10KSB/A 1 c72823e10ksbza.htm FORM 10-KSB AMENDMENT NO. 2 Filed by Bowne Pure Compliance
 

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
(Amendment No. 2)
(Mark One)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
þ For the fiscal year ended December 31, 2006
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number # 0-28031
PACIFIC FUEL CELL CORP.
(Exact name of Registrant as specified in its charter)
     
Nevada   80-0043875
     
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)
131 N. Tustin Ave., Suite 100, Tustin, CA 92780
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (714) 564-1693
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock,
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (x229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
The aggregate market value of the voting and non-voting Common Stock held by non-affiliates computed by reference to the price at which the Common Stock was sold, or the average bid and asked price of such Common Stock, as of a specified date within the past 60 days: $4,071,025 as of March 24, 2008.
The number of outstanding shares of Common Stock on March 24, 2008 was 75,210,248 shares
Documents Incorporated by Reference: None
 
 

 

 

 

This Form 10-KSB/A, Amendment No. 2, amends Part II Items 6 and 8A of our Form 10-KSB filed on April 2, 2007 and previously amended by Amendment No. 1 filed on November 1, 2007.
PART II
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.
We generated nominal revenues of $52,076 and $0.00 during our fiscal years ended December 31, 2005 and 2006, respectively. All of these revenues were generated through the operations of Cellfoods.
During our fiscal year ended December 31, 2006, we incurred costs and expenses totaling $492,850, compared to costs and expenses of $572,572 during our fiscal year ended December 31, 2005, a decrease of $79,722. In this regard, our general and administrative costs increased during our fiscal year ended December 31, 2006 from $317,944 in 2005 to $431,699 during 2006 due to our efforts to acquire our new business operations described above “PART I, Item 1, Description of Business.” Research and development costs decreased from $122,135 in 2005 to $50,229 during 2006 due primarily to deferred costs due UCR. However, during our fiscal year ended December 31, 2005, we incurred $62,021 in costs of sales attributable to Cellfoods operations, as well as charges of $36,000 due to stock compensation, $16,706 in extinguishment of outstanding debentures and $17,557 (net) resulting from a change in value of derivative instruments, which charges were not incurred during 2006.
As a result, we incurred a net loss of ($492,134) (approximately $0.01 per share), compared to a net loss of ($521,064) during our fiscal year ended December 31, 2005 (approximately $0.01 per share). Because we generated nominal revenues during the year ended December 31, 2006 and 2005, the following is our Plan of Operation, rather than a comparison of results of operations.
PLAN OF OPERATION
Our initial business plan was to develop and produce low cost fuel cells for transportation. During 2002, we revised our business plan to emphasize the development and production of low cost fuel cells for personal electronics or other applications requiring small size and longevity of use. We have revised our original business plan as a result of the costs associated with developing transportation related fuel cells, which exceeded our available capital. We may reinstate the elements of the original business plan if our current business plan proves successful, of which there can be no assurance. As of the date of this Report, we are focused on improving the production capability of our nanoMEA, enhancing product performance, reducing product costs, designing market-ready products, developing volume-manufacturing capability, and building customer and supplier relationships and marketing it to potential customers. We are also continuing research to refine and improve our current nanoMEA.

 

 

 

On August 21, 2002, we entered into an agreement with the University of California (“UCR”), to develop a commercially viable fuel cell, exploiting our proprietary technology. On May 4, 2004, this agreement was extended through April 30, 2006, so long as we continued to make payments. On October 13, 2006, an amendment was executed with UCR requiring payments of $135,876, of which $50,229 has been paid as of the date of this Report. The balance of $50,252 was due on or before January 31, 2007, with an additional payment of $35,395 due on or before February 28, 2007. However, pursuant to the terms of this agreement, we are not obligated to tender payment until we receive an applicable invoice for the same. As of the date of this Report, we have not received any invoices from UCR for these payments. Once received, we intend to tender all amounts due. It is not anticipated that we will be required to make any additional payments for any future extensions. In order to allow us to make the aforesaid payments, we borrowed funds from Fullerene, which were subsequently repaid in full. UCR, through its SMART program, provides matching funds for all direct costs applicable to development of the project. We applied for additional matching funds through this SMART program and have obtained a favorable decision and expect a grant of approximately $120,000 to be provided over the next two years. This also provides a multi-year relationship with UCR. All information we provide to UCR has been deemed confidential for a period of one (1) year after expiration or termination of the agreement.
As a result of the relationship with UCR, on November 10, 2003, we announced that a research team headed by Professor Yushan Yan of UCR had successfully developed a fuel cell using carbon nanotube-based electrodes. As a result of our research and development activities with UCR, we expect that the use of multi-walled carbon nanotubes as a platinum support for proton exchange membrane fuel cells will reduce the manufacturing cost of fuel cells through a decreased use of platinum. Current technology uses platinum, a precious metal, as the catalyst for hydrogen to separate into a proton and electron. Since platinum is a high cost metal in very limited production, it is cost prohibitive, preventing fuel cells from being economically viable even at high volume production. Our proposed method of producing fuel cells is expected to minimize or eliminate the use of platinum. We expect to produce low cost fuel cells at high volume production levels.
Acquisition of Equipment
Effective December 18, 2006, pursuant to an Assignment and Assumption of Equipment Purchase Agreement, we were assigned all rights of TDM, L.L.C. relating to an Agreement dated August 22, 2006, as amended December 20, 2006, between SGL Technic Inc., a wholly owned subsidiary of SGL Technologies GmbH, a German company (“SGL’), and TDM, L.L.C. (“TDM”), wherein we acquired TDM, L.L.C.’s rights to purchase certain equipment on an “as is” basis This equipment consists of two press machine sets (200 and 800 ton) plus auxiliary equipment, which is used for manufacturing of bi-polar plates. We have been developing the MEA business segment of the fuel cell industry and have nanoMEA technology to enhance performance and durability. A fuel cell stack (essentially an electricity generator) consists of an MEA, GDL (gas diffusion layer) and bipolar plates. As such, management believes that this acquisition of equipment fits in with our proprietary technology.
The purchase price of the equipment was $200,000. As of December 31, 2006, we have paid an aggregate of $100,000; of which $5,000 was previously paid by TDM. Although a deposit was paid, the full purchase price was not paid in 2006 and therefore we do not own the equipment as of December 31, 2006. Under the terms and conditions of the purchase agreement, we do not acquire title to the equipment until such time as the purchase price is paid in full. The balance of $95,000 shall become due on or before June 30, 2007. We intend to utilize the proceeds received from our recent private offering described below to pay this obligation on a timely basis.
This equipment acquisition allows us to expand our current business plan to begin to manufacture bipolar plates, which will provide us with the capability of marketing our own fuel cell components for the industry. We have moved the equipment to a new location approximately 5 miles from the equipment’s previous location in Willoughby, Ohio, and have retained manufacturing personnel. We have retained the services of two new employees, a director of sales and a director of manufacturing, both of whom have direct experience in the fuel cell business and manufacturing of bi-polar plate components. We are also engaged in discussions with various parties who have expressed an interest in providing us with additional equity capital to allow us to move forward.
SGL Technic Inc. (“SGL”) discontinued its bi-polar plate manufacturing business. Current customers of SGL for the bipolar plates consist of many of the top fuel cell companies in the world, almost all of whom are potential customers for our MEA. In the event we are able to transfer sales and begin manufacturing, of which there can be no assurance, we expect to supply many of these customers.

 

 

 

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2006, we had $113,727 in cash.
In August 2006, we closed a private offering of restricted shares of our Common Stock (the “Shares”). We received proceeds of $338,500 from the sale of 2,417,858 Shares ($0.14 per share). The Shares were sold to a total of 17 investors, including 2 “accredited investors” as that term is defined under Rule 501(a) of Regulation D as promulgated under the Securities Act of 1933, as amended.
In April 2004, we, through PFCE Acquisition Corp, a Nevada corporation and our wholly owned subsidiary (“Sub”), and Cellfoods Corporation, a Nevada corporation (“Cellfoods “), entered into an Agreement and Plan of Merger whereby Sub merged with and into Cellfoods, which survived as our wholly owned subsidiary. This merger was consummated on or about May 17, 2004.
Cellfoods is a development stage company that was organized in January 2003, engaged in the business of developing soybean powder for use in food preparation. This business was operated by Messrs. Koji Suzuki, the president of Cellfoods, Hiroyuki Igarashi, the vice president, and Ken Inouye, our former officer and director. Effective March 2005, we discontinued the Cellfoods operations due primarily to insufficient funds available to allow us to develop this business. Because we had limited funds, our management elected to devote our limited financial resources to our principal business of developing our fuel cell technology. We may, however, elect to reestablish Cellfoods business plan if management believes we have sufficient funds to do so in the future, of which there is no assurance. As of the date of this report, we intend to devote our financial resources to our existing businesses described elsewhere in this Report.
Prior to the merger, Cellfoods reached an agreement with HEM Mutual Assurance LLC, Minneapolis, Minnesota, an accredited investor (as that term is defined under Rule 501, Regulation D, promulgated under the Securities Act of 1933, as amended) to issue up to $1,000,000 in aggregate principal amount of convertible debentures pursuant to Rule 504 of Regulation D under the Securities Act of 1933, as amended. These Debentures were to be issued by Cellfoods in two separate convertible debentures of $997,000 and $3,000, respectively (hereinafter referred to in the aggregate as the “Debentures”). As a result of the merger, we assumed the obligations and benefits of Cellfoods, including Cellfoods’ obligation to issue the Debentures.
The conversion price for the Debentures was (a) the lesser of $0.75 and one hundred twenty-five percent (125%) of the average of the closing bid price per share of our Common Stock during the five (5) trading days immediately preceding the Closing (as defined in the Purchase Agreement); and (b) one hundred percent (100%) of the average of the five (5) lowest closing bid prices per share of our Common Stock during the forty (40) trading days immediately preceding the Conversion Date; provided, however, that the aggregate maximum number of shares of Common Stock that the First Debenture and Second Debenture may be converted into is Two Million (2,000,000) shares (the “Maximum Conversion”); and further provided, however, that upon the Maximum Conversion, we could (a) increase the Maximum Conversion or (b) redeem the unconverted amount of the First Debenture and Second Debenture in whole or in part at one hundred fifteen percent (115%) of the unconverted amount of such Debentures being redeemed plus accrued interest thereon. The conversion price and number of shares of Common Stock issuable upon conversion of the Debentures was subject to adjustment for stock splits and combinations and other dilutive events. The Debentures could not be converted, however, if after conversion the holder would beneficially own more than 5% of our outstanding Common Stock, unless the holder waives this limitation by giving us 75 days notice of the waiver.
The Debentures bore interest at 1% per year and would have matured in five years. Interest was payable in cash or shares of our Common Stock, at the option of the holders of the Debentures. We had the right to redeem the Debentures on 30 days’ notice for 125% of the principal amount of the outstanding Debentures, plus accrued and unpaid interest. Relevant thereto, on October 24, 2005, we redeemed the remaining outstanding convertible debentures placed with HEM. As a result, 26,992,462 shares of our Common Stock, representing the remaining shares being held in escrow under the debenture agreement were returned to us and were canceled. We issued an aggregate of 3,007,538 shares of our Common Stock from the conversion of these Debentures.

 

 

 

We believe that we currently have sufficient funds available for us to continue to implement our business plan for the next 12 months. However, we estimate that we will require an additional $2.5 million in additional debt or equity capital to fully implement our business plan in the future and there are no assurances that we will be able to raise this capital when needed. However, while there are no definitive agreements in place as of the date of this Report, we are currently engaged in various discussions with interested parties to provide these funds or otherwise enter into a strategic alliance to provide such funding. The inability to obtain sufficient funds from external sources when needed will have a material adverse affect on our results of operations and financial condition.
Subsequent Events
In January 2007, we issued an aggregate of 2,214,285 “restricted” shares of our Common Stock (the “Shares”). We received proceeds of $300,000 from the sale thereof ($0.14 per share). The Shares were sold to a total of 10 investors, all of whom were “accredited investors” as that term is defined under Rule 501(a) of Regulation D as promulgated under the Securities Act of 1933, as amended. We relied upon the exemption from registration afforded by Regulation D and Section 4/2, promulgated under the Securities Act of 1933, as amended, to issue the Shares. The proceeds from this offering have been used for our new operations described in “PART I, Item 1, Description of Business” above.
On January 24, 2007, the Company entered into a new lease agreement for 23,886 square feet of commercial space located at 4413 Hamann Parkway, Willoughby, Ohio. The lease is for two years starting on March 1, 2007 and ending February 28, 2009. The future minimum payments received under the lease are $59,947, $96,644 and $16,931 for 2007, 2008 and 2009, respectively.
In March of 2007, the Company entered into a settlement arrangement regarding a deposit on equipment in the amount of $101,239. The Company returned the equipment to the vendor for a restocking fee of $31,239, which is recorded in general and administrative expense as of December 31, 2006, and the difference of $70,000 will be remitted to the Company in 2007.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to our financial position or results of operations under different conditions or using different assumptions. The most critical accounting policies and estimates are:
  •  
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
  •  
Fair value of instruments. Our financial instruments consist of accounts receivable, accounts payable and long term debt. The fair value of financial instruments approximate their recorded values. Fair value of loans payable to stockholders and balances of bank lines of credit, in the circumstances, are not reasonably determinable.
Details regarding our use of these policies and the related estimates are described in the accompanying consolidated financial statements as of December 31, 2006 and for the years ended December 31, 2006 and 2005.

 

 

 

During the year ended December 31, 2006, there have been no material changes to our critical accounting policies that impacted our consolidated financial condition or results of operations.
TRENDS
Since our announcement of the successful development of a carbon nanotube support base fuel cell electrode in November 2003, we have been receiving a significant amount of attention from the investment community. Stock volume has increased and we have received indications of interest from investors. There have also been significant hits on our web site from investment firms. In this regard, while there are no assurances, we are hopeful that we will be able to raise approximately $2.5 million in additional funding in order to allow us to produce and demonstrate to fuel cell manufacturers a commercially viable prototype. See “Liquidity and Capital Resources,” above.
We are currently in preliminary discussions with entities that have told us they can raise funds for our Company. However, there can be no assurance that any investment will materialize.
We also expect that our new laboratory will continue to function as a hub to attract additional researchers from the University of California at Riverside, which is on the path to become a leader in the nano-technology field. We believe that there are many potential useful applications of nano-technology that can be expected in the immediate future, including fuel cells and flat panel displays. Also at this laboratory, functional prototypes will be made before bringing in manufacturers. Our plan is to have the manufacturers inspect the prototype, once completed, in order to generate their own test production unit. If successful, manufacturing can commence producing products in quantity in less than 12 months. We foresee the initial application to be a battery replacement for cell phones, mobile notebook computers/laptops and other applicable applications. This segment is known as the micro fuel cell market. We expect that these fuel cells will eventually be produced like modular computer chips and components.
In order to help jump-start the market for fuel cells and increase our manufacturing capability, in late 2006 we decided to begin manufacturing fuel cell components.
Fuel cell manufacturers have incurred unwarranted expense and diversion of management time in trying to manufacture each of the several components needed for their fuel cells. We believe that we can create a viable, profitable business by utilizing proven manufacturing techniques in a dedicated environment. To this end we have started manufacturing bipolar plates in our plant in Willoughby, Ohio. We expect that our customers will include many prominent industrial firms, as well as leading independent fuel cell companies.
We believe that the reason that the fuel cell market is not rapidly expanding at this time is due to high manufacturing costs and lack of successful applications. We believe that a robust fuel cell market is inevitable, due to the advantages of low pollution and independence from fossil fuels. Major automobile, industrial and power supply companies are heavily involved in research and development activities of fuel cell technology and many have announced prototypes and commercial models. However, there has not been a major commercial breakthrough, which we attribute to the high cost of the products and the lack of consumer proven reliability. While no assurances can be provided, once the problem of high costs is resolved, we expect the micro fuel cell market to increase significantly.
INFLATION
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material affect on our results of operations during 2006.

 

 

 

ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act) designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the required time periods. Our Chief Executive Officer and Chief Financial Officer have concluded, based upon their evaluation of these disclosure controls and procedures as of the end of the period covered by this Report, that, as of that date, these disclosure controls and procedures were effective at ensuring that the required information will be disclosed on a timely basis in our reports filed under the Exchange Act.
Changes in Internal Controls
We maintain a system of internal controls that is designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are following. During the quarter ended at the end of the period covered by this Report, there were no significant changes to our internal controls or in other factors, including any corrective actions with regard to significant deficiencies and material weaknesses, that have significantly affected, or would be reasonably likely to significantly affect, such internal controls.
ITEM 13. EXHIBITS
(a) Exhibits. The following exhibits are attached to this Report:
     
Exhibit No.   Description
 
    
31
  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
32
  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Following are a list of exhibits which we previously filed in other reports which we filed with the SEC, including the Exhibit No., description of the exhibit and the identity of the Report where the exhibit was filed.
     
Exhibit No.   Description
 
    
2.1*
  Corporate Charter
2.2*
  Articles of Incorporation
2.3*
  Amendment to Articles of Incorporation
2.4*
  Bylaws
2.5**
  Amendment to Articles of Incorporation
10.1**
  Agreement between the Company and Fullerene, USA, Inc.
10.2***
  Lease Agreement — Riverside Laboratory
10.3****
  Agreement between the Company and Bourns, Inc.
10.4*****
  Lease Agreement dated January 24, 2007.

 

 

 

 
     
*  
Filed with the Securities and Exchange Commission in the Exhibits to Form 10-SB filed on November 10, 1999, and are incorporated by reference herein.
 
**  
Filed with the Securities and Exchange Commission in the Exhibits to Form 8-K filed on September 6, 2001, and are incorporated by reference herein.
 
***  
Filed with the Securities and Exchange Commission in the Exhibits to Form 10-KSB filed on April 8, 2005, and is incorporated by reference herein.
 
****  
Filed with the Securities and Exchange Commission in the Exhibits to Form 10-KSB filed on April 18, 2006, and is incorporated by reference herein.
 
*****  
Filed with the Securities and Exchange Commission in the Exhibits to Form 10-KSB filed on April 2, 2007, and is incorporated by reference herein.
(b) Reports on Form 8-K.
We did not file any reports on Form 8-K during the three month period ended December 31, 2006.
[SIGNATURE PAGE FOLLOWS]

 

 

 

SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 26, 2008.
         
  PACIFIC FUEL CELL CORP.
(Registrant)
 		  
  By:   /s/ George Suzuki    
    George Suzuki   
    President, Chief Executive Officer
and Chief Financial Officer 		  
 
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints George Suzuki, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, to sign the report on Form 10-KSB and any or all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof in any and all capacities.
Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
         
Signature   Title   Date
 
        
/s/ George Suzuki
 
George Suzuki
  President, Chief Executive Officer,
Chief Financial Officer and
Director (principal executive officer,
principal financial and accounting officer) 		  March 26, 2008
 
        
/s/ Michael Swanberg
 
   Director    March 26, 2008
Michael Swanberg
        

 

 

 

EXHIBIT INDEX
     
Exhibit No.   Description
 
    
31
  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
32
  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.