PLUG POWER : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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, 2019.  In addition to historical information,
this Quarterly Report on Form 10-Q and the following discussion contain
statements that are not historical facts and are considered forward-looking
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act 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 might never achieve or maintain

profitability;

? the risk that we will need to raise additional capital to fund our operations

and such capital may not be available to us;

? the risk of dilution to our stockholders and/or stock price should we need to

raise additional capital;

the risk that our lack of extensive experience in manufacturing and marketing

? products may impact our ability to manufacture and market products on a

profitable and large-scale commercial basis;

? the risk that unit orders may not ship, be installed and/or converted to

revenue, in whole or in part;

the risk that a loss of one or more of our major customers, or if one of our

? major customers delays payment of or is unable to pay its receivables, a

material adverse effect could result on our financial condition;

? the risk that a sale of a significant number of shares of stock could depress

the market price of our common stock;

? the risk that our convertible senior notes, if settled in cash, could have a

material effect on our financial results;

? the risk that our convertible note hedges may affect the value of our

convertible senior notes and our common stock;

? the risk that negative publicity related to our business or stock could result

in a negative impact on our stock value and profitability;

? the risk of potential losses related to any product liability claims or

contract disputes;

? the risk of loss related to an inability to maintain an effective system of

internal controls;

? our ability to attract and maintain key personnel;

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

? the risk that pending orders may not convert to purchase orders, in whole or in

part;

? the cost and timing of developing, marketing and selling our products;

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

? our ability to obtain financing arrangements to support the sale or leasing of

our products and services to customers;

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

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

? the risks, liabilities, and costs related to environmental, health and safety

matters;

? the risk of elimination of government subsidies and economic incentives for

alternative energy products;

? market acceptance of our products and services, including GenDrive, GenSure and

GenKey systems;

our ability to establish and maintain relationships with third parties with

? respect to product development, manufacturing, distribution and servicing, and

the supply of key product components;

? the cost and availability of components and parts for our products;

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

business;

? our ability to develop commercially viable products;

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? our ability to reduce product and manufacturing costs;

? our ability to successfully market, distribute and service our products and

services internationally;

? our ability to improve system reliability for our products;

? competitive factors, such as price competition and competition from other

traditional and alternative energy companies;

? our ability to protect our intellectual property;

? the risk of dependency on information technology on our operations and the

failure of such technology;

? the cost of complying with current and future federal, state and international

governmental regulations;

? our subjectivity to legal proceedings and legal compliance;

? the risks associated with past and potential future acquisitions; and

? the volatility of our stock price

The risks included here are not exhaustive, and additional factors could
adversely affect our business and financial performance, including factors and
risks discussed in the section titled "Risk Factors" included under Part I, Item
1A, below. Moreover, we operate in a very competitive and rapidly changing
environment.  New risk factors emerge from time to time and it is not possible
for management to predict all such risk factors, nor can we assess the impact of
all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from these
contained in any forward-looking statements. While forward-looking statements
reflect our good faith beliefs, they are not guarantees of future performance.
These forward-looking statements speak only as of the date on which the
statements were made. Except as may be required by applicable law, we do not
undertake or intend to update any forward-looking statements after the date of
this Quarterly Report on Form 10-Q.



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



Overview

As a leading provider of comprehensive hydrogen fuel cell turnkey solutions, Plug Power Inc., or the Company, is seeking to build a green hydrogen economy.

 The Company is focused on hydrogen and fuel cell systems that are used to power
electric motors primarily in the electric mobility and stationary power markets,
given the ongoing paradigm shift in the power, energy, and transportation
industries to address climate change, energy security, and meet sustainability
goals.  Plug Power created the first commercially viable market for hydrogen
fuel cell, or the HFC technology.  As a result, the Company has deployed over
38,000 fuel cell systems, and has become the largest buyer of liquid hydrogen,
having built and operated a hydrogen network across North America.



We are focused on proton exchange membrane, or PEM, fuel cell and fuel
processing technologies, fuel cell/battery hybrid technologies, and associated
hydrogen storage and dispensing infrastructure from which multiple products are
available. A fuel cell is an electrochemical device that combines hydrogen and
oxygen to produce electricity and heat without combustion. Hydrogen is derived
from multiple sources. The majority of liquid hydrogen in the United States is
produced using the steam methane reforming process and utilizing by-product
hydrogen from chlor alkali production. By-product hydrogen from a chlor alkali
plant is considered to be low carbon hydrogen and in some cases, considered
green hydrogen, depending on the source of electricity and geographic location.
We source a significant amount of liquid hydrogen based on the chlor alkali
process today. Additionally, we manufacture and sell fuel cell products to
replace batteries and diesel generators in stationary backup power applications.
These products have proven valuable with telecommunications, transportation and
utility customers as robust, reliable and sustainable power solutions.



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

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

Our current products and services include:

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

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

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

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

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

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

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

Recent Developments

COVID-19 Update

As a result of the COVID-19 pandemic, state governments-including those in New
York and Washington, where our manufacturing facilities are located-have issued
orders requiring businesses that do not conduct essential services to
temporarily close their physical workplaces to employees and customers. We are
currently deemed an essential business and, as a result, are exempt from these
state orders, in their current form. In March 2020, we put in place a number of
protective measures in response to the COVID-19 outbreak. These measures include
the canceling of all commercial air travel and all other non-critical travel,
requesting that employees limit non-essential personal travel, eliminating all
but essential third-party access to our facilities, enhancing our facilities'
janitorial and sanitary procedures, encouraging employees to work from home to
the extent their job function enables them to do so, encouraging the use of
virtual employee meetings, and providing staggered shifts and social distancing
measures for those employees associated with manufacturing and service
operations.

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

Borrowings/August 2020 Equity Raise

In the third quarter of 2020, the Company borrowed an additional $50.0 million, under an amended loan agreement with Generate Lending, LLC.

Also, in August 2020, the Company issued and sold in a registered direct offering an aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25 per share for net proceeds of approximately $344.4 million.

Amazon Warrants



At September 30, 2020 and December 31, 2019, 27,643,347 and 20,368,782 of the
Amazon Warrant Shares had vested, respectively. The amount of provision for
common stock warrants recorded as a reduction of revenue for the Amazon Warrant
during the three months ended September 30, 2020 and 2019 was $17.3 million and
$1.0 million, respectively. The amount of provision for common stock warrants
recorded as a reduction of revenue for the Amazon Warrant during the nine months
ended September 30, 2020 and 2019 was $22.0 million and $2.0 million,
respectively.



During the third quarter of 2020, approximately $23.8 million of recorded
revenue from Amazon was constrained by the tranche 3 of the Amazon Warrant
Shares. An additional 7,274,565 Amazon Warrant Shares  vested on November 2,
2020, representing the final vesting of tranche 2, resulting in cumulative
vesting in 34,917,912 Warrant Shares since the execution of the Amazon
Transaction Agreement. In accordance with terms of the Amazon Transaction
Agreement as described above, upon final vesting of tranche 2, the tranche 3
Amazon Warrant Shares exercise price was determined to be $13.81 per share.
Based on the exercise price of the third tranche of the Amazon Warrant Shares,
among other things, the fair value of the 20,368,784 tranche 3 Amazon Warrant
Shares is estimated to be $10.60 each, compared to the fair value of tranche 2
Amazon Warrant Shares of $1.05 each.



The Company also recorded a provision for losses of $4.3 million in the third
quarter of 2020 related to Amazon service contracts, caused primarily by the
increase in the value of the tranche 3 warrants, driven by recent increases

in
the Company's stock price.



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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. During the fourth quarter of 2019, the Company adopted ASU
2019-08, with retrospective adoption as of January 1, 2019.  As a result, the
amount recorded as a reduction of revenue was measured based on the grant-date
fair value of the warrants. Previously, this amount was measured based on
vesting date fair value with estimates of fair value determined at each
financial reporting date for unvested warrant shares considered to be probable
of vesting. Except for the third tranche, all existing unvested warrants are
using a measurement date of January 1, 2019, the adoption date, in accordance
ASU 2019-08.

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

                                           Three months ended September 30,       Nine months ended September 30,
                                              2020                2019               2020                2019

Sales of fuel cell systems and
related infrastructure                  $        (16,146)    $         (478)   $        (19,287)    $         (993)
Services performed on fuel cell
systems and related infrastructure                  (688)              (191)             (1,412)              (397)
Power Purchase Agreements                           (758)              (325)             (1,887)            (1,032)
Fuel delivered to customers                       (1,034)              (503)             (2,612)            (1,284)
Total                                   $        (18,626)    $       (1,497)   $        (25,198)    $       (3,706)




Net revenue, cost of revenue, gross profit (loss) and gross margin for the three
and nine months ended September 30, 2020 and 2019, were as follows (in
thousands):




                                                       Three Months Ended                                              Nine Months Ended
                                                          September 30,                                                  September 30,
                                                      Cost of          Gross          Gross                           Cost of          Gross          Gross
                                      Net Revenue     Revenue      Profit/(Loss)     Margin          Net Revenue      Revenue      Profit/(Loss)     Margin
For the period ended September
30, 2020:
Sales of fuel cell systems and
related infrastructure               $      83,528   $  68,509    $        15,019       18.0 %      $     151,661    $ 115,929    $        35,732       23.6 %
Services performed on fuel cell
systems and related
infrastructure                               6,829       7,074              (245)      (3.6) %             19,586       21,746            (2,160)     (11.0) %
Power Purchase Agreements                    6,704      14,087            (7,383)    (110.1) %             19,854       42,034           (22,180)    (111.7) %
Fuel delivered to customers                  9,831      14,172            (4,341)     (44.2) %             24,536       32,267            (7,731)     (31.5) %
Other                                           97         131               (34)     (35.1) %                235          275               (40)     (17.0) %
Total                                $     106,989   $ 103,973    $         3,016        2.8 %      $     215,872    $ 212,251    $         3,621        1.7 %
For the period ended September
30, 2019:
Sales of fuel cell systems and
related infrastructure               $      38,877   $  24,990    $        13,887       35.7 %      $      80,117    $  50,440    $        29,677       37.0 %
Services performed on fuel cell
systems and related
infrastructure                               6,205       6,461              (256)      (4.1) %             17,889       18,802              (913)      (5.1) %
Power Purchase Agreements                    6,595      10,353            (3,758)     (57.0) %             19,114       28,064            (8,950)     (46.8) %
Fuel delivered to customers                  7,649       9,160            (1,511)     (19.8) %             21,320       25,935            (4,615)     (21.6) %
Other                                          135         150               (15)     (11.1) %                135          150               (15)     (11.1) %
Total                                $      59,461   $  51,114    $         8,347       14.0 %      $     138,575    $ 123,391    $        15,184       11.0 %




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.

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Revenue from sales of fuel cell systems and related infrastructure for the three
months ended September 30, 2020 increased $44.7 million, or 114.9%, to $83.5
million from $38.9 million for the three months ended September 30, 2019.
Included within revenue was provision for common stock warrants of $16.1 million
and $0.5 million for the three months ended September 30, 2020 and 2019,
respectively. The main drivers for the increase in revenue were the increase in
GenDrive units recognized as revenue, change in product mix, variations in
customer programs, and an increase in hydrogen installations, offset partially
by the increase in the provision for common stock warrants. There were 3,709
GenDrive units recognized as revenue during the three months ended September 30,
2020, compared to 1,513 for the three months ended September 30, 2019. There was
hydrogen infrastructure revenue associated with 13 hydrogen sites during the
three months ended September 30, 2020, compared to zero during the three months
ended September 30, 2019.

Revenue from sales of fuel cell systems and related infrastructure for the nine
months ended September 30, 2020 increased $71.5 million, or 89.3%, to $151.7
million from $80.1 million for the nine months ended September 30, 2019.
Included within revenue was provision for common stock warrants of $19.3 million
and $1.0 million for the nine months ended September 30, 2020 and 2019,
respectively. The main drivers for the increase in revenue were the increase in
GenDrive units recognized as revenue, change in product mix, variations in
customer programs, and an increase in hydrogen installations, offset partially
by the increase in the provision for common stock warrants. There were 7,217
GenDrive units recognized as revenue during the nine months ended September 30,
2020, compared to 6,058 for the nine months ended September 30, 2019. There was
hydrogen infrastructure revenue associated with 18 hydrogen sites during the
nine months ended September 30, 2020, compared to two during the nine months
ended September 30, 2019.



Revenue - services performed on fuel cell systems and related infrastructure.
Revenue from services performed on fuel cell systems and related infrastructure
represents revenue earned on our service and maintenance contracts and sales of
spare parts. Revenue from services performed on fuel cell systems and related
infrastructure for the three months ended September 30, 2020 increased $0.6
million, or 10.1%, to $6.8 million as compared to $6.2 million for the three
months ended September 30, 2019. Included within revenue was provision for
common stock warrants of $0.7 million and $0.2 million for the three months
ended September 30, 2020 and 2019, respectively. The main drivers for the
increase in revenue was additional contractual revenue associated with higher
utilization of GenDrive units and an increase in units under service maintenance
contracts, partially offset by the increase in the provision for common stock
warrants.



Revenue from services performed on fuel cell systems and related infrastructure
for the nine months ended September 30, 2020 increased $1.7 million, or 9.5%, to
$19.6 million as compared to $17.9 million for the nine months ended September
30, 2019. Included within revenue was provision for common stock warrants of
$1.4 million and $0.4 million for the nine months ended September 30, 2020 and
2019, respectively. The main drivers for the increase in revenue was additional
contractual revenue associated with higher utilization of GenDrive units and an
increase in units under service maintenance contracts, partially offset by the
increase in the provision for common stock warrants.



Revenue - Power Purchase Agreements.  Revenue from PPAs represents payments
received from customers for power generated through the provision of equipment
and service. Revenue from PPAs for the three months ended September 30, 2020
increased $0.1 million, or 1.7%, to $6.7 million from $6.6 million for the three
months ended September 30, 2019. Included within revenue was provision for
common stock warrants of $0.8 million and $0.3 million for the three months
ended September 30, 2020 and 2019, respectively. The increase in revenue from
PPAs for the three months ended September 30, 2020 as compared to the three
months ended September 30, 2019 was primarily attributable to the increase in
units associated with PPAs, offset in part by the increase in the provision

for
common stock warrants.



Revenue from PPAs for the nine months ended September 30, 2020 increased $0.8
million, or 3.9%, to $19.9 million from $19.1 million for the nine months ended
September 30, 2019. Included within revenue was provision for common stock
warrants of $1.9 million and $1.0 million for the nine months ended September
30, 2020 and 2019, respectively. The increase in revenue from PPAs for the nine
months ended September 30, 2020 as compared to the nine months ended September
30, 2019 was primarily attributable to the increase in units associated with
PPAs, offset in part by the increase in the provision for common stock warrants.



Revenue - fuel delivered to customers.  Revenue associated with fuel delivered
to customers represents the sale of hydrogen to customers that has been
purchased by the Company from a third party or generated on site. Revenue
associated with fuel delivered to customers for the three months ended September
30, 2020 increased $2.2 million, or

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28.5%, to $9.8 million from $7.6 million for the three months ended September
30, 2019. Included within revenue was provision for common stock warrants of
$1.0 million and $0.5 million for the three months ended September 30, 2020 and
2019, respectively. The increase in revenue was due to an increase in the number
of sites with fuel contracts in 2020, compared to 2019, and an increase in the
price of fuel, partially offset by the increase in the provision for common
stock warrants.



Revenue associated with fuel delivered to customers for the nine months ended
September 30, 2020 increased $3.2 million, or 15.1%, to $24.5 million from $21.3
million for the nine months ended September 30, 2019. Included within revenue
was provision for common stock warrants of $2.6 million and $1.3 million for the
nine months ended September 30, 2020 and 2019, respectively. The increase in
revenue was due to an increase in the number of sites with fuel contracts in
2020, compared to 2019, an increase in the price of fuel and an increase in the
provision for common stock warrants.





Cost of Revenue



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



Cost of revenue from sales of fuel cell systems and related infrastructure for
the three months ended September 30, 2020 increased 174.1%, or $43.5 million, to
$68.5 million, compared to $25.0 million for the three months ended September
30, 2019. This increase was driven by the increase in GenDrive deployment volume
and increase in hydrogen installations. There were 3,709 GenDrive units
recognized as revenue during the three months ended September 30, 2020, compared
to 1,513 for the three months ended September 30, 2019. Revenue associated with
13 hydrogen installations was recognized during the three months ended September
30, 2020, compared to zero during the three months ended September 30, 2019.
Gross margin generated from sales of fuel cell systems and related
infrastructure decreased to 18.0% for the three months ended September 30, 2020,
compared to 35.7% for the three months ended September 30, 2019, primarily due
to the increase in the provision for common stock warrants.



Cost of revenue from sales of fuel cell systems and related infrastructure for
the nine months ended September 30, 2020 increased 129.8%, or $65.5 million, to
$115.9 million, compared to $50.4 million for the nine months ended September
30, 2019. This increase was driven by the increase in GenDrive deployment volume
and increase in hydrogen installations. There were 7,217 GenDrive units
recognized as revenue during the nine months ended September 30, 2020, compared
to 6,058 for the nine months ended September 30, 2019. Revenue associated with
13 hydrogen installations was recognized during the nine months ended September
30, 2020, compared to zero during the nine months ended September 30, 2019.
Gross margin generated from sales of fuel cell systems and related
infrastructure decreased to 23.6% for the nine months ended September 30, 2020,
compared to 37.0% for the nine months ended September 30, 2019, primarily due to
the increase in the provision for common stock warrants.



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. Cost of revenue from services performed on fuel cell systems
and related infrastructure for the three months ended September 30, 2020
increased 9.5%, or $0.6 million, to $7.1 million, compared to $6.5 million for
the three months ended September 30, 2019. Gross margin increased to (3.6)% for
the three months ended September 30, 2020, compared to (4.1)% for the three
months ended September 30, 2019, primarily due to program investments targeting
performance improvements, offset by the increase in the provision for common
stock warrants.



Cost of revenue from services performed on fuel cell systems and related
infrastructure for the nine months ended September 30, 2020 increased 15.7%, or
$2.9 million, to $21.7 million, compared to $18.8 million for the nine months
ended September 30, 2019. Gross margin decreased to (11.0) % for the nine months
ended September 30, 2020, compared

                                       48

to (5.1)% for the nine months ended September 30, 2019, primarily due to the increase in the provision for common stock warrants.

Cost of revenue - provision for loss contracts related to service.  The Company
also recorded a provision for loss contracts related to service of $4.3 million
in the third quarter of 2020, caused by the increase in the value of tranche 3
warrants as compared to the value of tranche 2 warrants.



Cost of revenue - Power Purchase Agreements.  Cost of revenue from PPAs includes
depreciation of assets utilized and service costs to fulfill PPA obligations and
interest costs associated with certain financial institutions for leased
equipment.  Cost of revenue from PPAs for the three months ended September 30,
2020 increased 36.1%, or $3.7 million, to $14.1 million from $10.4 million for
the three months ended September 30, 2019. Gross margin decreased to (110.1)%
for the three months ended September 30, 2020, as compared to (57.0)% for the
three months ended September 30, 2019, primarily due to program investments
targeting performance improvements, as well as incremental service costs during
the quarter associated with increased usage of units at some of our primary
customer sites caused by the COVID-19 pandemic and an increase in the provision
for common stock warrants.



Cost of revenue from PPAs for the nine months ended September 30, 2020 increased
49.8%, or $14.0 million, to $42.0 million from $28.1 million for the nine months
ended September 30, 2019. Gross margin decreased to (111.7)% for the nine months
ended September 30, 2020, as compared to (46.8)% for the nine months ended
September 30, 2019, primarily due to program investments targeting performance
improvements, as well as incremental service costs during the nine months ended
September 30, 2020 associated with increased usage of units at some of our
primary customer sites caused by the COVID-19 pandemic and an increase in the
provision for common stock warrants.



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 and costs for onsite generation. Cost of revenue
from fuel delivered to customers for the three months ended September 30, 2020
increased 54.7%, or $5.0 million, to $14.2 million from $9.2 million for the
three months ended September 30, 2019. The increase was primarily due to higher
volume of hydrogen delivered to customer sites as a result of an increase in the
number of hydrogen installations completed under GenKey agreements and higher
fuel costs. Gross margin decreased to (44.2)% during the three months ended
September 30, 2020, compared to (19.8)% during the three months ended September
30, 2019, primarily due to an increase in cost of fuel paid to suppliers and an
increase in the provision for common stock warrants.



Cost of revenue from fuel delivered to customers for the nine months ended
September 30, 2020 increased 24.4%, or $6.3 million, to $32.3 million from $25.9
million for the nine months ended September 30, 2019. The increase was primarily
due to higher volume of hydrogen delivered to customer sites as a result of an
increase in the number of hydrogen installations completed under GenKey
agreements and higher fuel costs. Gross margin decreased to (31.5)% during the
nine months ended September 30, 2020, compared to (21.6)% during the nine months
ended September 30, 2019, primarily due to an increase in cost of fuel paid to
suppliers and an increase in the provision for common stock warrants.



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, 2020
increased $4.0 million, or 49.0%, to $12.0 million, from $8.0 million for the
three months ended September 30, 2019.  The increase was primarily due to
additional R&D program investments such as programs associated with improvement
of fuel efficiency, GenDrive unit performance and new product development such
as on-road delivery trucks, drone applications, and increase in headcount.



Research and development expense for the nine months ended September 30, 2020
increased $7.8 million, or 32.0%, to $32.1 million, from $24.3 million for the
nine months ended September 30, 2019.  The increase was primarily

                                       49

due to additional R&D program investments such as programs associated with improvement of fuel efficiency, GenDrive unit performance and new product development such as on-road delivery trucks, drone applications, and increase in headcount.

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



Selling, general and administrative expenses for the three months ended
September 30, 2020, increased $3.9 million, or 37.3%, to $14.3 million from
$10.4 million for the three months ended September 30, 2019. This increase was
primarily related to acquisition and debt restructuring charges in addition to
increases in salaries, employee bonuses, stock-based compensation and headcount.



Selling, general and administrative expenses for the nine months ended September
30, 2020, increased $13.6 million, or 40.8%, to $46.9 million from $33.4 million
for the nine months ended September 30, 2019.  This increase was primarily
related to acquisition and debt restructuring charges in addition to increases
in salaries, employee bonuses, stock-based compensation and headcount.



Interest and other expense, net. Interest and other expense, net consists of
interest and other expenses related to our long-term debt, convertible senior
notes, obligations under finance leases and our finance obligations, as well as
foreign currency exchange losses, offset by interest and other income consisting
primarily of interest earned on our cash and cash equivalents, restricted cash,
foreign currency exchange gains and other income. Since September 30, 2019, the
Company assumed approximately $170.0 million of additional long-term debt at 12%
interest (which interest was reduced to 9.5% on May 6, 2020), issued a 7.5%
Convertible Senior Note at 7.5% interest, issued $212.5 million convertible
senior notes at 3.75% interest, and entered into additional sale/leaseback
finance obligation arrangements.



Net interest and other expense for the three months ended September 30, 2020
increased $9.3 million, or 116.3%, as compared to the three months ended
September 30, 2019. This increase was attributable to an increase in interest
expense associated with the Company's finance obligations, long-term debt and
the issuance of the convertible senior note, as mentioned above.



Net interest and other expense for the nine months ended September 30, 2020
increased $17.8 million, or 73.8%, as compared to the nine months ended
September 30, 2019. This increase was attributable to an increase in finance
obligations, long-term debt and the issuance of the convertible senior note, as
mentioned above.

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.

All remaining common stock warrants were fully exercised in the fourth quarter of 2019. As such, there was no change in fair value as of September 30, 2020.

Contingent Consideration



In the second quarter of 2020 the Company recorded a provisional amount of $7.8
million in contingent consideration, related to the valuation of Giner ELX's
earnout payments that the sellers are eligible to receive. In the third quarter
of 2020, the Company assessed the fair value of the contingent consideration to
be $8.9 million. The $1.1 million change in fair value of the contingent
consideration is reflected in the unaudited interim condensed consolidated
statement of operations for the three and nine months ended September 30, 2020.





                                       50

Gain (Loss) on Extinguishment of Debt

In May 2020, the Company used a portion of the net proceeds from the issuance of
the 3.75% Convertible Senior Notes to repurchase approximately $66.3 million of
the 5.5% Convertible Senior Notes which resulted in a $13.2 million gain on
early debt extinguishment.

In March of 2019, the Company restructured its long-term debt with New York Green Bank, which resulted in a loss on early debt extinguishment of $0.5 million.

Income Tax



The Company recognized an income tax benefit for the three and nine months ended
September 30, 2020 of $6.5 million and $24.2 million, respectively. Income tax
benefit for the three and nine months ended September 30, 2020 included $6.5
million and $19.0 million, respectively resulting from the intraperiod tax
allocation rules under ASC Topic 740-20, Intraperiod Tax Allocation, under which
the Company recognized an income tax benefit resulting from a source of future
taxable income attributable to the net credit to additional paid-in capital
related to the issuance of the 3.75% Convertible Senior Notes, offset by the
partial extinguishment of the 5.5% Convertible Senior Notes. In addition, the
Company recorded $5.2 million of income tax benefit for the nine months ended
September 30, 2020 related to the recognition of net deferred tax liabilities in
connection with the Giner ELX acquisition, which resulted in a corresponding
reduction in our deferred tax asset valuation allowance. The Company has not
changed its overall conclusion with respect to the need for a valuation
allowance against its net deferred tax assets, which remain fully reserved.

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

Liquidity and Capital Resources

Liquidity

Our cash requirements relate primarily to working capital needed to operate and
grow our business, including funding operating expenses, growth in inventory to
support both shipments of new units and servicing the installed base, growth in
equipment leased to customers under long-term arrangements, funding the growth
in our GenKey "turn-key" solution, which includes the installation of our
customers' hydrogen infrastructure as well as production and delivery of the
hydrogen fuel, continued development and expansion of our products, payment of
lease/financing obligations under sale/leaseback financings, and the repayment
or refinancing of our long-term debt. Our ability to achieve profitability and
meet future liquidity needs and capital requirements will depend upon numerous
factors, including the timing and quantity of product orders and shipments;
attaining and expanding positive gross margins across all product lines; the
timing and amount of our operating expenses; the timing and costs of working
capital needs; the timing and costs of developing marketing and distribution
channels; the ability of our customers to obtain financing to support commercial
transactions; our ability to obtain financing arrangements to support the sale
or leasing of our products and services to customers and to repay or refinance
our long-term debt, and the terms of such agreements that may require us to
pledge or restrict substantial amounts of our cash to support these financing
arrangements; the timing and costs of developing marketing and distribution
channels; the timing and costs of product service requirements; the timing and
costs of hiring and training product staff; 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 $85.5 million and $67.2 million for the nine months ended
September 30, 2020 and 2019, respectively, and had an accumulated deficit of
$1.4 billion at September 30, 2020.



                                       51





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



During the nine months ended September 30, 2020, net cash used in operating
activities was $156.9 million, consisting primarily of a net loss attributable
to the Company of $85.5 million, and net outflows from fluctuations in working
capital and other assets and liabilities of $96.3 million. The changes in
working capital primarily were related to increases and decreases in various
current asset and liability accounts. As of September 30, 2020, we had cash and
cash equivalents of $448.1 million and net working capital of $514.2 million. By
comparison, at December 31, 2019, we had cash and cash equivalents of $139.5
million and net working capital of $162.5 million.



Net cash used in investing activities for the nine months ended September 30,
2020 totaled $71.7 million and included net cash paid for acquisitions,
purchases of intangible assets, purchases of property, plant and equipment, and
outflows associated with materials, labor, and overhead necessary to construct
new leased property. Cash outflows related to equipment that we lease directly
to customers are included in net cash used in investing activities.



Net cash provided by financing activities for the nine months ended September
30, 2020 totaled $590.6 million and primarily resulted from the issuance of
shares of common stock and convertible senior notes, and proceeds from borrowing
on long-term debt, offset by the repurchase of convertible senior notes and
purchase of related capped calls.

Public and Private Offerings of Equity and Debt

Common Stock Issuances

In August 2020, the Company issued and sold in a registered direct offering an
aggregate of 35,276,250 shares of its common stock at a purchase price of $10.25
per share for net proceeds of approximately $344.4 million.



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



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



Prior to December 31, 2019, the Company entered into a previous ATM with FBR,
which was terminated in the fourth quarter of 2019.  Under this ATM, for the
nine months ended September 30, 2019, the Company issued 6.3 million shares of
common stock, resulting in net proceeds of $14.6 million.



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



Convertible Senior Notes



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

                                       52

addition, the Company used approximately $16.3 million of the net proceeds from
the offering of the 3.75% Convertible Senior Notes to enter into privately
negotiated capped called transactions. In October 2020, $28.0 million of the
remaining 5.5% Convertible Senior Notes converted into 12.2 million shares

of
common stock.



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



Operating and Finance Leases

The Company enters into sale/leaseback agreements with various financial
institutions to facilitate the Company's commercial transactions with key
customers. The Company sells certain fuel cell systems and hydrogen
infrastructure to the financial institutions and leases the equipment back to
support certain customer locations and to fulfill its varied Power Purchase
Agreements (PPAs).  Transactions completed under the sale/leaseback arrangements
are generally accounted for as operating leases and therefore the sales of the
fuel cell systems and hydrogen infrastructure are recognized as revenue.  In
connection with certain sale/leaseback transactions, the financial institutions
require the Company to maintain cash balances in restricted accounts securing
the Company's finance obligations. Cash received from customers under the PPAs
is used to make payments against the Company's finance obligations. As the
Company performs under these agreements, the required restricted cash balances
are released, according to a set schedule. The total remaining lease payments to
financial institutions under these agreements at September 30, 2020 was $332.8
million, $286.2 million of which were secured with restricted cash, security
deposits backing letters of credit, and pledged service escrows.



The Company has varied master lease agreements with Wells Fargo Equipment
Finance, Inc., or Wells Fargo, to finance the Company's commercial transactions
with various customers. The Wells Fargo lease agreements were entered into
during 2017, 2018, 2019 and 2020. Pursuant to the lease agreements, the Company
sells fuel cell systems and hydrogen infrastructure to Wells Fargo and then
leases them back and operates them at Walmart sites.  The Company has a customer
guarantee for a large portion of the transactions entered into in connection
with such lease agreements. The Wells Fargo lease agreements required letters of
credit totaling approximately $78.8 million for the unguaranteed portion as of
September 30, 2020. The total remaining lease liabilities owed to Wells Fargo
were $114.3 million at September 30, 2020.



Over recent years, including in 2019, the Company has entered into master lease
agreements with multiple institutions such as Key Equipment Finance (KeyBank),
SunTrust Equipment Finance & Lease Corp. (now known as Truist Bank), First
American Bancorp, Inc. (First American), Crestmark Equipment Finance (Crestmark)
and U.S. Bank. During the nine months ended September 30 2020, the Company
entered into additional lease agreements with KeyBank, First American, Truist
Bank, Crestmark and U.S. Bank. Similar to the Wells Fargo lease agreements, the
primary purpose of these agreements is to finance commercial transactions with
varied customers. Most of the transactions with these financial institutions
required cash collateral for the unguaranteed portions totaling $189.9 million
as of September 30, 2020. Similar to the Wells Fargo lease agreements, in many
cases the Company has a customer guarantee for a large portion of the
transactions. The total remaining lease liabilities owed to these financial
institutions were $218.5 million at September 30, 2020.



Restricted Cash



As security for the above noted sale/leaseback agreements, cash of $133.4
million was required to be restricted as of September 30, 2020, which restricted
cash will be released over the lease term.  As of September 30, 2020, the
Company also had letters of credit backed by security deposits totaling $149.3
million for the above noted sale/leaseback agreements.



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



                                       53





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 and $20
million in November 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 during the nine months ended September 30, 2019. This
loss was recorded in gain (loss) on extinguishment of debt, 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. Amount
escrowed is recorded in short-term other assets on the Company's unaudited
interim condensed consolidated balance sheets as of September 30, 2020. The
Company presently expects to meet the targets as required under the arrangement.
During the nine months ended September 30, 2020, the Company received $250
thousand from escrow related to the New York state employment targets.



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

On September 30, 2020, the outstanding balance under the Term Loan Facility was $185.0 million with a 9.5% annual interest rate.

The Loan Agreement includes covenants, limitations, and events of default
customary for similar facilities. Interest and a portion of the principal amount
is payable on a quarterly basis.  Principal payments will be funded in part by
releases of restricted cash, as described in Note 16, Commitments and
Contingencies. Based on the amortization schedule as of September 30, 2020, the
outstanding balance of $185.0 million under the Term Loan Facility must be fully
paid by October 31, 2025.

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



 The Loan Agreement contains covenants, including, among others, (i) the
provision of annual and quarterly financial statements, management rights and
insurance policies and (ii) restrictions on incurring debt, granting liens,
making acquisitions, making loans, paying dividends, dissolving, and entering
into leases and asset sales and (iii) compliance with a collateral coverage
covenant. The Loan Agreement also provides for events of default, including,
among others, payment, bankruptcy, covenant, representation and warranty, change
of control, judgment and material adverse effect defaults at the discretion of
the lender. As of September 30, 2020, the Company was in compliance with all the
covenants.

The Loan Agreement provides that if there is an event of default due to the Company's insolvency or if the Company fails to perform in any material respect the servicing requirements for fuel cell systems under certain customer

                                       54





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.



As of September 30, 2020, the Term Loan Facility requires the principal balance
as of each of the following dates not to exceed the following (in thousands):




December 31, 2020 $ 164,017
December 31, 2021   127,317
December 31, 2022    93,321
December 31, 2023    62,920
December 31, 2024    33,692
December 31, 2025         -






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




                                                        Nine months                Year
                                                        ended or at             ended or at
                                                     September 30, 2020      December 31, 2019

Cash and cash equivalents at end of period          $            448,140    $           139,496
Restricted cash at end of period                                 283,232                230,004
Working capital at end of period                                 514,163                162,549
Net loss attributable to common stockholders                    (85,533)               (85,517)
Net cash used in operating activities                          (156,910)               (51,522)
Net cash used in investing activities                           (71,715)               (14,244)
Net cash provided by financing activities                        590,587   

            325,060




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



At issuance in May 2020, the total net proceeds from the 3.75% Convertible
Senior Notes were as follows:




                                       Amount
                                   (in thousands)
Principal amount                  $        212,463

Less initial purchasers' discount (6,374) Less cost of related capped calls (16,253) Less other issuance costs

                    (617)
Net proceeds                      $        189,219

3.75% Convertible Senior Notes

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



The 3.75% Convertible Senior Notes are senior, unsecured obligations of the
Company and rank senior in right of payment to any of the Company's indebtedness
that is expressly subordinated in right of payment to the notes, equal in right
of payment to any of the Company's existing and future liabilities that are not
so subordinated, including the Company's $100 million in aggregate principal
amount of 5.5% Convertible Senior Notes due 2023, which is referred to

                                       55

herein as the 5.5% Convertible Senior Notes, effectively junior in right of
payment to any of the Company's secured indebtedness to the extent of the value
of the collateral securing such indebtedness, and structurally subordinated to
all indebtedness and other liabilities, including trade payables, of its current
or future subsidiaries.



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

during any calendar quarter commencing after September 30, 2020, if the last

reported sale price of the Company's common stock exceeds 130% of the

1) conversion price for each of at least 20 trading days (whether or not

consecutive) during a period of 30 consecutive trading days ending on, and

including, the last trading day of the immediately preceding calendar quarter;

during the five business days after any five consecutive trading day period

(such five consecutive trading day period, the measurement period) in which

2) the trading price per $1,000 principal amount of the 3.75% Convertible Senior

Notes for each trading day of the measurement period was less than 98% of the

product of the last reported sale price of the Company's common stock and the

conversion rate on each such trading day;

if the Company calls any or all of the 3.75% Convertible Senior Notes for

3) redemption, any such notes that have been called for redemption may be

converted at any time prior to the close of business on the second scheduled

    trading day immediately preceding the redemption date; or

4) upon the occurrence of specified corporate events, as described in the

indenture governing the 3.75% Convertible Senior Notes.

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



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

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

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



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

In accounting for the issuance of the 3.75% Convertible Senior Notes, the Company separated the notes into liability and equity components. The initial carrying amount of the liability component of approximately $75.2 million,

                                       56





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



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

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




                                             September 30,
                                                 2020
Principal amounts:
Principal                                   $       212,463
Unamortized debt discount (1)                     (129,101)
Unamortized debt issuance costs (1)                 (2,425)
Net carrying amount                         $        80,937

Carrying amount of the equity component (2) $ 130,249

Included in the unaudited interim condensed consolidated balance sheets within

1) the 3.75% Convertible Senior Notes, net and amortized over the remaining life

    of the notes using the effective interest rate method.

Included in the unaudited interim condensed consolidated balance sheets within

2) additional paid-in capital, net of $4.4 million in equity issuance costs and

associated income tax benefit of $19.0 million.

Based on the closing price of the Company's common stock of $13.41 on September
30, 2020, the if-converted value of the notes was greater than the principal
amount. The estimated fair value of the note at September 30, 2020 was
approximately $532.3 million. The Company utilized a Monte Carlo simulation
model to estimate the fair value of the convertible debt. The simulation model
is designed to capture the potential settlement features of the convertible
debt, in conjunction with simulated changes in the Company's stock price over
the term of the note, incorporating a volatility assumption of 75%. This is
considered a Level 3 fair value measurement.



Capped Call

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

                                       57

under the terms of the 3.75% Notes Capped Call. The 3.75% Notes Capped Call becomes exercisable if the conversion option is exercised.

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

7.5% Convertible Senior Note

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

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

5.5% Convertible Senior Notes

In March 2018, the Company issued $100.0 million in aggregate principal amount
of 5.5% Convertible Senior Notes due on March 15, 2023, which is referred to
herein as the 5.5% Convertible Senior Notes in a private placement to qualified
institutional buyers pursuant to Rule 144A under the Securities Act.



In May 2020, the Company used a portion of the net proceeds from the issuance of
the 3.75% Convertible Senior Notes to finance the cash portion of the partial
repurchase of the 5.5% Convertible Senior Notes, which consisted of a repurchase
of approximately $66.3 million in aggregate principal amount of the 5.5%
Convertible Senior Notes in privately-negotiated transactions for aggregate
consideration of $128.9 million, consisting of approximately $90.2 million in
cash and approximately 9.4 million shares of the Company's common stock. Of the
$128.9 million in aggregate consideration, $35.5 million and $93.4 million were
allocated to the debt and equity components, respectively, utilizing an
effective discount rate of 29.8% to determine the fair value of the liability
component. As of the repurchase date, the carrying value of the 5.5% Convertible
Senior Notes that were repurchased, net of unamortized debt discount and
issuance costs, was $48.7 million. The partial repurchase of the 5.5%
Convertible Senior Notes resulted in a $13.2 million gain on early debt
extinguishment. As of September 30, 2020, approximately $33.7 million aggregate
principal amount of the 5.5% Convertible Senior Notes remained outstanding. In
October 2020, $28.0 million of the remaining 5.5% Convertible Senior Notes
converted into 12.2 million shares of common stock.

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

                                                               Amount
                                                           (in thousands)
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 5.5% Convertible Senior Notes bear interest at 5.5%, payable semi-annually
in cash on March 15 and September 15 of each year.  The 5.5% Convertible Senior
Notes will mature on March 15, 2023, unless earlier converted

                                       58

or repurchased in accordance with their terms. The 5.5% Convertible Senior Notes
are unsecured and do not contain any financial covenants or any restrictions on
the payment of dividends, or the issuance or repurchase of common stock by the
Company.

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

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

1) 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;

during the five business day period after any five consecutive trading day

period (the measurement period) in which the trading price (as defined in the

indenture governing the 5.5% Convertible Senior Notes) per $1,000 principal

2) amount of 5.5% Convertible Senior Notes for each trading day of the

measurement period was less than 98% of the product of the last reported sale

price of the Company's common stock and the conversion rate for the 5.5%

    Convertible Senior Notes on each such trading day;

if the Company calls any or all of the 5.5% Convertible Senior Notes for

3) redemption, at any time prior to the close of business on the second scheduled

    trading day immediately preceding the redemption date; or






    upon the occurrence of certain specified corporate events, such as a

beneficial owner acquiring more than 50% of the total voting power of the

4) Company's common stock, recapitalization of the Company, dissolution or

liquidation of the Company, or the Company's common stock ceases to be listed

    on an active market exchange.




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

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

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

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

                                       59





notice of redemption at a redemption price equal to 100% of the principal amount
of the 5.5% Convertible Senior Notes to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date.



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



We incurred transaction costs related to the issuance of the 5.5% Convertible
Senior Notes of approximately $4.1 million, consisting of initial purchasers'
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 5.5% Convertible Senior Notes. Transaction costs attributable
to the liability component were approximately $2.4 million, were recorded as
debt issuance cost (presented as contra debt in the unaudited interim condensed
consolidated balance sheets) and are being amortized to interest expense over
the term of the 5.5% Convertible Senior Notes. The transaction costs
attributable to the equity component were approximately $1.7 million and were
netted with the equity component in stockholders' equity.

The 5.5% Convertible Senior Notes consisted of the following (in thousands):




                                             September 30,     December 31,
                                                 2020              2019
Principal amounts:
Principal                                   $        33,660   $      100,000
Unamortized debt discount (1)                       (7,477)         (27,818)
Unamortized debt issuance costs (1)                   (403)          

(1,567)

Net carrying amount                         $        25,780   $       

70,615

Carrying amount of the equity component (2) $             -   $       

37,702

Included in the unaudited interim condensed consolidated balance sheets within

1) the 5.5% Convertible Senior Notes, net and amortized over the remaining life

of the 5.5% Convertible Senior Notes using the effective interest rate method.

Included in the unaudited interim condensed consolidated balance sheets within

2) additional paid-in capital, net of $1.7 million in equity issuance costs and

    associated income tax benefit of $9.2 million, at December 31, 2019.




Based on the closing price of the Company's common stock of $13.41 on September
30, 2020, the if-converted value of the 5.5% Convertible Senior Notes was
greater than the principal amount. The estimated fair value of the 5.5%
Convertible Senior Notes at September 30, 2020 and December 31, 2019 was
approximately $195.3 million and $135.3 million, respectively. The Company
utilized a Monte Carlo simulation model to estimate the fair value of the
convertible debt. The simulation model is designed to capture the potential
settlement features of the convertible debt, in conjunction with simulated
changes in the Company's stock price over the term of the 5.5% Convertible
Senior Notes, incorporating a volatility assumption of 75%. This is considered a
Level 3 fair value measurement.



Capped Call



In conjunction with the pricing of the 5.5% Convertible Senior Notes, the
Company entered into privately negotiated capped call transactions (5.5% Notes
Capped Call) with certain counterparties at a price of $16.0 million. The 5.5%
Notes Capped Call cover, subject to anti-dilution adjustments, the aggregate
number of shares of the Company's common stock

                                       60





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



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

In conjunction with the partial repurchase of the 5.5% Convertible Senior Notes,
the Company terminated 100% of the 5.5% Notes Capped Call on June 5, 2020. As a
result of the termination, the Company received $24.2 million which is recorded
in additional paid-in capital.



Common Stock Forward



In connection with the issuance of the 5.5% Convertible Senior Notes, the
Company also entered into a forward stock purchase transaction, or the 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. In
connection with the issuance of the 3.75% Convertible Senior Notes, the Company
amended and extended the maturity of the Common Stock Forward to June 1, 2025.

The number of shares of common stock that the Company will ultimately repurchase under the Common Stock Forward is subject to customary anti-dilution adjustments. The Common 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 sheets. The related shares were accounted for as a repurchase of common stock.

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

The book values of the 5.5% Notes Capped Call and Common Stock Forward are not remeasured.

During October 2020, the Common Stock Forward was partially settled and, as a result, the Company received 3.5 million shares of its common stock.

Amazon Transaction Agreement

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



The majority of the Amazon Warrant Shares will vest based on Amazon's payment of
up to $600.0 million to the Company in connection with Amazon's purchase of
goods and services from the Company. The first tranche of 5,819,652 Amazon
Warrant Shares vested upon the execution of the Amazon Transaction Agreement.
Accordingly, $6.7 million, the fair value of the first tranche of Amazon Warrant
Shares, was recognized as selling, general and administrative expense

                                       61





during 2017. All future provision for common stock warrants is measured based on
their grant-date fair value and recorded as a charge against revenue. The second
tranche of 29,098,260 Amazon Warrant Shares vested in four installments of
7,274,565 Amazon Warrant Shares each time Amazon or its affiliates, directly or
indirectly through third parties, make an aggregate of $50.0 million in payments
for goods and services to the Company, up to payments totaling $200.0 million in
the aggregate. The exercise price for the first and second tranches of Amazon
Warrant Shares is $1.1893 per share. The third tranche of 20,368,784 Amazon
Warrant Shares will vest in eight installments of 2,546,098 Amazon Warrant
Shares each time Amazon or its affiliates, directly or indirectly through third
parties, make an aggregate of $50.0 million in payments for goods and services
to the Company, up to payments totaling $400.0 million in the aggregate. The
exercise price of the third tranche of Amazon Warrant Shares is $13.81, which is
an amount per share equal to ninety percent (90%) of the 30-day volume weighted
average share price of the common stock as of the final vesting date of the
second tranche of Amazon Warrant Shares. The Amazon Warrant Shares are
exercisable through April 4, 2027. The Amazon Warrant Shares provide for net
share settlement that, if elected by the holders, will reduce the number of
shares issued upon exercise to reflect net settlement of the exercise price. The
Amazon Warrant Shares provide for certain adjustments that may be made to the
exercise price and the number of shares of common stock issuable upon exercise
due to customary anti-dilution provisions based on future events. These warrants
are classified as equity instruments.



At September 30, 2020 and December 31, 2019, 27,643,347 and 20,368,782 of the
Amazon Warrant Shares had vested, respectively. The amount of provision for
common stock warrants recorded as a reduction of revenue for the Amazon Warrant
during the three months ended September 30, 2020 and 2019 was $17.3 million and
$1.0 million, respectively. The amount of provision for common stock warrants
recorded as a reduction of revenue for the Amazon Warrant during the nine months
ended September 30, 2020 and 2019 was $22.0 million and $2.0 million,
respectively.



During the third quarter of 2020, approximately $23.8 million of recorded
revenue from Amazon was constrained by the tranche 3 of the Amazon Warrant
Shares. An additional 7,274,565 Amazon Warrant Shares  vested on November 2,
2020, representing the final vesting of tranche 2, resulting in cumulative
vesting in 34,917,912 Warrant Shares since the execution of the Amazon
Transaction Agreement. In accordance with terms of the Amazon Transaction
Agreement as described above, upon final vesting of tranche 2, the tranche 3
Amazon Warrant Shares exercise price was determined to be $13.81 per share.
Based on the exercise price of the third tranche of the Amazon Warrant Shares,
among other things, the fair value of the 20,368,784 tranche 3 Amazon Warrant
Shares is estimated to be $10.60 each, compared to the fair value of tranche 2
Amazon Warrant Shares of $1.05 each.



The Company also recorded a provision for losses of $4.3 million in the third
quarter of 2020 related to Amazon service contracts, caused primarily by the
increase in the value of the tranche 3 warrants, driven by recent increases

in
the Company's stock price.

Walmart Transaction Agreement

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



The majority of the Walmart Warrant Shares will vest based on Walmart's payment
of up to $600.0 million to the Company in connection with Walmart's purchase of
goods and services from the Company. The first tranche of 5,819,652 Walmart
Warrant Shares vested upon the execution of the Walmart Transaction Agreement.

Accordingly, $10.9 million, the fair value of the first tranche of Walmart Warrant Shares, was recorded as a provision for common stock warrants and presented as a reduction to revenue on the unaudited interim condensed consolidated statements of operations during 2017. All future provision for common stock warrants is measured based on their grant-date fair value and recorded as a charge against revenue. The second tranche of 29,098,260 Walmart Warrant Shares will vest in four installments of

                                       62





7,274,565 Walmart Warrant Shares each time Walmart or its affiliates, directly
or indirectly through third parties, make an aggregate of $50.0 million in
payments for goods and services to the Company, up to payments totaling $200.0
million in the aggregate. The exercise price for the first and second tranches
of Walmart Warrant Shares is $2.1231 per share. After Walmart has made payments
to the Company totaling $200.0 million, the third tranche of 20,368,784 Walmart
Warrant Shares will vest in eight installments of 2,546,098 Walmart Warrant
Shares each time Walmart or its affiliates, directly or indirectly through third
parties, make an aggregate of $50.0 million in payments for goods and services
to the Company, up to payments totaling $400.0 million in the aggregate. The
exercise price of the third tranche of Walmart Warrant Shares will be an amount
per share equal to ninety percent (90%) of the 30-day volume weighted average
share price of the common stock as of the final vesting date of the second
tranche of Walmart Warrant Shares, provided that, with limited exceptions, the
exercise price for the third tranche will be no lower than $1.1893. The Walmart
Warrant Shares are exercisable through July 20, 2027.



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



At September 30, 2020 and December 31, 2019, 13,094,217 and 5,819,652 of the
Walmart Warrant Shares had vested, respectively.  The amount of provision for
common stock warrants recorded as a reduction of revenue for the Walmart Warrant
during the three months ended September 30, 2020 and 2019 was $1.3 million and
$0.5 million, respectively. The amount of provision for common stock warrants
recorded as a reduction of revenue for the Walmart Warrant during the nine
months ended September 30, 2020 and 2019 was $3.2 million and $1.7 million,

respectively.



Lessor Obligations



As of September 30, 2020, the Company had noncancelable operating leases (as
lessor), primarily associated with assets deployed at customer sites. These
leases expire over the next one to nine 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, 2020 were as
follows (in thousands):




Remainder of 2020                     $   8,272
2021                                     34,436
2022                                     32,665
2023                                     30,043
2024                                     26,660
2025 and thereafter                   $  49,351

Total future minimum lease payments $ 181,427

Lessee Obligations

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

                                       63

transactions at September 30, 2020 and December 31, 2019 was $25.9 million and
$31.7 million, respectively. The fair value of the finance obligation
approximated the carrying value as of both September 30, 2020 and December

31,
2019.

The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation.

 The outstanding balance of this obligation at September 30, 2020 was $144.3
million, of which $22.2 million and $122.1 million were classified as short-term
and long-term, respectively, on the unaudited interim condensed consolidated
balance sheets. The outstanding balance of this obligation at December 31, 2019
was $109.4 million, of which $15.5 million and $93.9 million were classified as
short-term and long-term, respectively. The amount is amortized using the
effective interest method. The fair value of this finance obligation
approximated the carrying value as of September 30, 2020.



The Company has a finance lease associated with its property and equipment in
Latham, New York. A liability relating to this lease of $2.8 million has been
recorded as a finance obligation in the unaudited interim condensed consolidated
balance sheet as of September 30. The fair value of this finance obligation
approximated the carrying value as of September 30, 2020.



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




                                                                  Other          Total
                                      Operating     Finance       Leased        Finance
                                        Leases       Leases      Property     Obligations
Remainder of 2020                     $   14,639   $    2,546   $      186   $      17,371
2021                                      58,505        9,276          590          68,371
2022                                      58,480        4,975          573          64,028
2023                                      55,655        3,149          549          59,353
2024                                      54,203       16,154          632          70,989
2025 and thereafter                       71,304            -        1,174          72,478

Total future minimum lease payments 312,786 36,100 3,704

       352,590
Less imputed lease interest             (84,903)     (10,190)        (947)        (96,040)
Sale of future services                  144,292            -            -         144,292
Total lease liabilities               $  372,175   $   25,910   $    2,757   $     400,842

Rental expense for all operating leases was $14.6 million and $7.8 million for
the three months ended September 30, 2020 and 2019, respectively. Rental expense
for all operating leases was $40.1 million and $19.9 million for the nine months
ended September 30, 2020 and 2019, respectively.



The gross profit on sale/leaseback transactions for all operating leases was
$24.5 million and $44.2 million for the three and nine months ended September
30, 2020, respectively, and $14.8 million and $30.9 million for the three and
nine months ended September 30, 2019, respectively. Right of use assets obtained
in exchange for new operating lease liabilities was $41.1 million and $86.5
million for the three and nine months ended September 30, 2020, respectively,
and $38.4 million and $72.9 million for the three and nine months ended
September 30, 2019.



At both September 30, 2020 and December 31, 2019, security deposits associated
with sale/leaseback transactions were $5.8 million and were included in other
assets in the unaudited interim condensed consolidated balance sheets.



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




                               Nine months ended      Nine months ended
                               September 30, 2020     September 30, 2019
Cash payments (in thousands) $             40,500   $             19,222




                                       64








                                                September 30,
                                                2020      2019

Weighted average remaining lease term (years) 5.5 5.25 Weighted average discount rate

                  12.1%     12.1%

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 consolidated statement of operations). Finance lease costs were as follows (in thousands):

                                    Nine months ended     Nine months ended
                                   September 30, 2020    September 30, 2019
Amortization of right of use asset $             2,655   $             

2,308

Interest on finance obligations                  1,778                 3,194
Total finance lease cost           $             4,433   $             5,502

Right of use assets obtained in exchange for new finance lease liabilities was
$41.1 million and $86.5 million for the three and nine months ended September
30, 2020, respectively, and $38.4 million and $72.9 million for the three and
nine months ended September 30, 2019, respectively.



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




                               Nine months ended      Nine months ended
                               September 30, 2020     September 30, 2019
Cash payments (in thousands) $              7,847   $             57,659





                                                 As of September 30,
                                                  2020           2019
Weighted average remaining lease term (years)       3.36           3.09
Weighted average discount rate                      7.8%          11.1%




Restricted Cash



As security for the above noted sale/leaseback agreements, cash of $133.4
million was required to be restricted as of September 30, 2020, which restricted
cash will be released over the lease term.  As of September 30, 2020, the
Company also had letters of credit backed by security deposits totaling $149.3
million for the above noted sale/leaseback agreements.



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



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



                                       65

Concentrations of Credit Risk

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

At September 30, 2020, one customer comprised approximately 84.5% of the total accounts receivable balance. At December 31, 2019, two customers comprised approximately 63.4% of the total accounts receivable balance.

For the nine months ended September 30, 2020, 71.8% of total consolidated
revenues were associated primarily with two customers. For the nine months ended
September 30, 2019, 62.3% of total consolidated revenues were associated
primarily with three customers. For purposes of assigning a customer to a
sale/leaseback transaction completed with a financial institution, the Company
considers the end user of the assets to be the ultimate customer.

Off-Balance Sheet Arrangements

As of September 30, 2020, the Company does not have off-balance sheet
arrangements that are likely to have a current or future significant effect on
the Company's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.

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 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, 2019.

Recently Adopted Accounting Pronouncements

In June 2016, Accounting Standards Update (ASU) 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, was issued. Also, In April 2019, Accounting Standards Update (ASU)
2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments, was issued to make improvements to updates 2016-01, Financial
Instruments - Overall (Subtopic 825-10), 2016-13, Financial Instruments - Credit
Losses (Topic 326) and 2017-12, Derivatives and Hedging (Topic 815). 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

                                       66

are classified as current. The Company adopted these standards effective January 1, 2020 and determined the impact of the standards to be immaterial to the consolidated financial statements.

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



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



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

Recently Issued and Not Yet Adopted Accounting Pronouncements

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



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



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



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

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