,751

6.7. Intangible Assets

The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of June 30, ~~2019 are~~2020 were as follows (in thousands):

Weighted Average

Gross Carrying

Accumulated

Amortization Period

Amount

Amortization

Total

Acquired technology

10 years

$
7,757

$
(2,483)

$
5,274

Customer relationships

10 years

260

(136)

124

Trademark

5 years

60

(60)

—

$
8,077

$
(2,679)

$
5,398


	Weighted Average	Gross Carrying		Accumulated
	Amortization Period	Amount		Amortization		Total
Acquired technology	10 years	$	12,112	$	(3,205)	$	8,907
Customer relationships, Backlog & Trademark	8 years		890		(223)		667
In process R&D	Indefinite		29,000		—		29,000
		$	42,002	$	(3,428)	$	38,574

The gross carrying amount and accumulated amortization of the Company’s acquired identifiable intangible assets as of December 31, ~~2018 are~~2019 were as follows (in thousands):


	Weighted Average	Gross Carrying		Accumulated
	Amortization Period	Amount		Amortization		Total
Acquired technology	9 years��	$	8,244	$	(2,815)	$	5,429
Customer relationships & Trademark	9 years		320		(210)		110
		$	8,564	$	(3,025)	$	5,539

Weighted Average

Gross Carrying

Accumulated

Amortization Period

Amount

Amortization

Total

Acquired technology

9 years

$
5,926

$
(2,176)

$
3,750

Customer relationships

10 years

260

(123)

137

Trademark

5 years

60

(57)

3

$
6,246

$
(2,356)

$
3,890

23

The change in the gross carrying amount of the acquired technology from December 31, ~~2018~~2019 to June 30, ~~2019~~2020 was due to changes in foreign currency translation, acquisitions of UHG and Giner ELX, and accrual for American Fuel Cell (AFC) milestone payment payments, as discussed below.

In the second quarter of 2020, the Company’s in-process research and development was related to the development of the dry build process associated with electrolyzer stacks, as part of acquisition of Giner ELX. The related intangible asset is ~~due to~~not currently amortized, as research and development is ongoing. Upon completion of the dry build process, amortization will commence based upon the estimated useful life of the underlying asset. See Note 3 – Acquisitions, for more details.

Also, in the second quarter of 2020, the Company acquired technology as part of the acquisition of ~~intellectual property~~UHG. The technology relates to the chemical process of manufacturing liquid hydrogen from ~~EnergyOr in May~~chlor-alkali waste stream. See Note 3 – Acquisitions, for more details.

In the second quarter of 2019, ~~a milestone payment to American Fuel Cell LLC (AFC), as well as changes attributed to foreign currency translation. The~~the Company acquired intellectual property from EnergyOr for $1.5 million. In addition, the Company agreed to pay the sellers a royalty based on future sales of relevant applications, not to exceed $3.0 million, by May 22, 2025. These royalties are added to the intangible asset balance, as incurred.

As part of the agreement to acquire the intellectual property from AFC, the Company shall pay AFC milestone payments not to exceed $2.9 million in total, if certain milestones associated with the production of components related to the acquired technology are met before April 2021. As of June 30, ~~2019~~2020, the Company paid $0.4 million ~~to AFC~~and accrued $1.7 million in relation to the aforementioned milestones.

19

~~Table of Contents~~

Amortization expense for acquired identifiable intangible assets was $0.2 million for ~~both~~ the three months ended June 30, ~~2018~~2020 and ~~2017, respectively.~~$0.4 million for the six months ended June 30, 2020. Amortization expense for the acquired identifiable assets was $0.3 million for ~~both~~the three months ended June 30, 2019 and $0.3 million for the six months ended June 30, ~~2019 and 2018.~~ 2019.

Estimated amortization expense for subsequent years iswas as follows (in thousands):


Remainder of 2019	$	370
2020		741

Remainder of 2020			$	667
2021		741		1,334
2022		741		1,334
2023		741		1,334
2024 and thereafter		2,064		4,905
Total	$	5,398	$	9,574

7.

8. Long-Term Debt

In March 2019, the Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc., entered ~~in to~~into a loan and security agreement, as amended (the Loan Agreement), with Generate Lending, LLC (Generate Capital), providing for a secured term loan facility in the amount of $100.0 million (the Term Loan Facility). The Company borrowed $85.0 million under the Loan Agreement on the date of closing and borrowed an additional $15.0 million in April 2019 and $20 million in November 2019. A portion of the initial proceeds of the loan ~~were~~was used to pay in full the Company’s long-term debt ~~including accrued interest of $17.6 million under the loan and security agreement, dated as of July 21, 2017, by and among the Company, Emerging, Emergent and~~with NY Green Bank, a Division of the New York State Energy Research & Development Authority, including accrued interest of $17.6 million (the Green Bank Loan), and terminate approximately $50.3 million of certain equipment leases with Generate Plug Power SLB II, LLC and repurchase the associated leased equipment. In connection with this transaction, the Company recognized a loss on extinguishment of debt of approximately $0.5 ~~million.~~million during the six months ended June 30, 2019. This loss was recorded in interest and other expenses, net in the Company’s unaudited interim condensed consolidated statement of operations. Additionally, $1.7 million was paid to an escrow account related to additional fees ~~for~~due in connection with the Green Bank Loan if the Company does not meet certain New York State employment and fuel cell deployment targets by March 2021. ~~This amount paid to an escrow account~~Amount escrowed is recorded in long-term other assets on the Company’s unaudited interim condensed consolidated balance ~~sheet~~sheets as of June 30, ~~2019.~~ 2020. The Company presently expects to meet the targets as required under the arrangement.

24

Additionally, on May 6, 2020, the Company and its subsidiaries, Emerging Power, Inc. and Emergent Power, Inc., entered into a Fifth Amendment (the Amendment) to the Loan Agreement and Security Agreement, dated as of March 29, 2019, as amended (the Loan Agreement) with Generate Lending, LLC (Generate Capital). The Amendment amends the Loan Agreement to, among other things, (i) provide for an incremental term loan in the amount of $50.0 million, (ii) provide for additional, uncommitted incremental term loans in an aggregate amount not to exceed $50.0 million, which may become available to the Company in Generate Capital’s sole discretion, (iii) reduce the interest rate on all loans to 9.50% from 12.00% per annum, and (iv) extend the maturity date to October 31, 2025 from October 6, 2022. The $50 million incremental term loan has been fully funded. In connection with the restructuring, the Company capitalized $1.0 million of origination fees and expensed $300 thousand in legal fees.

On June 30, ~~2019,~~2020, the outstanding ~~principal~~ balance under the Term Loan Facility was ~~$99.9 million. The net loan proceeds of $32.1~~$141.2 million ~~are being used to fund working capital for ongoing deployments and other general corporate purposes of~~with a 9.5% interest rate. On July 10, 2020 the ~~Company.~~

~~Advances~~Company borrowed an additional $25.0 million, under the ~~Term~~amended Loan ~~Facility bear interest of 12.0% per annum.~~ Agreement.

The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. ~~The term~~Interest and a portion of the ~~loan~~principal amount is ~~three years, with~~payable on a ~~maturity date of December 13, 2022.~~quarterly basis. Principal payments will be funded in part by releases of restricted cash, as described in Note ~~15,~~16, Commitments and Contingencies.

~~Interest and a portion~~ Based on the amortization schedule as of June 30, 2020, the ~~principal amount is payable on a quarterly basis and~~outstanding balance of $141.2 million under the Term Loan Facility will be fully paid by March 31, 2024. If addition term loans are funded, the entire ~~then outstanding~~then-outstanding principal balance of the Term Loan Facility, together with all accrued and unpaid interest, iswill be due and payable on the maturity date of December 13, 2022. The Company may also be required to pay Generate Capital additional fees of up to $1.5 million if the Company is unable to provide $50.0 million of structured project financing arrangements with Generate Capital prior to DecemberOctober 31, ~~2021.~~2025.

All obligations under the Loan Agreement are unconditionally guaranteed by Emerging Power Inc. and Emergent Power Inc. The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.

The Loan Agreement contains covenants, including, among others, (i) the provision of annual and quarterly financial statements, management rights and insurance policies and (ii) restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales and (iii) compliance with a collateral coverage ~~covenant that is first measured on December 31, 2019 and is based on certain factors that are yet to be determined and on a third party valuation that has yet to be completed.~~covenant. The Loan Agreement

20

~~Table of Contents~~

also provides for events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control, judgment and material adverse effect defaults at the discretion of the lender. As of June 30, 2020, the Company was in compliance with all the covenants.

The Loan Agreement provides that if there is an event of default due to the Company’s insolvency or if the Company fails to perform in any material respect the servicing requirements for fuel cell systems under certain customer agreements, which failure would entitle the customer to terminate such customer agreement, replace the Company or withhold the payment of any material amount to the Company under such customer agreement, then Generate Capital has the right to cause Proton Services Inc., a wholly owned subsidiary of the Company, to replace the Company in performing the maintenance services under such customer agreement.

~~The~~As of June 30, 2020, the Term Loan Facility requires the principal balance at the end of each of the following years ~~may~~amortization not to exceed the following (in thousands):


December 31, 2019	$	94,638

December 31, 2020		73,034	$	125,687
December 31, 2021		51,106		89,301
December 31, 2022		—		51,478
December 31, 2023				16,863
December 31, 2024				—

As of August 10, 2020, the Term Loan Facility, given the incremental borrowing subsequent to June 30, 2020, as described above, requires the principal balance at the end of each of the following years amortization not to exceed the following (in thousands):

8.


December 31, 2020	$	139,017
December 31, 2021		102,317

25

December 31, 2022		68,321
December 31, 2023		37,920
December 31, 2024		8,692
December 31, 2025		—

9. Convertible Senior Notes

3.75% Convertible Senior Notes

On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, which is referred to herein as the 3.75% Convertible Senior Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, or the Securities Act. On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes.

The 3.75% Convertible Senior Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The notes will mature on June 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.

The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the Company’s $100 million in aggregate principal amount of 5.5% Convertible Senior Notes due 2023, which is referred to herein as the 5.5% Convertible Senior Notes, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities, including trade payables, of its current or future subsidiaries.

Holders of the 3.75% Convertible Senior Notes may convert their notes at their option at any time prior to the close of the business day immediately preceding December 1, 2024 in the following circumstances:

1)

during any calendar quarter commencing after September 30, 2020, if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

2)

during the five business days after any five consecutive trading day period (such five consecutive trading day period, the measurement period) in which the trading price per $1,000 principal amount of the 3.75% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

3)

if the Company calls any or all of the 3.75% Convertible Senior Notes for redemption, any such notes that have been called for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

4)

upon the occurrence of specified corporate events, as described in the indenture governing the 3.75% Convertible Senior Notes.

On or after December 1, 2024, the holders of the 3.75% Convertible Senior Notes may convert all or any portion of their notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

26

The initial conversion rate for the 3.75% Convertible Senior Notes will be 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.

In addition, following certain corporate events or following issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period in certain circumstances.

The 3.75% Convertible Senior Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2023 and before the 41^st scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date the Company sends the related redemption notice, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company sends such redemption notice.

If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require the Company to repurchase their notes for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.

In accounting for the issuance of the 3.75% Convertible Senior Notes, the Company separated the notes into liability and equity components. The initial carrying amount of the liability component of approximately $75.2 million, net of costs incurred, was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $130.3 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 3.75% Convertible Senior Notes. The difference between the principal amount of the 3.75% Convertible Senior Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the 3.75% Convertible Senior Notes. The effective interest rate is approximately 29.0%. The equity component of the 3.75% Convertible Senior Notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

We incurred transaction costs related to the issuance of the 3.75% Convertible Senior Notes of approximately $7.0 million, consisting of initial purchasers’ discount of approximately $6.4 million and other issuance costs of $0.6 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 3.75% Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.6 million, were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and are being amortized to interest expense over the term of the 3.75% Convertible Senior Notes. The transaction costs attributable to the equity component were approximately $4.4 million and were netted with the equity component in stockholders’ equity.

The 3.75% Convertible Senior Notes consisted of the following (in thousands):


	June 30,
	2020
Principal amounts:
Principal	$	212,463
Unamortized debt discount (1)		(133,321)
Unamortized debt issuance costs (1)		(2,517)
Net carrying amount	$	76,625
Carrying amount of the equity component (2)	$	130,249

27

1)

Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method.

2)

Included in the unaudited interim condensed consolidated balance sheets within additional paid-in capital, net of $4.4 million in equity issuance costs and associated income tax benefit of $12.4 million.

Based on the closing price of the Company’s common stock of $8.21 on June 30, 2020, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at June 30, 2020 was approximately $339.0 million. The Company utilized a Monte Carlo simulation model to estimate the fair value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the note, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.

Capped Call

In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions ($200 million Notes Capped Call) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call cover, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60%over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.

The net cost incurred in connection with the 3.75% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheet

7.5% Convertible Senior Note

In September 2019, the Company issued $40.0 million aggregate principal amount of 7.5% Convertible Senior Note due on January 5, 2023, which is referred to herein as the 7.5% Convertible Senior Note, in exchange for net proceeds of $39.1 million, in a private placement to an accredited investor pursuant to Rule 144A under the Securities Act . There are no required principal payments prior to maturity of the 7.5% Convertible Senior Note. Upon maturity of the 7.5% Convertible Senior Note, the Company is required to repay 120% of $40.0 million, or $48.0 million. The 7.5% Convertible Senior Note bears interest at 7.5% per annum, payable quarterly in arrears on January 5, April 5, July 5 and October 5 of each year beginning on October 5, 2019 and will mature on January 5, 2023 unless earlier converted or repurchased in accordance with its terms. The 7.5% Convertible Senior Note is unsecured and does not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.

The 7.5% Convertible Senior Note has an initial conversion rate of 387.5969, which is subject to adjustment in certain events. The initial conversion rate is equivalent to an initial conversion price of approximately $2.58 per share of common stock. The holder of the 7.5% Convertible Senior Note may convert at its option at any time until the close of business on the second scheduled trading day immediately prior to the maturity date for shares of the Company’s common stock, subject to certain limitations. In addition, the 7.5% Convertible Senior Note will be automatically converted if (1) the daily volume-weighted average price per share of common stock exceeds 175% of the conversion price (as described above) on each of the 20 consecutive VWAP trading days (as defined in the note) beginning after the issue date of the 7.5% Convertible Senior Note and (2) certain equity conditions (as defined in the note) are satisfied. Only if both criteria are met is the note automatically converted. Upon either the voluntary or automatic conversion of the 7.5% Convertible Senior Note, the Company will deliver shares of common stock based on (1) the then-effective conversion rate and (2) the original principal amount of $40.0 million and not the maturity principal amount of $48.0 million. The 7.5% Convertible Senior Note does not allow cash settlement (entirely or partially) upon conversion. As such, the Company uses the if-converted method for calculating any potential dilutive effect of the conversion option on diluted earnings per share.

28

The Company concluded the conversion features did not require bifurcation. Specifically, while the Company determined that (i) the conversion features were not clearly and closely related to the host contracts, (ii) the 7.5% Convertible Senior Note (i.e., hybrid instrument) is not remeasured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur and (iii) the conversion features, if freestanding, would meet the definition of a derivative, the Company concluded such conversion features meet the equity scope exception, and therefore, the conversion features are not required to be bifurcated from the 7.5% Convertible Senior Note.

If the Company undergoes a fundamental change prior to the maturity date, subject to certain limitations, the holder may require the Company to repurchase for cash all or a portion of the 7.5% Convertible Senior Note at a cash repurchase price equal to any accrued and unpaid interest on the note (or portion thereof), plus the greater of (1) 115% of the maturity principal amount of $48.0 million (or portion thereof) and (2) 110% of the product of (i) the conversion rate in effect as of the trading day immediately preceding the date of such fundamental change; (ii) the principal amount of the $40.0 million 7.5% Convertible Senior Note to be repurchased divided by $1,000; and (iii) the average of the daily volume-weighted average price per share of the Company’s common stock over the 5 consecutive VWAP trading days immediately before the effective date of such fundamental change.

In addition, with the consent of the holder of the note, subject to certain limitations, the Company may redeem all or any portion of the 7.5% Convertible Senior Note, at the Company’s option, at a cash redemption price equal to any accrued and unpaid interest on the note (or portion thereof), plus the greater of (1) 105% of the maturity principal amount of $48.0 million (or portion thereof); and (2) 115% of the product of (i) the conversion rate in effect as of the trading day immediately preceding the related redemption date; (ii) the principal amount of the 7.5% Convertible Senior Note to be redeemed divided by $1,000; and (iii) the arithmetic average of the daily volume-weighted average price per share of common stock over the 5 consecutive VWAP trading days immediately before the related redemption date.

While the Company concluded the fundamental change redemption option represents an embedded derivative, the Company concluded the value of the embedded derivative to be immaterial given the likelihood of the occurrence of a fundamental change was deemed to be remote. As related to the call option, the Company concluded the call option was clearly and closely related to the host contract, and therefore, did not meet the definition of an embedded derivative.

The Company concluded the total debt discount at issuance of the 7.5% Convertible Senior Note equaled approximately $8.0 million. This debt discount was attributed to the fact that upon maturity, the Company is required to repay 120% of $40.0 million, or $48.0 million. In addition, the related debt issuance costs were $1.0 million. The debt discount was recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and is being amortized to interest expense over the term of the 7.5% Convertible Senior Note using the effective interest rate method.

The 7.5% Convertible Senior Note consisted of the following (in thousands):


	June 30,		December 31,
	2020		2019
Principal amounts:
Principal at maturity	$	48,000	$	48,000
Unamortized debt discount		(6,200)		(7,400)
Unamortized debt issuance costs		(812)		(969)
Net carrying amount	$	40,988	$	39,631

Based on the closing price of the Company’s common stock of $8.21 on June 30, 2020, the if-converted value of the 7.5% Convertible Senior Note was greater than the principal amount. The estimated fair value of the 7.5% Convertible Senior Note at June 30, 2020 and December 31, 2019 was approximately $131.4 million and $53.5 million, respectively. The Company utilized a Monte Carlo simulation model to estimate the fair value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the 7.5% Convertible Senior Note, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.

29

On July 1, 2020, the 7.5% Convertible Senior Note automatically converted into 16.0 million shares of common stock.

5.5% Convertible Senior Notes

In March 2018, the Company issued $100.0 million in aggregate principal amount of 5.5% Convertible Senior Notes due on March 15, 2023, which is referred to herein as the 5.5% Convertible Senior Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities ~~Act of 1933, as amended. There are no required principal payments prior to maturity~~Act.

In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior ~~Notes.~~Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes, which consisted of a repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. Of the $128.9 million in aggregate consideration, $35.5 million and $93.4 million were allocated to the debt and equity components, respectively, utilizing an effective discount rate of 29.8% to determine the fair value of the liability component. As of the repurchase date, the carrying value of the 5.5% Convertible Senior Notes that were repurchased, net of unamortized debt discount and issuance costs, was $48.7 million. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. As of June 30, 2020, approximately $33.7 million aggregate principal amount of the 5.5% Convertible Senior Notes remained outstanding.

~~The~~

At issuance in March 2018, the total net proceeds from the 5.5% Convertible Senior Notes were as follows:


	Amount
	(in thousands)

			Amount
			(in thousands)
Principal amount	$	100,000	$	100,000
Less initial purchasers' discount		(3,250)
Less initial purchasers’ discount				(3,250)
Less cost of related capped call and common stock forward		(43,500)		(43,500)
Less other issuance costs		(894)		(894)
Net proceeds	$	52,356	$	52,356

The 5.5% Convertible Senior Notes bear interest at 5.5%, payable semi-annually in cash on March 15 and September 15 of each year. The 5.5% Convertible Senior Notes will mature on March 15, 2023, unless earlier converted or repurchased in accordance with their terms. The 5.5% Convertible Senior Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.

Each $1,000 of principal amount of the 5.5% Convertible Senior Notes ~~will initially be~~is convertible into 436.3002 shares of the Company’s common stock, which is equivalent to ~~an initial~~a conversion price of approximately $2.29 per share, subject to adjustment upon the occurrence of specified events. Holders of these 5.5% Convertible Senior Notes may convert their 5.5% Convertible Senior Notes at their option at any time prior to the close of the last business day immediately preceding September 15, 2022, only under the following circumstances:

1)

1)during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

2)during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the 5.5% Convertible Senior Notes) per $1,000 principal amount of 5.5% Convertible Senior Notes for each trading day of the measurement period was less

2130

~~Table~~

than 98% of ~~Contents~~

the product of the last reported sale price of the Company’s common stock and the conversion rate for the 5.5% Convertible Senior Notes on each such trading day;

2)

during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the Convertible Senior Notes) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the notes on each such trading day;

3)if the Company calls any or all of the 5.5% Convertible Senior Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

3)

if the Company calls any or all of the Convertible Senior Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

4)upon the occurrence of certain specified corporate events, such as a beneficial owner acquiring more than 50% of the total voting power of the Company’s common stock, recapitalization of the Company, dissolution or liquidation of the Company, or the Company’s common stock ceases to be listed on an active market exchange.

4)

upon the occurrence of certain specified corporate events, such as a beneficial owner acquiring more than 50% of the total voting power of the Company’s common stock, recapitalization of the Company, dissolution or liquidation of the Company, or the Company’s common stock ceases to be listed on an active market exchange.

On or after September 15, 2022, holders may convert all or any portion of their 5.5% Convertible Senior Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

Upon conversion of the 5.5% Convertible Senior Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. While the Company plans to settle the principal amount of the 5.5% Convertible Senior Notes in cash subject to available funding at time of settlement, we currently use the if-converted method for calculating any potential dilutive effect of the conversion option on diluted net income per share, subject to meeting the criteria for using the treasury stock method in future periods.

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest. Holders who convert their 5.5% Convertible Senior Notes in connection with certain corporate events that constitute a “make-whole fundamental change” per the indenture governing the 5.5% Convertible Senior Notes or in connection with a redemption will be, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its 5.5% Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the repurchased 5.5% Convertible Senior Notes, plus accrued and unpaid interest.

The Company may not redeem the 5.5% Convertible Senior Notes prior to March 20, 2021. The Company may redeem for cash all or any portion of the 5.5% Convertible Senior Notes, at the Company’s option, on or after March 20, 2021 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 5.5% Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accounting for the issuance of the ~~Convertible Senior Notes,~~notes, the Company separated the 5.5% Convertible Senior Notes into liability and equity components. The initial carrying amount of the liability component of approximately $58.2 million, net of costs incurred, was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $37.7 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 5.5% Convertible Senior Notes. The difference between the principal amount of the 5.5% Convertible Senior Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the 5.5% Convertible Senior Notes. The effective interest rate is approximately 16.0%. The equity component of the 5.5% Convertible Senior Notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance ~~sheet~~sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

We incurred transaction costs related to the issuance of the 5.5% Convertible Senior Notes of approximately $4.1 million, consisting of initial ~~purchasers'~~purchasers’ discount of approximately ~~$3.2~~$3.3 million and other issuance costs of $0.9 million. In

22

~~Table of Contents~~

accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using

31

the same proportions as the proceeds from the 5.5% Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.4 million, were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance ~~sheet)~~sheets) and are being amortized to interest expense over the term of the 5.5% Convertible Senior Notes. The transaction costs attributable to the equity component were approximately $1.7 million and were netted with the equity component in stockholders’ equity.

The 5.5% Convertible Senior Notes ~~consist~~consisted of the following ~~at June 30, 2019~~ (in thousands):


	June 30,		December 31,
	2020		2019
Principal amounts:
Principal	$	33,660	$	100,000
Unamortized debt discount (1)		(8,126)		(27,818)
Unamortized debt issuance costs (1)		(443)		(1,567)
Net carrying amount	$	25,091	$	70,615
Carrying amount of the equity component (2)	$	—	$	37,702

Principal amounts:

  Principal
$
100,000
  Unamortized debt discount (1)

(31,348)
  Unamortized debt issuance costs (1)

(1,808)
  Net carrying amount
$
66,844
  Carrying amount of the equity component (2)
$
37,702

1)

~~Included in the unaudited interim condensed consolidated balance sheet~~1)Included in the unaudited interim condensed consolidated balance sheets within the 5.5% Convertible Senior Notes, net and amortized over ~~the remaining life of the Convertible senior notes using the effective interest rate method.~~

2)

Included in the unaudited interim condensed consolidated balance sheet within additional paid-in capital, net of $1.7 million in equity issuance costs and associated income tax benefit of $9.2 million.

~~As of June 30, 2019~~ the remaining life of the 5.5% Convertible ~~senior notes is approximately 45 months.~~Senior Notes using the effective interest rate method.

2)Included in the unaudited interim condensed consolidated balance sheets within additional paid-in capital, net of $1.7 million in equity issuance costs and associated income tax benefit of $9.2 million, at December 31, 2019.

Based on the closing price of the Company’s common stock of ~~$2.25~~$8.21 on June 30, ~~2019,~~2020, the if-converted value of the 5.5% Convertible Senior Notes was ~~less~~greater than the principal amount. ~~At June 30, 2019, the carrying~~ The estimated fair value of the 5.5% Convertible Senior Notes ~~excluding unamortized debt issue costs, approximates~~at June 30, 2020 and December 31, 2019 was approximately $120.9 million and $135.3 million, respectively. The Company utilized a Monte Carlo simulation model to estimate the fair ~~value.~~value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the 5.5% Convertible Senior Notes, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.

Capped Call

In conjunction with the ~~issuance~~pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call ~~options (Capped~~transactions (5.5% Notes Capped Call) ~~on the Company’s common stock~~ with certain counterparties at a price of $16.0 million. The ~~net cost incurred in connection with the~~5.5% Notes Capped Call ~~has been recorded as a reduction~~cover, subject to ~~additional paid-in capital in~~anti-dilution adjustments, the ~~unaudited interim condensed consolidated balance sheet.~~

~~The Capped Call~~aggregate number of shares of the Company’s common stock that underlie the initial 5.5% Convertible Senior Notes and is generally expected to reduce ~~or offset~~ the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 5.5% Notes Capped Call ~~transactions will~~is initially be $3.82 per share, which represents a premium of 100% over the last ~~reported~~then-reported sale price of the Company’s common stock of $1.91 per share on the date of the transaction and is subject to certain adjustments under the terms of the 5.5% Notes Capped Call. The 5.5% Notes Capped Call becomes exercisable if the conversion option is exercised.

~~By entering into~~

The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.

In conjunction with the partial repurchase of the 5.5% Convertible Senior Notes, the Company ~~expects to reduce~~terminated 100% of the ~~potential dilution to its common stock (or,~~5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million which is recorded in the event the conversion is settled in cash, to provide a source of cash to settle a portion of its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price under the Convertible Senior Notes.additional paid-in capital.

32

Common Stock Forward

In connection with the ~~sale~~issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction, ~~(Common~~or the Common Stock ~~Forward),~~Forward, pursuant to which the Company agreed to purchase 14,397,906 shares of its common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75% Convertible Senior Notes, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025. The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common

23

~~Table of Contents~~

Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.

The net cost incurred in connection with the Common Stock Forward of $27.5 million has been recorded as an increase in treasury stock in the unaudited interim condensed consolidated balance ~~sheet.~~sheets. The related shares were accounted for as a repurchase of common stock.

In conjunction with the partial payoff of the $100 million Senior Convertible Notes, the Common Stock Forward’s expiration date was extended to June 1, 2025.

The fair values of the Capped Call and Common Stock Forward are not ~~remeasured each reporting period.~~ remeasured.

10. Stockholders’Equity

~~9. Stockholders’Equity~~

Preferred Stock

The Company has authorized 5.0 million shares of preferred stock, par value $0.01 per share. The Company’s certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualifications, limitations and restrictions thereof, applicable to the shares of each series.

The Company has authorized Series A Junior Participating Cumulative Preferred Stock, par value $0.01 per share. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were no0 shares of Series A Junior Participating Cumulative Preferred Stock issued and outstanding. See Note ~~10,~~11, Redeemable Convertible Preferred Stock, for a description of the Company’s Series C Preferred Stock and Series E ~~redeemable preferred stock.~~Preferred Stock.

Common Stock and Warrants

The Company has one class of common stock, par value $.01 per share. Each share of the Company’s common stock is entitled to ~~one~~1 vote on all matters submitted to stockholders.

In March 2019, the Company issued and sold in a registered direct offering an aggregate of 10 million shares of the Company’s common stock at a purchase price of $2.35 per share. The net proceeds to the Company were approximately $23.5 million. There were ~~231,954,736~~306,959,462 and ~~219,157,998~~303,378,515 shares of common stock outstanding as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

On December 22, 2016, the Company issued warrants to purchase 10,501,500 shares of common stock in connection with offerings of common stock and Series D Redeemable Preferred Stock at an exercise price of $1.50 per share. On April 12, 2017, the Company and Tech Opportunities LLC (Tech Opps) entered into an agreement, pursuant to which Tech Opps exercised in full its warrants to purchase an aggregate of 10,501,500 shares of common stock. The net proceeds received by the Company pursuant to the exercise of the existing warrants was $15.1 million and the Company issued to Tech Opps warrants to acquire up to 5,250,750 shares of common stock at an exercise price of $2.69 per share. The warrants were exercisable as of October 12, 2017 and will expire on October 12, 2019. The warrants are subject to anti-dilution provisions in the event of issuance of additional shares of common stock and certain other conditions, as further described in the warrant agreement.

During 2017, additional warrants to purchase up to 110,573,392 shares of common stock were issued in connection with transaction agreements with Amazon and Walmart, as discussed in Note ~~11,~~12, Warrant Transaction Agreements. At June 30, 2020 and December 31, 2019, 33,462,999 and ~~2018, in connection with these agreements, warrants to acquire~~ 26,188,434 ~~and 18,913,869~~of the warrant shares had vested, respectively, ~~of common stock have vested~~ and are therefore exercisable. These warrants are measured at fair value and are classified as equity instruments on the unaudited interim condensed consolidated balance ~~sheet.~~sheets.

At Market Issuance Sales Agreement

On April ~~3, 2017,~~13, 2020, the Company entered into ~~an At Market Issuance~~the Sales Agreement ~~(the Sales Agreement)~~ with FBR ~~Capital Markets & Co.,~~ as sales agent, ~~(FBR),~~ pursuant to which the Company may offer and sell, from time to time through FBR, shares of Company common stock ~~par value $0.01 per share~~ having an aggregate

33

offering price of up to $75.0 million. ~~Under~~As of the ~~Sales Agreement, in no event shall~~date of this filing, the Company ~~issue or sell through FBR such a number of~~has not issued any shares ~~that exceeds the number of shares or dollar amount~~ of common stock ~~registered. In the second quarter of 2019, the Company raised~~

24

~~Table of Contents~~

$5.5 million. There were no ATM transactions in the first quarter of 2019. During July and August of 2019 the Company raised an additional $8.8 million through ATM. As of July 31, 2019 the Company has raised a total of $45.8 million during the term ofpursuant to the Sales Agreement.

~~10.~~11. Redeemable Convertible Preferred Stock

Series E Preferred Stock

In November 2018, the Company ~~completed an offering of~~issued an aggregate of 35,000 shares of the Company’s Series E ~~Redeemable~~ Preferred Stock ~~par value $0.01 per share (Series E Stock), resulting~~ in ~~aggregate~~a private placement to certain accredited investors in reliance on Section 4(a)(2) of the Securities Act. The Company received net proceeds of approximately $30.9 million, after deducting ~~underwriting discounts and commissions~~placement agent fees and expenses payable by the Company. The Company is required to redeem the Series E Preferred Stock in ~~thirteen~~13 monthly installments in the amount of $2.7 million each from May 2019 through May 2020. ~~Series E Stock holders elected to defer May~~The Company had 0 and ~~June 2019 installments.~~

~~Each share~~500 shares of Series E Stock was issued with an initial stated value of $1,000 per share. The Company is required to elect, on a monthly basis, whether it will redeem or convert the installment. Should the Company elect to redeem, the shares are valued at the stated value. Should the Company elect to convert, the holder of the shares will receive common stock, with a conversion price discounted by 15% from the then current market value. The holders of the shares may elect to convert all or any whole amount of shares, at any time at a conversion price of $2.31 per share. Conversion prices are discounted upon a change in control, certain triggering events, or failure to make a redemption payment.

~~Except for our Series C Redeemable Convertible~~ Preferred Stock (Series C Stock), which shall rank senior to the Series E Stock as to dividends, distributions and payments upon liquidation, dissolution and winding up, all shares of the Company’s capital stock, including common stock, rank junior in rank to the Series E Stock with respect to dividends, distributions and payments upon liquidation, dissolution and winding up.

Holders of the Series E Stock are not entitled to receive dividends except in connection with certain purchase rights and other corporate events, as described in the certificate of designations, or in connection with certain distributions of assets, as described in the certificate of designations, or as, when and if declared by the Company’s Board of Directors acting in its sole and absolute discretion. Holders of the Series E Stock have no voting rights, except on matters required by law or under the certificate of designations to be submitted to a class vote of the Series E Stock.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or other deemed liquidation event, the holders of the Series E Stock are entitled to receive, after any amount that is required to be paid to the Series C Stock and before any amount is paid to the holders of any of capital stock ranking junior to the Series E Stock, an amount per share equal to the greater of (i) 125% of the sum of the stated value plus any declared and unpaid dividends and late charges as provided in the certificate of designations, on the date of such payment and (ii) the amount per share such holder would receive if such holder converted such Series E Stock into common stock immediately prior to the date of such payment.

~~The Company had 2,620 shares of Series C~~ Stock outstanding at June 30, 2020 and 2019, ~~and 2018.~~respectively. The ~~holder of the~~ remaining 500 shares were converted to common stock in January 2020.

Series C Preferred Stock ~~is entitled to receive dividends at a rate of 8% per annum, based on the original issue price per share of $248.794, payable in equal quarterly installments in cash or in~~

In April 2020, 870 shares of ~~common stock, at the Company’s option. During the six months ended June 30, 2019 and 2018, respectively, all dividends have been paid in~~Series C Preferred Stock were converted to 923,819 shares of common stock. ~~Each share~~In May 2020, remaining the 1,750 shares of Series C Preferred Stock ~~is convertible~~were converted into 1,858,256 shares of common stock with the number of shares of common stock issuable upon conversion determined by dividing the original issue price per share of $248.794 by the conversion price in effect at the time the shares are converted. The conversion price of the Series C Stock as of June 30, 2019 and December 31, 2018 was $0.2343. The Series C Stock votes together with the common stock on an as-converted basis on all matters. stock.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or other deemed liquidation event, the holder of the Series C Stock will be entitled to be paid an amount per share equal to the greater of (i) the original issue price, plus any accrued but unpaid dividends or (ii) the amount per share that would have been payable had all shares of the Series C Stock been converted to shares of common stock immediately prior to such liquidation event. The Series C Stock is redeemable at the election of the holder of the Series C Stock or the Company.

25

~~Table of Contents~~

~~11.~~12. Warrant Transaction Agreements

Amazon Transaction Agreement

On April 4, 2017, the Company and Amazon entered into a Transaction Agreement (the Amazon Transaction Agreement), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, warrants to acquire up to 55,286,696 shares of the Company’s common stock (the Amazon Warrant Shares), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at Amazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. ~~Additionally, Amazon and the Company will begin working together on technology collaboration, exploring the expansion of applications for the Company’s line of ProGen fuel cell engines.~~ The vesting of the Amazon Warrant Shares is linked to payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.

The majority of the Amazon Warrant Shares will vest based on Amazon’s payment of up to $600.0 million to the Company in connection with Amazon’s purchase of goods and services from the Company. The first tranche of 5,819,652 Amazon Warrant Shares vested upon the execution of the Amazon Transaction Agreement. Accordingly, $6.7 million, the fair value of the first tranche of Amazon Warrant Shares, was recognized as selling, general and administrative expense during 2017. All future provision for common stock warrants is measured based on ~~the 2017 unaudited interim condensed consolidated statements of operations.~~their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Amazon Warrant Shares will vest in ~~four~~4 installments of 7,274,565 Amazon Warrant Shares each time Amazon or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Amazon Warrant Shares ~~will be~~is $1.1893 per share. After Amazon has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Amazon Warrant Shares will vest in ~~eight~~8 installments of 2,546,098 Amazon Warrant Shares each time Amazon or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Amazon Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the final vesting date of the second tranche of Amazon Warrant Shares. The Amazon Warrant Shares are exercisable through April 4, 2027.

The Amazon Warrant Shares provide for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant Shares provide for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. These warrants are classified as equity instruments.

Because the Amazon Warrant Shares contain performance criteria (i.e. aggregate purchase levels), which Amazon must achieve for the Amazon Warrant Shares to vest, as detailed above, the final measurement date for the Amazon Warrant Shares is the date on which the Amazon Warrant Shares vest. Prior to the final measurement, when achievement of the performance criteria has been deemed probable, the estimated fair value of Amazon Warrant Shares is being recorded as a reduction to revenue and an addition to additional paid-in capital based on the projected number of Amazon Warrant Shares expected to vest, the proportion of purchases by Amazon and its affiliates within the period relative to the aggregate purchase levels required for the Amazon Warrant Shares to vest and the then-current fair value of the related Amazon Warrant Shares. To the extent that projections change in the future as to the number of Amazon Warrant Shares that will vest, as well as changes in the fair value of the Amazon Warrant Shares, a cumulative catch-up adjustment will be recorded in the period in which the estimates change.

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~~Table of Contents~~

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 27,643,347 and 20,368,782 of the Amazon Warrant Shares had ~~vested.~~vested, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended June 30, 2020 and 2019 ~~and 2018~~ was ~~$0.8~~$3.4 million and ~~$3.6~~$0.8 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the six months ended June 30, 2020 and 2019 was $4.7 million and ~~2018 was~~ $2.0 million, ~~and $5.3 million,~~ respectively.

Walmart Transaction Agreement

On July 20, 2017, the Company and Walmart entered into a Transaction Agreement (the Walmart Transaction Agreement), pursuant to which the Company agreed to issue to Walmart a warrant to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the Walmart Warrant Shares). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares is linked to payments made by Walmart or its affiliates (directly or indirectly through third parties) pursuant to transactions entered into after January 1, 2017 under existing commercial agreements.

The majority of the Walmart Warrant Shares will vest based on Walmart’s payment of up to $600.0 million to the Company in connection with Walmart’s purchase of goods and services from the Company. The first tranche of 5,819,652 Walmart Warrant Shares vested upon the execution of the Walmart Transaction Agreement. Accordingly, $10.9 million, the fair value of the first tranche of Walmart Warrant Shares, was recorded as a provision for common stock warrants and presented as a reduction to revenue on the ~~2017~~ unaudited interim condensed consolidated statements of ~~operations.~~operations during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares will vest in ~~four~~4 installments of 7,274,565 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Walmart Warrant Shares ~~will be~~is $2.1231 per share. After Walmart has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart Warrant Shares will vest in ~~eight~~8 installments of 2,546,098 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Walmart Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the final vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant Shares are exercisable through July 20, 2027.

The Walmart Warrant Shares provide for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant Shares provide for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. These warrants are classified as equity instruments.

Because the Walmart Warrant Shares contain performance criteria (i.e. aggregate purchase levels), which Walmart must achieve for the Walmart Warrant Shares to vest, as detailed above, the final measurement date for the Walmart Warrant Shares is the date on which the Walmart Warrant Shares vest. Prior to the final measurement, when achievement of the performance criteria has been deemed probable, the estimated fair value of Walmart Warrant Shares is being recorded as a reduction to revenue and an addition to additional paid-in capital based on the projected number of Walmart Warrant Shares expected to vest, the proportion of purchases by Walmart and its affiliates within the period relative to the aggregate purchase levels required for the Walmart Warrant Shares to vest and the then-current fair value of the related Walmart Warrant Shares. To the extent that projections change in the future as to the number of Walmart Warrant Shares that will vest, as well as changes in the fair value of the Walmart Warrant Shares, a cumulative catch-up adjustment will be recorded in the period in which the estimates change.

27

~~Table of Contents~~

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 5,819,652 of the Walmart Warrant Shares had vested. The amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the three months ended June 30, 2020 and 2019 ~~and 2018~~ was ~~$0.7~~$1.0 million and ~~$0.3~~$0.7 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Walmart Warrant during the six months ended June 30, 2020 and 2019 was $1.9 million and ~~2018 was~~ $3.7 million, ~~and $0.5 million,~~ respectively.

35

~~12.~~

13. Revenue

Disaggregation of revenue

Major products/services lines

Three months ended June 30,

Six months ended June 30,

2019

2018

2019

2018
Sales of fuel cell systems

$
38,547

$
13,371

$
40,767

$
19,354
Sale of hydrogen installations and other infrastructure

—

5,449

—

10,079
Services performed on fuel cell systems and related infrastructure

5,282

5,691

11,495

11,174
Power Purchase Agreements

6,307

5,438

11,014

10,810
Fuel delivered to customers

6,932

5,280

12,385

10,230
Net revenue

$
57,068

$
35,229

$
75,661

$
61,647

The following table provides information about disaggregation of revenue (in thousands):


Major products/services lines
	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Sales of fuel cell systems	$	41,264	$	38,696	$	55,915	$	41,240
Sale of hydrogen installations and other infrastructure		6,482		—		12,218		—
Services performed on fuel cell systems and related infrastructure		6,236		5,341		12,757		11,684
Power Purchase Agreements		6,654		6,409		13,150		12,519
Fuel delivered to customers		7,372		7,089		14,705		13,671
Other		62		—		138		—
Net revenue	$	68,070	$	57,535	$	108,883	$	79,114

Contract balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):


	June 30,		December 31,
	2019		2018

					June 30,		December 31,
					2020		2019
Accounts receivable	$	26,592	$	37,347	$	45,522	$	25,448
Contract assets		4,372		3,328		20,481		13,251
Contract liabilities		36,652		40,476		50,233		43,480

~~The contract~~Contract assets relate to contracts for which revenue is recognized on a straight-line basis, however billings escalate over the ~~Company’s rights~~life of a contract. Contract assets also include amounts recognized as revenue in advance of billings to ~~consideration for work completed but not billed.~~customers, which are dependent upon the satisfaction of another performance obligation. These amounts are included within prepaid expenses and other current assets on the accompanying unaudited interim condensed consolidated balance ~~sheet.~~sheets.

The contract liabilities relate to the advance consideration received from customers for services that will be recognized over time (primarily fuel cell and related infrastructure services). Contract liabilities also include advance consideration received from customers prior to delivery of products. These amounts are included within deferred revenue on the accompanying unaudited interim condensed consolidated interim balance ~~sheet.~~sheets.

Significant changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):



Contract assets	Six months ended
	June 30, 2020
Transferred to receivables from contract assets recognized at the beginning of the period	$	(9,671)
Revenue recognized and not billed as of the end of the period		16,901
Net change in contract assets		7,230

Contract assets

Six months ended

June 30, 2019
Transferred to receivables from contract assets recognized at the beginning of the period

$
(137)
Revenue recognized and not billed as of the end of the period

1,181
Net change in contract assets

$
1,044

2836

~~Table of Contents~~

Contract liabilities

Six months ended

June 30, 2019
Revenue recognized that was included in the contract liability balance as of the beginning of the period

$
4,456
Increases due to cash received, net of amounts recognized as revenue during the period

(1,792)
Net change in contract liabilities

$
2,664

Contract liabilities	Six months ended
	June 30, 2020
Increases due to cash received, net of amounts recognized as revenue during the period	$	24,835
Revenue recognized that was included in the contract liability balance as of the beginning of the period		(18,082)
Net change in contract liabilities	$	6,753

Estimated future revenue

The following table includes estimated revenue expected to be recognized in the future (sales of fuel cell systems and hydrogen installations are expected to be recognized as revenue within one year; sales of services and PPAs are expected to be recognized as revenue over five to seven years) related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period, excluding provision for common stock warrants as it is not readily estimable as it depends on the valuation of the common stock warrants when revenue is recognized (in thousands):



	June 30,
	2020
Sales of fuel cell systems	$	71,402
Sale of hydrogen installations and other infrastructure		71,753
Services performed on fuel cell systems and related infrastructure		94,725
Power Purchase Agreements		151,793
Other rental income		4,117
Total estimated future revenue	$	393,790

June 30,

2019

2018
Sales of fuel cell systems

$
16,467

$
13,478
Sale of hydrogen installations and other infrastructure

10,072

8,281
Services performed on fuel cell systems and related infrastructure

61,596

77,496
Power Purchase Agreements

121,744

122,659
Other rental income

5,793

5,463
Total estimated future revenue

$
215,672

$
227,377

Contract costs

Contract costs ~~consists~~consist of capitalized commission fees and other expenses related to obtaining or fulfilling a contract.

Capitalized contract costs at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were $0.5 million and ~~$0.2 million,~~$0.5, respectively. Expense related to the amortization of capitalized contract costs was not significant for the three or six months ended June 30, 2020 and 2019.

~~13.~~14. Income Taxes

The Company recognized an income tax benefit for the three and six months ended June 30, ~~2018~~2020 of ~~$2.9~~$17.7 million. Income tax benefit for the three and six months ended June 30, 2020 included $12.4 million ~~and $5.9 million, respectively, as a result of~~resulting from the intraperiod tax allocation rules under ASC Topic 740-20, Intraperiod Tax Allocation, under which the Company recognized an income tax benefit resulting from a ~~benefit for current losses as a result~~source of ~~an entry~~future taxable income attributable to the net credit to additional paid-in capital related to the issuance of the 3.75% Convertible Senior Notes, ~~discussed in Note 8,~~offset by the partial extinguishment of the 5.5% Convertible Senior Notes. ~~The~~In addition, the Company ~~did not record any~~recorded $5.2 million of income tax ~~expense or~~ benefit for the three and six months ended June 30, ~~2019.~~2020 related to the recognition of net deferred tax liabilities in connection with the Giner ELX acquisition, which resulted in a corresponding reduction in our deferred tax asset valuation allowance. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.

The remaining net deferred tax asset generated from the Company’s current period 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. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

2937

~~Table of Contents~~

~~14.~~15. Fair Value Measurements

During 2020, the Company had no financial instruments measured at fair value on a recurring basis.

~~Derivative Liabilities~~

The following table summarizes the amounts recorded on the unaudited interim condensed consolidated statement of operations for financial instruments measured at fair value on a recurring basis for the three and six months ended June 30, 2019 (in thousands):

Quoted Prices

Significant

in Active

Other

Markets for

Observable

Unobservable

Identical Items

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Common stock warrant liability

$

(420)

$

—

$

—

$

(420)

The Company’s common stock warrant liability represents the only asset or liability classified financial instrument measured at fair value on a recurring basis in the unaudited interim condensed consolidated balance sheets. The fair value measurement is determined by using Level 3 inputs due to the lack of active and observable markets that can be used to price identical assets. Level 3 inputs are unobservable inputs and 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.

Fair value of the common stock warrant liability 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.

The Company used the following assumptions ~~for~~to measure the fair value of its liability-classified common stock warrants:


		Six months ended
	~~Six months ended~~
	June 30, 2019	~~June 30, 2018~~
Risk-free interest rate	2.22% - 2.51%	~~1.64% - 2.43%~~
Volatility	49.98% - 74.93%	~~18.40% - 81.69%~~
Expected average term	0.28 - 0.53	~~0.01 - 1.53~~

There was no0 expected dividend yield for the warrants granted.

If factors change and different assumptions are used, the warrant liability and the change in estimated fair value could be materially different. Generally, as the market price of our common stock increases, the fair value of the warrants increase, and conversely, as the market price of our common stock decreases, the fair value of the warrants decrease. Also, a significant increase in the volatility of the market price of the Company’s common stock, in isolation, would result in significantly higher fair value measurements; and a significant decrease in volatility would result in significantly lower fair value measurements.

~~The following table shows the activity in the common stock warrant liability (in thousands):~~

Six months ended

June 30, 2019

June 30, 2018

Beginning of period
$
105

$
4,391

Change in fair value of common stock warrants

420

(1,592)

End of period
$
525

$
2,799

~~Equity Instruments~~

The fair value measurement of the Company’s equity-classified common stock warrants further described in Note 11, Warrant Transaction Agreements, is determined by using Level 3 inputs due to the lack of active and observable markets that can be used to price identical instruments.

Fair value of the equity-classified common stock warrants is based on the Monte Carlo 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.

30

~~Table of Contents~~

~~The Company used the following assumptions for its equity-classified common stock warrants:~~

Six months ended

June 30, 2019

June 30, 2018
Risk-free interest rate

1.89% - 2.33%

2.72% - 2.80%
Volatility

85.00%

85.00%
Expected average term

7.76 - 8.30

8.76 - 9.30

The Monte Carlo pricing models used in the determination of the fair value of the equity-classified warrants also incorporate assumptions involving future revenues associated with Amazon and Walmart, and related timing.

The following table represents the fair value per warrant on the execution date of the transaction agreements, the vesting dates, if applicable, and as of June 30, 2019 and 2018 for those warrants for which vesting is considered probable.

Amazon Warrant Shares

Walmart Warrant Shares
Issuance date - first tranche
$
1.15

$
1.88
As of vesting date - second tranche, first installment

2.16

—
As of vesting date - second tranche, second installment

1.54

—
As of June 2019 - second tranche

1.90

1.83
As of June 2018 - second tranche

1.71

1.56

~~15.~~16. Commitments and Contingencies

Lessor Obligations

As of June 30, ~~2019,~~2020, the Company ~~has~~had noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next one to seven years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of ~~cancelation~~cancellation to be remote.

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, ~~2019 are~~2020 were as follows (in thousands):


Remainder of 2020	$	15,567
2021		30,958
2022		27,338
2023		24,284
2024		20,902
2025 and thereafter	$	36,861
Total future minimum lease payments	$	155,910

Remainder of 2019

$
15,329
2020

29,840
2021

26,507
2022

17,342
2023

13,278
2024 and thereafter

21,653
Total future minimum lease payments

$
123,949

38

Lessee Obligations

As of June 30, ~~2019,~~2020, the Company ~~has~~had operating and finance leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, Nature of Operations) as summarized below. These leases expire over the next one to ~~nine~~eight years. Minimum rent payments under operating and finance leases are recognized on a ~~straight‑line~~straight-line basis over the term of the lease. Leases contain termination clauses with associated penalties, the ~~amounts~~amount of which cause the likelihood of ~~cancelation~~cancellation to be remote.

In prior periods, the Company entered into sale/leaseback transactions that were accounted for as finance leases and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$28.8~~$27.9 million and ~~$81.9~~$31.7 million, respectively. The fair value of the finance obligation ~~approximates~~approximated the carrying value as of both June 30, ~~2019~~2020 and December 31, ~~2018.~~ 2019.

31

~~Table of Contents~~

The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at June 30, ~~2019 is $59.8 million, $9.0 million and $50.8~~2020 was $129.2 million, of which is$19.6 million and $109.6 million were classified as short-term and long-term, respectively, on the ~~accompanying~~ unaudited interim condensed consolidated balance ~~sheet.~~sheets. The outstanding balance of this obligation at ~~June 30, 2018~~December 31, 2019 was ~~$9.2 million, $2.6 million and $6.6~~$35.6 million, of which ~~was~~$6.0 million and $29.6 million were classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation ~~approximates~~approximated the carrying value as of June 30, ~~2019.~~2020.

The Company has a finance lease associated with its property and equipment in Latham, New York. Liabilities relating to this ~~agreement~~lease of ~~$2.4~~$2.8 million has been recorded as a finance obligation in the ~~accompanying~~ unaudited interim condensed consolidated balance ~~sheet~~sheets as of June 30, 2020 and December 31, 2019. The fair value of this finance obligation ~~approximates~~approximated the carrying value as of June 30, ~~2019.~~2020.

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, ~~2019 are~~2020 were as follows (in thousands):


					Other		Total
	Operating		Finance		Leased		Finance
	Leases		Leases		Property		Obligations
Remainder of 2019	$	15,793	$	3,361	$	225	$	19,379
2020		30,909		6,722		425		38,056

													Other		Total
									Operating		Finance		Leased		Finance
									Leases		Leases		Property		Obligations
Remainder of 2020									$	25,947	$	5,066	$	312	$	31,325
2021		25,930		6,722		407		33,059		51,818		9,276		590		61,684
2022		19,832		4,975		390		25,197		51,267		4,975		573		56,815
2023		19,089		3,176		366		22,631		45,461		3,149		549		49,159
2024 and thereafter		26,815		16,154		1,565		44,534
2024										45,410		16,154		632		62,196
2025 and thereafter										52,344		—		1,174		53,518
Total future minimum lease payments		138,368		41,110		3,378		182,856		272,247		38,620		3,830		314,697
Less imputed lease interest		(41,138)		(12,339)		(989)		(54,466)		(73,820)		(10,718)		(1,020)		(85,558)
Sale of future services		—		59,804		—		59,804		129,209		—		—		129,209
Total finance obligations	$	97,230	$	88,575	$	2,389	$	188,194
Total lease liabilities									$	327,636	$	27,902	$	2,810	$	358,348

Rental expense for all operating leases was ~~$6.2~~$12.9 million and ~~$3.6~~$6.2 million for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Rental expense for all operating leases was ~~$12.1~~$25.5 million and ~~$7.2~~$12.1 million for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

The gross profit on sale/leaseback transactions for all operating leases was $14.4 million and $19.7 million for the three and six months ended June 30, 2020, respectively, and $16.1 million for the three and six months ended June 30, ~~2019 and zero for the three and six months ended June 30, 2018.~~2019. Right of use assets obtained in exchange for new operating lease liabilities was $29.2 million and $45.4 million for the three and six months ended June 30, 2020, respectively, and $34.5 million for the three and six months ended June 30, ~~2019 and $1.6 million and $2.2 million for the three and six months ended~~2019.

39

At both June 30, ~~2018.~~

~~At June 30,~~2020 and December 31, 2019, ~~and 2018,~~ security deposits associated with sale/leaseback transactions were ~~$7.0~~$6.0 million and ~~$8.3 million, respectively, and are~~were included in other assets onin the unaudited interim condensed consolidated balance ~~sheet.~~sheets.

Other information related to the operating leases are presented in the following ~~table.~~tables:

Six months ended

Six months ended

June 30, 2019

June 30, 2018
Cash payments (in thousands)
$
11,677

$
6,634
Weighted average remaining lease term (years)

5.13

3.61
Weighted average discount rate

12.2%

12.0%


		Six months ended		Six months ended
		June 30, 2020		June 30, 2019
Cash payments (in thousands)	$	24,982	$	11,677

32


	As of June 30,
		2020	2019
Weighted average remaining lease term (years)		5.48	5.13
Weighted average discount rate		12.1%	12.2%

~~Table of Contents~~

Finance lease costs include amortization of the right of use assets (i.e., depreciation expense) and interest on lease liabilities (i.e., interest and other expense, net in the unaudited interim ~~condensed~~ consolidated statement of operations). Finance lease costs ~~are~~were as follows (in thousands):


	Six months ended		Six months ended
	June 30, 2019		June 30, 2018

					Six months ended		Six months ended
					June 30, 2020		June 30, 2019
Amortization of right of use asset	$	1,558	$	3,017	$	1,740	$	1,558
Interest on finance obligations		2,656		2,944		1,223		2,656
Total finance lease cost	$	4,214	$	5,961	$	2,963	$	4,214

Right of use assets obtained in exchange for new finance lease liabilities ~~were $60 thousand~~was 0 and $0.7 million for both the three and six months ended June 30, 2020 and 2019, ~~and zero and $0.3 million for the three and six months ended June 30, 2018.~~respectively.

Other information related to the finance leases are presented in the following ~~table.~~tables:

Six months ended

Six months ended

June 30, 2019

June 30, 2018
Cash payments (in thousands)
$
55,913

$
19,406
Weighted average remaining lease term (years)

3.25

3.70
Weighted average discount rate

10.8%

10.7%


		Six months ended		Six months ended
		June 30, 2020		June 30, 2019
Cash payments (in thousands)	$	5,196	$	55,913


	As of June 30,
		2020	2019
Weighted average remaining lease term (years)		3.53	3.25
Weighted average discount rate		8.0%	10.8%

Restricted Cash

~~In connection with certain of~~As security for the above noted sale/leaseback agreements, cash of ~~$32.5~~$131.1 million iswas required to be restricted as ~~security and~~of June 30, 2020, which restricted cash will be released over the lease term. ~~The~~As of June 30, 2020, the Company also ~~has certain~~had letters of credit backed by security deposits totaling ~~$82.9~~$98.2 million ~~that are security~~ for the above noted sale/leaseback agreements.

~~The~~In addition, as of June 30, 2020, the Company also ~~has~~had letters of credit in the aggregate amount of $0.5 million ~~at June 30, 2019~~ associated with a finance obligation from the sale/leaseback of its building. ~~Cash~~We consider cash collateralizing this letter of credit ~~is also considered~~as restricted cash.

40

Litigation

Legal matters are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position, or cash flows.

Concentrations of ~~credit risk~~Credit Risk

Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has initial commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.

At June 30, ~~2019, one customer comprises~~2020, 2 customers comprised approximately ~~71.0%~~88.4% of the total accounts receivable balance. At December 31, ~~2018, three~~2019, 2 customers comprised approximately ~~52.3%~~63.4% of the total accounts receivable balance.

For the six months ended June 30, 2020, 77.9% of total consolidated revenues were associated primarily with 2 customers. For the six months ended June 30, 2019, 66.0% of total consolidated revenues were associated primarily with ~~two customers. For the six months ended June 30, 2018, 66.2% of total consolidated revenues were associated primarily with two~~2 customers. For purposes of assigning a customer to a sale/leaseback transaction completed with a financial institution, the Company considers the end user of the assets to be the ultimate customer.

3341

~~Table of Contents~~

~~Vendor Reimbursement~~

During the six months ended June 30, 2019 the Company received $4.5 million, $1.0 million of which was received in the second quarter of 2019, from a vendor to help facilitate a field replacement program for certain composite fuel tanks that do not meet the supply contract standard, as determined by the Company and the manufacturer. The Company is working with its customers to ensure an efficient, minimally disruptive process for the exchange. Amounts received under this arrangement are being accounted for as a reduction of costs. Such costs included labor and materials to replace the tanks, the manufacture of temporary replacement units used while tanks are being replaced, and other miscellaneous costs.

34

~~Table of Contents~~

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 interim 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, ~~2018.~~2019. In addition to historical information, this Quarterly Report on 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 Securities Exchange ~~Act.~~Act of 1934, as amended (the Exchange Act). These forward-looking statements contain projections of our future results of operations or of our financial position or state other forward-looking information. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would,” “plan,” “projected” or the negative of such words or other similar words or phrases. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited ~~to: the risk that we continue~~ to ~~incur losses and anticipate continuing to incur losses;~~ :

●

the risk that we continue to incur losses and might never achieve or maintain profitability;

●

the risk that we will need to raise additional capital to fund our operations and such capital may not be available to us; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers; risk of our convertible debt securities that may be settled in cash, such as our Convertible Senior Notes, will need to raise additional capital to fund our operations and such capital may not be available to us;

●

the risk of dilution to our stockholders and/or stock price should we need to raise additional capital;

●

the risk that 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 may not ship, be installed and/or converted to revenue, in whole or in part;

●

the risk that a loss of one or more of our major customers, or if one of our major customers delays payment of or is unable to pay its receivables, a material adverse effect could result on our financial condition;

●

the risk that a sale of a significant number of shares of stock could depress the market price of our common stock;

●

the risk that our convertible senior notes, if settled in cash, could have a material effect on our financial results;

●

the risk that our convertible note hedges may affect the value of our convertible senior notes and our common stock;

●

the risk that negative publicity related to our business or stock could result in a negative impact on our stock value and profitability;

●

the risk of potential losses related to any product liability claims or contract disputes;

●

the risk of loss related to an inability to maintain an effective system of internal controls;

●

our ability to attract and maintain key personnel;

●

the risks related to the use of flammable fuels in our products;

●

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;

●

the risks of delays in or not completing our product development goals;

●

our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers;

●

our ability to achieve the forecasted gross margin on the sale of our products;

●

the cost and availability of fuel and fueling infrastructures for our products;

●

the risks, liabilities, and costs related to environmental, health and safety matters;

●

the risk of elimination of government subsidies and economic incentives for alternative energy products;

●

market acceptance of our products and services, including GenDrive, GenSure and GenKey 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;

●

the risk that possible new tariffs could have a material adverse effect on our business;

●

our ability to develop commercially viable products;

42

●

our ability to reduce product and manufacturing costs;

●

our ability to successfully market, distribute and service our products and services internationally;

●

our ability to improve system reliability for our products;

●

competitive factors, such as price competition and competition from other traditional and alternative energy companies;

●

our ability to protect our intellectual property;

●

the risk of dependency on information technology on our operations and the failure of such technology;

●

the cost of complying with current and future federal, state and international governmental regulations;

●

our subjectivity to legal proceedings and legal compliance;

●

the risks associated with past and potential future acquisitions; and

●

the volatility of our stock price

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks discussed in the section titled “Risk Factors” included under Part I, Item 1A, below. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our ~~reported financial results; that~~business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from these contained in any forward-looking statements. While forward-looking statements reflect our ~~convertible note hedges may affect the value~~good faith beliefs, they are not guarantees of the Convertible Senior Notes and our common stock; the volatility of the market price of our common stock; the risk that a loss of one or more of our major customers, or if one of our major customers delays payment of or is unable to pay their receivables, a material adverse effect could result on our financial condition; the cost and availability of fuel and fueling infrastructures for our products; the risk of delays in or not completing our product development goals; the risk of elimination of government subsidies and economic incentives for alternative energy products; the risk of potential losses related to any product liability claims or contract disputes; 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 products; ~~possible new tariffs could have a material adverse effect on our business~~ 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 risk that unit orders may not ship, be installed and/or converted to revenue, in whole or in part; the risk of dependency on information technology in our operations and the failure of such technology; the risks related to the use of flammable fuels in our products; our subjectivity to legal proceedings and legal compliance risks; our ability to protect our intellectual property; the risk that 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 of loss related to an inability to maintain an effective system of internal controls; our ability to attract and maintain key personnel; the risks associated with potential future acquisitions; the cost of complying with current and future federal, state and international governmental regulations; our provisions in our charter documents and Delaware law may discourage or delay an acquisition of the Company by a third party that stockholders may consider favorable and other risks and uncertainties discussed under Item IA—Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed March 13, 2019. Readers should not place undue reliance on our forward-looking statements.performance. These forward-looking statements speak only as of the date on which the statements were ~~made and are not guarantees of future performance.~~made. 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 Quarterly Report on Form 10-Q.

References in this Quarterly Report on Form 10-Q to “Plug Power,” the “Company,” “we,” “our” or “us” refer to Plug Power Inc., including as the context requires, its subsidiaries.

Overview

35

~~Table~~As a leading provider of ~~Contents~~

~~Overview~~

comprehensive hydrogen fuel cell turnkey solutions, Plug Power Inc., or the Company, is seeking to build a ~~leading provider of alternative energy technology~~green hydrogen economy. The Company is focused on ~~the design, development, commercialization and manufacture of~~ hydrogen and fuel cell systems that are used to power electric motors primarily ~~for~~in the electric mobility and stationary power ~~markets.~~markets, given the ongoing paradigm shift in the power, energy, and transportation industries to address climate change, energy security, and meet sustainability goals. Plug Power created the first commercially viable market for hydrogen fuel cell, or the HFC technology. As ~~part of the global drive to electrification,~~a result, the Company has ~~recently leveraged product proven in~~deployed over 34,000 fuel cell systems, and has become the ~~material handling vehicle space to enter new, adjacent, electric vehicle markets, specifically electric delivery vans.~~largest buyer of liquid hydrogen, having built and operated a hydrogen network across North America.

We are focused on proton exchange membrane, or PEM, fuel cell and fuel processing technologies, fuel cell/battery hybrid technologies, and associated hydrogen storage and dispensing infrastructure 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), propane, methanol, ethanol, gasoline or biofuels.~~multiple sources. The ~~Company develops complete hydrogen generation, delivery, storage and refueling solutions for customer locations. Currently the Company obtains the~~ majority of ~~its~~liquid hydrogen ~~by purchasing it~~in the United States is produced using the steam methane reforming process and utilizing by-product hydrogen from ~~fuel suppliers for resale~~chlor alkali production. By-product hydrogen from a chlor alkali plant is considered to ~~customers.~~

~~In our core business, we provide and continue to develop commercially-viable~~be low carbon hydrogen and ~~fuel cell product solutions to replace lead‑acid batteries~~ in ~~electric material handling vehicles~~some cases, considered green hydrogen, depending on the source of electricity and ~~industrial trucks for some~~geographic location. We source a significant amount of liquid hydrogen based on the world’s largest retail-distribution and manufacturing businesses. We are focusing our efforts on industrial mobility applications (electric forklifts and electric industrial vehicles) at multi‑shift high volume manufacturing and high throughput distribution sites where our products and services provide a unique combination of productivity, flexibility and environmental benefits.chlor alkali process today. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products ~~prove~~have proven valuable with telecommunications, transportation and utility customers as robust, reliable and sustainable power solutions.

We provide and continue to develop commercially-viable hydrogen and fuel cell solutions for industrial mobility applications (including electric forklifts and electric industrial vehicles) at multi-shift high volume manufacturing and high throughput distribution sites where we believe our products and services provide a unique combination of productivity, flexibility and environmental benefits. In June of 2020, Plug Power completed the acquisition of United Hydrogen and Giner ELX in line with the Company’s hydrogen vertical integration strategy plans to have more than 50% of the hydrogen used by the Company to be green by 2024. These activities further enhance Plug Power’s position in the hydrogen industry with capabilities in generation, liquefaction and distribution of hydrogen fuel complementing its industry-leading position

43

in the design, construction, and operation of customer-facing hydrogen fueling stations. These activities establish a clear pathway for Plug Power to transition from low-carbon to zero-carbon hydrogen solutions.

Our current products and services include:

GenDrive: GenDrive is our hydrogen fueled PEM fuel cell system providing power to material handling electric vehicles, including class 1, 2, 3 and 6 electric forklifts and ground support equipment;

GenFuel: GenFuel is our hydrogen fueling delivery, generation, storage and dispensing system;

GenCare: GenCare is our ongoing ‘internet of things’-based maintenance and on-site service program for GenDrive fuel ~~cells,~~cell systems, GenSure ~~products,~~fuel cell systems, GenFuel hydrogen storage and dispensing products and ProGen fuel cell engines;

GenSure: GenSure is our stationary fuel cell solution providing scalable, modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors;

GenKey: GenKey is our ~~turn-key~~vertically integrated “turn-key” solution combining either GenDrive or GenSure fuel cell power with GenFuel fuel and GenCare aftermarket service, offering complete simplicity to customers transitioning to fuel cell power; and

ProGen: ProGen is our fuel cell stack and engine technology currently used globally in mobility and stationary fuel cell systems, and as engines in electric delivery vans. This includes the Plug Power MEA (membrane electrode assembly) in which Plug Power is the largest producer in North America.

We provide our products worldwide through our direct product sales force, and by leveraging relationships with original equipment manufacturers ~~or OEMs,~~ and their dealer networks. We manufacture our commercially-viable products in Latham, ~~NY.~~

~~To promote fuel cell adoption~~NY, Rochester, NY and ~~maintain post‑sale customer satisfaction, we offer a range of service~~Spokane, WA and support ~~options through extended maintenance contracts. Additionally, customers may waive our service option,~~liquid hydrogen generation and ~~choose to service their systems independently. A high percentage of fuel cells sold~~logistics in ~~recent years were bundled with maintenance contracts.~~ Charleston, TN.

Recent Developments

COVID-19 Update

As a result ~~only approximately 1.0%~~ of ~~fuel cells deployed~~the COVID-19 pandemic, state governments—including those in New York and Washington, where our manufacturing facilities are ~~still under standard warranty~~located—have issued orders requiring businesses that isdo not conduct essential services to temporarily close their physical workplaces to employees and customers. We are currently deemed an essential business and, as a ~~part~~result, are exempt from these state orders, in their current form. In March 2020, we put in place a number of ~~an extended maintenance contract.~~

protective measures in response to the COVID-19 outbreak. These measures include the canceling of all commercial air travel and all other non-critical travel, requesting that employees limit non-essential personal travel, eliminating all but essential third-party access to our facilities, enhancing our facilities’ janitorial and sanitary procedures, encouraging employees to work from home to the extent their job function enables them to do so, encouraging the use of virtual employee meetings, and providing staggered shifts and social distancing measures for those employees associated with manufacturing and service operations.

3644

~~Table~~

We cannot predict at this time the full extent to which COVID-19 will impact our business, results and financial condition, which will depend on many factors. We are staying in close communication with our manufacturing facilities, employees, customers, suppliers and partners, and acting to mitigate the impact of ~~Contents~~this dynamic and evolving situation, but there is no guarantee that we will be able to do so. Although as of the date hereof, we have not observed any material impacts to our supply of components, the situation is fluid. Many of the parts for our products are sourced from suppliers in China and the manufacturing situation in China remains variable. Supply chain disruptions could reduce the availability of key components, increase prices or both. Some of our customers, such as certain automotive manufacturers, have suspended operations at their facilities due to COVID-19. Accordingly, while those customers continue to pay for the leasing and servicing of our products, they are not purchasing hydrogen fuel. Other customers are essential businesses and remain in operation. Certain of these customers, such as Walmart, significantly increased their use of units and hydrogen fuel consumption as a result of COVID-19. In the six months ended June 30, 2020, our services and power purchase agreement margins were negatively impacted by incremental service costs associated with increased usage of units at some of our primary customer sites. In addition, future changes in applicable government orders or regulations, or changes in the interpretation of existing orders or regulations, could result in further disruptions to our business that may materially and adversely affect our financial condition and results of operations.

Acquisitions

Giner ELX, Inc. Acquisition

On June 22, 2020, the Company acquired 100% of the outstanding shares of Giner ELX, Inc. (Giner). Giner ELX is developer of electrolysis hydrogen generators which is used for on-site refueling of hydrogen fuel cells. This acquisition increases the Company’s overall green hydrogen supply capabilities primarily through production of electrolyzers. The fair value of consideration paid by the Company in connection with the acquisition was approximately $52.2 million and consisted of approximately $25.8 million cash, approximately $19.3 million of common stock and approximately $7.1 million in form of contingent consideration.

United Hydrogen Group Inc. Acquisition

On June 18, 2020, the Company acquired 100% of the outstanding shares of United Hydrogen Group Inc. (UHG). UHG is producer of liquid hydrogen and enhances the Company’s capabilities in liquid hydrogen generation, liquefaction and distribution logistics. The fair value of consideration paid by the Company in connection with the acquisition was approximately $51.0 million and consisted of approximately $19.5 million cash, approximately $30.4 million common stock and approximately $1.1 million in form of contingent consideration.

Included in cash and common stock in the above table is $1.3 million of cash and $6.5 million of common stock that was paid in April 2020 to purchase a convertible note in UHG. This convertible note included terms that allowed for reduction of the purchase price if the Company was to complete the acquisitions. As such, this note was cancelled in conjunction with the closing of this acquisition.

The impact of these acquisitions on the Company’s results of operations for the three and six months ended June 30, 2020 was insignificant.

Long-Term Debt and Convertible Senior Notes

Long-Term Debt

Additionally, on May 6, 2020, the Company and its subsidiaries, Emerging Power, Inc. and Emergent Power, Inc., entered into a Fifth Amendment (the Amendment) to the Loan Agreement and Security Agreement, dated as of March 29, 2019, as amended (the Loan Agreement) with Generate Lending, LLC (Generate Capital). The Amendment amends the Loan Agreement to, among other things, (i) provide for an incremental term loan in the amount of $50.0 million, (ii) provide for additional, uncommitted incremental term loans in an aggregate amount not to exceed $50.0 million, which may become available to the Company in Generate Capital’s sole discretion, (iii) reduce the interest rate on all loans to 9.50% from 12.00% per annum, and (iv) extend the maturity date to October 31, 2025 from October 6, 2022. The $50

45

million incremental term loan has been fully funded. In connection with the restructuring, the Company capitalized $1.0 million of origination fees and expensed $300 thousand in legal fees.

Based on the current amortization schedule as of June 30, 2020,, the outstanding balance of $141.2 million under the incremental term loan, will be fully paid by March 31, 2024. See Note 8, Long-Term Debt for additional information.

On July 10, 2020 the Company borrowed an additional $25.0 million, under the amended Loan Agreement. See Liquidity and Capital Resources – Secured Debt.

Convertible Senior Notes

In May 2020, the Company issued a $212.5 million in aggregate principal amount of 3.75% convertible senior notes due in 2025, which we refer to herein as the 3.75% Convertible Senior Notes. The total net proceeds from this offering, after deducting costs of the issuance were $205.1 million. See Note 9, Convertible Senior Notes, for more details. The Company used $90.2 million from 3.75% Convertible Senior Notes to purchase $66.3 million of the 5.5% Convertible Senior Notes.

In September 2019, the Company issued $40.0 million in aggregate principal amount of 7.5% convertible senior note due 2023, which we refer to herein as the 7.5% Convertible Senior Note. The Company’s total obligation, net of interest accretion, due to the holder is $48.0 million. The total net proceeds from this offering, after deducting costs of the issuance, were $39.1 million. As of June 30, 2020, the outstanding balance of the note, net of related discount and issuance costs, was $41.0 million. This note automatically converted in full on July 1, 2020 and 16.0 million shares of common stock were issued upon such conversion.

Results of Operations

Our primary sources of revenue are from sales of fuel cell systems and related infrastructure, services performed on fuel cell systems and related infrastructure, Power Purchase Agreements (PPAs), and fuel delivered to customers. Revenue from sales of fuel cell systems and related infrastructure represents sales of our GenDrive units, GenSure stationary backup power units, as well as hydrogen fueling infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. Revenue from PPAs primarily represents payments received from customers who make monthly payments to access the Company’s GenKey solution. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party or generated on site.

In the third quarter of 2018, it was determined that the presentation in our unaudited interim condensed consolidated statements of operations of certain service arrangements and the amortization of the associated finance obligations had not been appropriately accounted for resulting in an overstatement of our revenue and cost of revenue. This previous presentation resulted in a gross up of these line items and had no impact on our gross profit (loss) or net loss. The Company corrected the prior period unaudited interim condensed consolidated financial statements to be consistent with the current period presentation and will correct comparable financial information in future filings. The amount reclassified from revenue on service performed on fuel cell systems and related infrastructure to cost of revenue on PPAs for the three and six months ended June 30, 2019 was $0.8 million and $1.6 million, respectively. The amount reclassified from cost of revenue on service performed on fuel cell systems and related infrastructure to cost of revenue on PPAs for the three and six months ended June 30, 2018 was $1.0 million and $2.2 million, respectively. The Company does not consider the impact of the prior period correction to be material to the prior period unaudited interim condensed consolidated financial statements.

In 2017, in separate transactions, the Company issued to each of Amazon and Walmart warrants to purchase shares of the Company’s common stock. The Company recorded a portion of the estimated fair value of the warrants as a reduction of revenue based upon the projected number of shares of common stock expected to vest under the warrants, theproportion of purchases by Amazon, Walmart and their affiliates within the period relative to the aggregate purchase levels required for vesting of the respective warrants, and the then-current fair value of the warrants. ~~Beginning in September 2018,~~During the ~~provision for common stock warrants is allocated to our individual~~fourth quarter of 2019, the Company adopted ASU 2019-08, with retrospective adoption as of January 1, 2019. As a result, the amount recorded as a reduction of revenue ~~line items~~was measured based on ~~estimated contractual cash flows by revenue stream. Prior period amounts have been reclassified~~the grant-date fair value of the warrants. Previously, this amount was measured based on vesting date fair value with estimates of fair value determined at each financial reporting date for unvested warrant shares considered to be ~~consistent with current period presentation.~~ probable of vesting. Except for the third tranche, all existing unvested warrants are using a measurement date of January 1, 2019, the adoption date, in accordance ASU 2019-08. For the third tranche, the exercise price will be determined once the second tranche vests. The fair value will be determined at that time.

46

The amount of provision for common stock warrants recorded as a reduction of revenue during the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, is shown in the table below (in thousands):


	Three months ended				Six months ended
	2019		2018		2019		2018


									Three months ended June 30,				Six months ended June 30,
									2020		2019		2020		2019

Sales of fuel cell systems and related infrastructure	$	(391)	$	(1,802)	$	(988)	$	(2,647)	$	(2,497)	$	(243)	$	(3,141)	$	(515)
Services performed on fuel cell systems and related infrastructure		(156)		(720)		(395)		(1,058)		(466)		(97)		(724)		(206)
Power Purchase Agreements		(421)		(191)		(2,212)		(308)		(578)		(319)		(1,129)		(707)
Fuel delivered to customers		(515)		(1,208)		(2,067)		(1,793)		(824)		(358)		(1,578)		(781)
Total	$	(1,483)	$	(3,921)	$	(5,662)	$	(5,806)	$	(4,365)	$	(1,017)	$	(6,572)	$	(2,209)

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~~Table of Contents~~

Revenue, cost of revenue, gross profit (loss) and gross margin for the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, were as follows (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

Cost of

Gross

Gross

Cost of

Gross

Gross

Net Revenue

Revenue

Profit/(Loss)

Margin

Net Revenue

Revenue

Profit/(Loss)

Margin

For the period ended June 30, 2019:

Sales of fuel cell systems and related infrastructure

$
38,547

$
23,129

$
15,418

40.0
%

$
40,767

$
25,450

$
15,317

37.6
%
Services performed on fuel cell systems and related infrastructure

5,282

6,218

(936)

(17.7)
%

11,495

12,341

(846)

(7.4)
%
Power Purchase Agreements

6,307

8,713

(2,406)

(38.1)
%

11,014

17,711

(6,697)

(60.8)
%
Fuel delivered to customers

6,932

8,854

(1,922)

(27.7)
%

12,385

16,775

(4,390)

(35.4)
%
Total

$
57,068

$
46,914

$
10,154

17.8
%

$
75,661

$
72,277

$
3,384

4.5
%
For the period ended June 30, 2018:

Sales of fuel cell systems and related infrastructure

$
18,820

$
15,377

$
3,443

18.3
%

$
29,433

$
25,499

$
3,934

13.4
%
Services performed on fuel cell systems and related infrastructure

5,691

6,103

(412)

(7.2)
%

11,174

11,837

(663)

(5.9)
%
Power Purchase Agreements

5,438

9,638

(4,200)

(77.2)
%

10,810

18,288

(7,478)

(69.2)
%
Fuel delivered to customers

5,280

6,421

(1,141)

(21.6)
%

10,230

12,317

(2,087)

(20.4)
%
Total

$
35,229

$
37,539

$
(2,310)

(6.6)
%

$
61,647

$
67,941

$
(6,294)

(10.2)
%


	Three Months Ended								Six Months Ended
	June 30,								June 30,
			Cost of		Gross		Gross				Cost of		Gross		Gross
	Net Revenue		Revenue		Profit/(Loss)		Margin		Net Revenue		Revenue		Profit/(Loss)		Margin
For the period ended June 30, 2020:
Sales of fuel cell systems and related infrastructure	$	47,746	$	33,676	$	14,070	29.5	%	$	68,133	$	47,420	$	20,713	30.4	%
Services performed on fuel cell systems and related infrastructure		6,236		6,491		(255)	(4.1)	%		12,757		14,672		(1,915)	(15.0)	%
Power Purchase Agreements		6,654		13,704		(7,050)	(106.0)	%		13,150		27,947		(14,797)	(112.5)	%
Fuel delivered to customers		7,372		9,060		(1,688)	(22.9)	%		14,705		18,095		(3,390)	(23.1)	%
Other		62		63		(1)	(1.6)	%		138		144		(6)	(4.3)	%
Total	$	68,070	$	62,994	$	5,076	7.5	%	$	108,883	$	108,278	$	605	0.6	%
For the period ended June 30, 2019:
Sales of fuel cell systems and related infrastructure	$	38,696	$	23,129	$	15,567	40.2	%	$	41,240	$	25,450	$	15,790	38.3	%
Services performed on fuel cell systems and related infrastructure		5,341		6,218		(877)	(16.4)	%		11,684		12,341		(657)	(5.6)	%
Power Purchase Agreements		6,409		8,713		(2,304)	(35.9)	%		12,519		17,711		(5,192)	(41.5)	%
Fuel delivered to customers		7,089		8,854		(1,765)	(24.9)	%		13,671		16,775		(3,104)	(22.7)	%
Other		—		—		—	—	%		—		—		—	—	%
Total	$	57,535	$	46,914	$	10,621	18.5	%	$	79,114	$	72,277	$	6,837	8.6	%

Net Revenue

Revenue –sales of fuel cell systems and related infrastructure. Revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells, such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.

Revenue from sales of fuel cell systems and related infrastructure for the three months ended June 30, ~~2019~~2020 increased ~~$19.7~~$9.1 million, or ~~104.8%~~23.4%, to ~~$38.5~~$47.7 million from ~~$18.8~~$38.7 million for the three months ended June 30, ~~2018.~~2019. Included within revenue was provision for common stock warrants of ~~$0.4~~$2.5 million and ~~$1.8~~$0.2 million for the three months ended June 30, 2020 and 2019, ~~and 2018, respectively, positively impacting the change in revenue.~~respectively. The main ~~driver~~drivers for the increase in revenue ~~was~~were the increase in GenDrive units recognized as ~~revenue.~~revenue, change in product mix, variations in customer programs, and an increase in hydrogen installations, offset partially by the increase in the provision for common stock warrants. There were ~~1,997~~2,683 units recognized as revenue during the three months ended June 30, ~~2019,~~2020, compared to ~~822~~1,997 for the three months ended June, 30 ~~2018.~~2019. There ~~were no~~was hydrogen infrastructure ~~sales for~~revenue associated with five hydrogen sites during the three months ended June 30, 2020, compared to zero during the three months ended June 30, 2019.

Revenue from sales of fuel cell systems and related infrastructure for the six months ended June 30, ~~2019~~2020 increased ~~$11.3~~$26.9 million, or ~~38.5%~~65.2%, to ~~$40.8~~$68.1 million from ~~$29.4~~$41.2 million for the six months ended June 30, ~~2018.~~2019. Included within revenue was provision for common stock warrants of ~~$1.0~~$3.1 million and ~~$2.6~~$0.5 million for the six months ended June 30, 2020 and 2019, ~~and 2018, respectively, positively impacting the change in revenue.~~respectively. The main ~~driver~~drivers for the increase in revenue ~~was~~were the increase in GenDrive units recognized as ~~revenue.~~revenue, change in product mix, variations in customer programs, and an increase in hydrogen installations, offset partially by the increase in the provision for common stock warrants. There were ~~2,091~~3,508 units recognized as revenue during the six months ended June 30, ~~2019,~~2020, compared to ~~1,126~~2,091 for the six months ended June 30, ~~2018.~~2019. There ~~were no~~was hydrogen

47

infrastructure ~~sales for~~revenue associated with eight hydrogen sites during the ~~three~~six months ended June 30, 2020, compared to zero during the six months ended June 30, 2019.

Revenue – services performed on fuel cell systems and related infrastructure. Revenue from services performed on fuel cell systems and related infrastructure represents revenue earned on our service and maintenance contracts and sales of spare parts. At June 30, 2019, there were 11,215 fuel cell units and 42 hydrogen installations under extended maintenance contracts, an increase from 10,821 fuel cell units and 39 hydrogen installations at June 30, 2018, respectively.

Revenue from services performed on fuel cell systems and related infrastructure for the three months ended June 30, ~~2019 decreased $0.4~~2020 increased $0.9 million, or ~~7.2%~~16.8%, to ~~$5.3~~$6.2 million ~~from $5.7~~as compared to $5.3 million for the three months ended June 30, ~~2018.~~2019. Included within revenue was provision for common stock warrants of ~~$0.2~~$0.5 million and ~~$0.7~~$0.1 million for ~~the three months~~

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~~Table of Contents~~

~~ended June 30, 2019 and 2018, respectively, positively impacting the change in revenue. The decrease in service revenues was primarily due to less incremental service billings during~~ the three months ended June 30, 2020 and 2019, ~~as compared to 2018, as a result of~~respectively. The main drivers for the increase in revenue was additional contractual revenue associated with higher ~~than expected~~ utilization of ~~GenDrive units.~~ units and an increase in units under service maintenance contracts, partially offset by the increase in the provision for common stock warrants.

Revenue from services performed on fuel cell systems and related infrastructure for the six months ended June 30, ~~2019~~2020 increased ~~$0.3~~$1.1 million, or ~~2.9%~~9.2%, to ~~$11.5~~$12.8 million ~~from $11.2~~as compared to $11.7 million for the six months ended June 30, ~~2018.~~2019. Included within revenue was provision for common stock warrants of ~~$0.4~~$0.7 million and ~~$1.1~~$0.2 million for the six months ended June 30, 2020 and 2019, ~~and 2018, respectively, positively impacting~~respectively. The main drivers for the ~~change in revenue. The~~ increase in revenue was additional contractual revenue associated with higher utilization of units and an increase in units under service ~~revenues was primarily due to reduction~~maintenance contracts, partially offset by the increase in the provision for common stock warrants, increase in the number of units under service contracts, partially offset by incremental service billings related to higher utilization of GenDrive units during the six months ended June 30, 2018.warrants.

Revenue – Power Purchase Agreements. Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. ~~At June 30, 2019, there were 37 GenKey sites and 9,802 units associated with PPA arrangements, as compared to 33 sites and 6,858 units at June 30, 2018.~~

Revenue from PPAs for the three months ended June 30, ~~2019~~2020 increased ~~$0.9~~$0.2 million, or ~~16.0%~~3.8%, to ~~$6.3~~$6.7 million from ~~$5.4~~$6.4 million for the three months ended June 30, ~~2018.~~2019. Included within revenue was provision for common stock warrants of ~~$0.4~~$0.6 million and ~~$0.2~~$0.3 million for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in revenue from PPAs for the three months ended June 30, ~~2019~~2020 as compared to the three months ended June 30, ~~2018 is~~2019 was primarily attributable to the increase in ~~number of sites and~~ units ~~under PPA arrangements.~~associated with PPAs, offset in part by the increase in the provision for common stock warrants.

Revenue from PPAs for the six months ended June 30, ~~2019~~2020 increased ~~$0.2~~$0.6 million, or ~~1.9%~~5.0%, to ~~$11.0~~$13.2 million from ~~$10.8~~$12.5 million for the six months ended June 30, ~~2018.~~2019. Included within revenue was provision for common stock warrants of ~~$2.2~~$1.1 million and ~~$0.3~~$0.7 million for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in revenue from PPAs for the six months ended June 30, ~~2019~~2020 as compared to the six months ended June 30, ~~2018 is~~2019 was primarily attributable to the increase in ~~the number of sites and~~ units ~~under PPA arrangements, partially~~associated with PPAs, offset in part by the increase in the provision for common stock warrants.

Revenue – fuel delivered to customers. Revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the Company from a third party. At June 30, 2019, there were 72 sites associated with fuel contracts, as compared to 67 at June 30, 2018. The sites generally are the same as those which had purchased hydrogen installations within the GenKey solution.

party or generated on site. Revenue associated with fuel delivered to customers for the three months ended June 30, ~~2019~~2020 increased ~~$1.7~~$0.3 million, or ~~31.3%~~4.0%, to ~~$6.9~~$7.4 million from ~~$5.3~~$7.1 million for the three months ended June 30, ~~2018.~~2019. Included within revenue was provision for common stock warrants of ~~$0.5~~$0.8 million and ~~$1.2~~$0.4 million for the three months ended June 30, 2020 and 2019, ~~and 2018, respectively, positively impacting the change in revenue.~~respectively. The increase in revenue iswas due to an increase in the number of sites ~~taking~~with fuel ~~deliveries~~contracts in ~~2019,~~2020, compared to ~~2018, increases~~2019, and an increase in the price of fuel, ~~prices, and decrease~~partially offset by the increase in the provision for common stock ~~warrant provision.~~ warrants.

Revenue associated with fuel delivered to customers for the six months ended June 30, ~~2019~~2020 increased ~~$2.2~~$1.0 million, or ~~21.1%~~7.6%, to ~~$12.4~~$14.7 million from ~~$10.2~~$13.7 million for the six months ended June 30, ~~2018.~~2019. Included within revenue was provision for common stock warrants of ~~$2.1~~$1.6 million and ~~$1.8~~$0.8 million for the six months ended June 30, 2020 and 2019, ~~and 2018, respectively, negatively impacting the change in revenue.~~respectively. The increase in revenue iswas due to an increase in ~~sites taking fuel deliveries in 2019, compared to 2018, as well as increases in fuel prices, partially offset by~~ the ~~aforementioned increase in common stock warrant provision. The average~~ number of sites ~~receiving~~with fuel ~~deliveries was 72 during the six months ended June 30, 2019, as~~contracts in 2020, compared to ~~62 during~~2019, an increase in the ~~six months ended June 30, 2018.~~price of fuel, and a decrease in the provision for common stock warrants.

Cost of Revenue

Cost of revenue – sales of fuel cell systems and related infrastructure. Cost of revenue from sales of fuel cell systems and related infrastructure includes direct materials, labor costs, and allocated overhead costs related to the manufacture of our fuel cells such as GenDrive units and GenSure stationary backup power units, as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations.

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Cost of revenue from sales of fuel cell systems and related infrastructure for the three months ended June 30, ~~2019~~2020 increased ~~50.4%~~45.6%, or ~~$7.8~~$10.5 million, to $33.7 million, compared to $23.1 million ~~compared to $15.4 million the three months ended June 30, 2018. This increase is driven by the increase in~~ ~~GenDrive deployment volume. There were 1,997 GenDrive units and no hydrogen infrastructure sites recognized as revenue~~ for the three months ended June 30, ~~2019~~2019. This increase was driven by the increase in GenDrive deployment volume and increase in hydrogen installations. There were 2,683 units recognized as revenue during the three months ended June 30, 2020, compared to ~~822 GenDrive units and four hydrogen infrastructure sites recognized as revenue~~1,997 for the three months ended June 30, ~~2018.~~2019. Revenue associated with five hydrogen installations was recognized during the three months ended June 30, 2020, compared to zero during the three months ended June 30, 2019. Gross margin generated from sales of fuel cell systems and related infrastructure ~~improved~~decreased to ~~40.0%~~29.5% for the three months ended June 30, 2020, compared to 40.2% for the three months ended June 30, 2019, ~~compared to 18.3% for the three months ended June 30, 2018~~ primarily due to ~~the~~changes in product mix of GenDrive units recognized as revenue, decrease in number of hydrogen infrastructure sites deployed as well as impact of provision for common stock warrants. The provision for common stock warrants from sales of fuel cells and ~~related infrastructure for the three months ended June 30, 2019 and 2018 had a 1.0% and 8.7% negative impact on revenue, respectively.~~customer profile mix.

Cost of revenue from sales of fuel cell systems and related infrastructure for the six months ended June 30, ~~2019 and 2018 remained relatively consistent at~~2020 increased 86.3%, or $22.0 million, to $47.4 million, compared to $25.5 ~~million. There were 2,091 units and no hydrogen infrastructure sites recognized as revenue~~million for the six months ended June 30, ~~2019~~2019. This increase was driven by the increase in GenDrive deployment volume and increase in hydrogen installations. There were 3,508 units recognized as revenue during the six months ended June 30, 2020, compared to ~~1,126 units and four sites~~2,091 for the six months ended June 30, ~~2018.~~2019. Revenue associated with eight hydrogen installations was recognized during the six months ended June 30, 2020, compared to zero during the six months ended June 30, 2019. Gross margin generated from sales of fuel cell systems and related infrastructure ~~improved~~decreased to ~~37.6%~~30.4% for the six months ended June 30, 2020, compared to 38.3% for the six months ended June 30, 2019, ~~compared to 13.4% for the six months ended June 30, 2018~~ primarily due to ~~the~~changes in product mix of GenDrive units recognized as revenue, decrease in number of hydrogen infrastructure sites deployed as well as impact of provision for common stock warrants. The provision for common stock warrants from sales of fuel cells and ~~related infrastructure for the six months ended June 30, 2019 and 2018 had a 2.4% and 8.3% negative impact on revenue, respectively.~~customer profile mix.

Cost of revenue – services performed on fuel cell systems and related infrastructure. Cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor, material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts. At June 30, 2019, there were 11,215 fuel cell units and 42 hydrogen installations under extended maintenance contracts, an increase from 10,821 fuel cell units and 39 hydrogen installations at June 30, 2018, respectively.

Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended June 30, ~~2019~~2020 increased ~~1.9%~~4.4%, or ~~$0.1~~$0.3 million, to ~~$6.2~~$6.5 million, compared to ~~$6.1~~$6.2 million for the three months ended June 30, ~~2018.~~2019. Gross margin ~~declined~~increased to ~~(17.7)~~(4.1)% for the three months ended June 30, 2020, compared to (16.4)% for the three months ended June 30, 2019, ~~compared to (7.2)% for the three months ended June 30, 2018~~ primarily due to program investments targeting performance ~~improvement and variation in maintenance cycles.~~improvements, offset by incremental service costs during the quarter associated with increased usage of units at some of our primary customer sites caused by the COVID-19 pandemic.

Cost of revenue from services performed on fuel cell systems and related infrastructure for the six months ended June 30, ~~2019~~2020 increased ~~4.3%~~18.9%, or ~~$0.5~~$2.3 million, to ~~$12.3~~$14.7 million, compared to ~~$11.8~~$12.3 million for the six months ended June 30, ~~2018.~~2019. Gross margin ~~declined~~decreased to ~~(7.4)~~(15.0) % for the six months ended June 30, 2020, compared to (5.6)% for the six months ended June 30, 2019 ~~compared to (5.9)% for the six months ended June 30, 2018~~ primarily due to ~~program investments targeting performance improvement and variation~~an increase in ~~maintenance cycles.~~hydrogen infrastructure sites under service contracts as well as incremental service costs during 2020 associated with increased usage of units at some of our primary customer sites caused by the COVID-19 pandemic.

Cost of revenue – Power Purchase Agreements. Cost of revenue from PPAs includes ~~payments made~~depreciation of assets utilized and service costs to fulfill PPA obligations and interest costs associated with certain financial institutions for leased equipment, depreciation of leased property, and related service costs. Leased units are associated with sale/leaseback transactions in which the Company sells fuel cell systems and related infrastructure to a third-party, leases them back, and operates them at customers’ locations who are parties to PPAs with the Company. Alternatively, the Company can hold the equipment for investment and recognize the depreciation and service cost of the assets as cost of revenue from PPAs. At June 30, 2019, there were 37 GenKey sites and 9,802 units associated with PPAs, as compared to 33 sites and 6,858 units associated with PPAs at June 30, 2018.

equipment. Cost of revenue from PPAs for the three months ended June 30, ~~2019 decreased 9.6%~~2020 increased 57.3%, or ~~$0.9~~$5.0 million, to ~~$8.7~~$13.7 million from ~~$9.6~~$8.7 million for the three months ended June 30, ~~2018. The decrease was a result of the decrease in the depreciation of capitalized leased asset and maintenance costs in the third quarter of 2018.~~2019. Gross margin ~~improved~~decreased to ~~(38.1)~~(106.0)% for the three months ended June 30, 2020, as compared to (35.9)% for the three months ended June 30, 2019, primarily due to program investments targeting performance improvements, as ~~compared to (77.2)% for~~well as incremental service costs during the ~~three months ended June 30, 2018 as a result~~quarter associated with increased usage of units at some of our primary customer sites caused by the aforementioned decrease in the depreciation of capitalized leased asset costs and maintenance costs in the third quarter of 2018. The provision for common stock warrants from services performed on fuel cells systems and related

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~~infrastructure for the three months ended June 30, 2019 and 2018 had a 6.3% and 3.4% negative impact on revenue, respectively.~~

Cost of revenue from PPAs for the six months ended June 30, ~~2019 decreased 3.2%~~2020 increased 57.8%, or ~~$0.6~~$10.2 million, to ~~$17.7~~$27.9 million from ~~$18.3~~$17.7 million for the six months ended June 30, ~~2018.~~2019. Gross margin ~~improved~~decreased to ~~(60.8)~~(112.5)% for the six months ended June 30, 2020, as compared to (41.5)% for the six months ended June 30, 2019, ~~as compared to (69.2)% for the six months ended June 30, 2018~~ primarily due to ~~decrease in depreciation~~program investments targeting performance improvements, as well as incremental service costs during the quarter associated with increased usage of ~~capitalized leased assets and offset~~units at some of our primary customer sites caused by the increase in the level of provision for common stock warrants. The provision for common stock warrants from services performed on fuel cells systems and related infrastructure for the six months ended June 30, 2019 and 2018 had a 16.7% and 2.8% negative impact on revenue, respectively.COVID-19 pandemic.

Cost of revenue – fuel delivered to customers. Cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers that ultimately is sold to ~~customers. As part of the GenKey solution, the Company contracts with fuel suppliers to purchase liquid hydrogen~~customers and separately sells to its customers when delivered or dispensed. At June 30, 2019, there were 72 sites associated with fuel contracts, as compared to 67 at June 30, 2018. The sites generally are the same as those which had purchased hydrogen installations within the GenKey solution.

costs for onsite generation. Cost of revenue from fuel delivered to customers for the three months ended June 30, ~~2019~~2020 increased ~~37.9%~~2.3%, or ~~$2.4~~$0.2 million, to ~~$8.9~~$9.1 million from ~~$6.4~~$8.9 million for the three months ended June 30, ~~2018.~~2019. The increase was primarily due to higher volume of hydrogen

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delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. Gross margin ~~declined~~increased to ~~(27.7)~~(22.9)% during the three months ended June 30, 2020, compared to (24.9)% during the three months ended June 30, 2019 ~~compared to (21.6)% during the three months ended June 30, 2018~~ primarily due to ~~change in estimate related to a dispute on fuel billings with a vendor and~~ an increase in ~~depreciation~~the number of sites, improved efficiencies on ~~tanks and related~~existing hydrogen sites, decrease in cost of fuel ~~equipment due~~paid to ~~investments made to improve fuel system efficiency, partially~~suppliers, all of which was offset by the ~~decrease in~~amount of provision for common stock warrants. ~~The provision for common stock warrants from fuel delivered to customers for the three months ended June 30, 2019 and 2018 had a 6.9% and 18.6% negative impact on revenue, respectively.~~

Cost of revenue from fuel delivered to customers for the six months ended June 30, ~~2019~~2020 increased ~~36.2%~~7.9%, or ~~$4.5~~$1.3 million, to ~~$16.8~~$18.1 million from ~~$12.3~~$16.8 million for the six months ended June 30, ~~2018.~~2019. The increase was primarily due to higher volume of hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under GenKey agreements and higher fuel costs. Gross margin ~~declined~~decreased to ~~(35.4)~~(23.1)% during the six months ended June 30, 2020, compared to (22.7)% during the six months ended June 30, 2019, ~~compared to (20.4)% during the six months ended June 30, 2018~~ primarily due to ~~change in estimate related to a dispute on fuel billings with a vendor and an~~ increase in ~~depreciation on tanks and related fuel equipment due to investments made to improve fuel system efficiency, partially offset by~~ the ~~decrease in~~amount of provision for common stock warrants. The provision for common stock warrants from fuel delivered to customers for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 had a ~~14.3%~~9.7% and ~~14.9%~~4.1% negative impact on revenue, ~~respectively.~~ respectively, and was partly offset by improved efficiencies on existing hydrogen sites.

Expenses

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 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, ~~2019~~2020 increased ~~$0.5~~$0.8 million, or ~~6.0%~~9.2%, to ~~$8.9~~$9.8 million, from ~~$8.4~~$8.9 million for the three months ended June 30, ~~2018.~~2019. The increase was primarily ~~related~~due to ~~an increase in~~additional R&D program investments such as programs associated with ~~improving~~improvement of fuel efficiency, GenDrive unit performance and new product ~~reliability to reduce ongoing service costs.~~development such as on-road delivery trucks, drone applications, and increase in headcount.

Research and development expense for the six months ended June 30, ~~2019 decreased $0.8~~2020 increased $3.9 million, or ~~4.5%~~23.7%, to ~~$16.3~~$20.2 million, from ~~$17.1~~$16.3 million for the six months ended June 30, ~~2018.~~2019. The ~~decrease~~increase was primarily ~~related~~due to ~~a cost reimbursement from a vendor~~additional R&D program investments such as programs associated with ~~a field replacement program for certain composite~~improvement of fuel ~~tanks that did not meet the supply contract standard determined by the Company~~efficiency, GenDrive unit performance and ~~manufacturer, offset by an~~new product development such as on-road delivery trucks, drone applications, and increase in ~~programs associated product reliability to reduce ongoing service costs.~~headcount.

Selling, general and administrative expenses. Selling, general and administrative expenses includes cash and non-cash compensation, benefits, amortization of intangible assets 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, ~~2019,~~2020, increased ~~$1.4~~$8.0 million, or ~~11.3%~~58.9%, to ~~$13.6~~$21.7 million from ~~$12.2~~$13.6 million for the three months ended June 30, ~~2018.~~2019. This increase iswas primarily related to ~~an increase~~acquisition and debt restructuring charges in ~~performance-based~~addition to increases in salaries, employee bonuses, stock-based compensation ~~during the three months ended June 30, 2019.~~and headcount.

Selling, general and administrative expenses for the six months ended June 30, ~~2019,~~2020, increased ~~$2.4~~$9.7 million, or ~~11.7%~~42.4%, to ~~$23.0~~$32.7 million from ~~$20.6~~$23.0 million for the six months ended June 30, ~~2018.~~2019. This increase iswas primarily related to ~~an increase~~acquisition and debt restructuring charges in ~~performance-based~~addition to increases in salaries, employee bonuses, stock-based compensation ~~during the six months ended June 30, 2019,~~ and ~~by decrease in the legal accrual during the six months ended June 30, 2018.~~headcount.

Interest and other expense, net. Interest and other expense, net consists of interest and other expenses related to our long-term debt, convertible senior notes, obligations under finance leases and our finance obligations, as well as foreign currency exchange losses, offset by interest and other income consisting primarily of interest earned on our cash and cash equivalents, restricted cash, foreign currency exchange gains and other income. ~~The~~Since June 30, 2019, the Company ~~entered into a series of finance leases with Generate Lending LLC during 2018. Approximately $50.0~~assumed approximately $120.0 million of ~~these finance leases were terminated and replaced with~~additional long-term debt ~~with Generate Lending LLC in March 2019. Additionally, in March of 2018, the Company~~at 12% interest (which interest was reduced to 9.5%

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on May 6, 2020), issued a 7.5% Convertible Senior Note at 7.5% interest, issued $212.5 million convertible senior notes ~~in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.~~at 3.75% interest, and entered into additional sale/leaseback finance obligation arrangements.

Net interest and other expense for the three months ended June 30, ~~2019~~2020 increased ~~$1.7~~$5.3 million, or ~~28.1%~~67.9%, as compared to the three months ended June 30, ~~2018.~~2019. This increase ~~is attributed~~was attributable to ~~the~~an increase in finance ~~leases/~~obligations, long-term debt ~~during 2019~~ and the issuance of the convertible senior ~~notes in March of 2018,~~note, as mentioned above.

Net interest and other expense for the six months ended June 30, ~~2019~~2020 increased ~~$7.0~~$8.6 million, or ~~75.4%~~52.9%, as compared to the six months ended June 30, ~~2018.~~2019. This increase ~~is attributed~~was attributable to ~~the~~an increase in finance ~~leases/~~obligations, long-term debt ~~during 2019~~ and the issuance of the convertible senior ~~notes in March of 2018,~~note, as mentioned above.

~~Change in fair value of common stock warrant liability.~~

Common Stock Warrant Liability

The Company accounts for common stock warrants as common stock warrant liability with changes in the fair value reflected in the unaudited interim condensed consolidated statement of operations as change in the fair value of common stock warrant liability.

~~The~~All remaining common stock warrants were fully exercised in the fourth quarter of 2019. As such, there was no change in fair value as of ~~common stock warrant liability for the three months ended~~ June 30, ~~2019~~2020.

Gain on Extinguishment of Debt

Gain on Extinguishment of Debt. In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior Notes to repurchase approximately $66.3 million of the 5.5% Convertible Senior Notes which resulted in a ~~decrease in the associated warrant liability of $1.7~~$13.2 million as compared to a decrease of $0.3 million for the three months ended June 30, 2018. These variances are primarily due to changes in the average remaining term, the increase Company’s common stock share price, and changes in volatility of our common stock, which are significant inputs to the Black-Scholes valuation model used to calculate this fair value change.gain on early debt extinguishment.

Income Tax

The change in fair value of common stock warrant liability for the six months ended June 30, 2019 resulted in an increase in the associated warrant liability of $0.4 million as compared to a decrease of $1.6 million for the six months ended June 30, 2018. These variances are primarily due to changes in the average remaining term, the increase Company’s common stock share price, and changes in volatility of our common stock, which are significant inputs to the Black-Scholes valuation model used to calculate this fair value change.

~~Income taxes.~~The Company recognized an income tax benefit for the three and six months ended June 30, ~~2018~~2020 of ~~$2.9~~$12.4 million ~~and $5.9 million, respectively,~~ as a result of the intraperiod tax allocation rules under ASC Topic 740-20, Intraperiod Tax Allocation, under which the Company recognized a benefit for current losses as a result of an entry to additional paid-in capital related to the issuance of the ~~Convertible Senior Notes discussed in Note 8,~~3.75% Convertible Senior Notes. ~~The~~In addition, the Company ~~did not record any~~recorded $6.1 million of income tax ~~expense or~~ benefit ~~for~~related to net deferred tax liabilities recorded in connection with the ~~three~~acquisition of Giner ELX and ~~six months ended June 30, 2019.~~the resulting release of $5.2 million of valuation allowances. The Company has not changed its overall conclusion with respect to the need for a valuation allowance against its net deferred tax assets, which remain fully reserved.

The remaining net deferred tax asset generated from the Company’s 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. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

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Liquidity and Capital Resources

Liquidity

Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses, growth in inventory to support both shipments of new units and servicing the installed base, growth in equipment leased to customers under long-term arrangements, funding the growth in our GenKey “turn-key” solution, which includes the installation of our customers’ hydrogen infrastructure as well as production and delivery of the hydrogen fuel, continued development and expansion of our products, payment of lease/financing obligations under sale/leaseback financings, and the repayment or refinancing of our long-term debt. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments; attaining and expanding positive gross margins across all product lines; the timing and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of developing marketing and distribution channels; the ability of our customers to obtain financing to support commercial transactions; our ability to obtain financing arrangements to support the sale or leasing of our products and services to customers and to repay or refinance our long-term debt, and the terms of such agreements that may require us to pledge or restrict substantial amounts of our cash to support these financing arrangements; 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;

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the timing and costs of product development and introductions; the extent of our ongoing and new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations with positive cash flows and cannot obtain external financing, we may not be able to sustain future operations. As a result, we may be required to delay, reduce and/or cease our operations and/or seek bankruptcy protection.

We have experienced and continue to experience negative cash flows from operations and net losses. The Company incurred net losses attributable to common ~~shareholders~~stockholders of ~~$52.6~~$46.2 million and $49.1 million for the six months ended June 30, ~~2019~~2020 and ~~$78.2 million, $130.2 million and $57.6 million for the years ended December 31, 2018, 2017, and 2016,~~2019, respectively, and had an accumulated deficit of ~~$1.3~~$1.4 billion at June 30, ~~2019.~~2020.

We have historically funded our operations primarily through public and private offerings of equity and debt, as well as short-term borrowings, long-term debt and project financings. The Company believes that its current working capital and cash anticipated to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity and debt offerings, including our at-the-market offering, will provide sufficient liquidity to fund operations for at least one year after the date the financial statements are issued. There is no guarantee that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on our current expectations regarding new project financing and product sales and service, cost structure, cash burn rate and other operating assumptions.

During the six months ended June 30, ~~2019,~~2020, net cash used in operating activities was ~~$48.5~~$111.2 million, consisting primarily of a net loss attributable to the Company of ~~$52.5~~$46.1 million, and net outflows from fluctuations in working capital and other assets and liabilities of ~~$18.5 million, and offset by the impact of non-cash charges/gains of $22.5~~$61.1 million. The changes in working capital primarily were related to ~~an increase in inventory, and prepaid expenses and other assets combined with a decrease in deferred revenue and offset by decreases in accounts receivable and~~ increases in ~~accounts payable, accrued expenses,~~various current asset and ~~other liabilities.~~liability accounts. As of June 30, 2020, we had cash and cash equivalents of $152.5 million and net working capital of $186.3 million. By comparison, at December 31, 2019, we had cash and cash equivalents of ~~$19.8~~$139.5 million and net working capital of ~~$50.2~~$162.5 million. ~~By comparison, at December 31, 2018, we had cash and cash equivalents of $38.6 million and net working capital of $9.2 million.~~

Net cash used in investing activities for the six months ended June 30, ~~2019,~~2020 totaled ~~$6.3~~$56.6 million and included net cash paid for acquisitions, purchases of property, plant and equipment, ~~purchases of intangible assets,~~and outflows associated with materials, labor, and overhead necessary to construct new leased ~~property and proceeds in connection with sales of leased assets.~~property. Cash outflows related to equipment that ~~we sell and equipment~~ we lease directly to customers are included in net cash used in ~~operating activities and net cash used in~~ investing ~~activities, respectively.~~ activities.

Net cash provided by financing activities for the six months ended June 30, ~~2019~~2020 totaled ~~$80.0~~$181.6 million and primarily resulted from the issuance of convertible senior notes, and proceeds from borrowing on long-term debt, offset by the repurchase of convertible senior notes and related capped calls.

Public and Private Offerings of Equity and Debt

Common Stock Issuances

On April 13, 2020, the Company entered into an At Market Issuance Sales Agreement (ATM), with B. Riley FBR, Inc., as sales agent, or FBR, pursuant to which the Company may offer and sell, from time to time through FBR, shares of Company common stock having an aggregate offering price of up to $75.0 million. As of the date of this filing, the Company did not issue any shares of common stock pursuant to the ATM.

In the second quarter of 2019, the Company issued 2.1 million shares of common stock pursuant to an ATM entered into with FBR, as sales agent, on April 3, 2017, resulting in net proceeds of ~~$28.3~~$5.5 million. There were no sales under the ATM in the first quarter of 2019.

In December 2019, the Company issued and sold in a registered public offering an aggregate of 46 million shares of its common stock at a purchase price of $2.75 per share for net proceeds of approximately $120.4 million.

In March 2019, the Company issued and sold in a registered direct offering an aggregate of 10 million shares of its common stock at a purchase price of $2.35 per share for net proceeds of approximately $23.5 million.

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Convertible Senior Notes

In May 2020, the Company issued $212.8 million in aggregate principal amount of 3.75% convertible senior notes due 2025, which we refer to herein as the 3.75% Convertible Senior Notes. The total net proceeds from this offering, after deducting costs of the issuance, were $205.1 million. The Company used $90.2 million of the net proceeds from the ~~sale~~offering of ~~our common stock, $100.0 million from a new debt facility, some of which was used~~the 3.75% Convertible Senior Notes to ~~pay approximately $50.3~~repurchase $66.3 million of finance obligations and $17.6 million of previously outstanding long-term debt, including accrued interest. In addition, there was a $25.6 million increase in cash flows from new finance obligations.

~~In March 2018, we issued $100.0~~the $100 million in aggregate principal amount of 5.5% Convertible Senior Notes due 2023, which we refer to herein as the 5.5% Convertible Senior Notes. In addition, the Company used approximately $15.3 million of the net proceeds from the offering of the 3.75% Convertible Senior Notes to enter into privately negotiated capped called transactions.

In September 2019, the Company issued a $40.0 million in aggregate principal amount of 7.5% convertible senior note due 2023, ~~(Convertible~~which we refer to herein as the 7.5% Convertible Senior ~~Notes).~~Note. The Company’s total obligation, net of interest accretion, due to the holder was $48.0 million. The total net proceeds from this offering, after ~~considering~~deducting costs of the issuance, were ~~approximately $95.9~~$39.1 million. ~~Approximately $43.5 million~~As of June 30, 2020, the outstanding balance of the ~~proceeds were used for~~note, net of related discount and issuance costs, was $41.0 million. On July 1, 2020, the ~~cost~~note automatically converted fully into 16.0 million shares of ~~a capped call~~common stock.

Operating and ~~a common stock forward, both of which are hedges related to the Convertible Senior Notes. See Note 8, Convertible Senior notes for more details.~~

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Finance Leases

The Company enters into sale/leaseback agreements with various financial institutions to facilitate the Company’s commercial transactions with key customers. The Company sells certain fuel cell systems and hydrogen infrastructure to the financial institutions and leases the equipment back to support certain customer locations and to fulfill its varied Power Purchase Agreements (PPAs). Transactions completed under the sale/leaseback arrangements are generally accounted for as operating leases and therefore the sales of the fuel cell systems and hydrogen infrastructure are recognized as revenue. In connection with certain ~~operating leases,~~sale/leaseback transactions, the financial institutions require the Company to maintain cash balances in restricted accounts securing the Company’s finance obligations. Cash received from customers under the PPAs is used to make payments against ~~our~~the Company’s finance obligations. As the Company performs under these agreements, the required restricted cash balances are released, according to a set schedule. The total remaining lease payments to financial institutions under these agreements at June 30, ~~2019 is $121.3~~2020 was $293.7 million, $233.8 million of which ~~have been~~were secured with restricted cash, security deposits backing letters of credit, and pledged service ~~escrows of $122.8 million.~~escrows.

The Company has avaried master lease ~~agreement~~agreements with Wells Fargo ~~(Wells~~Equipment Finance, Inc., or Wells Fargo, ~~MLA)~~ to finance the Company’s commercial transactions with ~~Walmart.~~various customers. The Wells Fargo ~~MLA was~~lease agreements were entered into induring 2017, 2018, and ~~amended in 2018.~~2019. No sale/leaseback transactions were entered with Wells Fargo during the six months ended June 30, 2020. Pursuant to the ~~Wells Fargo MLA,~~lease agreements, the Company sells fuel cell systems and hydrogen infrastructure to Wells Fargo and then leases them back and operates them at Walmart ~~sites under~~sites. The Company has a customer guarantee for a large portion of the transactions entered into in connection with such lease agreements. The Wells Fargo lease agreements ~~with Walmart.~~required letters of credit for the unguaranteed portion totaling $50.6 million as of June 30, 2020. The total remaining lease ~~payments~~liabilities owed to Wells Fargo were ~~$84.7~~$103.2 million at June 30, ~~2019. Transactions completed under~~2020.

Over recent years, including in 2019, the Company has entered into master lease agreements with multiple institutions such as Key Equipment Finance (KeyBank), SunTrust Equipment Finance & Lease Corp. (now known as Truist Bank), and First American Bancorp, Inc. (First American). In the first half of 2020, the Company entered into additional lease agreements with KeyBank, First American and Truist Bank. Similar to the Wells Fargo ~~MLA in 2018 and 2019 were accounted for as operating leases and therefore~~lease agreements, the ~~sales~~primary purpose of these agreements is to finance commercial transactions with varied customers. Most of the ~~fuel cell systems and hydrogen infrastructure were recognized as revenue~~transactions with these financial institutions required cash collateral for the ~~year ended December 31, 2018 and three and six months ended~~unguaranteed portions totaling $172.3million as of June 30, ~~2019. Transactions completed under~~2020. Similar to the Wells Fargo ~~MLA~~lease agreements, in 2017 were accounted for as capital leases. The difference in lease classification is due to changes in financing terms and their bearing on lease assessment criteria. Also included in the remaining lease payments to Wells Fargo is a sale/leaseback transaction in 2015 that was accounted for as an operating lease. In connection with the Wells Fargo MLA,many cases the Company has a customer guarantee for a ~~majority~~large portion of the transactions. The ~~Wells Fargo MLA transactions in 2018 and 2019 required a letter of credit for the unguaranteed portion totaling $28.5million.~~

During the second quarter of 2019, the Company entered into additional, similar master lease agreements with Wells Fargo and Crestmark to finance subscription programs with other customers. These financings were done in the form of sale/leaseback arrangements and accounted for as operating leases, hence sales of the fuel cell equipment were included in the three months ended June 30, 2019. Totaltotal remaining lease ~~payments under~~liabilities owed to these ~~leases~~financial institutions were $190.5 million at June 30, ~~2019 were $26.3 million. These~~2020.

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Restricted Cash

As security for the above noted sale/leaseback agreements, cash of $131.1 million was required to be restricted as of June 30, 2020, which restricted cash will be released over the lease ~~payments are secured by cash collateral and~~term. As of June 30, 2020, the Company also had letters of credit backed by security deposits totaling $98.2 million for the above noted sale/leaseback agreements.

In addition, as of June 30, 2020, the Company also had letters of credit in the aggregate amount of $0.5 million associated with a finance obligation from the sale/leaseback of its building. We consider cash collateralizing this letter of credit as restricted cash.

In November 2018, the Company completed a private placement of an aggregate of 35,000 shares of the Company’s Series E Convertible Preferred Stock, par value $0.01 per share (Series E Preferred Stock) resulting in net proceeds of approximately $30.9 million. See Note 10, Redeemable Preferred Stock for additional information.Secured Debt

In March 2019, the Company entered into a loan and security agreement with Generate Lending, LLC (Generate Capital) borrowing $85.0 million. The initial proceeds of the loan were used to pay in full the Company’s long-term debt and accrued interest of $17.6 million, under the loan agreement with NY Green Bank, a Division of the New York State Energy Research & Development Authority (NY Green Bank) and terminate approximately $50.3 million of certain equipment leases with Generate Plug Power SLB II, LLC as well as repurchase of the associated leased equipment. During April 2019, the Company borrowed an additional $15.0 million under this debt facility. See Note 7, Long-Term Debt for additional information.

~~In March 2019, the Company sold 10 million shares of common stock for an issue price of $2.35 per share resulting in net proceeds of $23.5 million.~~

In the second quarter of 2019, the Company issued 2.1 million shares of common stock through its At Market Issuance Sales Agreement (ATM) resulting in net proceeds of $5.5 million. There were no ATM transactions in the first quarter of 2019.

We have historically funded our operations primarily through public and private offerings of common and preferred stock, as well as short-term borrowings, long-term debt and project financings, and Convertible Senior Notes. The Company believes that its current working capital and cash anticipated to be generated from future operations, as well as borrowings from lending and project financing sources and proceeds from equity offerings, will provide sufficient liquidity to fund operations for at least one year after the date the financial statements are issued. There is no guarantee

44

~~Table of Contents~~

that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on our current expectations regarding new project financing and product sales and service, cost structure, cash burn rate and other operating assumptions. Additionally, the Company has other capital sources available, including the At Market Issuance Sales Agreement.

~~Several key indicators of liquidity are summarized in the following table (in thousands):~~

Six months

Year

ended or at

ended or at

June 30, 2019

December 31, 2018
Cash and cash equivalents at end of period

$
19,845

$
38,602
Restricted cash at end of period

115,482

71,551
Working capital at end of period

50,222

9,245
Net loss attributable to common shareholders

52,525

78,167
Net cash used in operating activities

48,488

57,617
Net cash used in investing activities

6,316

19,572
Net cash provided by financing activities

80,026

119,344

~~Long-Term Debt~~

In March 2019, the Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc., entered ~~in to~~into a loan and security agreement, as amended (the Loan Agreement), with Generate Lending, LLC (Generate Capital), providing for a secured term loan facility in the amount of $100.0 million (the Term Loan Facility). The Company borrowed $85.0 million under the Loan Agreement on the date of closing and borrowed an additional $15.0 million in April 2019 and $20 million in November 2019. A portion of the initial proceeds of the loan ~~were~~was used to pay in full the Company’s long-term debt ~~including accrued interest of $17.6 million under the loan and security agreement, dated as of July 21, 2017, by and among the Company, Emerging, Emergent and~~with NY Green Bank, a Division of the New York State Energy Research & Development Authority, including accrued interest of $17.6 million (the Green Bank Loan), and terminate approximately $50.3 million of certain equipment leases with Generate Plug Power SLB II, LLC and repurchase the associated leased equipment. In connection with this transaction, the Company recognized a loss on extinguishment of debt of approximately $0.5 ~~million.~~million during the six months ended June 30, 2019. This loss was recorded in interest and other expenses, net in the Company’s unaudited interim condensed consolidated statement of operations. Additionally, $1.7 million was paid to an escrow account related to additional fees ~~for~~due in connection with the Green Bank Loan if the Company does not meet certain New York State employment and fuel cell deployment targets by March 2021. ~~This amount paid to an escrow account~~Amount escrowed is recorded in long-term other assets on the Company’s unaudited interim condensed consolidated balance ~~sheet~~sheets as of June 30, ~~2019.~~ 2020. The Company presently expects to meet the targets as required under the arrangement.

Additionally, on May 6, 2020, the Company and its subsidiaries, Emerging Power, Inc. and Emergent Power, Inc., entered into a Fifth Amendment (the Amendment) to the Loan Agreement and Security Agreement, dated as of March 29, 2019, as amended (the Loan Agreement) with Generate Lending, LLC (Generate Capital). The Amendment amends the Loan Agreement to, among other things, (i) provide for an incremental term loan in the amount of $50.0 million, (ii) provide for additional, uncommitted incremental term loans in an aggregate amount not to exceed $50.0 million, which may become available to the Company in Generate Capital’s sole discretion, (iii) reduce the interest rate on all loans to 9.50% from 12.00% per annum, and (iv) extend the maturity date to October 31, 2025 from October 6, 2022. The $50 million incremental term loan has been fully funded. In connection with the restructuring, the Company capitalized $1.0 million of origination fees and expensed $300 thousand in legal fees.

On June 30, ~~2019,~~2020, the outstanding ~~principal~~ balance under the Term Loan Facility was ~~$99.9 million. The net loan proceeds of $32.1~~$141.2 million ~~are being used to fund working capital for ongoing deployments and other general corporate purposes of~~with a 9.5% interest rate. On July 10, 2020 the ~~Company.~~

~~Advances~~Company borrowed an additional $25.0 million, under the ~~Term~~amended Loan ~~Facility bear interest of 12.0% per annum.~~ Agreement.

The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. ~~The term~~Interest and a portion of the ~~loan~~principal amount is ~~three years, with~~payable on a ~~maturity date of December 13, 2022.~~quarterly basis. Principal payments will be funded in part by releases of restricted cash, as described in Note ~~15,~~16, Commitments and Contingencies.

~~Interest and a portion~~ Based on the amortization schedule as of June 30, 2020, the ~~principal amount is payable on a quarterly basis and~~outstanding balance of $141.2 million under the Term Loan Facility will be fully paid by March 31, 2024. If addition term loans are funded, the entire ~~then outstanding~~then-outstanding principal balance of the Term Loan Facility, together with all accrued and unpaid interest, iswill be due and payable on the maturity date of December 13, 2022. The Company may also be required to pay Generate Capital additional fees of up to $1.5 million if the Company is unable to provide $50.0 million of structured project financing arrangements with Generate Capital prior to DecemberOctober 31, ~~2021.~~2025.

All obligations under the Loan Agreement are unconditionally guaranteed by Emerging Power Inc. and Emergent Power Inc. The Term Loan Facility is secured by substantially all of the Company’s and the guarantor subsidiaries’ assets, including, among other assets, all intellectual property, all securities in domestic subsidiaries and 65% of the securities in foreign subsidiaries, subject to certain exceptions and exclusions.

4554

~~Table of Contents~~

The Loan Agreement contains covenants, including, among others, (i) the provision of annual and quarterly financial statements, management rights and insurance policies and (ii) restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales and (iii) compliance with a collateral coverage ~~covenant that is first measured on December 31, 2019 and is based on certain factors that are yet to be determined and on a third party valuation that has yet to be completed.~~covenant. The Loan Agreement also provides for events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control, judgment and material adverse effect defaults at the discretion of the lender. As of June 30, 2020, the Company was in compliance with all the covenants.

The Loan Agreement provides that if there is an event of default due to the Company’s insolvency or if the Company fails to perform in any material respect the servicing requirements for fuel cell systems under certain customer agreements, which failure would entitle the customer to terminate such customer agreement, replace the Company or withhold the payment of any material amount to the Company under such customer agreement, then Generate Capital has the right to cause Proton Services Inc., a wholly owned subsidiary of the Company, to replace the Company in performing the maintenance services under such customer agreement.

~~The~~As of June 30, 2020, the Term Loan Facility requires the principal balance at the end of each of the following years ~~may~~amortization not to exceed the following (in thousands):


December 31, 2019	$	94,638

December 31, 2020		73,034	$	125,687
December 31, 2021		51,106		89,301
December 31, 2022		—		51,478
December 31, 2023				16,863
December 31, 2024				—

As of August 10, 2020, the Term Loan Facility, given the incremental borrowing subsequent to June 30, 2020, as described above, requires the principal balance at the end of each of the following years amortization not to exceed the following (in thousands):


December 31, 2020	$	139,017
December 31, 2021		102,317
December 31, 2022		68,321
December 31, 2023		37,920
December 31, 2024		8,692
December 31, 2025		—

Several key indicators of liquidity are summarized in the following table (in thousands):


	Six months		Year
	ended or at		ended or at
	June 30, 2020		December 31, 2019
Cash and cash equivalents at end of period	$	152,492	$	139,496
Restricted cash at end of period		230,761		230,004
Working capital at end of period		186,301		162,549
Net loss attributable to common stockholders		46,154		85,517
Net cash used in operating activities		(111,247)		(51,522)
Net cash used in investing activities		(56,551)		(14,244)
Net cash provided by financing activities		181,565		325,060

3.75% Convertible Senior Notes

On May 18, 2020, the Company issued $200.0 million in aggregate principal amount of 3.75% Convertible Senior Notes due June 1, 2025, which is referred to herein as the 3.75% Convertible Senior Notes, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, or the Securities Act. On May 29, 2020, the Company issued an additional $12.5 million in aggregate principal amount of 3.75% Convertible Senior Notes.

55

The 3.75% Convertible Senior Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The notes will mature on June 1, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms.

The 3.75% Convertible Senior Notes are senior, unsecured obligations of the Company and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to any of the Company’s existing and future liabilities that are not so subordinated, including the Company’s $100 million in aggregate principal amount of 5.5% Convertible Senior Notes due 2023, which is referred to herein as the 5.5% Convertible Senior Notes, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities, including trade payables, of its current or future subsidiaries.

Holders of the 3.75% Convertible Senior Notes may convert their notes at their option at any time prior to the close of the business day immediately preceding December 1, 2024 in the following circumstances:

1)

during any calendar quarter commencing after September 30, 2020, if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

2)

during the five business days after any five consecutive trading day period (such five consecutive trading day period, the measurement period) in which the trading price per $1,000 principal amount of the 3.75% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

3)

if the Company calls any or all of the 3.75% Convertible Senior Notes for redemption, any such notes that have been called for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

4)

upon the occurrence of specified corporate events, as described in the indenture governing the 3.75% Convertible Senior Notes.

On or after December 1, 2024, the holders of the 3.75% Convertible Senior Notes may convert all or any portion of their notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

The initial conversion rate for the 3.75% Convertible Senior Notes will be 198.6196 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $5.03 per share of the Company’s common stock, subject to adjustment upon the occurrence of specified events. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.

In addition, following certain corporate events or following issuance of a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called for redemption during the related redemption period in certain circumstances.

The 3.75% Convertible Senior Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 5, 2023 and before the 41^st scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the

56

three trading days immediately preceding the date the Company sends the related redemption notice, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company sends such redemption notice.

If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require the Company to repurchase their notes for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, to, but excluding, the fundamental change repurchase date.

In accounting for the issuance of the 3.75% Convertible Senior Notes, the Company separated the notes into liability and equity components. The initial carrying amount of the liability component of approximately $75.2 million, net of costs incurred, was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $130.3 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 3.75% Convertible Senior Notes. The difference between the principal amount of the 3.75% Convertible Senior Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the 3.75% Convertible Senior Notes. The effective interest rate is approximately 29.0%. The equity component of the 3.75% Convertible Senior Notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

We incurred transaction costs related to the issuance of the 3.75% Convertible Senior Notes of approximately $7.0 million, consisting of initial purchasers’ discount of approximately $6.4 million and other issuance costs of $0.6 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 3.75% Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.6 million, were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and are being amortized to interest expense over the term of the 3.75% Convertible Senior Notes. The transaction costs attributable to the equity component were approximately $4.4 million and were netted with the equity component in stockholders’ equity.

The 3.75% Convertible Senior Notes consisted of the following (in thousands):


	June 30,
	2020
Principal amounts:
Principal	$	212,463
Unamortized debt discount (1)		(133,321)
Unamortized debt issuance costs (1)		(2,517)
Net carrying amount	$	76,625
Carrying amount of the equity component (2)	$	130,249

1)

Included in the unaudited interim condensed consolidated balance sheets within the 3.75% Convertible Senior Notes, net and amortized over the remaining life of the notes using the effective interest rate method.

2)

Included in the unaudited interim condensed consolidated balance sheets within additional paid-in capital, net of $4.4 million in equity issuance costs and associated income tax benefit of $12.4 million.

Based on the closing price of the Company’s common stock of $8.21 on June 30, 2020, the if-converted value of the notes was greater than the principal amount. The estimated fair value of the note at June 30, 2020 was approximately $339.0 million. The Company utilized a Monte Carlo simulation model to estimate the fair value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the note, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.

57

Capped Call

In conjunction with the pricing of the 3.75% Convertible Senior Notes, the Company entered into privately negotiated capped call transactions ($200 million Notes Capped Call) with certain counterparties at a price of $16.2 million. The 3.75% Notes Capped Call cover, subject to anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that underlie the initial 3.75% Convertible Senior Notes and is generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 3.75% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 3.75% Notes Capped Call is initially $6.7560 per share, which represents a premium of approximately 60%over the last then-reported sale price of the Company’s common stock of $4.11 per share on the date of the transaction and is subject to certain adjustments under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.

The net cost incurred in connection with the 3.75% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheet

7.5% Convertible Senior Note

In September 2019, the Company issued $40.0 million aggregate principal amount of 7.5% Convertible Senior Note due on January 5, 2023, which is referred to herein as the 7.5% Convertible Senior Note, in exchange for net proceeds of $39.1 million, in a private placement to an accredited investor pursuant to Rule 144A under the Securities Act . There are no required principal payments prior to maturity of the 7.5% Convertible Senior Note. Upon maturity of the 7.5% Convertible Senior Note, the Company is required to repay 120% of $40.0 million, or $48.0 million. The 7.5% Convertible Senior Note bears interest at 7.5% per annum, payable quarterly in arrears on January 5, April 5, July 5 and October 5 of each year beginning on October 5, 2019 and will mature on January 5, 2023 unless earlier converted or repurchased in accordance with its terms. The 7.5% Convertible Senior Note is unsecured and does not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.

The 7.5% Convertible Senior Note has an initial conversion rate of 387.5969, which is subject to adjustment in certain events. The initial conversion rate is equivalent to an initial conversion price of approximately $2.58 per share of common stock. The holder of the 7.5% Convertible Senior Note may convert at its option at any time until the close of business on the second scheduled trading day immediately prior to the maturity date for shares of the Company’s common stock, subject to certain limitations. In addition, the 7.5% Convertible Senior Note will be automatically converted if (1) the daily volume-weighted average price per share of common stock exceeds 175% of the conversion price (as described above) on each of the 20 consecutive VWAP trading days (as defined in the note) beginning after the issue date of the 7.5% Convertible Senior Note and (2) certain equity conditions (as defined in the note) are satisfied. Only if both criteria are met is the note automatically converted. Upon either the voluntary or automatic conversion of the 7.5% Convertible Senior Note, the Company will deliver shares of common stock based on (1) the then-effective conversion rate and (2) the original principal amount of $40.0 million and not the maturity principal amount of $48.0 million. The 7.5% Convertible Senior Note does not allow cash settlement (entirely or partially) upon conversion. As such, the Company uses the if-converted method for calculating any potential dilutive effect of the conversion option on diluted earnings per share.

The Company concluded the conversion features did not require bifurcation. Specifically, while the Company determined that (i) the conversion features were not clearly and closely related to the host contracts, (ii) the 7.5% Convertible Senior Note (i.e., hybrid instrument) is not remeasured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur and (iii) the conversion features, if freestanding, would meet the definition of a derivative, the Company concluded such conversion features meet the equity scope exception, and therefore, the conversion features are not required to be bifurcated from the 7.5% Convertible Senior Note.

If the Company undergoes a fundamental change prior to the maturity date, subject to certain limitations, the holder may require the Company to repurchase for cash all or a portion of the 7.5% Convertible Senior Note at a cash repurchase price equal to any accrued and unpaid interest on the note (or portion thereof), plus the greater of (1) 115% of the maturity principal amount of $48.0 million (or portion thereof) and (2) 110% of the product of (i) the conversion rate in effect as of the trading day immediately preceding the date of such fundamental change; (ii) the principal amount of the $40.0 million

58

7.5% Convertible Senior Note to be repurchased divided by $1,000; and (iii) the average of the daily volume-weighted average price per share of the Company’s common stock over the five consecutive VWAP trading days immediately before the effective date of such fundamental change.

In addition, with the consent of the holder of the note, subject to certain limitations, the Company may redeem all or any portion of the 7.5% Convertible Senior Note, at the Company’s option, at a cash redemption price equal to any accrued and unpaid interest on the note (or portion thereof), plus the greater of (1) 105% of the maturity principal amount of $48.0 million (or portion thereof); and (2) 115% of the product of (i) the conversion rate in effect as of the trading day immediately preceding the related redemption date; (ii) the principal amount of the 7.5% Convertible Senior Note to be redeemed divided by $1,000; and (iii) the arithmetic average of the daily volume-weighted average price per share of common stock over the five consecutive VWAP trading days immediately before the related redemption date.

While the Company concluded the fundamental change redemption option represents an embedded derivative, the Company concluded the value of the embedded derivative to be immaterial given the likelihood of the occurrence of a fundamental change was deemed to be remote. As related to the call option, the Company concluded the call option was clearly and closely related to the host contract, and therefore, did not meet the definition of an embedded derivative.

The Company concluded the total debt discount at issuance of the 7.5% Convertible Senior Note equaled approximately $8.0 million. This debt discount was attributed to the fact that upon maturity, the Company is required to repay 120% of $40.0 million, or $48.0 million. In addition, the related debt issuance costs were $1.0 million. The debt discount was recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheets) and is being amortized to interest expense over the term of the 7.5% Convertible Senior Note using the effective interest rate method.

The 7.5% Convertible Senior Note consisted of the following (in thousands):


	June 30,		December 31,
	2020		2019
Principal amounts:
Principal at maturity	$	48,000	$	48,000
Unamortized debt discount		(6,200)		(7,400)
Unamortized debt issuance costs		(812)		(969)
Net carrying amount	$	40,988	$	39,631

Based on the closing price of the Company’s common stock of $8.21 on June 30, 2020, the if-converted value of the 7.5% Convertible Senior Note was greater than the principal amount. The estimated fair value of the 7.5% Convertible Senior Note at June 30, 2020 and December 31, 2019 was approximately $131.4 million and $53.5 million, respectively. The Company utilized a Monte Carlo simulation model to estimate the fair value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the 7.5% Convertible Senior Note, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.

On July 1, 2020, the 7.5% Convertible Senior Note automatically converted into 16.0 million shares of common stock.

5.5% Convertible Senior Notes

In March 2018, the Company issued $100.0 million in aggregate principal amount of 5.5% Convertible Senior Notes due on March 15, 2023, which is referred to herein as the 5.5% Convertible Senior Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities ~~Act of 1933, as amended. There are no required principal payments prior to maturity~~Act.

In May 2020, the Company used a portion of the net proceeds from the issuance of the 3.75% Convertible Senior ~~Notes.~~Notes to finance the cash portion of the partial repurchase of the 5.5% Convertible Senior Notes, which consisted of a repurchase of approximately $66.3 million in aggregate principal amount of the 5.5% Convertible Senior Notes in

59

privately-negotiated transactions for aggregate consideration of $128.9 million, consisting of approximately $90.2 million in cash and approximately 9.4 million shares of the Company’s common stock. Of the $128.9 million in aggregate consideration, $35.5 million and $93.4 million were allocated to the debt and equity components, respectively, utilizing an effective discount rate of 29.8% to determine the fair value of the liability component. As of the repurchase date, the carrying value of the 5.5% Convertible Senior Notes that were repurchased, net of unamortized debt discount and issuance costs, was $48.7 million. The partial repurchase of the 5.5% Convertible Senior Notes resulted in a $13.2 million gain on early debt extinguishment. As of June 30, 2020, approximately $33.7 million aggregate principal amount of the 5.5% Convertible Senior Notes remained outstanding.

At issuance in March 2018, the total net proceeds from the 5.5% Convertible Senior Notes were as follows:


	Amount
	(in thousands)

			Amount
			(in thousands)
Principal amount	$	100,000	$	100,000
Less initial purchasers' discount		(3,250)
Less initial purchasers’ discount				(3,250)
Less cost of related capped call and common stock forward		(43,500)		(43,500)
Less other issuance costs		(894)		(894)
Net proceeds	$	52,356	$	52,356

The 5.5% Convertible Senior Notes bear interest at 5.5%, payable semi-annually in cash on March 15 and September 15 of each year. The 5.5% Convertible Senior Notes will mature on March 15, 2023, unless earlier converted or repurchased in accordance with their terms. The 5.5% Convertible Senior Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, or the issuance or repurchase of common stock by the Company.

Each $1,000 of principal amount of the 5.5% Convertible Senior Notes ~~will initially be~~is convertible into 436.3002 shares of the Company’s common stock, which is equivalent to ~~an initial~~a conversion price of approximately $2.29 per share, subject to adjustment upon the occurrence of specified events. Holders of these 5.5% Convertible Senior Notes may convert their 5.5% Convertible Senior Notes at their option at any time prior to the close of the last business day immediately preceding September 15, 2022, only under the following circumstances:

1)

during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30

46

~~Table of Contents~~

consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

1)

2)

during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the 5.5% Convertible Senior Notes) per $1,000 principal amount of ~~notes~~5.5% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the ~~notes~~5.5% Convertible Senior Notes on each such trading day;

1)

3)

if the Company calls any or all of the 5.5% Convertible Senior Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

1)

4)

upon the occurrence of certain specified corporate events, such as a beneficial owner acquiring more than 50% of the total voting power of the Company’s common stock, recapitalization of the Company, dissolution or liquidation of the Company, or the Company’s common stock ceases to be listed on an active market exchange.

60

On or after September 15, 2022, holders may convert all or any portion of their 5.5% Convertible Senior Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

Upon conversion of the 5.5% Convertible Senior Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. While the Company plans to settle the principal amount of the 5.5% Convertible Senior Notes in cash subject to available funding at time of settlement, we currently use the if-converted method for calculating any potential dilutive effect of the conversion option on diluted net income per share, subject to meeting the criteria for using the treasury stock method in future periods.

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest. Holders who convert their 5.5% Convertible Senior Notes in connection with certain corporate events that constitute a “make-whole fundamental change” per the indenture governing the 5.5% Convertible Senior Notes or in connection with a redemption will be, under certain circumstances, entitled to an increase in the conversion rate. In addition, if the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or a portion of its 5.5% Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the repurchased 5.5% Convertible Senior Notes, plus accrued and unpaid interest.

The Company may not redeem the 5.5% Convertible Senior Notes prior to March 20, 2021. The Company may redeem for cash all or any portion of the 5.5% Convertible Senior Notes, at the Company’s option, on or after March 20, 2021 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including at least one of the three trading days immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 5.5% Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accounting for the issuance of the ~~Convertible Senior Notes,~~notes, the Company separated the 5.5% Convertible Senior Notes into liability and equity components. The initial carrying amount of the liability component of approximately $58.2 million, net of costs incurred, was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component of approximately $37.7 million, net of costs incurred, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 5.5% Convertible Senior Notes. The difference between the principal amount of the 5.5% Convertible Senior Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the 5.5% Convertible Senior Notes. The effective interest rate is approximately 16.0%. The equity component of the 5.5% Convertible Senior Notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance ~~sheet~~sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

47

~~Table of Contents~~

We incurred transaction costs related to the issuance of the 5.5% Convertible Senior Notes of approximately $4.1 million, consisting of initial ~~purchasers'~~purchasers’ discount of approximately ~~$3.2~~$3.3 million and other issuance costs of $0.9 million. In accounting for the transaction costs, we allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 5.5% Convertible Senior Notes. Transaction costs attributable to the liability component were approximately $2.4 million, were recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance ~~sheet)~~sheets) and are being amortized to interest expense over the term of the 5.5% Convertible Senior Notes. The transaction costs attributable to the equity component were approximately $1.7 million and were netted with the equity component in stockholders’ equity.

61

The 5.5% Convertible Senior Notes ~~consist~~consisted of the following ~~at June 30, 2019~~ (in thousands):


	June 30,		December 31,
	2020		2019
Principal amounts:
Principal	$	33,660	$	100,000
Unamortized debt discount (1)		(8,126)		(27,818)
Unamortized debt issuance costs (1)		(443)		(1,567)
Net carrying amount	$	25,091	$	70,615
Carrying amount of the equity component (2)	$	—	$	37,702

Principal amounts:

  Principal
$
100,000
  Unamortized debt discount (1)

(31,348)
  Unamortized debt issuance costs (1)

(1,808)
  Net carrying amount
$
66,844
  Carrying amount of the equity component (2)
$
37,702

1)

Included in the unaudited interim condensed consolidated balance ~~sheet~~sheets within the 5.5% Convertible Senior Notes, net and amortized over the remaining life of the 5.5% Convertible ~~senior notes~~Senior Notes using the effective interest rate method.

1)

2)

Included in the unaudited interim condensed consolidated balance ~~sheet~~sheets within additional paid-in capital, net of $1.7 million in equity issuance costs and associated income tax benefit of $9.2 ~~million.~~

million, at December 31, 2019.

~~As of June 30, 2019 the remaining life of the Convertible senior notes is approximately 45 months.~~

Based on the closing price of the Company’s common stock of ~~$2.25~~$8.21 on June 30, ~~2019,~~2020, the if-converted value of the 5.5% Convertible Senior Notes was ~~less~~greater than the principal amount. ~~At June 30, 2019, the carrying~~ The estimated fair value of the 5.5% Convertible Senior Notes ~~excluding unamortized debt issue costs, approximates~~at June 30, 2020 and December 31, 2019 was approximately $120.9 million and $135.3 million, respectively. The Company utilized a Monte Carlo simulation model to estimate the fair ~~value.~~value of the convertible debt. The simulation model is designed to capture the potential settlement features of the convertible debt, in conjunction with simulated changes in the Company’s stock price over the term of the 5.5% Convertible Senior Notes, incorporating a volatility assumption of 75%. This is considered a Level 3 fair value measurement.

Capped Call

In conjunction with the ~~issuance~~pricing of the 5.5% Convertible Senior Notes, the Company entered into privately negotiated capped call ~~options (Capped~~transactions (5.5% Notes Capped Call) ~~on the Company’s common stock~~ with certain counterparties at a price of $16.0 million. The ~~net cost incurred in connection with the~~5.5% Notes Capped Call ~~has been recorded as a reduction~~cover, subject to ~~additional paid-in capital in~~anti-dilution adjustments, the ~~unaudited interim condensed consolidated balance sheet.~~

~~The Capped Call~~aggregate number of shares of the Company’s common stock that underlie the initial 5.5% Convertible Senior Notes and is generally expected to reduce ~~or offset~~ the potential dilution to the Company’s common stock upon any conversion of the 5.5% Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 5.5% Convertible Senior Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the 5.5% Notes Capped Call ~~transactions will~~is initially be $3.82 per share, which represents a premium of 100% over the last ~~reported~~then-reported sale price of the Company’s common stock of $1.91 per share on the date of the transaction and is subject to certain adjustments under the terms of the 5.5% Notes Capped Call. The 5.5% Notes Capped Call becomes exercisable if the conversion option is exercised.

~~By entering into~~

The net cost incurred in connection with the 5.5% Notes Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheets.

In conjunction with the partial repurchase of the 5.5% Convertible Senior Notes, the Company ~~expects to reduce~~terminated 100% of the ~~potential dilution to its common stock (or,~~5.5% Notes Capped Call on June 5, 2020. As a result of the termination, the Company received $24.2 million which is recorded in the event the conversion is settled in cash, to provide a source of cash to settle a portion of its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price under the Convertible Senior Notes.additional paid-in capital.

Common Stock Forward

In connection with the ~~sale~~issuance of the 5.5% Convertible Senior Notes, the Company also entered into a forward stock purchase transaction, ~~(Common~~or the Common Stock ~~Forward),~~Forward, pursuant to which the Company agreed to purchase 14,397,906 shares of its

48

~~Table of Contents~~

common stock for settlement on or about March 15, 2023. In connection with the issuance of the 3.75%

62

Convertible Senior Notes, the Company amended and extended the maturity of the Common Stock Forward to June 1, 2025. The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common Stock Forward is subject to early settlement or settlement with alternative consideration in the event of certain corporate transactions.

The net cost incurred in connection with the Common Stock Forward of $27.5 million has been recorded as an increase in treasury stock in the unaudited interim condensed consolidated balance ~~sheet.~~sheets. The related shares were accounted for as a repurchase of common stock.

In conjunction with the partial payoff of the 5.5% Convertible Senior Notes, the Common Stock Forward’s expiration date was extended to June 1, 2025.

The fair values of the Capped Call and Common Stock Forward are not remeasured ~~each reporting period.~~ .

~~Common Stock Issuance~~

Amazon Transaction Agreement

~~In March 2019,~~

On April 4, 2017, the Company ~~issued~~ and ~~sold in~~Amazon entered into a ~~registered direct offering an aggregate~~Transaction Agreement (the Amazon Transaction Agreement), pursuant to which the Company agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of ~~10 million~~Amazon, warrants to acquire up to 55,286,696 shares of the Company’s common stock (the Amazon Warrant Shares), subject to certain vesting events described below. The Company and Amazon entered into the Amazon Transaction Agreement in connection with existing commercial agreements between the Company and Amazon with respect to the deployment of the Company’s GenKey fuel cell technology at aAmazon distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase ~~price~~orders for the Company’s fuel cell technology. The vesting of ~~$2.35 per share.~~ the Amazon Warrant Shares is linked to payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the existing commercial agreements.

The ~~net proceeds~~majority of the Amazon Warrant Shares will vest based on Amazon’s payment of up to $600.0 million to the Company ~~were approximately $23.5 million.~~in connection with Amazon’s purchase of goods and services from the Company. The first tranche of 5,819,652 Amazon Warrant Shares vested upon the execution of the Amazon Transaction Agreement. Accordingly, $6.7 million, the fair value of the first tranche of Amazon Warrant Shares, was recognized as selling, general and administrative expense during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Amazon Warrant Shares will vest in four installments of 7,274,565 Amazon Warrant Shares each time Amazon or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Amazon Warrant Shares is $1.1893 per share. After Amazon has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Amazon Warrant Shares will vest in eight installments of 2,546,098 Amazon Warrant Shares each time Amazon or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Amazon Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the final vesting date of the second tranche of Amazon Warrant Shares. The Amazon Warrant Shares are exercisable through April 4, 2027. The Amazon Warrant Shares provide for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Amazon Warrant Shares provide for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. These warrants are classified as equity instruments.

63

At ~~Market Issuance Sales~~June 30, 2020 and December 31, 2019, 27,643,347 and 20,368,782 of the Amazon Warrant Shares had vested, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the three months ended June 30, 2020 and 2019 was $3.4 million and $0.8 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the Amazon Warrant during the six months ended June 30, 2020 and 2019 was $4.7 million and $2.0 million, respectively.

Walmart Transaction Agreement

On ~~April 3,~~July 20, 2017, the Company and Walmart entered into ~~an At Market Issuance Sales~~a Transaction Agreement (the ~~Sales~~Walmart Transaction Agreement) ~~with FBR Capital Markets & Co., as sales agent (“FBR”)~~, pursuant to which the Company agreed to issue to Walmart a warrant to acquire up to 55,286,696 shares of the Company’s common stock, subject to certain vesting events (the Walmart Warrant Shares). The Company and Walmart entered into the Walmart Transaction Agreement in connection with existing commercial agreements between the Company and Walmart with respect to the deployment of the Company’s GenKey fuel cell technology across various Walmart distribution centers. The existing commercial agreements contemplate, but do not guarantee, future purchase orders for the Company’s fuel cell technology. The vesting of the warrant shares is linked to payments made by Walmart or its affiliates (directly or indirectly through third parties) pursuant to transactions entered into after January 1, 2017 under existing commercial agreements.

The majority of the Walmart Warrant Shares will vest based on Walmart’s payment of up to $600.0 million to the Company in connection with Walmart’s purchase of goods and services from the Company. The first tranche of 5,819,652 Walmart Warrant Shares vested upon the execution of the Walmart Transaction Agreement. Accordingly, $10.9 million, the fair value of the first tranche of Walmart Warrant Shares, was recorded as a provision for common stock warrants and presented as a reduction to revenue on the unaudited interim condensed consolidated statements of operations during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares will vest in four installments of 7,274,565 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $200.0 million in the aggregate. The exercise price for the first and second tranches of Walmart Warrant Shares is $2.1231 per share. After Walmart has made payments to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart Warrant Shares will vest in eight installments of 2,546,098 Walmart Warrant Shares each time Walmart or its affiliates, directly or indirectly through third parties, make an aggregate of $50.0 million in payments for goods and services to the Company, up to payments totaling $400.0 million in the aggregate. The exercise price of the third tranche of Walmart Warrant Shares will be an amount per share equal to ninety percent (90%) of the 30-day volume weighted average share price of the common stock as of the final vesting date of the second tranche of Walmart Warrant Shares, provided that, with limited exceptions, the exercise price for the third tranche will be no lower than $1.1893. The Walmart Warrant Shares are exercisable through July 20, 2027.

The Walmart Warrant Shares provide for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Walmart Warrant Shares provide for certain adjustments that may ~~offer~~be made to the exercise price and ~~sell, from time to time through FBR,~~the number of shares of common stock ~~par value $0.01 per share having an aggregate offering price~~issuable upon exercise due to customary anti-dilution provisions based on future events. These warrants are classified as equity instruments.

At June 30, 2020 and December 31, 2019, 5,819,652 of ~~up to $75.0 million. Under~~ the ~~Sales Agreement, in no event shall the Company issue or sell through FBR such a number of shares that exceeds the number of shares or dollar~~Walmart Warrant Shares had vested. The amount of provision for common stock ~~registered. In~~warrants recorded as a reduction of revenue for the second quarter of 2019, the Company raised $5.5 million. There were no ATM transactions in the first quarter of 2019. During July and August of 2019 the Company raised an additional $8.8 million through ATM. As of July 31, 2019 the Company has raised a total of $45.8 millionWalmart Warrant during the ~~term~~three months ended June 30, 2020 and 2019 was $1.0 million and $0.7 million, respectively. The amount of provision for common stock warrants recorded as a reduction of revenue for the ~~Sales Agreement.~~Walmart Warrant during the six months ended June 30, 2020 and 2019 was $1.9 million and $3.7 million, respectively.

Lessor Obligations

As of June 30, ~~2019,~~2020, the Company ~~has~~had noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next one to seven years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of ~~cancelation~~cancellation to be remote.

64

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, ~~2019 are~~2020 were as follows (in thousands):


Remainder of 2019	$	15,329
2020		29,840

Remainder of 2020			$	15,567
2021		26,507		30,958
2022		17,342		27,338
2023		13,278		24,284
2024 and thereafter		21,653
2024				20,902
2025 and thereafter			$	36,861
Total future minimum lease payments	$	123,949	$	155,910

Lessee Obligations

As of June 30, ~~2019,~~2020, the Company ~~has~~had operating and finance leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, Nature of Operations) as summarized below. These leases expire over the next one to ~~nine~~eight years. Minimum rent payments under operating and

49

~~Table of Contents~~

finance leases are recognized on a ~~straight‑line~~straight-line basis over the term of the lease. Leases contain termination clauses with associated penalties, the ~~amounts~~amount of which cause the likelihood of ~~cancelation~~cancellation to be remote.

In prior periods, the Company entered into sale/leaseback transactions that were accounted for as finance leases and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$28.8~~$27.9 million and ~~$81.9~~$31.7 million, respectively. The fair value of the finance obligation ~~approximates~~approximated the carrying value as of both June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at June 30, ~~2019 is $59.8 million, $9.0 million and $50.8~~2020 was $129.2 million, of which is$19.6 million and $109.6 million were classified as short-term and long-term, respectively, on the ~~accompanying~~ unaudited interim condensed consolidated balance ~~sheet.~~sheets. The outstanding balance of this obligation at ~~June 30, 2018~~December 31, 2019 was ~~$9.2 million, $2.6 million and $6.6~~$35.6 million, of which ~~was~~$6.0 million and $29.6 million were classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation ~~approximates~~approximated the carrying value as of June 30, ~~2019.~~2020.

The Company has a finance lease associated with its property and equipment in Latham, New York. Liabilities relating to this ~~agreement~~lease of ~~$2.4~~$2.8 million has been recorded as a finance obligation in the ~~accompanying~~ unaudited interim condensed consolidated balance ~~sheet~~sheets as of June 30, 2020 and December 31, 2019. The fair value of this finance obligation ~~approximates~~approximated the carrying value as of June 30, ~~2019.~~2020.

65

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, ~~2019 are~~2020 were as follows (in thousands):


					Other		Total
	Operating		Finance		Leased		Finance
	Leases		Leases		Property		Obligations
Remainder of 2019	$	15,793	$	3,361	$	225	$	19,379
2020		30,909		6,722		425		38,056

													Other		Total
									Operating		Finance		Leased		Finance
									Leases		Leases		Property		Obligations
Remainder of 2020									$	25,947	$	5,066	$	312	$	31,325
2021		25,930		6,722		407		33,059		51,818		9,276		590		61,684
2022		19,832		4,975		390		25,197		51,267		4,975		573		56,815
2023		19,089		3,176		366		22,631		45,461		3,149		549		49,159
2024 and thereafter		26,815		16,154		1,565		44,534
2024										45,410		16,154		632		62,196
2025 and thereafter										52,344		—		1,174		53,518
Total future minimum lease payments		138,368		41,110		3,378		182,856		272,247		38,620		3,830		314,697
Less imputed lease interest		(41,138)		(12,339)		(989)		(54,466)		(73,820)		(10,718)		(1,020)		(85,558)
Sale of future services		—		59,804		—		59,804		129,209		—		—		129,209
Total finance obligations	$	97,230	$	88,575	$	2,389	$	188,194
Total lease liabilities									$	327,636	$	27,902	$	2,810	$	358,348

Rental expense for all operating leases was ~~$6.2~~$12.9 million and ~~$3.6~~$6.2 million for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Rental expense for all operating leases was ~~$12.1~~$25.5 million and ~~$7.2~~$12.1 million for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

The gross profit on sale/leaseback transactions for all operating leases was $14.4 million and $19.7 million for the three and six months ended June 30, 2020, respectively, and $16.1 million for the three and six months ended June 30, ~~2019 and zero for the three and six months ended June 30, 2018.~~2019. Right of use assets obtained in exchange for new operating lease liabilities was $29.2 million and $45.4 million for the three and six months ended June 30, 2020, respectively, and $34.5 million for the three and six months ended June 30, ~~2019 and $1.6 million and $2.2 million for the three and six months ended~~2019.

At both June 30, ~~2018.~~

~~At June 30,~~2020 and December 31, 2019, ~~and 2018,~~ security deposits associated with sale/leaseback transactions were ~~$7.0~~$6.0 million and ~~$8.3 million, respectively, and are~~were included in other assets onin the unaudited interim condensed consolidated balance ~~sheet.~~sheets.

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~~Table of Contents~~

Other information related to the operating leases are presented in the following ~~table.~~tables:


		Six months ended		Six months ended
		June 30, 2020		June 30, 2019
Cash payments (in thousands)	$	24,982	$	11,677


	As of June 30,
		2020	2019
Weighted average remaining lease term (years)		5.48	5.13
Weighted average discount rate		12.1%	12.2%

Six months ended

Six months ended

June 30, 2019

June 30, 2018
Cash payments (in thousands)
$
11,677

$
6,634
Weighted average remaining lease term (years)

5.13

3.61
Weighted average discount rate

12.2%

12.0%

66

Finance lease costs include amortization of the right of use assets (i.e., depreciation expense) and interest on lease liabilities (i.e., interest and other expense, net in the unaudited interim ~~condensed~~ consolidated statement of operations). Finance lease costs ~~are~~were as follows (in thousands):


	Six months ended		Six months ended
	June 30, 2019		June 30, 2018

					Six months ended		Six months ended
					June 30, 2020		June 30, 2019
Amortization of right of use asset	$	1,558	$	3,017	$	1,740	$	1,558
Interest on finance obligations		2,656		2,944		1,223		2,656
Total finance lease cost	$	4,214	$	5,961	$	2,963	$	4,214

Right of use assets obtained in exchange for new finance lease liabilities ~~were $60 thousand~~was zero and $0.7 million for both the three and six months ended June 30, 2020 and 2019, ~~and zero and $0.3 million for the three and six months ended June 30, 2018.~~respectively.

Other information related to the finance leases are presented in the following ~~table.~~tables:

Six months ended

Six months ended

June 30, 2019

June 30, 2018
Cash payments (in thousands)
$
55,913

$
19,406
Weighted average remaining lease term (years)

3.25

3.70
Weighted average discount rate

10.8%

10.7%


		Six months ended		Six months ended
		June 30, 2020		June 30, 2019
Cash payments (in thousands)	$	5,196	$	55,913


	As of June 30,
		2020	2019
Weighted average remaining lease term (years)		3.53	3.25
Weighted average discount rate		8.0%	10.8%

Off-Balance Sheet Arrangements

~~Restricted Cash~~

~~In connection with certain~~As of June 30, 2020, the ~~above noted sale/leaseback agreements, cash of $32.5 million is required to be restricted as security and will be released over the lease term. The~~ Company ~~also has certain letters of credit backed by security deposits totaling $82.9 million~~does not have off-balance sheet arrangements that are ~~security for~~likely to have a current or future significant effect on the ~~above noted sale/leaseback agreements.~~Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

The Company also has letters of credit in the aggregate amount of $0.5 million at June 30, 2019 associated with a finance obligation from the sale/leaseback of its building. Cash collateralizing this letter of credit is also considered restricted cash.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with U.S. ~~generally accepted accounting principles.~~GAAP. The preparation of these unaudited interim condensed 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 revenue recognition for ~~multiple element arrangements,~~ bad debts, inventories, intangible assets, valuation of long-lived assets, accrual for loss contracts on service, operating and finance leases, product warranty reserves, unbilled revenue, common stock warrants, income taxes, stock-based compensation, contingencies, and purchase accounting. We base our estimates and judgments on historical experience and on various other factors and assumptions that are believed to be reasonable under the

51

~~Table of Contents~~

circumstances, the results of which form the basis for making judgments about (1) the carrying values of assets and liabilities and (2) the amount of revenue and expenses realized 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”, as well as a discussion of significant accounting policies included in Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements, both of which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

~~Recent Accounting Pronouncements~~

67

Recently Adopted Accounting Pronouncements

In June ~~2018, an accounting update was issued to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC Topic 718,~~ ~~Compensation-Stock Compensation~~, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of ASC Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that ASC Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that ASC Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606, ~~Revenue from Contracts with Customers~~. The amendments in this accounting update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC Topic 606. The Company adopted this update on January 1, 2019 and it did not have a material effect on the consolidated financial statements.

~~Recently Issued and Not Yet Adopted Accounting Pronouncements~~

~~In May 2019,~~ 2016, Accounting Standards Update (ASU) ~~2019-05,~~2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued to provide an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. Adoption of this update is optional and within scope of Topic 326, ~~Financial Instruments – Credit Losses,~~ ~~effective for fiscal years beginning after December 15, 2019. The Company is evaluating the adoption method and impact this update will have on the consolidated financial statements.~~

issued. Also, In April 2019, Accounting Standards Update (ASU) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to make improvements to updates 2016-01, Financial Instruments – Overall (Subtopic 825-10), 2016-13, Financial Instruments – Credit Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). ~~This is update is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the adoption method and impact this update will have on the consolidated financial statements.~~

~~In November 2018,~~ ~~Accounting Standards Update (ASU) 2018-18, Collaborative Arrangements (Topic 808), was issued to clarify the interaction between ASC Topic 808,~~ ~~Collaborative Arrangements,~~ and Topic 606. Adoption of this update is effective for all reporting periods beginning after December 15, 2019. The Company is evaluating the impact this update will have on the consolidated financial statements.

~~In August 2018,~~ ~~Accounting Standards Update (ASU) 2018-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)~~, was issued to help entities evaluate the accounting for fees paid by a customer in cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in this update are effective for public companies beginning after December 15, 2019. Early adoption of the amendments in this update are permitted. The Company is evaluating the adoption method and impact this update will have on the consolidated financial statements.

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~~Table of Contents~~

~~In January 2017,~~ ~~Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350)~~, was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This accounting update is effective for years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The company is evaluating the adoption method and does not think that this will have a material impact on the consolidated financial statements.

~~In August 2016,~~ ~~Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows~~, was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This accounting update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact this update will have on the consolidated financial statements.

~~In June 2016,~~ ~~Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, was issued.~~ ASU 2016-13 significantly changes how entities account for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, that are not measured at fair value through net income. The ASU requires a number of changes to the assessment of credit losses, including the utilization of an expected credit loss model, which requires consideration of a broader range of information to estimate expected credit losses over the entire lifetime of the asset, including losses where probability is considered remote. Additionally, the standard requires the estimation of lifetime expected losses for trade receivables and contract assets that are classified as current. The Company adopted these standards effective January 1, 2020 and determined the impact of the standards to be immaterial to the consolidated financial statements.

In April 2019, Accounting Standards Update (ASU) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to make improvements to updates 2016-01, Financial Instruments – Overall (Subtopic 825-10), 2016-13, Financial Instruments – Credit Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). The Company adopted this standard effective January 1, 2020 and determined the impact of this standard to be immaterial to the consolidated financial statements.

In January 2017, Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350), was issued to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The Company adopted this standard effective January 1, 2020.

In August 2016, Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230)s: Classification of Certain Cash Receipts and Cash Payments, was issued to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted this standard in 2019 and determined the impact of this standard to be immaterial to the consolidated financial statements.

Recently Issued and Not Yet Adopted Accounting Pronouncements

In August 2020, Accounting Standards Update (ASU) 2020-06, Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, was issued to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. This update is effective ~~beginning~~ after ~~January 1, 2020.~~December 15, 2021. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.

In March 2020, Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This update is effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.

In March 2020, Accounting Standards Update (ASU) 2020-03, Codification Improvements to Financial Instruments, was issued to make various codification improvements to financial instruments to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. This update will be effective at various

68

dates as described in this ASU. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.

In December 2019, Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, was issued to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. This update will be effective beginning after December 15, 2020. The Company is evaluating the adoption method as well as the impact this update will have on the consolidated financial statements.

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

From time to time, we may invest our cash in government, government backed and interest-bearing investment-grade securities that we generally hold for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion, except for ~~a capped call~~the 5.5% Notes Capped Call and ~~common stock forward~~Common Stock Forward purchased in March 2018 related to the issuance of 5.5% Convertible Senior Notes and the $200 million Notes Capped Call purchased in May 2020 related to the issuance of 3.75% Convertible Senior Notes. We are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

Our exposure to changes in foreign currency rates is primarily related to sourcing inventory from foreign locations and operations of ~~HyPulsion.~~HyPulsion, S.A.S., our French subsidiary that develops and sells hydrogen fuel cell systems for the European material handling market. This practice can give rise to foreign exchange risk resulting from the varying cost of inventory to the receiving location. The Company reviews the level of foreign content as part of its ongoing evaluation of overall sourcing strategies and considers the exposure to be not significant. Our HyPulsion exposure presently is mitigated by low levels of operations and its sourcing is primarily intercompany in nature and denominated in U.S. ~~dollar.~~dollars.

Item 4 — Controls and Procedures

(a) Disclosure controls and procedures.

The chief executive officer and chief financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures are effective for ensuring that information required to be disclosed in the reports that it files or submits under the ~~Securities~~ Exchange Act ~~of 1934~~ is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in filed or submitted reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

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(b) Changes in internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings

On August 28, 2018, a lawsuit was filed on behalf of multiple individuals against the Company and five corporate co-defendants in the 9th Judicial District Court, Rapides Parish, Louisiana. The lawsuit relates to the previously disclosed May 2018 accident involving a forklift powered by the Company’s fuel cell at a Procter & Gamble facility in Louisiana.

69

The lawsuit alleges claims against the Company and ~~the~~ co-defendants, including Structural Composites Industries, Deep South Equipment Co., Air Products and Chemicals, Inc., and Hyster-Yale Group, Inc. for claims under the Louisiana Product Liability Act, ~~(“LPLA”),~~or LPLA, including defect in construction and/or composition, design defect, inadequate warning, breach of express warranty and negligence for wrongful death and personal injuries, among other damages. Procter & Gamble has intervened in that suit to recover worker’s compensation benefits paid to or for the employees/dependents. Procter & Gamble has also filed suit for property damage, business interruption, loss of revenue, expenses, and other damages. Procter & Gamble alleges theories under the LPLA, breach of warranty and quasi-contractual claims under Louisiana law. Defendants include the Company and several of the same ~~defendants~~co-defendants from the August 2018 ~~lawsuit.~~lawsuit, including Structural Composites Industries, Deep South Equipment Co., and Hyster-Yale Group, Inc. The Company intends to vigorously defend both cases. Given the early stage of these matters, the Company is unable to determine the likelihood of an adverse outcome. While the amount of damages sought in the lawsuits ~~are~~is yet unspecified, the Company does not expect the lawsuits to have a material impact on the Company’s financial position, liquidity or results of operations, or to otherwise have a material adverse effect on the Company.

Item 1A -– Risk Factors

~~Part I, Item 1A,~~The risk factors discussed under the heading “Risk Factors” ~~of our most recently filed~~and elsewhere in the Company’s Annual Report on Form 10-K ~~filed with the Securities and Exchange Commission~~ for the ~~fiscal~~ year ended December 31, ~~2018, sets forth information relating to important risks~~2019 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~~for the quarter ended March 30, 2020 continue 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 changesapply to our business and should be supplemented with the following risk ~~factors disclosed~~factor:

As of December 31, 2019, we had federal net operating loss ("NOL") carryforwards of $236.6 million, which begins to expire in various amounts and at various dates in 2032 through 2037 (other than federal NOL carryforwards generated after December 31, 2017, which are not subject to expiration). As of December 31, 2019, we also had federal research and development tax credit carryforwards of $2.6 million, which begin to expire in 2033. Under Sections 382 and 383 of the Code, changes in our ownership may limit the amount of our NOL carryforwards and research and development tax credit carryforwards that could be utilized annually to offset our future taxable income, if any. This limitation would generally apply in the event of a cumulative change in ownership of the Company of more than 50 percentage points within a three-year period. Based on studies of the changes in ownership of the Company, it has been determined that a Section 382 ownership change occurred in 2013 that limited the amount of pre-change NOLs that can be used in future years. NOLs incurred after the most ~~recently filed Annual Report on Form 10-K. However, those risk factors continue~~recent ownership change are not subject to Section 382 of the Code and are available for use in future years. If we undergo an ownership change in connection with or after this offering, our ability to utilize our NOL carryforwards or research and development tax credit carryforwards could be ~~relevant~~further limited by Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. Any such limitation may significantly reduce our ability to utilize our NOL carryforwards and research and development tax credit carryforwards generated in taxable years ending before January 1, 2020 before they expire. Our NOL carryforwards and research and development tax credit carryforwards may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOL carryforwards or research and development tax credit carryforwards.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) modifies, among other things, the rules governing NOLs. NOLs arising in tax years beginning after December 31, 2017 are subject to an ~~understanding~~80% of ~~our business, financial condition~~taxable income limitation (as calculated before taking the NOLs into account) for tax years beginning after December 31, 2020. In addition, NOLs arising in tax years 2018, 2019, and ~~operating results~~2020 are subject to a five year carryback and ~~accordingly, you should review~~indefinite carryforward, while NOLs arising in tax years beginning after December 31, 2020 also are subject to indefinite carryforward but cannot be carried back. In future years, if and ~~consider such risk factors in making any investment decision with respect~~when a net deferred tax asset is recognized related to our ~~securities.~~NOLs, the changes in the carryforward/carryback periods as well as the new limitation on use of NOLs may significantly impact our valuation allowance assessments for NOLs generated after December 31, 2017.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

(a) ~~None.~~On April 6, 2020, the Company issued an aggregate of 1,770,135 shares of its common stock to APV Ventures Fund I GP, LLP in connection with its purchase of a convertible note in United Hydrogen Group Inc. The shares were issued to APV Ventures Funds I GP, LLP in reliance upon Section 4(a)(2) of the Securities Act in transactions not involving any public offering.

70

On May 13, 2020, the Company entered into separate and individually negotiated transactions with certain holders of its 5.50% Convertible Senior Notes due 2023 (the “2023 notes”) to repurchase approximately $66.3 million in aggregate principal amount of the 2023 notes. In connection with such repurchase, the Company issued [•] shares of its common stock to the holders of the 2023 notes. The shares were issued in reliance upon Section 4(a)(2) of the Securities Act in transactions not involving any public offering.

On June 18, 2020, the Company issued 4,430,076 shares of its common stock to the stockholders of United Hydrogen Group, Inc. and certain of its lenders in connection its acquisition of United Hydrogen Group, Inc. pursuant to the Agreement and Plan of Merger with United Hydrogen Group Inc., UHG Merger Sub, Inc. and Vladimir Prerad, as the representative of the stockholders of United Hydrogen Group, Inc. The shares were issued in reliance upon Section 4(a)(2) of the Securities Act in transactions not involving any public offering.

On June 22, 2020, the Company issued 3,458,254 shares of its common stock to the stockholders of Giner ELX in connection with its acquisition of Giner ELX pursuant to the Agreement and Plan of Merger with Giner ELX, Giner ELX Sub, LLC, Giner ELX Merger Sub, Inc. and Giner, Inc., as the representative of the stockholders of Giner ELX. The shares were issued in reliance upon Section 4(a)(2) of the Securities Act in transactions not involving any public offering.

(b) Not applicable.

(c) None.

Item 3 — Defaults Upon Senior Securities

None.

Item 4 — Mine Safety Disclosures

None.

54

~~Table of Contents~~

Item 5 — Other Information

(a) None.

(b) None.

Item 6 — Exhibits


1.1	At Market Issuance Sales Agreement, dated April 13, 2020, by and between Plug Power Inc. and B. Riley FBR, Inc. (filed as Exhibit 1.1 to Plug Power Inc.’s Form 8-K filed on April 13, 2020 and incorporated by reference herein)

2.1	Agreement and Plan of Merger, dated June 18, 2020, by and among Plug Power Hydrogen Holdings, Inc., UHG Merger Sub, Inc., United Hydrogen Group Inc. and Vladimir Prerad, as the representative of the stockholders of United Hydrogen Group Inc. (filed as Exhibit 2.1 to Plug Power Inc.’s Form 8-K filed on June 23, 2020 and incorporated by reference herein)
2.2	Agreement and Plan of Merger, dated June 22, 2020, by and among Plug Power Inc., Giner ELX, Inc., Giner ELX Sub, LLC, Giner ELX Merger Sub, Inc. and Giner, Inc., as the representative of the stockholders of Giner ELX, Inc. (filed as Exhibit 2.1 to Plug Power Inc.’s Form 8-K filed on June 23, 2020 and incorporated by reference herein)

71

4.1	Indenture, dated as of May 18, 2020, between Plug Power Inc. and Wilmington Trust, National Association. (filed as Exhibit 4.1 to Plug Power Inc.’s Form 8-K filed on May 19, 2020 and incorporated by reference herein)

4.2	Form of 3.75% Convertible Senior Notes due June 1, 2025 (included as Exhibit A to Exhibit 4.1) (filed as Exhibit 4.2 to Plug Power Inc.’s Form 8-K filed on May 19, 2020 and incorporated by reference herein)

10.1	~~Third Amended~~Base Call Option Confirmation, dated as of May 13, 2020, between Plug Power Inc. and ~~Restated 2011 Stock Option and Incentive Plan~~Morgan Stanley & Co. LLC (filed as Exhibit 10.1 to Plug Power Inc.’s ~~Current Report on~~ Form 8-K filed on May ~~15, 2019~~19, 2020 and incorporated by reference herein).

10.2	Base Call Option Confirmation, dated as of May 13, 2020, between Plug Power Inc. and Wells Fargo Bank, National Association (filed as Exhibit 10.2 to Plug Power Inc.’s Form 8-K filed on May 19, 2020 and incorporated by reference herein)
10.3	Amendment to Forward Stock Purchase Transaction, dated as of May 13, 2020, between Plug Power Inc. and Morgan Stanley & Co. LLC (filed as Exhibit 10.3 to Plug Power Inc.’s Form 8-K filed on May 19, 2020 and incorporated by reference herein)
10.4 (1)	Fifth Amendment to Loan and Security Agreement, dated as of May 6, 2020, by and among Plug Power Inc., Emerging Power Inc., Emergent Power Inc. and Generate Lending, LLC
10.5	Sixth Amendment to Loan and Security Agreement, dated as of May 13, 2020, by and among Plug Power Inc., Emerging Power Inc., Emergent Power Inc. and Generate Lending, LLC (filed as Exhibit 10.1 to Plug Power Inc.’s Form 8-K filed on May 14, 2020 and incorporated by reference herein)
10.6	Amendment No. 1 to Senior Convertible Note due 2023 and Related Note Purchase Agreement, dated as of May 13, 2020, by and between Plug Power Inc. and HT Investments MA LLC (filed as Exhibit 10.2 to Plug Power Inc.’s Form 8-K filed on May 14, 2020 and incorporated by reference herein)

31.1 (1)	Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 (1)	Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 (1)	Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 (1)	Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	XBRL Instance Document (1)
101.SCH*	XBRL Taxonomy Extension Schema Document (1)
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document (1)
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document (1)

(1)	Filed herewith.

72

*

~~(1)~~

~~Filed~~Submitted electronically 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, 2019, formatted in eXtensible Business Reporting Language (XBRL) and tagged as blocks of text: (i) Interim Condensed consolidated Balance Sheets at June 30, 2019 and December 31, 2018; (ii) Interim Condensed consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018; (iii) Interim Condensed consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018; (iv) Interim Condensed consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2019; (v) Interim Condensed consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018; and (vi) related notes, tagged as blocks of text.

Signatures

55

~~Table of Contents~~

~~Signatures~~

Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			PLUG POWER INC.
	~~PLUG POWER INC.~~

Date: August ~~9, 2019~~10, 2020	By:	/s/ Andrew Marsh
		Andrew Marsh
		President, Chief Executive Officer and Director (Principal Executive Officer)

Date: August ~~9, 2019~~10, 2020	By:	/s/ Paul B. Middleton
		Paul B. Middleton
		Chief Financial Officer (Principal Financial Officer)

5673



Delaware		22-3672377
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	PLUG	The Nasdaq Capital Market
Series A Junior Participating Cumulative Preferred Stock, par value $.01 per share		~~The Nasdaq Capital Market~~

	Page

PART I. FINANCIAL INFORMATION

Item 1 – Interim Condensed Consolidated Financial Statements (Unaudited)	3

Condensed Consolidated Balance Sheets	3

Condensed Consolidated Statements of Operations	4

Condensed Consolidated Statements of Comprehensive Loss	5

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Interim Condensed Consolidated Financial Statements	8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	35 42

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	53 69

Item 4 – Controls and Procedures	53 69

PART II. OTHER INFORMATION

Item 1 – Legal Proceedings	54 69

Item 1A – Risk Factors	54 70

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	54 70

Item 3 – Defaults Upon Senior Securities	54 71

Item 4 – Mine Safety Disclosures	54 71

Item 5 – Other Information	55 71

Item 6 – Exhibits	55 71

Signatures	56 73


	June 30,		December 31,
	2019		2018
Assets
Current assets:
Cash and cash equivalents	$	19,845	$	38,602
Restricted cash		19,400		17,399
Accounts receivable		26,592		37,347
Inventory		73,190		47,910
Prepaid expenses and other current assets		14,001		14,357
Total current assets		153,028		155,615

Restricted cash		96,082		54,152
Property, plant, and equipment, net of accumulated depreciation of $15,882 and $14,403, respectively		14,228		12,869
Leased property, net		170,455		146,751
Goodwill		8,961		9,023
Intangible assets, net		5,398		3,890
Other assets		8,842		8,026
Total assets	$	456,994	$	390,326

Liabilities, Redeemable Preferred Stock, and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	36,946	$	34,824
Accrued expenses		4,522		7,864
Deferred revenue		11,730		12,055
Finance obligations		30,663		74,264
Current portion of long-term debt		15,928		16,803
Other current liabilities		3,017		560
Total current liabilities		102,806		146,370
Deferred revenue		24,519		28,021
Common stock warrant liability		525		105
Finance obligations		157,531		118,076
Convertible senior notes, net		66,844		63,247
Long-term debt		83,776		133
Other liabilities		13		18
Total liabilities		436,014		355,970

Redeemable preferred stock:
Series C redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $16,664); 10,431 shares authorized; Issued and outstanding: 2,620 at both June 30, 2019 and December 31, 2018		709		709
Series E redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $35,000 at both June 30, 2019 and December 31, 2018); Shares authorized: 35,000 at both June 30, 2019 and December 31, 2018; Issued and outstanding: 35,000 at June 30, 2019 and December 31, 2018		30,926		30,934
Stockholders’ (deficit) equity:
Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 246,975,173 at June 30, 2019 and 234,160,661 at December 31, 2018		2,470		2,342
Additional paid-in capital		1,328,911		1,289,714
Accumulated other comprehensive income		1,460		1,584
Accumulated deficit		(1,312,815)		(1,260,290)
Less common stock in treasury: 15,020,437 at June 30, 2019 and 15,002,663 at December 31, 2018		(30,681)		(30,637)
Total stockholders’ (deficit) equity		(10,655)		2,713
Total liabilities, redeemable preferred stock, and stockholders’ (deficit) equity	$	456,994	$	390,326


	June 30,		December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	152,492	$	139,496
Restricted cash		50,634		54,813
Accounts receivable		45,522		25,448
Inventory		114,571		72,391
Prepaid expenses and other current assets		31,436		21,192
Total current assets		394,655		313,340

Restricted cash		180,127		175,191
Property, plant, and equipment, net of accumulated depreciation of $19,203 and $17,417, respectively		60,018		14,959
Leased property, net		274,721		244,740
Goodwill		70,402		8,842
Intangible assets, net		38,574		5,539
Other assets		11,817		8,573
Total assets	$	1,030,314	$	771,184

Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity
Current liabilities:
Accounts payable	$	39,812	$	40,376
Accrued expenses		23,320		14,213
Deferred revenue		14,902		11,691
Finance obligations		57,695		49,507
Current portion of long-term debt		50,933		26,461
Other current liabilities		21,692		8,543
Total current liabilities		208,354		150,791
Deferred revenue		25,038		23,369
Finance obligations		300,653		265,228
Convertible senior notes, net		142,704		110,246
Long-term debt		101,844		85,708
Other liabilities		11,756		13
Total liabilities		790,349		635,355

Redeemable preferred stock:				��
Series C redeemable convertible preferred stock, $0.01 par value per share (aggregate involuntary liquidation preference $16,664); 10,431 shares authorized; Issued and outstanding: 0 at June 30, 2020 and 2,620 at December 31, 2019		—		709
Series E redeemable preferred stock, $0.01 par value per share; Shares authorized: 35,000 at both June 30, 2020 and December 31, 2019; Issued and outstanding: 0 at June 30, 2020 and 500 at December 31, 2019		—		441
Stockholders’ equity:
Common stock, $0.01 par value per share; 750,000,000 shares authorized; Issued (including shares in treasury): 348,201,792 at June 30, 2020 and 318,637,560 at December 31, 2019		3,482		3,186
Additional paid-in capital		1,658,532		1,507,116
Accumulated other comprehensive income		1,271		1,400
Accumulated deficit		(1,391,961)		(1,345,807)
Less common stock in treasury: 15,292,591 at June 30, 2020 and 15,259,045 at December 31, 2019		(31,359)		(31,216)
Total stockholders’ equity		239,965		134,679
Total liabilities, redeemable preferred stock, and stockholders’ equity	$	1,030,314	$	771,184


						Accumulated
				Additional		Other							Total
	Common Stock			Paid-in		Comprehensive		Treasury Stock			Accumulated		Stockholders’
	Shares	Amount		Capital		Income		Shares	Amount		Deficit		(Deficit) Equity
December 31, 2019	318,637,560	$	3,186	$	1,507,116	$	1,400	15,259,045	$	(31,216)	$	(1,345,807)	$	134,679
Net loss attributable to the Company	—		—		—		—	—		—		(46,135)		(46,135)
Other comprehensive loss	—		—		—		(129)	—		—		—		(129)
Stock-based compensation	586,558		6		6,325		—	33,371		(143)		—		6,188
Stock dividend	5,156		—		19		—	—		—		(19)		—
Public offerings, common stock, net	—		—		(269)		—	—		—		—		(269)
Stock option exercises	6,905,936		69		15,729		—	175		—		—		15,798
Equity component of $200 million convertible senior notes issued, net of issuance costs and income tax expense	—		—		115,884		—	—		—		—		115,884
Purchase of capped calls	—		—		(16,253)		—	—		—		—		(16,253)
Termination of capped calls	—		—		24,158		—	—		—		—		24,158
Provision for common stock warrants	—		—		7,983		—	—		—		—		7,983
Accretion of discount, preferred stock	—		—		(29)		—	—		—		—		(29)
Conversion of preferred stock	2,998,526		30		1,148		—	—		—		—		1,178
Repurchase of $100 million convertible senior notes, net of income tax benefit	9,409,591		94		(52,855)		—	—		—		—		(52,761)
Shares issued for acquisitions	9,658,465		97		49,576		—	—		—		—		49,673
June 30, 2020	348,201,792	$	3,482	$	1,658,532	$	1,271	15,292,591	$	(31,359)	$	(1,391,961)	$	239,965

December 31, 2018	234,160,661	$	2,342	$	1,289,714	$	1,584	15,002,663	$	(30,637)	$	(1,260,290)	$	2,713
Net loss attributable to the Company	—		—		—		—	—		—		(49,046)		(49,046)
Other comprehensive loss	—		—		—		(124)	—		—		—		(124)
Stock-based compensation	780,985		8		5,115		—	—		—		—		5,123
Stock dividend	10,147		—		26		—	—		—		(26)		—
Issuance of common stock, net	11,881,637		119		28,146		—	—		—		—		28,265
Stock option exercises	141,743		1		248		—	17,774		(44)		—		205
Provision for common stock warrants	—		—		5,662		—	—		—		—		5,662
June 30, 2019	246,975,173	$	2,470	$	1,328,911	$	1,460	15,020,437	$	(30,681)	$	(1,309,362)	$	(7,202)


						Accumulated
				Additional		Other							Total
	Common Stock			Paid-in		Comprehensive		Treasury Stock			Accumulated		Stockholders’
	Shares	Amount		Capital		Income		Shares	Amount		Deficit		(Deficit) Equity
December 31, 2018	234,160,661	$	2,342	$	1,289,714	$	1,584	15,002,663	$	(30,637)	$	(1,260,290)	$	2,713
Net loss attributable to the Company	—		—		—		—	—		—		(52,499)		(52,499)
Other comprehensive loss	—		—		—		(124)	—		—		—		(124)
Stock-based compensation	780,985		8		5,115		—	—		—		—		5,123
Stock dividend	10,147		—		26		—	—		—		(26)		—
Issuance of common stock, net	11,881,637		119		28,146		—	—		—		—		28,265
Stock option exercises	141,743		1		248		—	17,774		(44)		—		205
Provision for common stock warrants	—		—		5,662		—	—		—		—		5,662
June 30, 2019	246,975,173	$	2,470	$	1,328,911	$	1,460	15,020,437	$	(30,681)	$	(1,312,815)	$	(10,655)

December 31, 2017	229,073,517	$	2,291	$	1,250,899	$	2,194	587,151	$	(3,102)	$	(1,178,636)	$	73,646
Net loss attributable to the Company	—		—		—		—	—		—		(45,703)		(45,703)
Other comprehensive income	—		—		—		(350)	—		—		—		(350)
Stock-based compensation	202,523		2		4,323		—	—		—		—		4,325
Stock dividend	13,273		—		26		—	—		—		(26)		—
Stock option exercises	366,412		4		98		—	17,606		(35)		—		67
Equity component of convertible senior notes, net of issuance costs and income tax benefit	—		—		31,837		—	—		—		—		31,837
Purchase of capped call	—		—		(16,000)		—	—		—		—		(16,000)
Purchase of common stock forward	—		—		—		—	14,397,906		(27,500)		—		(27,500)
Exercise of warrants	100		—		—		—	—		—		—		—
Provision for common stock warrants	—		—		5,806		—	—		—		—		5,806
June 30, 2018	229,655,825	$	2,297	$	1,276,989	$	1,844	15,002,663	$	(30,637)	$	(1,224,365)	$	26,128


	At June 30,
	2019	2018
Stock options outstanding (1)	21,258,304	19,977,576
Restricted stock outstanding (2)	2,504,392	207,347
Common stock warrants (3)	115,824,142	115,824,142
Preferred stock (4)	17,933,591	2,782,075
Convertible Senior Notes (5)	43,630,020	43,630,020
Number of dilutive potential common shares	201,150,449	182,421,160


	Weighted Average	Gross Carrying		Accumulated
	Amortization Period	Amount		Amortization		Total
Acquired technology	10 years	$	7,757	$	(2,483)	$	5,274
Customer relationships	10 years		260		(136)		124
Trademark	5 years		60		(60)		—
		$	8,077	$	(2,679)	$	5,398


Major products/services lines
	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Sales of fuel cell systems	$	38,547	$	13,371	$	40,767	$	19,354
Sale of hydrogen installations and other infrastructure		—		5,449		—		10,079
Services performed on fuel cell systems and related infrastructure		5,282		5,691		11,495		11,174
Power Purchase Agreements		6,307		5,438		11,014		10,810
Fuel delivered to customers		6,932		5,280		12,385		10,230
Net revenue	$	57,068	$	35,229	$	75,661	$	61,647


		Amazon Warrant Shares		Walmart Warrant Shares
Issuance date - first tranche	$	1.15	$	1.88
As of vesting date - second tranche, first installment		2.16		—
As of vesting date - second tranche, second installment		1.54		—
As of June 2019 - second tranche		1.90		1.83
As of June 2018 - second tranche		1.71		1.56


	Six months		Year
	ended or at		ended or at
	June 30, 2019		December 31, 2018
Cash and cash equivalents at end of period	$	19,845	$	38,602
Restricted cash at end of period		115,482		71,551
Working capital at end of period		50,222		9,245
Net loss attributable to common shareholders		52,525		78,167
Net cash used in operating activities		48,488		57,617
Net cash used in investing activities		6,316		19,572
Net cash provided by financing activities		80,026		119,344