UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

(Mark One)
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2008.
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to               

Commission File Number: 000-32065

HYDROGEN 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)
 

10 East 40 th Street, New York, NY 10016-0301
(Address of principal executive offices)

(212) 672-0380
(Issuer’s telephone number)

Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  x    No  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  x
 
As of May 13, 2008, there were 12,769,904 shares of common stock, par value $0.001 per share, outstanding.
 
Transitional Small Business Disclosure Format (check one):  Yes  o    No  x


TABLE OF CONTENTS
 
   
PAGE
PART I.
FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements
 
     
 
Condensed Consolidated Balance Sheets, March 31, 2008 (unaudited) and December 31, 2007
2
     
 
Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2008 and March 31, 2007 and for the period from November 11, 2001 (“Inception”) to March 31, 2008 (unaudited)
3
     
 
Condensed Consolidated Statements of Shareholders’ Equity (Deficiency) from Inception through March 31, 2008
4
     
 
Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2008 and March 31, 2007 and for the period from Inception through March 31, 2008 (unaudited)
6
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
7
     
Item 2.
Management's Discussion and Analysis or Plan of Operation
15
     
Item 3.
Controls and Procedures
24
     
PART II.
OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
25
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25
     
Item 3.
Defaults Upon Senior Securities
25
     
Item 4.
Submission of Matters to a Vote of Security Holders
25
     
Item 5.
Other Information
25
     
Item 6.
Exhibits
25
     
Signatures
26

-i-

PART I – FINANCIAL INFORMATION
 
Item 1.   Financial Statements
 
This Form 10-QSB (the “Quarterly Report”) contains “forward-looking statements” regarding future events and future results of HydroGen Corporation (the “Company”) that are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of the management of the Company and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements often can be identified by the use of terms such as “may”, “will”, “expect”, “believe”, “anticipate”, “plan”, “intend”, “project”, “estimate”, “approximate”, or “continue”, and other similar expressions or the negative thereof. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond the control of the Company that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007 under the Section entitled “Risk Factors.” Except as required by applicable law or regulation, the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.


HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
MARCH 31,
2008
 
DECEMBER 31, 2007
 
   
(unaudited)
     
ASSETS
             
CURRENT ASSETS
             
Cash and cash equivalents
 
$
2,641,075
 
$
8,065,758
 
Accounts receivable
   
344,342
   
165,628
 
Other current assets
   
1,330,886
   
1,837,657
 
TOTAL CURRENT ASSETS
   
4,316,303
   
10,069,043
 
Property and equipment, net
   
4,850,966
   
4,799,588
 
Other assets
   
66,433
   
66,433
 
TOTAL ASSETS
 
$
9,233,702
 
$
14,935,064
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
             
CURRENT LIABILITIES
             
Accounts payable and accrued expenses
 
$
2,274,872
 
$
3,094,511
 
Capital lease obligations, current portion
   
104,268
   
102,804
 
TOTAL CURRENT LIABILITIES
   
2,379,140
   
3,197,315
 
LONG-TERM LIABILITIES
             
Capital lease obligations, net of current portion
   
48,536
   
74,813
 
TOTAL LIABILITIES
 
$
2,427,676
 
$
3,272,128
 
Commitments
             
SHAREHOLDERS’ EQUITY
             
Common stock, par value $0.001, authorized 65,000,000 shares, 12,769,904 issued and outstanding at March 31, 2008 and December 31, 2007.
   
12,770
   
12,770
 
Additional paid-in capital
   
43,540,416
   
43,180,779
 
Deficit accumulated during the development stage
   
(36,747,160
)
 
(31,530,613
)
TOTAL SHAREHOLDERS’ EQUITY
   
6,806,026
   
11,662,936
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
9,233,702
 
$
14,935,064
 

See accompanying notes to the condensed financial statements

-2-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
 
FOR THE QUARTERS ENDED
March 31, 
 
NOVEMBER 11, 
2001
(INCEPTION) 
THROUGH
 
   
2008
 
2007
 
March 31, 2008
 
Grant Revenue
 
$
319,342
 
$
436,065
 
$
2,511,961
 
Research and development expenses
   
3,552,349
   
2,290,489
   
18,566,509
 
Costs and expenses (including stock-based compensation expense of $359,637, $120,053, and 2,770,782 respectively)
   
2,027,169
   
1,556,244
   
20,969,513
 
LOSS FROM OPERATIONS
   
(5,260,176
)
 
(3,410,668
)
 
(37,024,061
)
Interest and other income
   
51,453
   
268,993
   
2,106,803
 
Interest and other financing charges
   
(7,824
)
 
(3,892
)
 
(806,091
)
Charge for repricing conversion price of convertible debt
   
-
   
-
   
(875,000
)
NET LOSS
 
$
(5,216,547
)
$
(3,145,567
)
$
(36,598,349
)
Weighted average common shares outstanding (basic and diluted)
   
12,769,904
   
12,769,904
       
Net loss per share (basic and diluted)
 
$
(0.41
)
$
(0.25
)
     
 
See accompanying notes to the condensed financial statements

-3-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)

   
Common Stock
 
Series B Preferred Stock
 
Additional
Paid-in
 
Deficit
Accumulated
During the
Development
 
Total
Shareholders’
Equity
 
   
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Stage
 
(Deficiency)
 
Balance, November 11, 2001 (Inception)
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Capital contributed on November 11, 2001
   
-
   
-
   
377,704
 
$
378
 
$
476
 
$
-
 
$
854
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
(5,564
)
 
(5,564
)
Balance, December 31, 2001
   
-
 
$
-
   
377,704
 
$
378
 
$
476
 
$
(5,564
)
$
(4,710
)
Net loss
   
-
   
-
   
-
   
-
   
-
   
(104,354
)
 
(104,354
)
Balance, December 31, 2002
   
-
 
$
-
   
377,704
 
$
378
 
$
476
 
$
(109,918
)
$
(109,064
)
Net loss
   
-
   
-
   
-
   
-
   
-
   
(163,128
)
 
(163,128
)
Balance, December 31, 2003
   
-
 
$
-
   
377,704
 
$
378
 
$
476
 
$
(273,046
)
$
(272,192
)
Equity issued for compensation in January and June, at $22.81 per preferred share
   
-
   
-
   
28,012
   
28
   
638,802
   
-
   
638,830
 
Issuance of equity in connection with issuance of convertible notes from November 24 – December 20, at $16.36 per preferred share
   
-
   
-
   
27,850
   
28
   
455,480
   
-
   
455,508
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
(1,734,654
)
 
(1,734,654
)
Balance, December 31, 2004
   
-
 
$
-
   
433,566
 
$
434
 
$
1,094,758
 
$
(2,007,700
)
$
(912,508
)
Vesting of equity issued for compensation in January and June, 2004 at $22.81 per preferred share
   
-
   
-
   
21,731
   
22
   
513,319
   
-
   
513,341
 
Equity issued on March 8 to existing shareholders electing antidilution protection, at $23.18 per preferred share
   
-
   
-
   
4,862
   
5
   
112,674
   
-
   
112,679
 
Issuance of equity in connection with issuance of convertible notes from January 4 – February 23, at $16.82 per preferred share
   
-
   
-
   
6,147
   
6
   
103,397
   
-
   
103,403
 
Conversion of convertible notes on July 7, 2005
   
-
   
-
   
60,446
   
60
   
1,999,940
   
-
   
2,000,000
 
Repricing of convertible notes
   
-
   
-
   
-
   
-
   
875,000
   
-
   
875,000
 
Forgiveness of debt by significant shareholder on July 7, 2005
   
-
   
-
   
-
   
-
   
150,000
   
-
   
150,000
 
Chiste shareholders’ interest on July 7, 2005, post-reverse merger
   
375,865
   
376
   
-
   
-
   
(376
)
 
-
   
-
 
Sale of equity securities on July 7, 2005 at $31.70 per preferred share
   
-
   
-
   
427,072
   
427
   
12,394,137
   
-
   
12,394,564
 
 
-4-

   
Common Stock
 
Series B Preferred Stock
 
Additional
Paid-in
 
Deficit
Accumulated
During the
Development
 
Total
Shareholders’
Equity
 
     
Shares  
   
Amount  
   
Shares  
   
Amount  
   
Capital  
   
Stage  
   
(Deficiency)  
 
Conversion of preferred securities into common stock on August 29, 2005, valued at $4.46 per common share
   
7,071,735
   
7,072
   
(953,824
)
 
(954
)
 
(6,118
)
 
-
   
-
 
Dividend - round up of odd-lot shareholders on August 29, September 14 and November 1, valued at $4.53 per share
   
32,865
   
33
   
-
   
-
   
148,778
   
(148,811
)
 
-
 
Sale of common shares on September 29, 2005 for $4.46 per share
   
134,439
   
134
   
-
   
-
   
584,746
   
-
   
584,880
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
(5,741,197
)
 
(5,741,197
)
Balance, December 31, 2005
   
7,614,904
 
$
7,615
   
-
 
$
-
 
$
17,970,255
 
$
(7,897,708
)
$
10,080,162
 
Sale of common shares on May 2, 2006 for $5.00 per share
   
5,155,000
   
5,155
   
-
   
-
   
24,064,229
   
-
   
24,069,384
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
(7,423,300
)
 
(7,423,300
)
Stock based compensation
   
-
   
-
   
-
   
-
   
561,331
   
-
   
561,331
 
Balance, December 31, 2006
   
12,769,904
 
$
12,770
   
-
 
$
-
 
$
42,595,815
 
$
(15,321,008
)
$
27,287,577
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
(16,209,605
)
 
(16,209,605
)
Stock based compensation
   
-
   
-
   
-
   
-
   
584,964
   
-
   
584,964
 
Balance, December 31, 2007
   
12,769,904
 
$
12,770
   
-
 
$
-
 
$
43,180,779
 
$
(31,530,613
)
$
11,662,936
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
(5,216,547
)
 
(5,216,547
)
Stock based compensation
   
-
   
-
   
-
   
-
   
359,637
   
-
   
359,637
 
Balance, March 31, 2008
   
12,769,904
 
$
12,770
   
-
 
$
-
 
$
43,540,416
 
$
(36,747,160
)
$
6,806,026
 
 
See accompanying notes to the condensed financial statements

-5-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
FOR THE QUARTERS ENDED
MARCH 31,
 
NOVEMBER 11, 
2001
 (INCEPTION) 
THROUGH
MARCH 31,
 
   
2008
 
2007
 
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES
                   
Net loss
 
$
(5,216,547
)
$
(3,145,567
)
$
(36,598,349
)
Adjustments to reconcile net loss to net cash used in operating activities:
                   
Depreciation
   
194,708
   
132,860
   
1,065,850
 
Amortization of discount on convertible notes
   
-
   
-
   
558,911
 
Stock-based compensation
   
359,637
   
120,053
   
2,770,782
 
Financing cost recognized upon change in terms of convertible debt
   
-
   
-
   
875,000
 
Loss on disposal of property and equipment
   
-
   
-
   
35,416
 
Changes in operating assets and liabilities:
                   
Increase in accounts receivable
   
(178,714
)
 
(173,657
)
 
(344,342
)
Decrease (Increase) in other current assets
   
506,770
   
99,203
   
(1,330,887
)
Increase in other assets
   
-
   
(50
)
 
(66,433
)
(Decrease) Increase in accounts payable and accrued expenses
   
(819,640
)
 
(619,541
)
 
2,274,871
 
NET CASH USED IN OPERATING ACTIVITIES
 
$
(5,153,786
)
$
(3,586,699
)
$
(30,759,181
)
CASH FLOW FROM INVESTING ACTIVITIES
                   
Purchase of short-term investments
   
-
   
(5,994,285
)
 
(37,195,809
)
Maturity of short-term investments
   
-
   
5,725,000
   
37,195,809
 
Purchase of property and equipment
   
(246,084
)
 
(591,841
)
 
(5,651,416
)
NET CASH USED IN INVESTING ACTIVITIES
 
$
(246,084
)
$
(861,126
)
$
(5,651,416
)
CASH FLOWS FROM FINANCING ACTIVITIES
                   
Issuance of common stock for cash, net of expenses, including the exchange of member’s units and preferred stock
   
-
   
-
   
37,049,682
 
Proceeds from notes payable, related parties
   
-
   
-
   
150,000
 
Principal payments on capital lease obligations
   
(24,813
)
 
(17,681
)
 
(148,010
)
Proceeds from issuance of convertible notes payable including amount allocated to equity component
   
-
   
-
   
2,000,000
 
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
 
$
(24,813
)
$
(17,681
)
$
39,051,672
 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
   
(5,424.683
)
 
(4,465,506
)
 
2,641,075
 
CASH AND CASH EQUIVALENTS, beginning of period
   
8,065,758
   
14,170,530
   
-
 
CASH AND CASH EQUIVALENTS, end of period
 
$
2,641,075
 
$
9,705,024
 
$
2,641,075
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                   
Cash paid for interest
 
$
7,824
 
$
3,892
 
$
162,896
 
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
                   
Equipment acquired under capital lease
 
$
-
 
$
-
 
$
300,814
 
Preferred stock issued upon conversion of convertible notes
 
$
-
 
$
-
 
$
2,000,000
 
Reduction in note payable to related party
 
$
-
 
$
-
 
$
150,000
 
Issuance of equity in connection with issuance of convertible notes
 
$
-
 
$
-
 
$
103,403
 
Dividend – roundup of odd-lot shareholders
 
$
-
 
$
-
 
$
148,811
 
 
See accompanying notes to the condensed financial statements

-6-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
NOTE 1 - DESCRIPTION OF THE COMPANY
 
The business of HydroGen Corporation (the “Company”) commenced under the entity HydroGen, L.L.C. in November 2001 to conduct the business of designing and manufacturing air-cooled Phosphoric Acid Fuel Cell (“PAFC”) power generation systems.  On July 7, 2005, HydroGen, L.L.C. became a wholly-owned subsidiary of Chiste Corporation, which was subsequently renamed “HydroGen Corporation” on August 18, 2005.
 
The Company is a manufacturer of multi-megawatt fuel cell systems utilizing proprietary 400-kilowatt (kW) phosphoric acid fuel cell (PAFC) technology. The technology was developed by Westinghouse Electric Corporation, and was acquired in 1993 by Fuel Cell Corporation of America (“FCA”), the Company’s predecessor. In 2001, FCA assigned all of its ownership rights to the technology to the Company.
 
 
NOTE 2 -
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
 
The accompanying condensed interim financial statements of the Company are unaudited, but in the opinion of management reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007.
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, HydroGen LLC. All significant intercompany balances have been eliminated in consolidation.
 
Revenue Recognition
 
Grant revenue is recognized as the Company incurs reimbursable costs or achieves designated milestones as set forth under its contracts. All of the Company’s revenue for the three months ended March 31, 2008 and March 31, 2007 is from grant agreements with government agencies of the State of Ohio or the Commonwealth of Pennsylvania.
 
The Company will recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB 104). Revenue is recognized when persuasive evidence of a sale exists, the product has been delivered, the rights and risks of ownership have passed to the customer, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. For arrangements which include customer acceptance provisions, revenue is not recognized until the terms of acceptance are met. Reserves for sales returns and allowances will be estimated and provided for at the time of shipment.
 
-7-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
NOTE 2 -
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
 
Research and Development Expenses
 
Research and development expenditures are charged to operations as incurred.
 
Loss Per Share
 
Loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Shares to be issued upon the exercise of options and warrants aggregating 3,983,731 and 2,472,627, respectively, as of March 31, 2008 and March 31, 2007, respectively are not included in the computation of loss per share as their effect is antidilutive.
 
Impact of Recently Issued Accounting Standards
 
SFAS No. 157, “Fair Value Measurements” . In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a framework for reporting fair value and expands disclosures about fair value measurements. The FASB issued FASB Staff Position (FSP) No. FAS 157-a, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions , which eliminated lease accounting from the scope of this standard. SFAS 157, as issued, is effective for fiscal years beginning after November 15, 2007. The FASB issued FASB Staff Position (FSP) No. FAS 157-b, Effective Date of FASB Statement No. 157 , which delays the effective date by one year for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, at least annually. The Company adopted SFAS 157 on January 1, 2008. The impact of this new standard did not have a material impact on the financial statements.
 
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides the option to report certain financial assets and liabilities at fair value, with the intent to mitigate volatility in financial reporting that can occur when related assets and liabilities are recorded on different bases. SFAS 159 also amends SFAS No. 115, “ Accounting for Certain Investments in Debt and Equity Securities ,” by providing the option to record unrealized gains and losses on held-for-sale and held-to-maturity securities currently. The Company adopted SFAS 159 on January 1, 2008. The impact of this new standard did not have a material impact on the financial statements.
 
-8-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
NOTE 2 -
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
 
Use of Estimates
 
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 may differ from those estimates.
 
Reclassifications
 
Certain reclassifications have been made to the 2007 Financial Statements to conform to the 2008 presentation.
 
Income Taxes

On January 1, 2007, the Company adopted the provisions of FIN 48, “Accounting for Uncertain Tax Positions - an Interpretation of FASB No. 109.” The Company has determined that it does not have any uncertain tax positions as of March 31, 2008.
 
The Company will record interest and penalties associated with unrecognized tax benefits as income tax expense/benefit.
 
NOTE 3 - LIQUIDITY AND FUTURE OPERATIONS  
 
The Company’s consolidated financial statements for the quarter ended March 31, 2008 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has historically reported net losses, including a net loss of $5.2 million for the quarter ended March 31, 2008, and anticipates incurring losses in the future, due to the investment in research and development and product and technology testing, validation and commercialization of the Company’s technologies.
 
The Company is in the development stage. Its current business plans include expenditures to continue the development of the current manufacturing production capability and to expand development efforts for next generation production processes. These activities require the Company to add employees, purchase production equipment, build-out additional manufacturing facilities, manufacture 400kW modules, and construct and operate test facilities. The Company does not believe that it can achieve profitability until it has completed its market entry and cost reduction stages. In order to fund the costs associated with these stages, the Company will require additional financing. Without additional financing, the Company would need to delay certain of these activities.
 
The Company plans to seek required financing from among the following: (1) obtaining private equity funding, (2) obtaining debt financing and (3) increasing government grant revenue. Such financing may not be available to the Company on terms that are acceptable to it, if at all, and any new financing may be dilutive to its shareholders.
 
-9-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
NOTE 3 - LIQUIDITY AND FUTURE OPERATIONS   - Continued
 
As of May 13, 2008, the Company had approximately $1,000,000 of cash on-hand and no significant accounts receivable. As part of the Company’s normal operating activity, the Company is in the process of reclaiming platinum that the Company expects to result in an additional approximately $400,000 in cash to the Company expected in the third week of May 2008. If the Company is unable to raise sufficient capital, liquidity problems will cause the Company to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other such actions that could adversely affect future operations. These factors raise substantial doubt as to the Company’s ability to continue operations as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
NOTE 4 – SHARE-BASED COMPENSATION  
 
The Company has granted stock options under its 2005 Performance Equity Plan, as amended, (“2005 Plan”) and under its 2007 Performance Equity Plan (“2007 Plan” and, together with the 2005 Plan, the “Plans”.) Prior to the adoption of the 2005 Plan, HydroGen, L.L.C.’s members voted to issue options for membership units to key employees and advisors. Upon HydroGen, LLC becoming a wholly-owned subsidiary of Chiste (the prior name of the Company), these options became options to purchase 342,345 shares of common stock of Chiste. These options today represent options to purchase 342,345 shares of common stock of the Company.
 
Subject to the provisions of the Plans, awards may be granted to employees, officers, directors, advisors, and consultants who are deemed to have rendered or are able to render significant services to the Company or its subsidiaries, and who are deemed to have contributed or to have the potential to contribute to the Company’s success. Incentive stock options may only be awarded to individuals who are employees at the time of the grant. The amount of shares that may be issued or reserved for awards to participants under the 2005 Plan and the 2007 Plan, which was approved by shareholders at the Company’s Annual Meeting on June 22, 2007, and the amount of options issued and outstanding to purchase shares as of March 31, 2008 are listed in the table below.

   
Authorized for Issuance
 
Issued and Outstanding
 
2005 Plan
   
1,100,000
   
1,078,617
 
2007 Plan
   
1,300,000
   
1,145,144
 
Total:
   
2,400,000
   
2,223,761
 
 
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R) using the modified prospective transition method. The adoption of SFAS 123 (R) resulted in share-based compensation expense of $359,637 and $120,053 for the quarters ended March 31, 2008 and March 31, 2007, respectively. These expenses increased basic and diluted loss per share by $0.03 and $0.01 for the quarters ended March 31, 2008 and March 31, 2007, respectively.
 
-10-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
NOTE 4 – SHARE-BASED COMPENSATION - Continued
 
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. As the Company’s common stock has only traded publicly since July 8, 2005, expected volatility has been estimated according to the following methods to allow for an adequate trading history for the Company’s common stock to be developed for use in this estimation:
 
 
1)
Prior to July 8, 2005 : As the Company’s shares were not publically traded, 0% volatility was used in accordance with SFAS 123 for options issued to employees and consultants prior to becoming a public company.

 
2)
July 8, 2005 – September 30, 2007 : Expected volatility was based on an arithmetic average of the volatility of 5 publicly-traded companies that operate in the Company’s industry or sell into similar markets. To calculate the estimated life for grants of “plain vanilla” stock options, the Company used a formula proscribed by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107.
 
 
3)
October 1, 2007 and thereafter : Using the trading history of the Company’s common stock beginning with July 1, 2006. Management believes that this time period adequately captures a representative history and will continue to use July 1, 2006 as the beginning date of the measurement period until the Company fully develops a 5 year trading history from that date.
 
Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its options.
 
There were 32,000 stock options granted during the three months ended March 31, 2008, with a weighted average grant-date fair value of $1.26. There were no grants of options during the three months ended March 31, 2007.
 
The following table summarizes the assumptions used for options granted during the three months ended March 31, 2008 and March 31, 2007.
 
   
Three Months Ended
March 31, 2008
 
Three Months Ended
March 31, 2007
 
Expected life (in years)
   
6.0
   
5.0
 
Risk-free interest rate
   
2.46
%
 
4.68
%
Volatility
   
74
%
 
74
%
Dividend yield
   
— 
   
— 
 
 
-11-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
NOTE 4 – SHARE-BASED COMPENSATION – Continued
 
As of March 31, 2008, there was $2,490,000 of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a remaining weighted average life of 8.76 years.
 
NOTE 5 – STATE GRANTS
 
State of Ohio Development Grant
 
On August 26, 2005, the State of Ohio Department of Development provided to HydroGen Corporation $1,250,000 as a development grant for a three phase program to deploy, demonstrate, and commercialize the Company’s 400 kW phosphoric acid fuel cell system. The grant is under an Ohio Fuel Cell Initiative Demonstration Program, and is to be used towards the costs associated with the commercial demonstration and validation of the Company’s air-cooled phosphoric acid fuel cell module technology and for the procurement and preparation of the plant equipment, system engineering, plant construction, and initial operations. The grant was given on the understanding that the Company will establish its corporate headquarters in Ohio, locate manufacturing facilities to Ohio by the end of 2008, and create new full-time jobs at both the skilled and unskilled level in Ohio. The establishment of a corporate headquarters in Ohio was achieved in 2006. The development work which commenced in 2005 is expected to continue through the end of 2008. The grant was also contingent on the Company raising its own capital, which was achieved in July 2005.
 
The grant of the funds is on a reimbursement basis, provided the Company meets the objectives of the grant and is carrying out the terms of the defined project as represented to the state. The grant reimbursement period ran from September 1, 2005 to July 31, 2007. The grant is a deployment of federal development funds and as such, the Company will be required to adhere to various federal regulations on their use and accountability for deployment.
 
The grant may be terminated if the State of Ohio determines that the Company is not in compliance with certain federal regulations governing the grant or federal employment laws, the requirements of any other applicable program statute or rule or with the terms of the grant agreement after suitable notice and the passage of cure periods. Performance under the agreement is subject to a force majeure limitation. If there is a termination, the Company may not continue to incur expenses under the grant. It may be directed by the State of Ohio to dispose of various property, data, studies, and reports, and the Company may be liable for damages to the State of Ohio. The Company may also request a termination of the grant if it is unable or unwilling to comply with the conditions of the grant.
 
As of December 31, 2007, the Company has submitted requests and has been reimbursed for the entire grant award totaling $1,250,000.
 
-12-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
NOTE 5 – STATE GRANTS – Continued
 
State of Ohio Third Frontier Fuel Cell Program
 
On March 7, 2006, the Company was notified that it would be awarded $1,000,000 (the “Grant”) by the State of Ohio Third Frontier Fuel Cell Program (TFFCP) to support the Company’s advanced manufacturing development program.  On June 8, 2006, the Company entered into a Grant Agreement with the State of Ohio pursuant to which the Grant funds are to be awarded. Under the terms of the Grant Agreement, the Company may recoup from the State the full $1,000,000 as Grant activities take place, and as the costs are incurred and reported. The Company has pledged a total of $555,000 in cost share for the program. The Company will use the funds to dedicate appropriate personnel, consultants, and infrastructure to optimize decisions and resource allocations for its planned advanced manufacturing facility to be located in Ohio. The proposed facility will be where the Company will mass produce its standard 400 kilowatt (kW) air-cooled PAFC modules, which will serve as the building block of its core product, a 2-2.5 megawatt (MW) power island.  Initial production capacity will be 25 MW per year of the Company’s 400 kW modules, and is expected to be subsequently expanded to 100 MW per year capacity. 
 
All disbursements from the Grant are on a reimbursement basis, after documentation has been provided evidencing that expenses were incurred in furtherance of the Grant.  The term of the Grant Agreement, including reimbursement period, concluded on April 10, 2008. The Company has requested an extension of the Grant term and is awaiting notification of acceptance from the State of Ohio. At the close of the Grant term, the Company will own all equipment valued over $5,000 purchased with Grant money.
 
The Grant may be terminated if the State of Ohio determines that the Company is not in compliance with the applicable program rules, State of Ohio law, or with the terms of the Grant Agreement, after suitable notice and the passage of cure periods. Performance by the State is also subject to the availability of funds. If there is a termination, the Company may not continue to incur expenses under the Grant, and it may be directed by the State of Ohio to dispose of various property, data, studies and reports. The Company may further be liable for damages to the State of Ohio in the event of default.  The Company may also request a termination of the Grant if it is unable or unwilling to comply with the conditions of the Grant.
 
Work under the Grant commenced in June of 2006. The Company submitted requests for payment under this grant totaling approximately $800,302 through March 31, 2008, $550,000 of which has been collected as of that date.
 
On March 27, 2008, the Company was notified that it was awarded a grant in the amount of $525,140 by the State of Ohio Third Frontier Fuel Cell Program (TFFCP) to support Improved Fuel Cell Power Plant Efficiency Using Cogeneration. The Company is in the process of establishing the terms and conditions of the Grant Agreement with TFFCP.
 
-13-

HYDROGEN CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
NOTE 5 – STATE GRANTS – Continued
 
Pennsylvania Energy Development Authority Grant – Fuel Cell Test Facility
 
On May 16, 2007, the Company was notified that it was awarded a grant in the amount of $250,000 by the Pennsylvania Energy Development Authority (PEDA) to support the construction of a small scale, air-cooled phosphoric acid fuel cell test facility. The project period, as outlined within the grant agreement, is from October 5, 2006 through October 4, 2008. All reimbursements for the project must be submitted during the project period.
 
All disbursements from the grant are on a reimbursement basis. Reimbursement is made after documentation has been provided evidencing that expenses were incurred in furtherance of the grant. The grant may be terminated in whole, or in part, at any time if PEDA determines that the terms and conditions of the Agreement have not been met.
 
The Company has submitted requests for payment under this grant totaling approximately $250,000, $225,000 of which has been collected through March 31, 2008.
 
Pennsylvania Energy Development Authority Grant – Clean-Up of Coke Oven Gas
 
On October 17, 2007, the Company was notified that it was awarded a grant in the amount of $500,000 by the Pennsylvania Energy Development Authority (PEDA) to support clean-up of coke oven gas for fuel cell operations. The Company is in the process of establishing the terms and conditions of the Grant Agreement with PEDA.
 
Pennsylvania NanoMaterials Commercialization Center Grant
 
On October 12, 2007, the Company entered into a grant agreement (the “Grant Agreement”) with the Pennsylvania NanoMaterials Commercialization Center (PNCC) pursuant to which the PNCC will grant the Company approximately $230,000 to support the development of advanced fuel cell catalyst systems. Under the terms of the Grant Agreement, the Company will be reimbursed by the PNCC as grant activities take place and as the costs are incurred and reported. The Company has pledged a total of $131,545 in cost share for this program. The Company will be working in cooperation with the University of Pittsburgh’s Peterson Institute of Nano Science and Engineering on this project. The grant may be terminated in whole, or in part, at any time if PNCC determines that the terms and conditions of the Grant Agreement have not been met.
 
The Company has submitted requests for payment under this grant totaling approximately $115,000, of which $46,000 has been collected through March 31, 2008.
 
-14-
 
Item 2.
Management's Discussion and Analysis or Plan of Operation
 
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operation and financial condition. You should read this analysis in conjunction with our financial statements and related footnotes. This discussion and analysis contains forward-looking statements relating to future events and our future financial performance. These statements involve known and unknown risks, uncertainties and other factors, including those set forth in the Annual Report on Form 10-KSB, which may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
 
General
 
As of May 13, 2008, we had approximately $1,000,000 of cash on-hand and no significant accounts receivable. As part of our normal operating procedures, we are in the process of reclaiming platinum that we expect will result in an additional $400,000 in cash expected to be received in the third week of May 2008. If we are unable to raise additional funds by May 30, 2008 we will be forced to curtail operations and will not be able to execute our plan of operation.
 
HydroGen is in the development stage and is expected to remain so for at least the next several quarters. HydroGen’s business plan calls for it to design, manufacture and sell multi-megawatt turn-key power plants, based on a series of standardized product designs incorporating HydroGen’s 400 kilowatt (“kW”) fuel cell modules, and to sell fuel cell stacks and modules to other system integrators and turn-key project developers. Additionally, HydroGen’s plan calls for it to generate recurring revenues from the sale of fuel cell stack and module operations and maintenance (“O&M”) services.
 
The principal objective of our plan of operation is to achieve levels of market penetration and product cost that will enable the Company to sell profitably phosphoric acid fuel cell (“PAFC”) stacks and modules, complete PAFC power plants, and related O&M services. The Company believes that it can ultimately reduce the cost of its 400kW fuel cell modules to a level that is comparable to the installed cost of conventional power generation in the 2-30 megawatt (“MW”) size class, with a product that is considerably higher in electrical efficiency than incumbent technology. These costs also compare favorably to those of competitors in the stationary fuel cell arena.
 
Plan of Operation
 
The chart below illustrates the key elements of our plan of operation. The chart depicts our fuel cell production costs and future cost projections, anticipated ranges of sales prices for our fuel cell systems and modules, and projected sales volumes for the period 2008 through 2011.
 
As shown, our “first article” product costs for fuel cell stacks and modules are approximately $3,300/kW, and “first article” costs for a complete, installed PAFC power plant are approximately $6,000/kW (both exclusive of the cost of platinum, of which HydroGen retains ownership and recovers at the end of the fuel cell’s useful life). Management’s objective is to bring fuel cell stack and module costs to a level of approximately $1,500/kW or less by 2010-2011, which management believes is a cost level necessary to achieve positive cash flow. The Company believes that its complete PAFC systems can be sold to end users for price levels ranging from approximately $2,000-5,000/kW installed and that PAFC stacks and modules can be provided to system integrators for a price of approximately $1,250-3,000/kW. These sales price ranges are depicted in the two boxes titled “Sales price range – system” and “Sales price range – modules,” and are based on the Company’s analysis of pricing levels that can be borne in different market segments. Finally, the chart presents management’s forecast for fuel cell product sales, with initial sales of two turnkey PAFC systems totaling approximately 10 MW projected for 2008-early 2009, then approximately 20 MW projected for 2009, 50 MW for 2010, and 90 MW for 2011. Management believes that the majority of sales after the initial 10 MW will be for the Company’s stacks and modules, with more limited turnkey plant sales in the 2009-2010 timeframes in particular.
 
-15-
 
 
Chart: Plan of Operation Metrics
 
Management has developed the following plan of operation in order to achieve the necessary market penetration levels, cost reductions, and manufacturing capacities to support the Company’s transition to profitable operation, while minimizing overall financial needs. The key elements of HydroGen’s plan of operation include:
 
 
1.
Demonstration and validation of HydroGen’s PAFC technology at customer field sites;
 
 
2.
Early “turnkey” sales of complete PAFC power plants to support initial market penetration;
 
 
3.
Limited manufacturing of fuel cell modules in our Versailles, PA manufacturing facility to support initial sales;
 
 
4.
Next-generation PAFC product and high volume advanced manufacturing development to deliver necessary cost reductions; and
 
5.
Transition to role of supplier / servicer of PAFC stacks and modules through partnerships with system integrators and distributors. Execution of additional strategic agreements with system integrators and distributors.
 
During the three months ended March 31, 2008, the Company hired 13 new employees to support its plan of operation. In order to support the plan of operation, the Company intends to increase staffing levels by a total of up to 50 individuals during the remainder of 2008 and up to an additional 120 individuals in 2009. The majority of these new employees will be technical and production staff to support the Company’s manufacturing, system engineering, and cost reduction initiatives. The Company will have to raise additional funds in the next 12 months to meet the objectives of its plan of operation and will need to raise funds by May 30, 2008 to prevent a curtailment of operations. The Company did not raise additional funds during the first quarter of 2008.
 
-16-
Demonstration and Validation of HydroGen’s PAFC Technology at Customer Field Sites
 
In order to support initial market penetration, HydroGen is undertaking commercial scale technology demonstration and validation activities. The principal purpose of these activities is to obtain a successful validation and performance history for the core 400 kW module and, in certain markets, demonstrate the Company’s ability to process hydrogen-rich waste gas streams to specifications required for fuel cell operation. Once successful validation is obtained, we anticipate that the Company will be able to obtain commercial orders for full-scale PAFC power plants consistent with HydroGen’s sales objectives as described below. 
 
On October 17, 2006, HydroGen announced that it had signed an agreement with ASHTA Chemicals to install and operate a 400kW fuel cell demonstration power plant at ASHTA’s chlor-alkali manufacturing plant in Ashtabula, Ohio.  This effort is being partially funded by a $1,250,000 award that the Company received from the State of Ohio Department of Development. The Company completed construction and check-out of the demonstration power plant in 2007, in preparation for delivery of the Company’s first newly-produced 400kW PAFC module. The Company delivered the PAFC module on February 22, 2008 and on April 28, 2008 announced the successful start-up of its power plant. The Company further announced that the power plant will now be taken through a program of testing and optimization that will include tests of all start-up, operational, and shut-down modes at progressively higher power levels, followed by a reliability run to demonstrate system robustness under commercial operating conditions.
 
In Fall 2006, HydroGen also initiated a project to design and build a pilot scale system to clean coke oven gas to meet the input feed requirements of the HydroGen PAFC system. The overall goal of this project is to support market penetration efforts into the coke oven gas market for HydroGen’s PAFC systems. The principal project objective is to build and demonstrate a complete prototype coke oven gas cleanup system that will perform acceptably in a commercial scale plant The project is being undertaken at the United States Steel Clairton Works coke oven facility, the largest such facility in the United States, located near the Company’s manufacturing plant in Versailles, Pennsylvania. The Company has designed and, in concert with United States Steel, has completed construction of the pilot scale gas treatment facility. The plant has been started up and all pre-commissioning checkouts satisfactorily completed, and by April 18, 2008 the plant had been optimized to produce hydrogen of sufficient purity to meet the gas composition requirements for operation of a HydroGen fuel cell power plant. The next milestones in the test program are initial reliability tests of the system to obtain operational data to be used in final system optimization, followed by a longer reliability run to demonstrate system robustness under commercial operating conditions. The data generated by the test plant will directly support power plant design and sales efforts into the coke oven gas market segment.
 
Early “Turnkey” Sales of Complete PAFC Power Plants to Support Initial Market Penetration
 
The Company’s plan of operation calls for us to execute sales contracts for initial sales of approximately 10MW of turnkey projects in 2008 through early 2009. The Company anticipates orders for two turnkey PAFC systems, each of approximately 5MW in capacity from Samsung Corporation. These turnkey power plants may be either hydrogen-available plants or a combination of hydrogen-available and hydrocarbon fueled power plants. These anticipated orders are pursuant to a series of strategic agreements signed January 11, 2008 between HydroGen and Samsung Corporation. The Company expects to execute the first of these orders in the second quarter of 2008.
 
In addition to the two anticipated sales to Samsung pursuant to the agreements described above, HydroGen intends to sell additional turn-key power plants in North America and elsewhere in order to gain penetration into targeted markets. HydroGen has been developing a pipeline of projects with several large generators of by-product hydrogen and other potential customers who have expressed interest in acquiring fuel cell power plants. HydroGen’s decision to sell to these potential customers will be dependent on a number of factors, including the quality/attractiveness of the market opportunities, the sales prices that can be borne in those opportunities, and the product cost levels achieved during this period through the Company’s cost reduction programs.
 
-17-
 
To support these sales efforts, HydroGen will invest working capital to complete the design, component selection, and full costing of at least two full-scale PAFC plants: 1) a 5MW PAFC plant to be operated on available hydrogen gas, and 2) a multi-megawatt plant to be operated on gaseous hydrocarbon fuels such as natural gas.
 
Limited manufacturing of fuel cell modules in our Versailles, Pennsylvania manufacturing facility to support initial sales
 
HydroGen has principally completed the initial ramp up of its manufacturing facilities to achieve pilot production capacity of up to 2 MW (five 400 kW modules) per annum, and to recapture fuel cell module performance and operations generally consistent with the original Westinghouse design specifications. 
 
HydroGen intends to produce a sufficient number of new fuel cell modules at its Versailles facility in 2008 and 2009 in order to support new design test objectives and the delivery requirements associated with the Company’s first anticipated sale to Samsung. 
 
Next-generation PAFC product and high volume advanced manufacturing development to deliver necessary cost reductions
 
The present “first article” cost to produce the Company’s fuel cell modules is approximately $3,300/kW, exclusive of platinum. The Company will aggressively pursue opportunities for performance improvements and cost reductions that can be implemented immediately. These efforts will include:
 
 
v
design modifications to, and new sourcing options for, the fuel cell module pressure vessel;
 
 
v
new catalyst substrate materials;
 
 
v
manufacturing process improvements;
 
 
v
design modifications to certain non-repeating hardware components;
 
 
v
modifications in fuel cell stack acceptance test procedures; and
 
 
v
leveraging the procurement infrastructure of the Company’s strategic partners for cheaper materials and subcomponent sourcing.
 
To support the cost reductions and performance improvements that are required in the Company’s business plan and depicted in the chart above, management has planned and is initiating an integrated effort to develop the next generation of its PAFC product, and to manufacture that product at the high volumes required to support growth and profitability. This integrated project prioritizes efforts to drive down the highest sources of cost in the manufacture of the PAFC module and balance of plant, improve fuel cell stack and system performance, and significantly increase fuel cell manufacturing capacity through process improvement, automation and outsourcing. The highest priority areas for cost reduction include graphite plates, catalyst layers, non-repeating hardware, fuel cell module pressure vessel, specialty backing papers, and labor costs. The Company’s objective is to complete the key cost reduction initiatives and implement them in an advanced manufacturing facility that the Company intends to bring on line in late 2009. This facility is anticipated to have PAFC production capacity of approximately 25 MW/annum, and be capable of expansion to approximately 100 MW/annum. The Company estimates that the development, equipment procurement, and ramp up for the advanced manufacturing facility will require approximately $20   million   - $25 million   in capital spending , and intends to finance the facility principally through a package of loans, grants, and similar state incentives.
 
-18-
 
To support these initiatives, the Company has initiated collaborative relationships with certain industry and academic partners, and is pursuing additional collaboration opportunities and strategic partnerships with a variety of entities.  In addition, the Company has received grant funding to support these initiatives (including grants of $1,000,000 from the state of Ohio Third Frontier Fuel Cell Program to support the development of our planned advanced manufacturing facility, and approximately $230,000 from the Pennsylvania Nano Materials Commercialization Center to support our advanced electrode development work), and will continue to seek out and apply for additional developmental funding.
 
HydroGen has completed construction of an initial series of test facilities at its Versailles, Pennsylvania manufacturing facilities, and plans to expand its testing capabilities, to support the testing and validation requirements associated with these cost reduction and process development initiatives.
 
Transition to role of supplier / servicer of PAFC stacks and modules through partnerships with system integrators and distributors
 
The Company believes that the sale and servicing of fuel cell stacks and modules to system integrators / distributors, who have turn-key responsibility for fuel cell plant delivery and installation at the end customer site, offers a higher margin business opportunity than the delivery of turn-key fuel cell plants, and a faster path for the Company to achieve gross margin and cash flow positive operations. The Company’s overall strategy is to deploy and demonstrate multi-megawatt fuel cell plants on a turn-key basis for our earliest sales into key markets, and enter into strategic agreements with leading global system integrators / distributors with core capabilities in system engineering, plant construction, and marketing which can effectively penetrate those markets.
 
Agreements between HydroGen and Samsung Corporation represent the implementation of this strategy for the Asian / Middle Eastern markets. The Company anticipates selling on a turnkey basis in 2008 to early 2009 two multi-megawatt PAFC plants to Samsung. The turnkey power plants may be either hydrogen-available plants or a combination of hydrogen-available and hydrocarbon fueled power plants. The Company will also design a multi-megawatt power plant to be fueled by hydrocarbon gas, after which the Company and Samsung anticipate entering into an Exclusive Distribution and Marketing Agreement for that market segment in Asia and the Middle East. The Company anticipates that subsequent sales to Samsung will be of fuel cell stacks and modules, with Samsung having responsibility for turn-key plant delivery. To achieve this objective, HydroGen and Samsung plan to enter into a BOP Technology Transfer, Licensing, and Technical Support Agreement pursuant to which Samsung shall obtain (in exchange for a royalty fee) certain rights to deliver to Samsung’s customers, fuel cell power plants utilizing HydroGen’s plant designs and related proprietary rights and confidential information. Through this agreement, HydroGen will transition into the role of a supplier of fuel cell stacks and modules to Samsung, who will market, distribute, and deliver complete PAFC plants in their territory.
 
The Company will support both turn-key and fuel cell stack/module sales with fuel cell module Operations and Maintenance (“Module O&M”) agreements. Module O&M services will include dedicated monitoring and trending of fuel cell operating parameters, fuel cell plant operational support, and stack or module replacements as necessary. The Company believes that Module O&M services may generate high margins and significant cash flow to the business as the number of units in the field increases, particularly as fuel cell module lifetime, and fuel cell plant operating techniques, improve.
 
-19-
 
Although during 2009-2010 the Company will target higher-margin stack and module sales to Samsung Corporation for the majority of its product sales, it will also engage in limited additional sales of turn-key PAFC systems during this time frame. These turn-key sales will support market penetration into new markets (geographic and application), and in parallel, the consummation of agreements, similar to those in place with Samsung Corporation, with other system integrators/ distributors focused on those markets. HydroGen will focus on the following markets, among others: Domestic/North American market opportunities in chlor-alkali / sodium chlorate; coke-oven gas market applications; opportunities in states that offer significant incentives for adoption of stationary fuel cell systems. The total number of turn-key sales targeted for the period will be set annually by the Company, and will be a function of the quality/attractiveness of the market opportunities, the sales prices that can be borne in those opportunities, and the product cost levels achieved during this period through the Company’s cost reduction programs.
 
Critical Accounting Policies and Estimates
 
There have been no changes to critical accounting policies and estimates from those disclosed in our December 31, 2007 Form 10-KSB other than the implementation of SFAS 157 and SFAS 159 as described below. 
 
SFAS No. 157, “Fair Value Measurements” . In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a framework for reporting fair value and expands disclosures about fair value measurements. The FASB issued FASB Staff Position (FSP) No. FAS 157-a, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions , which eliminated lease accounting from the scope of this standard. SFAS 157, as issued, is effective for fiscal years beginning after November 15, 2007. The FASB issued FASB Staff Position (FSP) No. FAS 157-b, Effective Date of FASB Statement No. 157 , which delays the effective date by one year for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, at least annually. The Company adopted SFAS 157 on January 1, 2008. The impact of this new standard did not have a material impact on the financial statements.
 
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides the option to report certain financial assets and liabilities at fair value, with the intent to mitigate volatility in financial reporting that can occur when related assets and liabilities are recorded on different bases. SFAS 159 also amends SFAS No. 115, “ Accounting for Certain Investments in Debt and Equity Securities ,” by providing the option to record unrealized gains and losses on held-for-sale and held-to-maturity securities currently. The Company adopted SFAS 159 on January 1, 2008. The impact of this new standard did not have a material impact on the financial statements.
 
Financing Activities
 
State of Ohio and Commonwealth of Pennsylvania Financings
 
On August 26, 2005, the State of Ohio Department of Development provided to HydroGen Corporation $1,250,000 as a development grant for a three phase program to deploy, demonstrate, and commercialize the Company’s 400 kW phosphoric acid fuel cell system. The grant is under an Ohio Fuel Cell Initiative Demonstration Program, and is to be used towards the costs associated with the commercial demonstration and validation of the Company’s air-cooled phosphoric acid fuel cell module technology and for the procurement and preparation of the plant equipment, system engineering, plant construction, and initial operations. The grant was given on the understanding that the Company will establish its corporate headquarters in Ohio, locate manufacturing facilities to Ohio by the end of 2008, and create new full-time jobs at both the skilled and unskilled level in Ohio. The establishment of a corporate headquarters in Ohio was achieved in 2006. The development work which commenced in 2005 is expected to continue through the end of 2008. The grant was also contingent on the Company raising its own capital, which was achieved in July 2005.
 
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The grant of the funds is on a reimbursement basis, provided the Company meets the objectives of the grant and is carrying out the terms of the defined project as represented to the state. The grant reimbursement period ran from September 1, 2005 to July 31, 2007. The grant is a deployment of federal development funds and as such, the Company will be required to adhere to various federal regulations on their use and accountability for deployment.
 
The grant may be terminated if the State of Ohio determines that the Company is not in compliance with certain federal regulations governing the grant or federal employment laws, the requirements of any other applicable program statute or rule or with the terms of the grant agreement after suitable notice and the passage of cure periods. Performance under the agreement is subject to a force majeure limitation. If there is a termination, the Company may not continue to incur expenses under the grant. It may be directed by the State of Ohio to dispose of various property, data, studies, and reports, and the Company may be liable for damages to the State of Ohio. The Company may also request a termination of the grant if it is unable or unwilling to comply with the conditions of the grant.
 
As of December 31, 2007, the Company had submitted requests and had been reimbursed for the entire grant award totaling $1,250,000.
 
On March 7, 2006, the Company was notified that it would be awarded $1,000,000 (the “Grant”) by the State of Ohio Third Frontier Fuel Cell Program (TFFCP) to support the Company’s advanced manufacturing development program.  On June 8, 2006, the Company entered into a Grant Agreement with the State of Ohio pursuant to which the Grant funds are to be awarded. Under the terms of the Grant Agreement, the Company may recoup from the State the full $1,000,000 as Grant activities take place, and as the costs are incurred and reported. The Company has pledged a total of $555,000 in cost share for the program. The Company will use the funds to dedicate appropriate personnel, consultants, and infrastructure to optimize decisions and resource allocations for its planned advanced manufacturing facility to be located in Ohio. The proposed facility will be where the Company will mass produce its standard 400 kilowatt (kW) air-cooled PAFC modules, which will serve as the building block of its core product, a 2-2.5 megawatt (MW) power island.  Initial production capacity will be 25 MW per year of the Company’s 400 kW modules, and is expected to be subsequently expanded to 100 MW per year capacity. 
 
All disbursements from the Grant are on a reimbursement basis, after documentation has been provided evidencing that expenses were incurred in furtherance of the Grant.  The term of the Grant Agreement, including reimbursement period, concluded on April 10, 2008. The Company has requested an extension of the Grant term and is awaiting notification of acceptance from the State of Ohio. At the close of the Grant term, the Company will own all equipment valued over $5,000 purchased with Grant money.
 
The Grant may be terminated if the State of Ohio determines that the Company is not in compliance with the applicable program rules, State of Ohio law, or with the terms of the Grant Agreement, after suitable notice and the passage of cure periods. Performance by the State is also subject to the availability of funds. If there is a termination, the Company may not continue to incur expenses under the Grant, and it may be directed by the State of Ohio to dispose of various property, data, studies and reports. The Company may further be liable for damages to the State of Ohio in the event of default.  The Company may also request a termination of the Grant if it is unable or unwilling to comply with the conditions of the Grant.
 
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Work under the Grant commenced in June of 2006. The Company submitted requests for payment under this grant totaling approximately $800,302 through March 31, 2008, $550,000 of which has been collected as of that date.
 
On March 27, 2008, the Company was notified that it was awarded a grant in the amount of $525,140 by the State of Ohio Third Frontier Fuel Cell Program (TFFCP) to support Improved Fuel Cell Power Plant Efficiency Using Cogeneration. The Company is in the process of establishing the terms and conditions of the Grant Agreement with TFFCP.
 
On May 16, 2007, the Company was notified that it was awarded a grant in the amount of $250,000 by the Pennsylvania Energy Development Authority (PEDA) to support the construction of a small scale, air-cooled phosphoric acid fuel cell test facility. The project period, as outlined within the grant agreement, is from October 5, 2006 through October 4, 2008. All reimbursements for the project must be submitted during the project period. The Company has submitted requests for payment under this grant totaling approximately $250,000, $225,000 of which has been collected through March 31, 2008.
 
On October 17, 2007, the Company was notified that it was awarded a grant in the amount of $500,000 by the Pennsylvania Energy Development Authority (PEDA) to support clean-up of coke oven gas for fuel cell operations. The Company is in the process of establishing the terms and conditions of the Grant Agreement with PEDA.
 
On October 12, 2007, the Company entered into a grant agreement (the “Grant Agreement”) with the Pennsylvania NanoMaterials Commercialization Center (PNCC) pursuant to which the PNCC will grant the Company approximately $230,000 to support the development of advanced fuel cell catalyst systems. The Company has pledged a total of $131,545 in cost share for this program. The Company will be working in cooperation with the University of Pittsburgh’s Peterson Institute of Nano Science and Engineering on this project. The Company has submitted requests for payment under this grant totaling approximately $115,000, $46,000 of which has been collected through March 31, 2008.
 
Results of Operations
 
Comparison of the Three Months Ended March 31, 2008 and March 31, 2007
 
Grant revenue decreased by approximately $117,000 during the three months ended March 31, 2008 compared to the three months ended March 31, 2007 due to decreased grant activity and related reimbursable expenses.
 
Interest and other income decreased by approximately $217,000 during the three months ended March 31, 2008 compared to the three months ended March 31, 2007 due to a significantly decreasing cash balance.
 
The following table sets forth certain of HydroGen’s operating data for the three months ended March 31, 2008 and March 31, 2007:
 
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March 31, 2008
 
March 31, 2007
 
Increase
(Decrease)
 
Research & development
 
$
3,552,000
 
$
2,290,000
 
$
1,262,000
 
Payroll and related costs
   
689,000
   
609,000
   
80,000
 
Stock based compensation
   
360,000
   
120,000
   
240,000
 
Professional fees
   
156,000
   
148,000
   
8,000
 
Travel and entertainment
   
64,000
   
96,000
   
(32,000
)
Other
   
759,000
   
584,000
   
175,000
 
Totals
 
$
5,580,000
 
$
3,847,000
 
$
1,733,000
 

The increase in research and development costs was due to the continuing acceleration and expansion of ramp-up activities, power plant design, and other development activities during the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The number of employees hired by the Company to contribute to the research and development effort increased by approximately 50, and resulted in increased labor and fringe benefit costs of approximately $300,000. The purchase of consulting services, primarily related to the Company’s fuel cell demonstration plant, increased by approximately $600,000. Further, the purchases of non-capitalized equipment and materials consumed within the Company’s manufacturing process increased by approximately $300,000.
 
The increase in payroll and related costs reflect an expansion of HydroGen’s administrative staff to support the acceleration and expansion of activities. The number of employees hired by the Company to support increased activity since March 31, 2007 has been approximately 5, and has resulted in increased labor and fringe benefit costs of approximately $80,000.
 
The increase in stock based compensation expense during the three months ended March 31, 2008 compared to the three months ended March 31, 2007 relates primarily to an increased level of stock options provided to employees that vest and are expensed from March 31, 2007 to March 31, 2008.
 
The decrease in travel and entertainment during the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 is primarily due to decreased international travel. This is primarily a result of the Company’s change from a CEO based in the Netherlands to a CEO who is based within the United States.
 
The increase in other expenses related to several factors. Depreciation expense increased by approximately $60,000 due to new manufacturing assets placed in service. Insurance expense increased by $45,000 due to increased general liability coverage. Freight expense increased by $25,000 as the Company transported equipment from its Versailles plant to its ASHTA demonstration site in order to support the demonstration activities.
 
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Item 3.   Controls and Procedures
 
As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 1934 Act. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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PART II. OTHER INFORMATION
 
Item 1.   Legal Proceedings
 
None.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3.   Defaults Upon Senior Securities
 
None.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
None.
 
Item 5.   Other Information
 
None.
 
Item 6.   Exhibits
 
31.1
 
Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended of John J. Freeh.
     
31.2
 
Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended of Joshua Tosteson.
     
31.3
 
Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended of Scott Schecter.
     
32
 
Certification of the Chief Executive Officer, President and Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
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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.

 
HYDROGEN CORPORATION
     
 
By:
/s/ John J. Freeh
   
Chief Executive Officer
   
Date: May 15, 2008
     
 
By:
/s/ Joshua Tosteson
   
President
   
Date: May 15, 2008
     
 
By:
/s/ Scott Schecter
   
Principal Financial Officer
   
Date: May 15, 2008
 
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