# Plug Power Inc: Form 10-Q for the period ended Sep 30, 2019

- Company: [Plug Power Inc](/companies/plug.md) (CIK 1093691)
- Form: 10-Q
- Filed: 2019-11-08
- Accepted by EDGAR: Nov 8, 2019, 21:16 ET
- Period: 2019-09-30
- Accession: 0001558370-19-010607
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1093691/000155837019010607/plug-20190930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1093691/000155837019010607/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $56.4m | us-gaap:Revenues |
| Revenue | 9 months, 2019-01-01 to 2019-09-30 | $132.0m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2019-07-01 to 2019-09-30 | $51.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2019-01-01 to 2019-09-30 | $123.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2019-07-01 to 2019-09-30 | $5.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2019-01-01 to 2019-09-30 | $8.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2019-07-01 to 2019-09-30 | $8.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2019-01-01 to 2019-09-30 | $24.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2019-07-01 to 2019-09-30 | $10.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2019-01-01 to 2019-09-30 | $33.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | −$13.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | −$49.0m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | −$21.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | −$73.7m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | −$51.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $4.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-09-30 | $43.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $196.8m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $556.0m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $126.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-09-30 | $544.0m | us-gaap:Liabilities |
| Current portion of debt | at 2019-09-30 | $17.2m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2019-09-30 | −$14.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 88,577 characters.

*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. 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 Securities Exchange 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 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; the risk of dilution to our stockholders and/or stock price should we need to raise additional capital; 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 debt securities, 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 the convertible senior notes and our common stock; the volatility of the market price of our common stock; the risk that negative publicity related to our business could result in a negative impact on our stock value and profitability; our ability to achieve the forecasted gross margin on the sale of our products; our ability to develop commercially viable products; 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; market acceptance of our products and services, including GenDrive, GenSure and GenKey systems; our ability to successfully market, distribute and service our products and services internationally; our ability to reduce product and manufacturing costs; our ability to improve system reliability for our products; the risk that 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 pending orders may not convert to purchase orders, in whole or in part; 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 on March 13, 2019. 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 hydrogen and fuel cell systems used primarily for the electric mobility and stationary power markets. As part of the global drive to electrification, the Company has recently leveraged product proven in the material handling vehicle space to enter new, adjacent, electric vehicle markets, specifically electric delivery vans.

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. The Company develops complete hydrogen generation, delivery, storage and refueling solutions for customer locations. Currently the Company obtains the majority of its hydrogen by purchasing it from fuel suppliers for resale to customers.

In our core business, we provide and continue to develop commercially-viable hydrogen and fuel cell product solutions to replace lead‑acid batteries in electric material handling vehicles and industrial trucks for some of 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. Additionally, we manufacture and sell fuel cell products to replace batteries and diesel generators in stationary backup power applications. These products prove valuable with telecommunications, transportation and utility customers as robust, reliable and sustainable power 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, GenSure products, GenFuel products and ProGen 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” solution combining either GenDrive or GenSure 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.

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

To promote fuel cell adoption and maintain post‑sale customer satisfaction, we offer a range of service and support options through extended maintenance contracts. Additionally, customers may waive our service option, and choose to service their systems independently. A high percentage of fuel cells sold in recent years were bundled with maintenance contracts. As a result, only approximately 0.2% of fuel cells deployed are still under standard warranty that is not a part of an extended maintenance contract.

### 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 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, the proportion 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, the provision for common stock warrants was allocated to our individual revenue line items based on estimated contractual cash flows by revenue stream. Prior period amounts have been reclassified to be consistent with current period presentation. The amount of provision for common stock warrants recorded as a reduction of revenue during the three and nine months ended September 30, 2019 and 2018, respectively, is shown in the table below (in thousands):

|  | Three months ended 2019 | 2018 | Nine months ended 2019 | 2018 |
| --- | ---: | ---: | ---: | ---: |
| Sales of fuel cell systems and related infrastructure | $(1,190) | $(878) | $(2,178) | $(3,525) |
| Services performed on fuel cell systems and related infrastructure | (476) | (352) | (871) | (1,410) |
| Power Purchase Agreements | (1,321) | (221) | (3,533) | (529) |
| Fuel delivered to customers | (1,595) | (675) | (3,662) | (2,468) |
| Total | $(4,582) | $(2,126) | $(10,244) | $(7,932) |

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

| For the period ended September 30, 2019: | Three Months Ended September 30, Net Revenue | Cost of Revenue | Gross Profit/(Loss) | Gross Margin | Nine Months Ended September 30, Net Revenue | Cost of Revenue | Gross Profit/(Loss) | Gross Margin |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales of fuel cell systems and related infrastructure | $38,165 | $24,990 | $13,175 | 34.5% | $78,932 | $50,440 | $28,492 | 36.1% |
| Services performed on fuel cell systems and related infrastructure | 5,920 | 6,461 | (541) | (9.1)% | 17,415 | 18,802 | (1,387) | (8.0)% |
| Power Purchase Agreements | 5,599 | 10,353 | (4,754) | (84.9)% | 16,613 | 28,064 | (11,451) | (68.9)% |
| Fuel delivered to customers | 6,557 | 9,160 | (2,603) | (39.7)% | 18,942 | 25,935 | (6,993) | (36.9)% |
| Other | 135 | 150 | (15) | (11.0)% | 135 | 150 | (15) | (11.0)% |
| Total | $56,376 | $51,114 | $5,262 | 9.3% | $132,037 | $123,391 | $8,646 | 6.5% |
| For the period ended September 30, 2018: |  |  |  |  |  |  |  |  |
| Sales of fuel cell systems and related infrastructure | $36,668 | $27,428 | $9,240 | 25.2% | $66,101 | $52,927 | $13,174 | 19.9% |
| Services performed on fuel cell systems and related infrastructure | 5,156 | 5,302 | (146) | (2.8)% | 16,330 | 17,139 | (809) | (5.0)% |
| Power Purchase Agreements | 5,555 | 8,767 | (3,212) | (57.8)% | 16,365 | 27,055 | (10,690) | (65.3)% |
| Fuel delivered to customers | 5,786 | 7,259 | (1,473) | (25.5)% | 16,016 | 19,576 | (3,560) | (22.2)% |
| Total | $53,165 | $48,756 | $4,409 | 8.3% | $114,812 | $116,697 | $(1,885) | (1.6)% |

39

### 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 September 30, 2019 increased $1.5 million, or 4.1%, to $38.2 million from $36.7 million for the three months ended September 30, 2018. Included within revenue was provision for common stock warrants of $1.2 million and $0.9 million for the three months ended September 30, 2019 and 2018, respectively. The main drivers for the increase in revenue were the increase in GenDrive units recognized as revenue, offset by the increase in the aforementioned provision for common stock warrants. There were 1,513 GenDrive units recognized as revenue during the three months ended September 30, 2019, compared to 1,400 for the three months ended September 30, 2018. The increase in GenDrive revenue was partially offset by the decrease in hydrogen fueling infrastructure installations. Two hydrogen fueling infrastructure installations were recognized as revenue during the three months ended September 30, 2019, compared to seven during the three months ended September 30, 2018.

Revenue from sales of fuel cell systems and related infrastructure for the nine months ended September 30, 2019 increased $12.8 million, or 19.4%, to $78.9 million from $66.1 million for the nine months ended September 30, 2018. Included within revenue was provision for common stock warrants of $2.2 million and $3.5 million for the nine months ended September 30, 2019 and 2018, respectively, positively impacting the change in revenue. The main driver for the increase in revenue was the increase in GenDrive units recognized as revenue. There were 3,604 units recognized as revenue during the nine months ended September 30, 2019, compared to 2,526 for the nine months ended September 30, 2018. The increase in GenDrive revenue was offset by the decrease in hydrogen fueling infrastructure installations. Two hydrogen fueling infrastructure installations were recognized as revenue, during the nine months ended September 30, 2019, compared to fourteen during the nine months ended September 30, 2018.

*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 September 30, 2019, there were 11,206 fuel cell units and 43 hydrogen installations under extended maintenance contracts, as compared to 11,237 fuel cell units and 42 hydrogen installations at September 30, 2018.

Revenue from services performed on fuel cell systems and related infrastructure for the three months ended September 30, 2019 increased $0.8 million, or 14.8%, to $5.9 million from $5.2 million for the three months ended September 30, 2018. Included within revenue was provision for common stock warrants of $0.5 million and $0.4 million for the three months ended September 30, 2019 and 2018, respectively. The average number of units under extended maintenance contracts during the three months ended September 30, 2019 was 11,211, compared to 11,029 during the three months ended September 30, 2018. This 1.7% increase in the average number of units serviced throughout the three months ended September 30, 2019 compared to the three months ended September 30, 2018 is directionally consistent with the increase in revenue during the same period.

Revenue from services performed on fuel cell systems and related infrastructure for the nine months ended September 30, 2019 increased $1.1 million, or 6.6%, to $17.4 million from $16.3 million for the nine months ended September 30, 2018. Included within revenue was provision for common stock warrants of $0.9 million and $1.4 million for the nine months ended September 30, 2019 and 2018, respectively, positively impacting the change in revenue. The increase in service revenue was primarily due to a reduction in provision for common stock warrants and increase in the average number of units under extended maintenance contracts. The average number of units under extended maintenance contracts during the nine months ended September 30, 2019 was 11,566, compared to 10,456 during the nine months ended September 30, 2018. This 10.6% increase in average units serviced throughout the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 is directionally consistent with the increase in revenue during the same period.

*Revenue – Power Purchase Agreements.* Revenue from PPAs represents payments received from customers for power generated through the provision of equipment and service. At September 30, 2019, there were 35 GenKey sites and 11,236 units associated with PPA arrangements, as compared to 35 GenKey sites and 7,140 units at September 30, 2018.

Revenue from PPAs for the three months ended September 30, 2019 remained consistent at $5.6 million as compared to the three months ended September 30, 2018. Included within revenue was provision for common stock warrants of $1.3 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively. Revenue increased as a result of an increase in the number of units under PPAs, offset by the increase in the aforementioned provision for common stock warrants.

Revenue from PPAs for the nine months ended September 30, 2019 increased $0.2 million, or 1.5%, to $16.6 million from $16.4 million for the nine months ended September 30, 2018. Included within revenue was provision for common stock warrants of $3.5 million and $0.5 million for the nine months ended September 30, 2019 and 2018, respectively. The increase in revenue from PPAs for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 was attributable to the increase in the number of units under PPA arrangements, partially offset by the increase in 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 September 30, 2019, there were 74 sites associated with fuel contracts, as compared to 71 at September 30, 2018. The sites generally are the same as those which had purchased hydrogen installations within the GenKey solution.

Revenue associated with fuel delivered to customers for the three months ended September 30, 2019 increased $0.8 million, or 13.3%, to $6.6 million from $5.8 million for the three months ended September 30, 2018. Included within revenue was provision for common stock warrants of $1.6 million and $0.7 million for the three months ended September 30, 2019 and 2018, respectively. The increase in revenue was due to an increase in sites taking fuel deliveries in 2019 compared to 2018, as well as increases in fuel prices, partially offset by an increase in common stock warrant provision.

Revenue associated with fuel delivered to customers for the nine months ended September 30, 2019 increased $2.9 million, or 18.3%, to $18.9 million from $16.0 million for the nine months ended September 30, 2018. Included within revenue was provision for common stock warrants of $3.7 million and $2.5 million for the nine months ended September 30, 2019 and 2018, respectively. The increase in revenue was 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 fuel deliveries was 73 during the nine months ended September 30, 2019, as compared to 66 during the nine months ended September 30, 2018.

### 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 installations referred to at the site level as hydrogen installations.

Cost of revenue from sales of fuel cell systems and related infrastructure for the three months ended September 30, 2019 decreased 8.9%, or $2.4 million, to $25.0 million, compared to $27.4 million for the three months ended September 30, 2018. This decrease was driven by the decrease in hydrogen fueling infrastructure installations recognized as revenue, partially offset by the increase in GenDrive deployment volume. There were 1,513 GenDrive units and two hydrogen infrastructure sites recognized as revenue for the three months ended September 30, 2019 compared to 1,400 GenDrive units and seven hydrogen infrastructure sites recognized as revenue for the three months ended September 30, 2018. Gross margin generated from sales of fuel cell systems and related infrastructure improved to 34.5% for the three months ended September 30, 2019, compared to 25.2% for the three months ended September 30, 2018 primarily due to the mix of GenDrive units recognized as revenue and decrease in the number of hydrogen infrastructure sites deployed, partially offset by the 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 September 30, 2019 and 2018 had a 3.0% and 2.3% negative impact on revenue, respectively.

Cost of revenue from sales of fuel cell systems and related infrastructure for the nine months ended September 30, 2019 decreased 4.7%, or $2.5 million, to $50.4 million, compared to $52.9 million the nine months ended September 30, 2018. There were 3,604 GenKey units and four hydrogen infrastructure sites recognized as revenue for the nine months ended September 30, 2019 as compared to GenKey 2,526 units and 14 sites for the nine months ended September 30, 2018. Gross margin generated from sales of fuel cell systems and related infrastructure improved to 36.1% for the nine months ended September 30, 2019, compared to 19.9% for the nine months ended September 30, 2018 primarily due to the mix of GenDrive units recognized as revenue, decrease in the number of hydrogen infrastructure sites deployed as well as the impact of provision for common stock warrants. The provision for common stock warrants from sales of fuel cells and related infrastructure for the nine months ended September 30, 2019 and 2018 had a 2.7% and 5.1% negative impact on revenue, respectively.

*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 September 30, 2019, there were 11,206 fuel cell units and 43 hydrogen installations under extended maintenance contracts, a change from 11,237 fuel cell units and 42 hydrogen installations at September 30, 2018.

Cost of revenue from services performed on fuel cell systems and related infrastructure for the three months ended September 30, 2019 increased 21.9%, or $1.2 million, to $6.5 million, compared to $5.3 million for the three months ended September 30, 2018. Gross margin declined to (9.1)% for the three months ended September 30, 2019, compared to (2.8)% for the three months ended September 30, 2018 primarily due to program investments targeting performance improvement and variation in maintenance cycles.

Cost of revenue from services performed on fuel cell systems and related infrastructure for the nine months ended September 30, 2019 increased 9.7%, or $1.7 million, to $18.8 million, compared to $17.1 million for the nine months ended September 30, 2018. Gross margin declined to (8.0)% for the nine months ended September 30, 2019, compared to (5.0)% for the nine months ended September 30, 2018 primarily due to program investments targeting performance improvement and variation in maintenance cycles.

*Cost of revenue – Power Purchase Agreements.* Cost of revenue from PPAs includes payments made to 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 September 30, 2019, there were 35 GenKey sites and 11,374 units associated with PPAs, as compared to 35 GenKey sites and 8,865 units associated with PPAs at September 30, 2018.

Cost of revenue from PPAs for the three months ended September 30, 2019 increased 18.1%, or $1.6 million, to $10.4 million from $8.8 million for the three months ended September 30, 2018. The increase was a result of the increase in the depreciation of capitalized leased asset and maintenance costs in the third quarter of 2018. Gross margin declined to (84.9)% for the three months ended September 30, 2019, as compared to (57.8)% for the three months ended September 30, 2018, as a result of the aforementioned increase in the depreciation of capitalized leased asset costs and maintenance costs in the third quarter of 2019. In addition, the provision for common stock warrants from services performed on fuel cells systems and related infrastructure for the three months ended September 30, 2019 and 2018 had a 19.1% and 3.8% negative impact on revenue, respectively.

Cost of revenue from PPAs for the nine months ended September 30, 2019 increased 3.7%, or $1.0 million, to $28.1 million from $27.1 million for the nine months ended September 30, 2018. Gross margin declined to (68.9)% for the nine months ended September 30, 2019, as compared to (65.3)% for the nine months ended September 30, 2018 primarily due to the increase in depreciation of capitalized leased assets and 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 nine months ended September 30, 2019 and 2018 had a 17.5% and 3.1% negative impact on revenue, respectively.

*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 and separately sells it to its customers when delivered or dispensed. At September 30, 2019, there were 74 sites associated with fuel contracts, as compared to 71 at September 30, 2018. The sites generally are the same as those which had purchased hydrogen installations within the GenKey solution.

Cost of revenue from fuel delivered to customers for the three months ended September 30, 2019 increased 26.2%, or $1.9 million, to $9.2 million from $7.3 million for the three months ended September 30, 2018. Gross margin declined to (39.7)% during the three months ended September 30, 2019, compared to (25.5)% during the three months ended September 30, 2018 primarily due to an increase in depreciation on tanks and related fuel equipment due to investments made to improve fuel system efficiency and an increase in provision for common stock warrants. The provision for common stock warrants from fuel delivered to customers for the three months ended September 30, 2019 and 2018 had a 19.6% and 10.4% negative impact on revenue, respectively.

Cost of revenue from fuel delivered to customers for the nine months ended September 30, 2019 increased 32.5%, or $6.4 million, to $25.9 million from $19.6 million for the nine months ended September 30, 2018. Gross margin declined to (36.9)% during the nine months ended September 30, 2019, compared to (22.2)% during the nine months ended September 30, 2018 primarily due to a 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, as well as an increase in provision for common stock warrants. The provision for common stock warrants from fuel delivered to customers for the nine months ended September 30, 2019 and 2018 had a 16.2% and 13.4% negative impact on revenue, respectively.

### 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 September 30, 2019 decreased $0.4 million, or 4.5%, to $8.0 million, from $8.4 million for the three months ended September 30, 2018. The decrease was primarily related to variations in timing of various programs.

Research and development expense for the nine months ended September 30, 2019 decreased $1.1 million, or 4.5%, to $24.3 million, from $25.5 million for the nine months ended September 30, 2018. The decrease was primarily related to a cost reimbursement from a vendor associated with a field replacement program for certain composite fuel tanks that did not meet the supply contract standard determined by the Company and manufacturer, as well as a decrease in programs associated with product reliability to reduce ongoing service costs.

*Selling, general and administrative expenses.* Selling, general and administrative expenses include 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.

Selling, general and administrative expenses for the three months ended September 30, 2019 increased $1.7 million, or 20.2%, to $10.4 million from $8.7 million for the three months ended September 30, 2018. This increase was primarily related to an increase in stock-based compensation, as well as increases in cost for the Company’s varied strategic initiatives, such as investor symposium and certain executive recruiting charges during the three months ended September 30, 2019.

Selling, general and administrative expenses for the nine months ended September 30, 2019 increased $4.1 million, or 14.2%, to $33.4 million from $29.2 million for the nine months ended September 30, 2018. This increase was primarily related to an increase in performance and stock-based compensation during the nine months ended September 30, 2019, and by a decrease in the legal accrual during the nine months ended September 30, 2018.

*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, foreign currency exchange gains and other income. The Company entered into a series of finance leases with Generate Lending LLC during 2018. Approximately $50.0 million of these finance leases were terminated and replaced with long-term debt with Generate Lending LLC in March 2019. Additionally, in September of 2019 and March of 2018, the Company issued convertible senior notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

Net interest and other expense for the three months ended September 30, 2019 increased $2.1 million, or 33.7%, as compared to the three months ended September 30, 2018. This increase was attributed to the increase in finance leases/long-term debt during 2019 and the issuance of convertible senior notes in September 2019 and March of 2018, as mentioned above.

Net interest and other expense for the nine months ended September 30, 2019 increased $9.1 million, or 58.4%, as compared to the nine months ended September 30, 2018. This increase was attributed to the increase in finance leases/long-term debt during 2019 and the issuance of convertible senior notes in September 2019 and March of 2018, as mentioned above.

### Common Stock Warrant Liability

*Change in fair value of 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 change in fair value of common stock warrant liability for the three months ended September 30, 2019 resulted in a decrease in the associated warrant liability of $0.4 million as compared to a decrease of $1.7 million for the three months ended September 30, 2018. These variances were primarily due to changes in the average remaining term of the warrants, the increase in Company’s common stock 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.

The change in fair value of common stock warrant liability for the nine months ended September 30, 2019 resulted in no change in the associated warrant as compared to a decrease of $3.3 million for the nine months ended September 30, 2018. These variances were primarily due to changes in the average remaining term of the warrants, the increase in Company’s common stock 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.

### Income Tax

*Income taxes.* The Company recognized an income tax benefit for the three and nine months ended September 30, 2018 of $1.7 million and $7.6 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 $100 million Convertible Senior Notes discussed in Note 8, Convertible Senior Notes. The Company did not record any income tax expense or benefit for the three and nine months ended September 30, 2019. 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.

### 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 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 stockholders of $73.8 million for the nine months ended September 30, 2019 and $78.2 million, $130.2 million and $57.6 million for the years ended December 31, 2018, 2017, and 2016, respectively, and had an accumulated deficit of $1.3 billion at September 30, 2019.

During the nine months ended September 30, 2019, net cash used in operating activities was $51.8 million, consisting of a net loss attributable to the Company of $73.7 million and net outflows from fluctuations in working capital and other assets and liabilities of $13.4 million, offset by the impact of non-cash charges/gains of $35.4 million. The changes in working capital were related to an increase in inventory and accounts payable, accrued expenses, and other liabilities offset by a decrease in accounts receivable, prepaid expenses and other assets and deferred revenue. Cash outflows related to equipment that we sell are included in net cash used in operating activities. As of September 30, 2019, we had cash and cash equivalents of $43.3 million and net working capital of $70.5 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 nine months ended September 30, 2019 totaled $9.0 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 we lease directly to customers are included in net cash used in investing activities. Net cash provided by financing activities for the nine months ended September 30, 2019 totaled $149.1 million and primarily resulted from net proceeds of $39.1 million from the issuance of a $40 million in aggregate principal amount of 7.5% Convertible Senior Note due 2023, $38.1 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 $57.2 million increase in cash flows from new finance obligations, offset in part by redemption of preferred stock of $4.0 million and repayments of long-term debt of $21.2 million.

### Public and Private Offerings of Equity and Debt

During the nine months ended September 30, 2019, the Company issued 6.3 million shares of common stock through its At Market Issuance Sales Agreement (ATM) resulting in net proceeds of $14.8 million.

In September 2019, we issued a $40.0 million in aggregate principal amount of 7.5% convertible senior note due in 2023 ($40 million 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. The Company intends to use the net proceeds from the issuance of the note for general corporate purposes and for the potential redemption of the Company’s outstanding Series E Redeemable Convertible Preferred Stock. See Note 8, Convertible Senior Notes, for more details.

In March 2019, the Company sold 10 million shares of common stock at a price of $2.35 per share for net proceeds of $23.5 million.

In November 2018, the Company completed a private placement of an aggregate of 35,000 shares of the Company’s Series E Redeemable Convertible Preferred Stock, par value $0.01 per share (Series E Preferred Stock), for net proceeds of approximately $30.9 million. In the third quarter of 2019, the Company redeemed 4,038 shares of Series E Preferred Stock totaling $4.0 million. See Note 10, Redeemable Convertible Preferred Stock, for additional information.

In March 2018, we issued $100.0 million in aggregate principal amount of 5.5% convertible senior notes due in 2023 ($100 million Convertible Senior Notes). The total net proceeds from this offering, after deducting costs of the issuance, were approximately $95.9 million. Approximately $43.5 million of the proceeds were used for the cost of the Capped Call and the Common Stock Forward, both of which are hedges related to the $100 million Convertible Senior Notes. See Note 8, Convertible Senior Notes, for more details.

On April 12, 2017, the Company issued to Tech Opportunities LLC (Tech Opps) warrants to acquire up to 5,250,750 shares of common stock at an exercise price of $2.69 per share. All of these warrants were exercised on October 15, 2019. See Note 9, Stockholders’ Equity, for additional information.

### Operating or 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). 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 September 30, 2019 was $168.9 million, $162.0 million of which were secured with restricted cash, security deposits and pledged service escrows.

The Company has a master lease agreement with Wells Fargo Equipment Finance, Inc. (Wells Fargo MLA) to finance the Company’s commercial transactions with Wal-Mart Stores, Inc. (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 $97.6 million at September 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 nine months ended September 30, 2019. Transactions completed under the Wells Fargo MLA in 2017 were accounted for as finance 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 aforementioned Wells Fargo MLA transactions required a letter of credit for the unguaranteed portion totaling $37.3 million.

Additionally, during the third quarter of 2019, the Company entered into master lease agreements with both Key Equipment Finance (KeyBank) and SunTrust Equipment Finance & Lease Corp. (SunTrust), to finance commercial transactions with Walmart. The transactions with KeyBank and SunTrust required cash collateral for the unguaranteed portions totaling $6.4 million. Similar to the aforementioned Wells Fargo MLA, the Company has a customer guarantee for the majority of the transactions.

During the nine months ended September 30, 2019, the Company entered into additional, similar master lease agreements with Wells Fargo, Crestmark Equipment Finance (Crestmark), First American Bancorp, Inc. (First American) and 36th Street Capital Partners, LLC (36th Street) to finance subscription programs with other customers. The total remaining lease payments to these financial institutions were $57.3 million at September 30, 2019. These lease payments are secured by cash collateral and letters of credit backed by restricted cash.

### Secured Debt

In March 2019, the Company, and its subsidiaries Emerging Power Inc. and Emergent Power Inc., entered 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. A portion of the initial proceeds of the loan was used to pay in full the Company’s long-term debt 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. 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 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 was recorded in long-term other assets on the Company’s unaudited interim condensed consolidated balance sheet as of September 30, 2019. On September 30, 2019, the outstanding principal balance under the Term Loan Facility was $96.3 million. The net loan proceeds of $32.1 million are being used to fund working capital for ongoing deployments and other general corporate purposes of the Company.

Advances under the Term Loan Facility bear interest at 12.0% per annum. The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. The term of the loan is three years, with a maturity date of December 13, 2022. Principal payments will be funded in part by releases of restricted cash, as described in Note 15, Commitments and Contingencies.

Interest and a portion of the principal amount is payable on a quarterly basis and the entire then outstanding principal balance of the Term Loan Facility, together with all accrued and unpaid interest, is 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 December 31, 2021.

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. 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.

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 Term Loan Facility requires the principal balance at the end of each of the following years may not exceed the following (in thousands):

|  |  |
| --- | ---: |
| December 31, 2019 | $94,638 |
| December 31, 2020 | 73,034 |
| December 31, 2021 | 51,106 |
| December 31, 2022 | — |

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 the 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.

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

|  | Nine months ended or at September 30, 2019 | Year ended or at December 31, 2018 |
| --- | ---: | ---: |
| Cash and cash equivalents at end of period | $43,275 | $38,602 |
| Restricted cash at end of period | 155,042 | 71,551 |
| Working capital at end of period | 70,452 | 9,245 |
| Net loss attributable to common shareholders | 73,767 | 78,167 |
| Net cash used in operating activities | 51,801 | 57,617 |
| Net cash used in investing activities | 8,971 | 19,572 |
| Net cash provided by financing activities | 149,055 | 119,344 |

### $40 Million Convertible Senior Note

In September 2019, the Company issued a $40.0 million in aggregate principal amount of 7.5% Convertible Senior Note due on January 5, 2023 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 of 1933, as amended (the Securities Act). There are no required principal payments prior to maturity of the note. Upon maturity of the note, the Company is required to repay 120% of $40.0 million, or $48.0 million. The 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 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 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 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 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 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 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 million and not the maturity principal amount of $48 million. The 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 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 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 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 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 million 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 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 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 $40 million 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 note equaled approximately $8.0 million. This debt discount was comprised of (1) the discount of $8.0 million attributed to the fact that upon maturity, the Company is required to repay 120% of $40.0 million, or $48.0 million and (2) debt issuance costs of $0.9 million. The debt discount was recorded as debt issuance cost (presented as contra debt in the unaudited interim condensed consolidated balance sheet) and is being amortized to interest expense over the term of the note using the effective interest rate method.

The note consisted of the following at September 30, 2019 (in thousands):

| Principal amounts: |  |
| --- | ---: |
| Principal at maturity | $48,000 |
| Unamortized debt discount | (8,000) |
| Unamortized debt issuance costs | (948) |
| Net carrying amount | $39,052 |

As of September 30, 2019, the remaining life of the note was approximately 40 months.

### $100 Million 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 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. There are no required principal payments prior to maturity of the notes.

The total net proceeds from the notes were as follows:

*(in thousands)*

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

The notes bear interest at 5.5%, payable semi-annually in cash on March 15 and September 15 of each year. The notes will mature on March 15, 2023, unless earlier converted or repurchased in accordance with their terms. The 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 principal amount of the notes will initially be convertible into 436.3002 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $2.29 per share, subject to adjustment upon the occurrence of specified events. Holders of these notes may convert their 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 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 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 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.

On or after September 15, 2022, holders 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.

Upon conversion of the 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 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 notes in connection with certain corporate events that constitute a “make-whole fundamental change” per the indenture governing the 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 notes at a repurchase price equal to 100% of the principal amount of the repurchased notes, plus accrued and unpaid interest.

The Company may not redeem the notes prior to March 20, 2021. The Company may redeem for cash all or any portion of the 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 notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accounting for the issuance of the notes, the Company separated the 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 notes. The difference between the principal amount of the notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the notes. The effective interest rate is approximately 16.0%. The equity component of the notes is included in additional paid-in capital in the unaudited interim condensed consolidated balance sheet 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 notes of approximately $4.1 million, consisting of initial purchasers' discount of approximately $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 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) and are being amortized to interest expense over the term of the 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 notes consisted of the following at September 30, 2019 (in thousands):

| Principal amounts: |  |
| --- | ---: |
| Principal | $100,000 |
| Unamortized debt discount (1) | (29,605) |
| Unamortized debt issuance costs (1) | (1,687) |
| Net carrying amount | $68,708 |
| Carrying amount of the equity component (2) | $37,702 |

1\) Included in the unaudited interim condensed consolidated balance sheet within the $100 million 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 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 September 30, 2019, the remaining life of the notes was approximately 42 months.

Based on the closing price of the Company’s common stock of $2.63 on September 30, 2019, the if-converted value of the notes was greater than the principal amount. At September 30, 2019, the carrying value of the notes, excluding unamortized debt issue costs, approximated the fair value.

### Capped Call

In conjunction with the issuance of the $100 million Convertible Senior Notes, the Company entered into capped call options (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 Capped Call has been recorded as a reduction to additional paid-in capital in the unaudited interim condensed consolidated balance sheet.

The Capped Call is generally expected to reduce or offset the potential dilution to the Company’s common stock upon any conversion of the $100 million 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 Capped Call transactions will initially be $3.82 per share, which represents a premium of 100% over the last 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 Capped Call. The Capped Call becomes exercisable if the conversion option is exercised.

By entering into the Capped Call, the Company expects to reduce the potential dilution to its common stock (or, 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 $100 million Convertible Senior Notes.

### Common Stock Forward

In connection with the sale of the $100 million Convertible Senior Notes, the Company also entered into a forward stock purchase transaction (Common Stock 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. 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. The related shares were accounted for as a repurchase of common stock.

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

### Common Stock Issuance

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.

### At Market Issuance Sales Agreement

On April 3, 2017, the Company entered into an At Market Issuance Sales Agreement (the Sales Agreement) with FBR Capital Markets & Co. (now B. Riley FBR, Inc.), as sales agent (FBR), pursuant to which the Company may offer and sell, from time to time through FBR, shares of common stock par value $0.01 per share having an aggregate offering price 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 amount of common stock registered. During the nine months ended September 30, 2019, the Company raised gross proceeds of $15.3 million. As of October 29, 2019, the Company had raised a total of $46.8 million during the term of the Sales Agreement.

### Lessor Obligations

As of September 30, 2019, the Company 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 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 September 30, 2019 were as follows (in thousands):

|  |  |
| --- | ---: |
| Remainder of 2019 | $7,685 |
| 2020 | 30,135 |
| 2021 | 29,169 |
| 2022 | 21,272 |
| 2023 | 17,208 |
| 2024 and thereafter | 34,759 |
| Total future minimum lease payments | $140,228 |

### Lessee Obligations

As of September 30, 2019, the Company has 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 years. Minimum rent payments under operating and finance leases are recognized on a straight‑line basis over the term of the lease. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of 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 September 30, 2019 and December 31, 2018 was $33.6 million and $81.9 million, respectively. The fair value of the finance obligation approximated the carrying value as of both September 30, 2019 and December 31, 2018.

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 September 30, 2019 was $83.2 million, $12.0 million and $71.2 million of which was classified as short-term and long-term, respectively, on the accompanying unaudited interim consolidated balance sheet. The outstanding balance of this obligation at September 30, 2018 was $21.3 million, $4.0 million and $17.3 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of September 30, 2019.

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

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

|  | Operating Leases | Finance Leases | Other Leased Property | Total Finance Obligations |
| --- | ---: | ---: | ---: | ---: |
| Remainder of 2019 | $9,009 | $2,532 | $180 | $11,721 |
| 2020 | 35,731 | 10,128 | 425 | 46,284 |
| 2021 | 35,731 | 9,276 | 407 | 45,414 |
| 2022 | 27,920 | 4,975 | 390 | 33,285 |
| 2023 | 25,316 | 3,177 | 366 | 28,859 |
| 2024 and thereafter | 45,394 | 16,154 | 1,548 | 63,096 |
| Total future minimum lease payments | 179,101 | 46,242 | 3,316 | 228,659 |
| Less imputed lease interest | (48,737) | (12,619) | (938) | (62,294) |
| Sale of future services | — | 83,212 | — | 83,212 |
| Total finance obligations | $130,364 | $116,835 | $2,378 | $249,577 |

Rental expense for all operating leases was $7.8 million and $3.9 million for the three months ended September 30, 2019 and 2018, respectively. Rental expense for all operating leases was $19.9 million and $11.0 million for the nine months ended September 30, 2019 and 2018, respectively.

The gross profit on sale/leaseback transactions for all operating leases was $14.8 million and $30.9 million for the three and nine months ended September 30, 2019, respectively and $6.8 million for both the three and nine months ended September 30, 2018. Right of use assets obtained in exchange for new operating lease liabilities was $38.4 million and $72.9 million for the three and nine months ended September 30, 2019, respectively, and $21.7 million and $23.9 million for the three and nine months ended September 30, 2018.

At September 30, 2019 and 2018, security deposits associated with sale/leaseback transactions were $7.4 million and $5.5 million, respectively, and were included in other assets in the unaudited interim condensed consolidated balance sheet.

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

|  | Nine months ended September 30, 2019 | Nine months ended September 30, 2018 |
| --- | ---: | ---: |
| Cash payments (in thousands) | $19,222 | $10,617 |
| Weighted average remaining lease term (years) | 5.25 | 4.12 |
| Weighted average discount rate | 12.1% | 12.0% |

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 were as follows (in thousands):

|  | Nine months ended September 30, 2019 | Nine months ended September 30, 2018 |
| --- | ---: | ---: |
| Amortization of right of use asset | $2,308 | $6,776 |
| Interest on finance obligations | 3,194 | 4,781 |
| Total finance lease cost | $5,502 | $11,557 |

54

Right of use assets obtained in exchange for new finance lease liabilities were $5.8 million and $5.9 million for the three and nine months ended September 30, 2019, respectively, and zero and $0.3 million for the three and nine months ended September 30, 2018.

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

|  | Nine months ended September 30, 2019 | Nine months ended September 30, 2018 |
| --- | ---: | ---: |
| Cash payments (in thousands) | $57,659 | $26,392 |
| Weighted average remaining lease term (years) | 3.09 | 3.56 |
| Weighted average discount rate | 11.1% | 11.1% |

### Restricted Cash

In connection with certain of the above noted sale/leaseback agreements, cash of $75.9 million was required to be restricted as security as of September 30, 2019, which restricted cash will be released over the lease term. As of September 30, 2019, the Company also had certain letters of credit backed by security deposits totaling $79.1 million that are security for the above noted sale/leaseback agreements.

The Company also had letters of credit in the aggregate amount of $0.5 million at September 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. 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 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.

### 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.

### Recently Issued and Not Yet Adopted Accounting Pronouncements

In May 2019, *Accounting Standards Update (ASU) 2019-05, Financial Instruments – Credit Losses*, 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 as well as the impact this update will have on 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). This update is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the adoption method as well as the 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, *Revenue from Contracts with Customers*. Adoption of this update is effective for all reporting periods beginning after December 15, 2019. The Company has evaluated the update and has concluded that the adoption of this update will not have a material impact 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 has evaluated the update and has concluded that the adoption of this update will not have a material impact 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 fiscal years beginning after December 15, 2019. The Company has evaluated the update and has concluded that the adoption of this update will not have a material impact on the consolidated financial statements.

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

## Market risk

As filed, 1,463 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, except for the Capped Call and Common Stock Forward purchased in March 2018 related to the issuance of $100 million 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, 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. dollars.

## Controls and procedures

As filed, 1,323 characters.

(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 Exchange Act 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.

(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.

## Risk factors

As filed, 1,019 characters.

Part I, Item 1A, “Risk Factors” of our most recently filed 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 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 8, 2019.
Source: SEC EDGAR, the filing index for accession 0001558370-19-010607. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.