# Plug Power Inc: Form 10-Q for the period ended Sep 30, 2014

- Company: [Plug Power Inc](/companies/plug.md) (CIK 1093691)
- Form: 10-Q
- Filed: 2014-11-14
- Accepted by EDGAR: Nov 14, 2014, 20:53 ET
- Period: 2014-09-30
- Accession: 0001104659-14-080963
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1093691/000110465914080963/a14-23739_110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1093691/000110465914080963/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-07-01 to 2014-09-30 | $19.9m | us-gaap:Revenues |
| Revenue | 9 months, 2014-01-01 to 2014-09-30 | $42.8m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2014-07-01 to 2014-09-30 | $11.1m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2014-01-01 to 2014-09-30 | $25.0m | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2014-07-01 to 2014-09-30 | $1.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2014-01-01 to 2014-09-30 | $4.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2014-07-01 to 2014-09-30 | $5.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2014-01-01 to 2014-09-30 | $13.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-07-01 to 2014-09-30 | −$10.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2014-01-01 to 2014-09-30 | −$24.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2014-07-01 to 2014-09-30 | −$324.7k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2014-01-01 to 2014-09-30 | −$324.7k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2014-07-01 to 2014-09-30 | −$9.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2014-01-01 to 2014-09-30 | −$81.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-07-01 to 2014-09-30 | −$0.06 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2014-01-01 to 2014-09-30 | −$0.53 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 9 months, 2014-01-01 to 2014-09-30 | −$31.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2014-01-01 to 2014-09-30 | $1.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2014-01-01 to 2014-09-30 | $513.7k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2014-09-30 | $156.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-09-30 | $199.5m | us-gaap:AssetsCurrent |
| Total assets | at 2014-09-30 | $211.8m | us-gaap:Assets |
| Current liabilities | at 2014-09-30 | $21.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2014-09-30 | $46.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2014-09-30 | $163.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,940 characters.

*The following discussion should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and notes thereto included within this report, and our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended by our Annual Report on Form 10-K/A, filed for the fiscal year ended December 31, 2013. In addition to historical information, this Form 10-Q and the following discussion contain statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements contain projections of our future results of operations or of our financial position or state other forward-looking information. In some cases you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would,” “plan,” “projected” or the negative of such words or other similar words or phrases. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to: the risk that we continue to incur losses and might never achieve or maintain profitability, the risk that we will need to raise additional capital to fund our operations and such capital may not be available to us; 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 will 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 could result in a material adverse effect 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 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 or 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 and our ability to raise the necessary capital to fund such costs; the ability to achieve the forecasted gross margin on the sale of our products; the risk that our actual net cash used for operating expenses may exceed the projected net cash for operating expenses; the cost and availability of fuel and fueling infrastructures for our products; market acceptance of our products, including GenDrive systems; the volatility of our stock price; our ability to establish and maintain relationships with third parties with respect to product development, manufacturing, distribution and servicing and the supply of key product components; the cost and availability of components and parts for our products; our ability to develop commercially viable products; our ability to reduce product and manufacturing costs; our ability to successfully expand our product lines; our ability to successfully expand internationally; our ability to improve system reliability for our GenDrive systems; competitive factors, such as price competition and competition from other traditional and alternative energy companies; our ability to protect our intellectual property; the cost of complying with current and future federal, state and international governmental regulations; the risks associated with potential future acquisitions; 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, 2013, as filed on March 31, 2014. Readers should not place undue reliance on our forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made and are not guarantees of future performance. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Form 10-Q.*

### Overview

Plug Power Inc., or the Company, is a leading provider of alternative energy technology focused on the design, development, commercialization and manufacture of fuel cell systems for the industrial off-road (forklift or material handling) market.

We are focused on proton exchange membrane, or PEM, fuel cell and fuel processing technologies and fuel cell/battery hybrid technologies, from which multiple products are available. A fuel cell is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat without combustion. Hydrogen is derived from hydrocarbon fuels such as liquid petroleum gas, or LPG, natural gas, propane, methanol, ethanol, gasoline or biofuels. Hydrogen can also be obtained from the electrolysis of water. Hydrogen can be purchased directly from industrial gas providers or can be produced on-site at consumer locations.

We concentrate our efforts on developing, manufacturing and selling our hydrogen-fueled PEM GenDrive® products on commercial terms for industrial off-road (forklift or material handling) applications, with a focus on multi-shift high volume manufacturing and high throughput distribution sites.

### Recent Developments

At our annual meeting of stockholders held on July 23, 2014 our stockholders approved an amendment and restatement of the Plug Power Inc. 2011 Stock Option and Incentive Plan to, among other things, increase the number of shares of our common stock authorized for issuance under such plan from 6,500,000 to 17,000,000.

At our annual meeting our stockholders also approved a Third Certificate of Amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 245,000,000 shares to 450,000,000 shares.

On July 25, 2014, we filed the Third Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the State of Delaware. On August 26, 2014, we issued 5,521,676 shares of our common stock to Air Liquide Investissements d’Avenir et de Demonstration (“Air Liquide”) upon its conversion of 5,200 shares of our series C preferred stock. Air Liquide continues to hold 5,231 shares of our series C preferred stock.

On November 10, 2014, we announced that Paul B. Middleton has been appointed as the Chief Financial Officer of the Company, effective December 01, 2014. In September we had announced that Chris Hutter would become Chief Financial Officer, however, Mr. Hutter was unable to join us for personal reasons.

### Results of Operations

*Product revenue.* Product revenue includes revenue from the sale of our GenDrive units, as well as revenue from ReliOn’s backup power units.

Product revenue for the three months ended September 30, 2014 increased $10.1 million or 396.8%, to $12.6 million from $2.5 million for the three months ended September 30, 2013. This increase is primarily related to increased GenDrive shipments during 2014. We shipped 835 GenDive units in the three months ended September 30, 2014 as compared to 155 in the three months ended September 30, 2013. This increase is also due to product revenue of $0.5 million due to the acquisition of ReliOn.

Product revenue for the nine months ended September 30, 2014 increased $15.5 million or 121.6%, to $28.3 million from $12.8 million for the nine months ended September 30, 2013. This increase is primarily related to increased GenDrive shipments during 2014. We shipped 1,687 GenDive units in the nine months ended September 30, 2014 as compared to 639 in the nine months ended September 30, 2013. This increase is also due to product revenue of $1.5 million due to the acquisition of ReliOn.

*Service revenue:* Service revenue includes revenue from our service and maintenance contracts, hydrogen contracts, spare parts, and leased units.

Service revenue for the three months ended September 30, 2014 increased $5.3 million or 324.3%, to $6.9 million from $1.6 million for the three months ended September 30, 2013. The increase is primarily related to an increase in GenFuel and GenCare service contracts, as well as to the acquisition of ReliOn.

Service revenue for the nine months ended September 30, 2014 increased $8.8 million or 194.2%, to $13.4 million from $4.6 million for the nine months ended September 30, 2013. The increase is primarily related to an increase in GenFuel and GenCare contracts, as well as to the acquisition of ReliOn.

*Research and development contract revenue.* Research and development contract revenue relates to both cost reimbursement and fixed price research and development contracts associated with the development of PEM fuel cell technology. Revenue from time and material contracts is recognized on the basis of hours expended plus other reimbursable contract costs incurred during the period. Revenue from fixed fee contracts is recognized on the basis of percentage of completion. We expect to continue certain research and development contract work that is related to our current product development efforts.

Research and development contract revenue for the three months ended September 30, 2014 decreased $91,000, or 19.6%, to $371,000 from $462,000 for the three months ended September 30, 2013. The decrease is primarily related to the completion of three funded projects, partially offset by the start of two new projects.

Research and development contract revenue for the nine months ended September 30, 2014 decreased $0.2 million or 15.0%, to $1.0 million from $1.2 million for the nine months ended September 30, 2013. The decrease is primarily related to the completion of three funded projects, partially offset by the start of two new projects.

*Cost of product revenue.* Cost of product revenue includes direct material and labor costs, overhead costs, and warranty costs related to the manufacturing of GenDrive products, as well as ReliOn’s backup power units.

Cost of product revenue for the three months ended September 30, 2014 increased $7.2 million, or 182.8%, to $11.1 million from $3.9 million for the three months ended September 30, 2013. The increase in the cost of product revenue was primarily related to an increase in the number of GenDrive units shipped in 2014. We shipped 835 GenDrive units for the three months ended September 30, 2014 as compared to 155 GenDrive units for the three months ended September 30, 2013. Additionally, cost of product revenue has increased $0.4 million due to the acquisition of ReliOn.

Cost of product revenue for the nine months ended September 30, 2014 increased $10.6 million, or 74.0%, to $25.0 million from $14.3 million for the nine months ended September 30, 2013. The increase in the cost of product revenue was primarily related to an increase in the number of GenDrive units shipped in 2014. We shipped 1,687 GenDrive units for the nine months ended September 30, 2014 as compared to 639 GenDrive units for the nine months ended September 30, 2013. Additionally, cost of product revenue has increased $1.3 million due to the acquisition of ReliOn.

*Cost of service revenue.* Cost of service revenue includes the labor and material costs incurred for our product service and maintenance contracts, our hydrogen contracts, replacement parts, rental units, and leased units.

Cost of service revenue for the three months ended September 30, 2014 increased $5.3 million, or 136.2%, to $9.2 million from $3.9 million for the three months ended September 30, 2013. The increase in the cost of service revenue was primarily related to an increase in GenFuel and GenCare contracts, and the acquisition of ReliOn.

Cost of service revenue for the nine months ended September 30, 2014 increased $8.7 million, or 83.3%, to $19.1 million from $10.4 million for the nine months ended September 30, 2013. The increase in the cost of service revenue was primarily related to an increase in GenFuel and GenCare contracts, and the acquisition of ReliOn.

*Cost of research and development contract revenue*. Cost of research and development contract revenue includes costs associated with research and development contracts including: cash and non-cash compensation and benefits for engineering and related support staff, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies used and other directly allocable general overhead costs allocated to specific research and development contracts.

Cost of research and development contract revenue for the three months ended September 30, 2014 decreased $31,000 or 4.2% to $699,000 from $730,000 for the three months ended September 30, 2013. This decrease is based on actual costs incurred on the new projects.

Cost of research and development contract revenue for the nine months ended September 30, 2014 increased $4,000 or 0.2% to $1.9 million from $1.9 million for the nine months ended September 30, 2013. This decrease is based on actual costs incurred on the new projects.

*Research and development expense.* Research and development expense includes: materials to build development and prototype units, cash and non-cash compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services, and other general overhead costs associated with our research and development activities.

Research and development expense for the three months ended September 30, 2014 increased $0.8 million, or 113.7% to $1.6 million, from $0.8 million for the three months ended September 30, 2013. This increase was primarily related to an increase in personnel related expenses, and the ReliOn acquisition.

Research and development expense for the nine months ended September 30, 2014 increased $2.0 million, or 83.3% to $4.3 million, from $2.3 million for the nine months ended September 30, 2013. This increase was primarily related to an increase in personnel related expenses coupled with a decline in the amount of research and development costs that can be charged to government and other projects, and the ReliOn acquisition.

*Selling, general and administrative expenses.* Selling, general and administrative expenses includes cash and non-cash compensation, benefits and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology and legal services.

Selling, general and administrative expenses for the three months ended September 30, 2014 increased $2.2 million, or 79.8%, to $5.0 million from $2.8 million for the three months ended September 30, 2013. This increase was primarily related to an increase in personnel related expenses, professional fees, and the ReliOn acquisition.

Selling, general and administrative expenses for the nine months ended September 30, 2014 increased $4.2 million, or 47.3%, to $13.0 million from $8.8 million for the nine months ended September 30, 2013. This increase was primarily related to an increase in personnel related expenses, professional fees, and the ReliOn acquisition.

*Legal reserve.* Legal reserve represents the estimated reserve required for current litigation.

During the third quarter of 2014 the company accrued a $2.4 million liability relating to litigation dating back to 2008 with Soroof Trading Development Company Ltd.

*Amortization of intangible assets.* Amortization of intangible assets represents the amortization associated with the Company’s acquired identifiable intangible assets, including acquired technology, customer relationships and trademarks which are being amortized over their remaining useful life.

Amortization of intangible assets increased to approximately $608,000 for the three months ended September 30, 2014, compared to approximately $563,000 for the three months ended September 30, 2013. This increase is primarily related to the ReliOn acquisition.

Amortization of intangible assets increased to approximately $1.8 million for nine months ended September 30, 2014, compared to approximately $1.7 million for the nine months ended September 30, 2013. This increase is primarily related to the ReliOn acquisition.

*Interest and other income.* Interest and other income consists primarily of interest earned on our cash, interest earned on our note receivable, interest earned on our sale-leaseback transaction, rental income, and other income.

Interest and other income increased to approximately $628,000 for the three months ended September 30, 2014 from approximately $26,000 for the three months ended September 30, 2013. This increase is primarily related to the reduction of a license fee at ReliOn of $556,000, coupled with an increase in interest earned on our cash balances.

Interest and other income increased to approximately $722,000 for the nine months ended September 30, 2014 from approximately $83,000 for the nine months ended September 30, 2013. This increase is primarily related to the reduction of a license fee at ReliOn of $556,000, coupled with an increase in interest earned on our cash balances.

*Gain on bargain purchase.* Gain on bargain purchase consists of the excess of estimated fair value of assets and liabilities acquired over the purchase price.

During the nine months ended September 30, 2014, the fair value of the acquired net assets of ReliOn exceeded the purchase consideration, and therefore a gain on bargain purchase of $1,014,256 was recognized.

*Change in fair value of common stock warrant liability.* We account for common stock warrants in accordance with applicable accounting guidance provided in ASC Subtopic 815-40, *Derivatives and Hedging — Contracts in Entity’s Own Equity*, as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. Derivative warrant liabilities are valued using the Black-Scholes pricing model at the date of initial issuance and each subsequent balance sheet date. Changes in the fair value of the warrants are reflected in the consolidated statement of operations as change in the fair value of common stock warrant liability.

The change in fair value of common stock warrant liability for the three months ended September 30, 2014 resulted in a decrease in the associated warrant liability of $0.5 million as compared to an increase of $8.2 million for the three months ended September 30, 2013. The change in fair value of common stock warrant liability for the nine months ended September 30, 2014 resulted in an increase in the associated warrant liability of $58.4 million as compared to an increase of $16.2 million for the nine months ended September 30, 2013. These variances are primarily due to changes in the Company’s common stock share price, and changes in volatility of our common stock, which are significant inputs to the Black-Scholes valuation model.

*Interest and other expense.* Interest and other expense consists of interest and other expenses related to the Silicon Valley Bank (SVB) Loan and Security Agreement, interest related to obligations under capital lease, interest related to our finance obligation, and foreign currency exchange gain (loss).

Interest and other expense for the three months ended September 30, 2014 was approximately $93,000, compared to approximately $125,000 for the three months ended September 30, 2013. This decrease is primarily related to a decline in interest expense related to our SVB Loan and Security Agreement, coupled with a gain in foreign currency exchange.

Interest and other expense for the nine months ended September 30, 2014 was approximately $305,000, compared to approximately $354,000 for the nine months ended September 30, 2013. This decrease is primarily related to a decline in interest expense related to our SVB Loan and Security Agreement, coupled with a gain in foreign currency exchange.

*Income taxes.* The deferred tax asset generated from our net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carry forward will not be realized. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Income tax benefit for the three and nine months ended September 30, 2014 was approximately $325,000, whereas income tax benefit for the three and nine months ended September 30, 2013 was approximately $410,000. The income tax benefit for both years is due to a reduction in accrued interest and penalties on uncertain tax positions as a result of the expiration of the associated statute of limitations.

### Liquidity and Capital Resources

Our cash requirements relate primarily to working capital needed to operate and grow our business, including funding operating expenses, growth in inventory to support both shipments of new units and servicing the installed base, funding the growth in our GenKey “turn-key” solution which also includes the installation of our customer’s hydrogen infrastructure as well as delivery of the hydrogen molecule, and continued development and expansion of our products. Our ability to achieve profitability and meet future liquidity needs and capital requirements will depend upon numerous factors, including the timing and quantity of product orders and shipments; the timing and amount of our operating expenses; the timing and costs of working capital needs; the timing and costs of building a sales base; the timing and costs of developing marketing and distribution channels; the timing and costs of product service requirements; the timing and costs of hiring and training product staff; the extent to which our products gain market acceptance; the timing and costs of product development and introductions; the extent of our ongoing and any new research and development programs; and changes in our strategy or our planned activities. If we are unable to fund our operations, 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 attributable to common shareholders. We incurred a net loss attributable to common shareholders of $81.5 million for the nine months ended September 30, 2014, and net losses attributable to common shareholders of $62.8 million, $31.9 million and $27.5 million for the years ended December 31, 2013, 2012 and 2011, respectively, and we have an accumulated deficit of $930.9 million at September 30, 2014. Substantially all of our accumulated deficit has been incurred in connection with our operating expenses, research and development expenses, and from general and administrative costs associated with our operations.

Net cash used in operating activities for the nine months ended September 30, 2014 was $31.0 million. Additionally, on September 30, 2014, we had cash and cash equivalents of $156.5 million and net working capital of $177.6 million. This compares to $5.0 million and $11.1 million, respectively, at December 31, 2013.

On January 15, 2014 we completed an underwritten public offering of 10,000,000 shares of common stock and accompanying warrants to purchase 4,000,000 shares of common stock. The shares and the warrants were sold together in a fixed combination, with each combination consisting of one share of common stock and 0.40 of a warrant to purchase one share of common stock, at a price of $3.00 per fixed combination for gross proceeds of $30.0 million. The securities were placed with a single institutional investor. The warrants have an exercise price of $4.00 per share, are immediately exercisable and will expire on January 15, 2019. The total net proceeds to Plug Power from the January 2014 public offering were $27,970,256.

On March 11, 2014, we completed an underwritten public offering of 3,902,440 shares of common stock. The shares were sold at $5.74 per share for gross proceeds of approximately $22.4 million. The shares were placed with a single institutional investor. The total net proceeds to Plug Power from the March 2014 public offering were $21,308,987.

On April 30, 2014, we completed an underwritten public offering of 22,600,000 shares of common stock. The shares were sold at $5.50 per share for gross proceeds of approximately $124.3 million. The total net proceeds to Plug Power from the April 2014 public offering were $116,443,375.

To date, we have funded our operations primarily through public and private offerings of common and preferred stock, a sale-leaseback of our building, our previous line of credit and maturities and sales of our available-for-sale securities. We believe that our current cash, cash equivalents, cash generated from future sales and cash generated from the exercise of outstanding warrants, will provide sufficient liquidity to fund operations for at least the next twelve months. This projection is based on our current expectations regarding product sales, cost structure, cash burn rate and operating assumptions.

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

|  | Nine months ended or at September 30, 2014 | Nine months ended or at September 30, 2013 | Year ended or at December 31, 2013 |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents at end of period | $156,462 | $10,960 | $5,027 |
| Working capital at end of period | 177,593 | 14,584 | 11,110 |
| Net loss attributable to common shareholders | 81,461 | 33,862 | 62,791 |
| Net cash used in operating activities | 31,025 | 17,945 | 26,881 |
| Purchase of property, plant and equipment | 1,200 | 145 | 111 |

During the nine months ended September 30, 2014, cash used for operating activities was $31.0 million, consisting primarily of a net loss attributable to the Company of $81.3 million, coupled with changes in operating assets and liabilities of $12.7 million, offset by net non-cash expenses in the amount of $63.0 million, including $3.2 million for amortization and depreciation, $2.4 million for stock based compensation, $1.0 million for the gain on bargain purchase and $58.4 million for the change in fair value of common stock warrant liability. Cash used by investing activities for the nine months ended September 30, 2014 was $0.8 million, consisting of $1.2 million for the purchase of property, plant, and equipment, offset by cash received from the ReliOn acquisition of $0.4 million. Cash provided by financing activities for the nine months ended September 30, 2014 was approximately $183.2 million consisting primarily of $18.3 million provided from the exercise of warrants, $0.3 million provided from the exercise of stock options and $165.7 million in net proceeds from public offerings, offset by $0.5 million for the purchase of treasury stock and $0.6 million for principal payments on long-term debt.

### Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these 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 bad debts, inventories, intangible assets, equity investments, product warranty reserves, unbilled revenue, common stock warrants, income taxes and contingencies. We base our estimates and judgments on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We refer to the policies and estimates set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as well as a discussion of Significant Accounting Policies included in Note 2, Basis of Presentation, of the unaudited condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

### Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in Note 2, Basis of Presentation, of the unaudited condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

## Market risk

As filed, 909 characters.

From time to time, we may invest our cash in government, government backed and interest-bearing investment-grade securities that we generally hold for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. We are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

Our exposure to changes in foreign currency rates is primarily related to sourcing inventory from foreign locations. This practice can give rise to foreign exchange risk resulting from the varying cost of inventory to the receiving location. The Company mitigates this risk through local sourcing efforts.

## Controls and procedures

As filed, 1,271 characters.

(a) Evaluation of disclosure controls and procedures

As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934, our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) . Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.

(b) Changes in internal controls over financial reporting

As required by Rule 13a-15(d) under the Securities Exchange Act of 1934, our management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the period covered by this report.

## Risk factors

As filed, 1,069 characters.

Part II, Item 1A, “Risk Factors” of our most recently filed Annual Report on Form 10-K, as amended by our Annual Report on Form 10-K/A, filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2013, sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Except to the extent that information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters described in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there have been no material changes to our risk factors disclosed in our most recently filed Annual

Report on Form 10-K. However, those risk factors continue to be relevant to an understanding of our business, financial condition and operating results and, accordingly, you should review and consider such risk factors in making any investment decision with respect to our securities.

Filed Nov 14, 2014.
Source: SEC EDGAR, the filing index for accession 0001104659-14-080963. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.