HydroGen Corp. - HYDG pinksheets.com
10-QSB pinksheets.com
(formerly) CHISTE CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 86-0965692 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization)
1801 Route 51 South, Jefferson Hills, PA 15025
(Address of principal executive offices)
(412) 405-1000
(Issuer's telephone number)
936A Beachland Boulevard, Suite 13
Vero Beach, Florida 32963
(Former address)
Business Plan
HydroGen's business plan is divided into three stages: market entry, cost reduction, and growth. Management anticipates that the market entry stage will last for approximately the next 15 months through 2006. During this period, HydroGen will focus its efforts on the following activities:
1. Ramp up fuel cell manufacturing operations to achieve 2MW per year production capacity. HydroGen will invest approximately $1.5-2 million to ramp up its manufacturing facilities to achieve initial pilot production capacity of 2MW (five 400kW modules) per annum. These funds will be used to acquire certain additional production equipment, to implement certain facilities upgrades and to prepare and train a new team of production staff in the fuel cell production processes. Management estimates that it will take approximately 10-12 months to achieve production capacity at this initial level.
2. Manufacture 400kW modules. HydroGen intends to produce up to three (3) 400kW air-cooled phosphoric acid fuel cell modules in our manufacturing facilities over the next 12-15 months. The modules will be tested at our facilities, and then delivered to customer demonstration sites in the field. Management believes that approximately two-thirds of the cost of production will be spent on materials and supplies for the fuel cell modules, including raw materials required to manufacture graphite plates, electrodes, and other components of the fuel cells, and approximately one-third of the production costs will be spent on labor to manufacture the modules, including salaries and benefits and manufacturing overhead allocations. Management has allocated $2 to $3.5 million to the manufacturing activities.
3. Product and technology testing and validation. HydroGen intends to construct and operate test facilities at our manufacturing facilities.
Management has allocated $1.5 to $2 million to the product and technology testing and validation activities. The test facilities will include:
(a) 400kW module test facility, to test finished product at full rated capacity prior to field delivery.
(b) 10-cell stack test facility, to validate design and material changes to the fuel cells as a final step before incorporating such changes into the full 400kW module.
(c) 2"x2" small scale test facility, to test new electrode materials prior to selection for 10-cell stack testing and validation.
4. Finish 2MW power plant design and initiate accelerated manufacturing development. HydroGen intends to invest approximately $400,000 to complete the design, component selection, and full costing of the standard 2 megawatt (MW) power plant product. HydroGen also intends to invest approximately $1,000,000 to initiate development activities necessary to achieve targeted fuel cell production capacity of 25MW/year scheduled for 2008 and 100MW/year scheduled for 2009 under the current business plan. The accelerated manufacturing development program consists of a staged series of projects to implement design and material changes to the technology, develop and implement automated manufacturing processes, and collaborate with outsource suppliers of key components of the fuel cells. HydroGen will also seek financing in the form of grants from state and/or federal government sources for some aspects of this phase of the business plan.
5. Sales and marketing. The initial sales goal is to achieve contingent orders for full-scale commercial fuel cell power plants in the range of 25-50 MW aggregate capacity, and for a series of initial 400kW commercial demonstration power plants. A principal purpose of the commercial demonstration power plants is to obtain a successful validation and performance history for the core 400 kW module on which the 2MW standard commercial product is based. Once obtained, the contingency related to commercial orders received for full-scale fuel cell power plants is removed. To achieve its sales and marketing objectives, HydroGen has initiated discussions with several large generators of by-product hydrogen who have expressed interest in acquiring fuel cell power plants, and management believes that it could conclude agreements with one or more of these entities within the next 12 months. HydroGen management believes that it is in a position to conclude demonstration agreements with hosts for the 400kW commercial demonstration plants within the next three to six months.
Sales and marketing will take place concurrently with the previously described phases of the business plan during the development stage. Marketing the kind of disruptive product that the company offers involves a multifaceted decision process, and it typically takes multiple contacts and a substantial customer educative endeavor to achieve firm commitments and orders.
Once HydroGen has achieved the objectives of its market entry stage, it will enter the cost reduction stage of the business plan. This stage is expected to last for approximately eight quarters, currently estimated to be through the end of 2008. Management estimates that approximately $20-30 million in additional equity or other capital will be required to execute this phase of the business plan. The principal goals of this stage of development will be to:
1. Complete automated design and process development for accelerated manufacturing.
2. Construct an accelerated manufacturing facility capable of producing 25MW/year of fuel cell modules by the end of 2008, and reduce module production cost through high volume manufacturing and assembly.
3. Manufacture and deliver to customers the first 10-20MW of commercial fuel cell power plants.
4. Achieve positive net cash flow from operations between 2007-2008.
After successful completion of the objectives of the cost reduction phase of the business plan, HydroGen plans to expand the automated production facility to 100MW/year capacity or greater, launch a worldwide sales and marketing effort, expand production capacity further by investing in a European or Asian manufacturing facility, and further driving down costs through maturation of our outsourcing activities.
Financing Activities
Since inception, HydroGen has been financed by working capital loans provided by Fuel Cell Corporation of America ("FCA"), the predecessor owner of the HydroGen's intellectual property assets and a significant shareholder of the Company. At June 30, 2005, these loans had an aggregate balance of $267,360, and were evidenced by promissory notes. Additionally, FCA provided an interest free line of credit to HydroGen of $350,000, all of which was borrowed and was also outstanding at June 30, 2005. FCA agreed that, upon repayment of the $350,000 non-interest bearing note, it would forgive the principal balance of the interest-bearing loans by $150,000. These loans, plus accrued interest, are payable upon the occurrence of certain events, but in no case later than July 31, 2005. HydroGen paid the $350,000 plus accrued interest in full satisfaction of amounts owed to FCA out of the proceeds of the offerings completed in connection with the Exchange Agreement described below.
During late 2004 and early 2005, HydroGen sold in a private placement $2 million of bridge units, each unit consisting of a $10,000 convertible note and .045 membership unit. The bridge notes were due on the earlier of June 30, 2005, or earlier upon the occurrence of certain events. The bridge notes were initially convertible into an additional .045 membership unit, at an effective conversion price of $220,772. However, to encourage the conversion of these notes, the conversion price was lowered to $125,000 per membership unit, the same terms being offered to investors in HydroGen's private placement completed in connection with the Exchange Agreement described below. Holders of all $2,000,000 of convertible notes elected to convert the principal amount of their notes as part of the private placement into 16.0 membership units in HydroGen, which membership units were immediately exchanged for 60,446 Preferred Shares of Chiste.
On May 13, 2005, Chiste Corporation, a Nevada corporation ("Chiste"), entered into an Exchange Agreement ("Exchange Agreement") with HydroGen, LLC, an Ohio limited liability company ("HydroGen"), certain members of HydroGen representing approximately 69.7% of the outstanding membership interests, and Keating Reverse Merger Fund, LLC ("KRM Fund").
The closing of the transactions contemplated by the Exchange Agreement (the "Closing") occurred on July 7, 2005. At the Closing, pursuant to the terms of the Exchange Agreement, Chiste acquired all of the outstanding membership interests of HydroGen (the "Interests") from all the HydroGen members, and the HydroGen members contributed all of their Interests to Chiste. All the HydroGen members either executed or joined the Exchange Agreement prior to the Closing, including persons investing in membership units as part of a private placement by HydroGen. The completion of the HydroGen private placement of membership units for a minimum gross proceeds of $5,000,000 and a maximum of $10,000,000 was a condition to the Closing.
HydroGen raised $6,536,283 in gross proceeds from the private placement, and the holders of $2,000,000 of notes converted the principal amount of their notes into membership units in the private placement. In the exchange transaction, Chiste issued to the HydroGen members, including the new investors and converting note holders, an aggregate of 742,255 shares of Series B Convertible Preferred Shares, par value $0.001 per share ("Preferred Shares"), which will be convertible into shares of Chiste's common stock. In addition, immediately following the closing of the exchange transaction, Chiste sold to several institutional investors, 211,569 Preferred Shares for an aggregate purchase price of $7,000,000. At the Closing, HydroGen became a wholly-owned subsidiary of Chiste and will continue as the principal operating company.
HydroGen intends to use the proceeds of this offering to ramp up its manufacturing facility, manufacture 400kW modules, test and validate HydroGen's product and technology, complete power plant design work, commence development work for an accelerated manufacturing facility, repay the working capital loans discussed above and for other general corporate purposes. Management estimates that the proceeds from this financing transaction will provide HydroGen with adequate capital resources for at least the next 12 months.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The closing of the Capital Restructuring Transactions became effective May 14, 2004 and resulted in a change of control of the Company. Pursuant to the SPA:
(i) Lanny R. Lang resigned as Chief Financial Officer, Secretary and Treasurer and as a member of the Board of Directors effective May 4, 2004; (ii) Kevin R. Keating was appointed as the Company's Secretary effective May 4, 2004; (iii) Michael S. Williams resigned as the Company's President to be effective upon the filing of the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2004, with Kevin R. Keating replacing Mr. Williams as President upon his resignation; and (iv) upon compliance with Rule 14(f)(1) of the Securities Act of 1934, as amended, Kevin R. Keating was appointed as a member of the Company's Board of Directors, and concurrently Mr. Williams resigned from his position as a member of the Board of Directors.
After closing the Capital Restructuring Transactions, KRM Fund owned 7,445,000 shares or approximately 87% of the Company's issued and outstanding common stock. Concurrently, the principal executive office of the Company was moved to 936A Beachland Boulevard, Suite 13, Vero Beach, FL 32963.
At June 30, 2005, the Company had no meaningful business assets, operations or sources of revenue. The Company plans to pursue and negotiate a business combination or other strategic transaction. Ultimately, the continuation of the Company as a going concern is dependent upon the establishment of profitable operations. Because the achievement of these plans in dependent on future events, there can be no assurance that future profitable operations will occur as planned. However, on July 7, 2005, the Company consummated an Exchange Agreement with HydroGen, LLC, which resulted in a change in control of the Company. Subsequent to this change in control, HydroGen will operate as a subsidiary of Chiste.
Signatures In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ Leo Blomen
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Leo Blomen
Chief Executive Officer
/s/ Joshua Tosteson
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Joshua Tosteson
President
/s/ Scott Schecter
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Scott Schecter
Chief Financial Officer
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